NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YRC Worldwide Inc. and Subsidiaries
1. Description of Business
YRC Worldwide, one of the largest transportation service providers in the world, offers its customers a wide range of transportation services. YRC Worldwide has one of the largest, most comprehensive LTL networks in North America with local, regional, national and international capabilities. Through our team of experienced service professionals, we offer expertise in LTL shipments and flexible supply chain solutions, ensuring customers can ship industrial, commercial and retail goods with confidence. Our reporting segments include the following:
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|
•
|
YRC Freight is the reporting segment that focuses on longer haul business opportunities with national, regional and international services. YRC Freight provides for the movement of industrial, commercial and retail goods, primarily through centralized management. This reporting segment includes our LTL subsidiary YRC Freight and 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 and Puerto Rico.
|
|
|
•
|
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 Holland, New Penn and 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, and Puerto Rico.
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2. Accounting Policies
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.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of YRC Worldwide and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. 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. Until its sale in March 2016, our investment in the non-majority owned affiliate was accounted for on the equity method.
Use of Estimates
Management makes estimates and assumptions when preparing the financial statements in conformity with U.S. generally accepted accounting principles which affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Items subject to such estimates and assumptions include the useful lives of fixed assets and revenue-related reserves; the valuation of deferred tax assets/liabilities, non-union pension plan liability and pension plan assets; and workers’ compensation and property damage and liability claims, and income tax uncertainties.
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, 2016
, 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 “Debt and Financing” footnote to our consolidated financial statements), our primary labor agreement was modified to, among other things, extend the expiration date of the 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 amortized these lump sum payments over the period in which the wages were not 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 and Revenue-related Reserves
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 primarily on historical trends.
At December 31, 2016 and 2015
, our financial statements included a rerate reserve as a reduction to “Accounts Receivable” of
$10.4
million and
$8.1
million, respectively.
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 customer specific factors and make adjustments to the allowance for doubtful accounts as appropriate. Our allowance for doubtful accounts totaled
$9.5 million
and
$7.4 million
as of
December 31, 2016
and
2015
, 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 net gains of
$0.9
million,
$9.3
million and
$5.7
million during
2016
,
2015
and
2014
, respectively, and are included in “Nonoperating expenses - Other, net” in the accompanying statements of consolidated operations.
Self-Insurance Accruals for Claims
Claims and insurance accruals, both current and long-term, reflect the estimated settlement cost of claims for workers’ compensation, property damage and liability claims, and cargo loss and damage 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
1.0%
,
1.0%
and
0.9%
for workers’ compensation claims incurred as of
December 31, 2016
,
2015
and
2014
, respectively. The rate was
0.8%
,
0.7%
and
0.4%
for property damage and liability claims incurred as of
December 31, 2016
,
2015
and
2014
, 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, 2016 and 2015
, we had
$364.4
million and
$392.7
million, respectively, accrued for outstanding claims.
Expected aggregate undiscounted amounts and material changes to these amounts as of
December 31
are presented below:
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|
|
|
|
|
|
|
|
|
|
(in millions)
|
Workers’
Compensation
|
Property Damage and Liability Claims
|
Total
|
Undiscounted amount at December 31, 2014
|
$
|
339.1
|
|
$
|
75.0
|
|
$
|
414.1
|
|
Estimated settlement cost for 2015 claims
|
92.8
|
|
37.0
|
|
129.8
|
|
Claim payments, net of recoveries
|
(115.0
|
)
|
(41.0
|
)
|
(156.0
|
)
|
Change in estimated settlement cost for older claim years
|
(1.4
|
)
|
13.9
|
|
12.5
|
|
Undiscounted amount at December 31, 2015
|
$
|
315.5
|
|
$
|
84.9
|
|
$
|
400.4
|
|
Estimated settlement cost for 2016 claims
|
89.4
|
|
30.0
|
|
119.4
|
|
Claim payments, net of recoveries
|
(103.6
|
)
|
(51.5
|
)
|
(155.1
|
)
|
Change in estimated settlement cost for older claim years
|
(1.9
|
)
|
9.5
|
|
7.6
|
|
Undiscounted settlement cost estimate at December 31, 2016
|
$
|
299.4
|
|
$
|
72.9
|
|
$
|
372.3
|
|
Discounted settlement cost estimate at December 31, 2016
|
$
|
277.0
|
|
$
|
72.1
|
|
$
|
349.1
|
|
In addition to the amounts above, settlement cost amounts for cargo claims and other insurance related amounts, none of which are discounted, totaled
$15.3
million and
$17.0
million
at December 31, 2016 and 2015
, respectively.
Estimated cash payments to settle claims which were incurred on or before
December 31, 2016
, for the next five years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Workers’
Compensation
|
Property Damage and Liability Claims
|
Total
|
2017
|
$
|
76.2
|
|
$
|
29.3
|
|
$
|
105.5
|
|
2018
|
50.5
|
|
19.3
|
|
69.8
|
|
2019
|
34.9
|
|
12.4
|
|
47.3
|
|
2020
|
23.9
|
|
6.7
|
|
30.6
|
|
2021
|
18.3
|
|
3.1
|
|
21.4
|
|
Thereafter
|
95.6
|
|
2.1
|
|
97.7
|
|
Total
|
$
|
299.4
|
|
$
|
72.9
|
|
$
|
372.3
|
|
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 based on the grant date fair value. For our share-based payments granted, with no performance requirement, we recognize compensation cost on a straight-line basis over the requisite service period (generally three to four years) based on the grant-date fair value. For our performance-based awards, the Company expenses the grant date fair value of the awards which are probable of being earned in the performance period over the respective service period.
Property and Equipment
The following is a summary of the components of our property and equipment at cost as of
December 31
:
|
|
|
|
|
|
|
|
|
(in millions)
|
2016
|
|
2015
|
Land
|
$
|
248.9
|
|
|
$
|
254.4
|
|
Structures
|
769.5
|
|
|
789.3
|
|
Revenue equipment
|
1,375.2
|
|
|
1,430.1
|
|
Technology equipment and software
|
186.8
|
|
|
146.4
|
|
Other
|
206.6
|
|
|
202.6
|
|
Total cost
|
$
|
2,787.0
|
|
|
$
|
2,822.8
|
|
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. 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. Leasehold improvements are capitalized and amortized over the shorter of their useful lives or the remaining lease term.
In addition to purchasing new revenue equipment, we will also rebuild the engines of our tractors (at certain time or mile intervals). Because rebuilding an engine increases its useful life, we capitalize these costs and depreciate over the remaining useful life of the unit. The cost of engines on newly acquired revenue equipment is capitalized and depreciated over the estimated useful life of the related equipment.
Our investment in technology equipment and software consists primarily of freight movement, automation, administrative, and related software.
For the
years ended December 31, 2016, 2015 and 2014
, depreciation expense was
$146.3
million,
$145.5
million and
$145.1
million, respectively.
Equity Method Investments
On October 23, 2015, the Company entered into an equity interest sale and purchase agreement to sell its fifty percent interest in its Chinese joint venture, JHJ International Transportation Co. (“JHJ”), for a purchase price of
$16.3 million
, which subsequently closed on March 30, 2016. At closing we received proceeds of
$16.3 million
and paid transaction fees of
$1.7 million
. At March 30, 2016, the carrying value of the investment was
$22.7 million
with an offsetting cumulative foreign translation adjustment of
$10.4 million
, resulting in a net gain on the transaction of
$2.3 million
. The gain on the transaction is included in “Nonoperating expenses - Other, net” in the accompanying statement of consolidated comprehensive income for the twelve months ended December 31, 2016.
We accounted for the ownership of our joint venture under the equity method and accordingly, recognized our share of the respective joint ventures earnings in “Nonoperating expenses - Other, net” in the accompanying statements of operations.
The following reflects the components of these results for the years ended
December 31
:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2016
|
2015
|
2014
|
Net equity method earnings
|
$
|
0.4
|
|
$
|
2.3
|
|
$
|
2.1
|
|
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, 2016 and 2015
.
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, 2016
|
(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
|
$
|
126.7
|
|
|
$
|
126.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted amounts held in escrow-long term
|
12.3
|
|
|
12.3
|
|
|
—
|
|
|
—
|
|
Total assets at fair value
|
$
|
139.0
|
|
|
$
|
139.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2015
|
(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
|
$
|
58.8
|
|
|
$
|
58.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted amounts held in escrow-long term
|
63.4
|
|
|
63.4
|
|
|
—
|
|
|
—
|
|
Total assets at fair value
|
$
|
122.2
|
|
|
$
|
122.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted amounts held in escrow are invested in money market accounts and are recorded at fair value based on quoted market prices. The carrying value of cash and cash equivalents, accounts receivable and accounts payable 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, 2016 and 2015
, we reclassified the amortization of our net pension gain (loss), net of tax, totaling
$13.7 million
and
$14.1 million
, respectively, from accumulated other comprehensive loss to net income (loss). This reclassification is a component of net periodic pension cost and is discussed in the “Employee Benefits” footnote. In addition, we also reclassified foreign currency translation adjustments of
$10.4 million
related to the sale of our investment in JHJ from accumulated other comprehensive loss to net income (loss), as discussed in the “Equity Method Investments” section of this footnote.
Recently Issued Accounting Standards
In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-07,
Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)
, which eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net asset value (“NAV”) per share (or its equivalent) using the practical expedient in accordance with the standard for fair value measurement. The standard, which requires retrospective application, was effective for the Company beginning January 1, 2016. The fair value disclosures for our defined benefit pension plan investments as of December 31, 2016 and 2015, respectively, have been updated to reflect the adoption of this standard, as presented in the “Employee Benefits” footnote of our consolidated financial statements. There was no other impact to the consolidated financial statements from the adoption of this standard.
In August 2015, the FASB issued ASU 2015-03,
Interest - Imputation of Interest,
which requires debt issue costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the accounting treatment for debt discounts. The recognition and measurement guidance of debt issuance costs are not affected by this update. The standard was effective for the Company beginning January 1, 2016. The Company adopted the standard in the first quarter of 2016, which required retrospective application. The December 31, 2015 consolidated balance sheet and related disclosures were updated to reflect the reclassification of
$15.2 million
of unamortized debt issuance costs, from “Other assets” to “Long-term debt, less current portion” which related to its Term Loan, Second A&R CDA, and lease financing obligations. There was no other impact to the consolidated financial statements from the adoption of this standard.
In April 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers, Deferral of the Effective Date,
which defers the effective date of ASU 2014-9,
Revenue from Contracts with Customers
. The new standard introduces a five-step model to determine when and how revenue is recognized. The premise of the new model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard will be effective for the Company for its annual reporting period beginning January 1, 2018, including interim periods within that reporting period. Early application is permitted for annual periods beginning January 1, 2017. Entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect. The Company is in the process of reviewing customer contracts, but we believe our transportation revenue recognized under the new standard will generally approximate revenue under current standards, in that we recognize transportation revenue proportionately as we perform the transportation service for our customer. The Company plans to complete its evaluation in 2017, including an assessment of the new expanded disclosure requirements and a final determination of the transition method we will use to adopt the new standard.
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
, which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The new standard will be effective for the Company for its annual reporting period beginning January 1, 2017, including interim periods within that reporting period. The
ASU allows entities to choose either prospective or retrospective transition. The Company will adopt the standard in the first quarter of 2017 and plans to elect prospective application. The Company does not believe the adoption of this standard will have a material impact on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which requires lessees to recognize a right-to-use asset and a lease obligation for all leases. Lessees are permitted to make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less. Lessor accounting under the new standard is substantially unchanged. Additional qualitative and quantitative disclosures, including significant judgments made by management, will be required. The new standard will become effective for the Company for its annual reporting period beginning January 1, 2019, including interim periods within that reporting period and requires a modified retrospective transition approach. The Company is currently evaluating the impacts the adoption of this standard will have on the consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows
, which reduces diversity in the practice of classifying certain transactions in the statement of cash flows. The new standard will become effective for the Company for its annual reporting period beginning January 1, 2018, including interim periods within that reporting period and requires a retrospective transition approach. The Company will adopt the standard beginning with the first quarter of 2018. The Company does not believe the adoption of this standard will have a material impact on the consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16,
Intra-Entity Transfers of Assets Other Than Inventory
, that requires entities to recognize at the transaction date the income tax consequences of many intercompany asset transfers. The new standard will be effective for the Company for its annual reporting period beginning January 1, 2018, including interim periods within that reporting period. Early application is permitted at the beginning of an interim or annual period. Entities should apply the new standard on a modified retrospective basis with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The Company will adopt the standard in the first quarter of 2018. The Company is still evaluating the effect but does not believe the change will have a material impact on the consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows,
to clarify the guidance on how companies present restricted cash and restricted cash equivalents in the statement of cash flows. As a result, the Company will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. The new standard will become effective for the Company for its annual reporting period beginning January 1, 2018, including interim periods within that reporting period and requires a retrospective transition approach. The Company will adopt the standard beginning with the first quarter of 2018. The Company does not believe the adoption of this standard will have a material impact on the consolidated financial statements.
3. Intangibles
Definite Life Intangibles
The components of amortizable intangible assets are as follows at
December 31
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Weighted
|
Gross
|
|
|
Gross
|
|
|
Average
|
Carrying
|
Accumulated
|
|
Carrying
|
Accumulated
|
(in millions)
|
Life (years)
|
Amount
|
Amortization
|
|
Amount
|
Amortization
|
Customer related
|
12
|
$
|
197.1
|
|
$
|
(197.1
|
)
|
|
$
|
197.0
|
|
$
|
(183.5
|
)
|
Amortization expense for intangible assets recognized on a straight line basis was
$13.5 million
,
$18.2 million
and
$18.3 million
for the
years ended December 31, 2016, 2015 and 2014
, respectively. The definite-lived intangible assets are fully amortized in 2016.
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, 2013
|
$
|
10.6
|
|
$
|
18.7
|
|
$
|
29.3
|
|
Change in foreign currency exchange rates
|
(0.8
|
)
|
—
|
|
(0.8
|
)
|
Balances at December 31, 2014
|
9.8
|
|
18.7
|
|
28.5
|
|
Change in foreign currency exchange rates
|
(1.6
|
)
|
—
|
|
(1.6
|
)
|
Balances at December 31, 2015
|
8.2
|
|
18.7
|
|
26.9
|
|
Change in foreign currency exchange rates
|
0.3
|
|
—
|
|
0.3
|
|
Balances at December 31, 2016
|
$
|
8.5
|
|
$
|
18.7
|
|
$
|
27.2
|
|
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 or more frequently if a triggering event occurs. 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.
4. Other Assets
The primary components of other assets at
December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2016
|
|
2015
|
Equity method investment for JHJ
|
|
$
|
—
|
|
|
$
|
22.3
|
|
Deferred debt costs
(a)
|
|
4.5
|
|
|
5.0
|
|
Prepayments
(b)
|
|
31.6
|
|
|
35.5
|
|
Other
|
|
18.1
|
|
|
18.1
|
|
Total
|
|
$
|
54.2
|
|
|
$
|
80.9
|
|
(a)
Deferred debt costs relate to our ABL Facility.
(b)
Prepayments primarily includes prepaid costs for revenue equipment leases.
During the year ended
December 31, 2016
,
no
dividends were received due to the sale of JHJ on March 30, 2016. During the year ended
December 31, 2015
, we received dividends in the amount of
$1.7 million
from JHJ. As of
December 31, 2015
, the excess of our investment over our interest in JHJ’s equity was
$4.5 million
.
5. Employee Benefits
Qualified and Nonqualified Defined Benefit Pension Plans
YRC Worldwide and certain of our operating subsidiaries sponsor qualified and nonqualified defined benefit pension plans for certain employees not covered by collective bargaining agreements (approximately
9,000
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 domestic 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, 2016 and 2015
, and the funded status
at December 31, 2016 and 2015
, is as follows:
|
|
|
|
|
|
|
|
(in millions)
|
2016
|
2015
|
Change in benefit obligation:
|
|
|
Benefit obligation at beginning of year
|
$
|
1,202.7
|
|
$
|
1,355.2
|
|
Service cost
|
6.5
|
|
4.6
|
|
Interest cost
|
55.9
|
|
57.2
|
|
Benefits paid
|
(79.1
|
)
|
(151.9
|
)
|
Actuarial (gain) loss
|
53.4
|
|
(60.2
|
)
|
Expenses paid from assets
|
(5.9
|
)
|
(5.8
|
)
|
Other
|
0.1
|
|
3.6
|
|
Benefit obligation at year end
|
$
|
1,233.6
|
|
$
|
1,202.7
|
|
Change in plan assets:
|
|
|
Fair value of plan assets at prior year end
|
$
|
867.1
|
|
$
|
899.3
|
|
Actual return on plan assets
|
39.9
|
|
56.6
|
|
Employer contributions
|
56.5
|
|
70.9
|
|
Benefits paid
|
(79.1
|
)
|
(151.9
|
)
|
Expenses paid from assets
|
(5.9
|
)
|
(5.8
|
)
|
Other
|
0.2
|
|
(2.0
|
)
|
Fair value of plan assets at year end
|
$
|
878.7
|
|
$
|
867.1
|
|
Funded status at year end
|
$
|
(354.9
|
)
|
$
|
(335.6
|
)
|
The underfunded status of the plans of
$354.9 million
and
$335.6 million
at December 31, 2016 and 2015
, 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,
2017
.
Our long-term strategy is to reduce the risk of our underfunded plans. In 2015, the Company amended its domestic pension plans and offered a one-time voluntary lump sum payment option in an effort to reduce its long-term pension obligations and ongoing annual pension expense. The lump sum pension settlement payments of
$85.2 million
, which are reflected in “Benefits paid” in the above table, were funded from existing pension plan assets. In connection with this transaction, the Company incurred a settlement charge of
$28.7 million
to salaries, wages and employee benefits expense as a result of the requirement to expense the unrecognized actuarial losses associated with the lump sum settlements. The charge had no effect on equity because the actuarial losses were already recognized in accumulated other comprehensive loss. Accordingly, the effect on retained earnings was offset by a corresponding reduction in accumulated other comprehensive loss.
Benefit Plan Obligations
Amounts recognized in the consolidated balance sheets for pension benefits at
December 31
are as follows:
|
|
|
|
|
|
|
|
(in millions)
|
2016
|
2015
|
Noncurrent assets
|
$
|
1.2
|
|
$
|
1.3
|
|
Current liabilities
|
0.7
|
|
0.7
|
|
Noncurrent liabilities
|
355.4
|
|
336.2
|
|
Amounts recognized in accumulated other comprehensive loss at December 31 consist of:
|
|
|
|
|
|
|
|
(in millions)
|
2016
|
2015
|
Net actuarial loss
|
$
|
462.1
|
|
$
|
406.0
|
|
As shown above, included in accumulated other comprehensive loss at
December 31, 2016
, are unrecognized actuarial losses of
$462.1 million
(
$424.1 million
, net of tax). The actuarial loss included in accumulated other comprehensive income and expected to be recognized in net periodic cost in
2017
is
$15.7 million
.
The total accumulated benefit obligation for all plans was $
1,233.2 million
and $
1,202.2 million
at December 31, 2016 and 2015
, respectively.
Information for pension plans with an accumulated benefit obligation (“ABO”) in excess of plan assets and plan assets that exceed ABO
at December 31, 2016 and 2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
(in millions)
|
|
ABO Exceeds Assets
|
Assets Exceed ABO
|
Total
|
Projected benefit obligation
|
|
$
|
1,229.4
|
|
$
|
4.2
|
|
$
|
1,233.6
|
|
Accumulated benefit obligation
|
|
1,229.4
|
|
3.8
|
|
1,233.2
|
|
Fair value of plan assets
|
|
873.3
|
|
5.4
|
|
878.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
(in millions)
|
|
ABO Exceeds Assets
|
Assets Exceed ABO
|
Total
|
Projected benefit obligation
|
|
$
|
1,198.3
|
|
$
|
4.4
|
|
$
|
1,202.7
|
|
Accumulated benefit obligation
|
|
1,198.3
|
|
3.9
|
|
1,202.2
|
|
Fair value of plan assets
|
|
861.4
|
|
5.7
|
|
867.1
|
|
Assumptions
Weighted average actuarial assumptions used to determine benefit obligations at December 31:
|
|
|
|
|
|
|
2016
|
2015
|
Discount rate
|
4.27
|
%
|
4.81
|
%
|
Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31:
|
|
|
|
|
|
|
|
|
2016
|
2015
|
2014
|
Discount rate
|
4.81
|
%
|
4.33
|
%
|
5.23
|
%
|
Expected rate of return on assets
|
7.0
|
%
|
7.0
|
%
|
7.0
|
%
|
Mortality table
(a)
|
RP-2014
(MP-2016 Scale, Custom)
|
|
RP-2014
(MP-2014 Scale, Custom)
|
|
RP-2000
Projected to 2014
|
|
(a)
The 2016 and 2015 mortality tables were based on a custom mortality improvement scale to reflect expectations of underlying plan participants.
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, 2016 and 2015
, and targeted long-term asset allocation for the plans are as follows:
|
|
|
|
|
|
|
|
|
2016
|
2015
|
Target
|
Equities
|
38.0
|
%
|
37.0
|
%
|
37.0
|
%
|
Debt Securities
|
30.0
|
%
|
30.0
|
%
|
33.0
|
%
|
Absolute Return
|
32.0
|
%
|
33.0
|
%
|
30.0
|
%
|
Based on various market factors, we selected an expected rate of return on assets of
7.0%
effective for the
2016
and
2015
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
$53.9 million
to our single-employer pension plans in
2017
.
Expected benefit payments from our qualified and non-qualified defined benefit pension plans for each of the next five years and the total benefit payments for the following five years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022-2026
|
|
Expected benefit payments
|
$
|
78.2
|
|
$
|
78.6
|
|
$
|
79.1
|
|
$
|
79.5
|
|
$
|
80.5
|
|
$
|
400.4
|
|
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 (income) for the years ended December 31,
2016
,
2015
and
2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2016
|
2015
|
2014
|
Net periodic benefit cost:
|
|
|
|
Service cost
|
$
|
6.5
|
|
$
|
4.6
|
|
$
|
4.3
|
|
Interest cost
|
55.9
|
|
57.2
|
|
60.7
|
|
Expected return on plan assets
|
(56.2
|
)
|
(59.9
|
)
|
(53.7
|
)
|
Amortization of prior net loss
|
13.7
|
|
16.0
|
|
12.8
|
|
Settlement loss
|
—
|
|
28.7
|
|
—
|
|
Net periodic pension cost
|
$
|
19.9
|
|
$
|
46.6
|
|
$
|
24.1
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive loss (income):
|
|
|
|
Net actuarial loss (gain) and other adjustments
|
$
|
69.5
|
|
$
|
(52.0
|
)
|
$
|
126.3
|
|
Less amortization of prior losses
|
(13.7
|
)
|
(16.0
|
)
|
(12.8
|
)
|
Settlement adjustment
|
—
|
|
(28.7
|
)
|
—
|
|
Total recognized in other comprehensive loss (income)
|
55.8
|
|
(96.7
|
)
|
113.5
|
|
Total recognized in net periodic benefit cost and other comprehensive loss (income)
|
$
|
75.7
|
|
$
|
(50.1
|
)
|
$
|
137.6
|
|
During the years ended December 31,
2015
and
2014
, the income tax provision related to amounts in other comprehensive (income) loss was
$12.2 million
and
$0.2 million
, respectively. For the year ended December 31,
2016
, the income tax provision was inconsequential.
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 fair value of Level 1 assets are based on quoted market prices. The majority of the Level 1 assets presented in the table below include common stock of both U.S. and, to a lesser extent, international companies, and mutual funds, of which are actively traded and priced in the market. The fair value of Level
2 assets are based on other significant observable inputs, including quoted prices for similar securities. The Level 2 assets presented in the below table consist primarily of fixed income and absolute return funds where values are based on the NAV of the underlying investments held, as determined by the fund managers, or equity securities where values are based on the quoted prices of similar securities and observable market data. Level 3 assets are those where the fair value is determined based on unobservable inputs. The Level 3 assets presented in the table below consist of alternative investments where active market pricing is not readily available and, as such, we use NAV as an estimate of fair value. For the remaining Level 3 assets that do not use NAV to estimate fair value, which consists primarily of private equities, the assets are either priced at cost less cash distributions for recent asset purchases, third-party valuations or discounted cash flow methods. The methods and assumptions used by third-party pricing sources may include a variety of factors, such as recently executed transactions, existing contracts, economic conditions, industry or market developments, and overall credit ratings. These estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed and as such, differences could be material.
The availability of observable data is monitored by plan management to assess appropriate classification of financial instruments within the fair value hierarchy. Depending upon the availability of such inputs, specific securities may transfer between levels. In such instances, the transfer is reported at the end of the reporting period. In 2016, the Company transferred certain short-term interest bearing investments from level 1 to level 2 due to variability in how the underlying investments are priced, whether by an active market or a model. There were no other transfers among the fair value hierarchy levels for the years ended
December 31, 2016
and
2015
, respectively.
The Company adopted ASU 2015-07 beginning January 1, 2016, which eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net asset value per share (or its equivalent) using the practical expedient. The fair value tables below reflect the adoption of this standard.
The tables below detail by level, within the fair value hierarchy, the pension assets at fair value as of
December 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Assets at Fair Value as of December 31, 2016
|
(in millions)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Equities
|
$
|
87.9
|
|
$
|
87.9
|
|
$
|
—
|
|
$
|
—
|
|
Private equities
|
38.3
|
|
—
|
|
—
|
|
38.3
|
|
Fixed income:
|
|
|
|
|
Corporate and other
|
24.8
|
|
5.4
|
|
15.9
|
|
3.5
|
|
Government
|
184.1
|
|
72.9
|
|
111.2
|
|
—
|
|
Absolute return
|
—
|
|
—
|
|
—
|
|
—
|
|
Interest bearing
|
47.3
|
|
18.6
|
|
28.7
|
|
—
|
|
Investments measured at net asset value
(a)
|
$
|
496.3
|
|
|
|
|
Total plan assets
|
$
|
878.7
|
|
$
|
184.8
|
|
$
|
155.8
|
|
$
|
41.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Assets at Fair Value as of December 31, 2015
|
(in millions)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Equities
|
$
|
83.2
|
|
$
|
83.2
|
|
$
|
—
|
|
—
|
|
Private equities
|
40.0
|
|
—
|
|
—
|
|
40.0
|
|
Fixed income:
|
|
|
|
|
Corporate and other
|
35.9
|
|
16.0
|
|
15.7
|
|
4.2
|
|
Government
|
194.5
|
|
73.0
|
|
121.5
|
|
—
|
|
Absolute return
|
0.7
|
|
—
|
|
0.7
|
|
—
|
|
Interest bearing
|
15.4
|
|
15.4
|
|
—
|
|
—
|
|
Investments measured at net asset value
(a)
|
497.4
|
|
|
|
|
Total plan assets
|
$
|
867.1
|
|
$
|
187.6
|
|
$
|
137.9
|
|
$
|
44.2
|
|
(a)
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.
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, 2014
|
$
|
37.0
|
|
$
|
4.4
|
|
$
|
41.4
|
|
Purchases
|
4.5
|
|
—
|
|
4.5
|
|
Sales
|
(0.7
|
)
|
—
|
|
(0.7
|
)
|
Unrealized gain
|
(0.8
|
)
|
(0.2
|
)
|
(1.0
|
)
|
Balance at December 31, 2015
|
$
|
40.0
|
|
$
|
4.2
|
|
$
|
44.2
|
|
Purchases
|
4.0
|
|
2.7
|
|
6.7
|
|
Sales
|
(0.6
|
)
|
—
|
|
(0.6
|
)
|
Unrealized gain
|
(5.1
|
)
|
(3.4
|
)
|
(8.5
|
)
|
Balance at December 31, 2016
|
$
|
38.3
|
|
$
|
3.5
|
|
$
|
41.8
|
|
The following table sets forth a summary of the assets for which a reported NAV is used to estimate the fair value as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
Fair value estimated using Net Asset Value per Share
|
(in millions)
|
Fair Value
|
Unfunded Commitments
|
Redemption Frequency
|
Redemption Notice Period
|
Private equities
(a)
|
$
|
94.6
|
|
$
|
11.0
|
|
Redemptions not permitted
|
Fixed income
(b)
|
186.2
|
|
6.2
|
|
Redemptions not permitted
|
Equities
(c)
|
91.7
|
|
—
|
|
Monthly
|
3-30 days
|
Absolute return
(d)
|
123.8
|
|
—
|
|
Monthly, Quarterly
|
2-45 days
|
Total
|
$
|
496.3
|
|
|
|
|
|
|
(a)
|
Consists of private equity investments in pharmaceuticals and companies primarily in the technology and healthcare sectors.
|
|
|
(b)
|
Primarily consists of investments in royalty payments from marketers of pharmaceuticals and related debt securities.
|
|
|
(c)
|
Consists of public equity investments in U.S. and non-U.S. markets.
|
|
|
(d)
|
Consists of investments in global markets, including derivative securities of equity and fixed income indexes, commodities and interest rates.
|
The following table sets forth a summary of the assets for which a reported NAV is used to estimate the fair value as of
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
Fair value estimated using Net Asset Value per Share
|
(in millions)
|
Fair Value
|
Unfunded Commitments
|
Redemption Frequency
|
Redemption Notice Period
|
Private equities
(a)
|
$
|
91.1
|
|
$
|
11.3
|
|
Redemptions not permitted
|
Fixed income
(b)
|
193.1
|
|
4.0
|
|
Redemptions not permitted
|
Equities
(c)
|
103.4
|
|
—
|
|
Monthly, Quarterly
|
3-30 days
|
Absolute return
(d)
|
109.8
|
|
—
|
|
Monthly, Quarterly
|
2-60 days
|
Total
|
$
|
497.4
|
|
|
|
|
|
|
(a)
|
Consists of private equity investments in pharmaceuticals and companies primarily in the technology and healthcare sectors.
|
|
|
(b)
|
Primarily consists of investments in royalty payments from marketers of pharmaceuticals and related debt securities.
|
|
|
(c)
|
Consists of public equity investments in U.S. and non-U.S. markets.
|
|
|
(d)
|
Consists of investments in global markets, including derivative securities of equity and fixed income indexes, commodities and interest rates.
|
Generally, the investment strategy for private equities consists of direct investments or investments through limited partnerships with managers who purchase interests in non-public companies. The typical 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 an absolute return rate.
Multi-Employer Pension Plans
YRC Freight, Holland, Reddaway, and New Penn 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 Company 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)
|
2016
|
2015
|
2014
|
Health and welfare
|
$
|
453.1
|
|
$
|
436.8
|
|
$
|
416.2
|
|
Pension
|
90.3
|
|
91.1
|
|
93.6
|
|
Total
|
$
|
543.4
|
|
$
|
527.9
|
|
$
|
509.8
|
|
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, 2016
:
|
|
|
|
|
|
|
|
|
|
Pension Protection Zone Status
(b)
|
Funding Improvement or
Rehabilitation Plan
|
Employer Surcharge Imposed
|
Expiration Date of Collective-Bargaining Agreement
|
Pension Fund
(a)
|
EIN Number
|
2016
|
2015
|
Central States, Southeast and Southwest Areas Pension Fund
|
36-6044243
|
Critical and Declining
|
Critical
|
Yes
|
No
|
3/31/2019
|
Teamsters National 401(k) Savings Plan
(c)
|
52-1967784
|
N/A
|
N/A
|
N/A
|
No
|
3/31/2019
|
Road Carriers Local 707 Pension Fund
|
51-6106510
|
Critical and Declining
|
Critical
|
Yes
|
No
|
3/31/2019
|
Teamsters Local 641 Pension Fund
|
22-6220288
|
Critical
|
Critical
|
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 2016 and 2015 is for the plan’s year-end during calendar years 2015 and 2014, respectively. Among other factors, plans in the critical or critical and declining zone are generally less than 65 percent funded, plans in the endangered 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, Road Carriers Local 707 Pension Fund, Central Pennsylvania Teamsters Defined Benefit Plan and Teamsters Local 641 Pension Fund’s Forms 5500 as providing more than 5 percent of the total contributions for 2015 and 2014.
We contributed a total of
$89.1 million
,
$89.4 million
and
$91.6 million
to the multi-employer pension funds for the
years ended December 31, 2016, 2015 and 2014
. The following table provides the pension amounts contributed by fund for those funds that are considered to be individually significant:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2016
|
2015
|
2014
|
Central States, Southeast and Southwest Areas Pension Plan
|
$
|
51.8
|
|
$
|
51.7
|
|
$
|
52.2
|
|
Teamsters National 401(k) Savings Plan
|
12.5
|
|
12.5
|
|
13.1
|
|
Road Carriers Local 707 Pension Fund
|
1.8
|
|
2.0
|
|
2.3
|
|
Teamsters Local 641 Pension Fund
|
1.3
|
|
1.5
|
|
1.5
|
|
In 2006, the Pension Protection Act became law and modified both 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.
In 2014, the MPRA became law which modified the ability to suspend accrued benefits of plans facing insolvency by adding a new zone status of Critical and Declining.
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 or worse 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.
In 2016 and 2015, the Central States, Southeast and Southwest Pension Plan and Road Carriers Local 707 Pension Fund filed an application under MPRA with the Department of Treasury requesting the approval of a benefit suspension plan, which was denied. In 2016 the New York State Teamsters Conference Pension and Retirement Fund filed an application which is pending approval. The plan will have to be evaluated and approved by the Department of Treasury in concert with Department of Labor and Pension Benefit Guaranty Corporation (“PBGC”) before being submitted to a vote of participants. If ultimately approved, the plan would require future employer contribution increases to the plan.
If we fail to make our required contributions to a multi-employer plan under a funding improvement or rehabilitation plan, it would expose us to penalties including potential withdrawal liability. If the benchmarks that an applicable funding improvement or rehabilitation plan provides are not met by the end of a prescribed period, the IRS could impose an excise tax on us and the plan’s other contributing employers. 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 and the Reddaway Hourly 401(k) Plan, which are defined contribution plans primarily for employees that our collective bargaining agreements do not cover. The plans permit participants to make contributions to the plans and permit the employer of participants to make contributions on behalf of the participants. Additionally, the Reddaway Hourly 401(k) Plan allows for a non-elective employer contribution. Including non-elective employer contributions, total employer contributions were
$7.2 million
in
2016
,
$4.7 million
in
2015
and
$2.1 million
in
2014
. Our employees covered under collective bargaining agreements may also participate in union-sponsored 401(k) plans.
Performance Incentive Awards
We provide annual performance incentive awards and more frequent sales and operations incentive awards to certain non-union employees, which are based primarily on actual operating results achieved compared to targeted operating results or sales and operations targets and are paid in cash. Operating income in
2016
,
2015
and
2014
included performance and sales incentive expense for non-union employees of
$11.7 million
,
$13.2 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.
We also provide short-term performance based cash compensation to key management personnel. During the years ended
December 31, 2016
,
2015
and
2014
, compensation expense related to these awards was
$2.1 million
,
$14.1 million
and
$2.9 million
, respectively. Refer to the “Stock Compensation Plans” footnote for an overview of long-term performance based equity compensation, and related compensation expense, associated with such awards.
Additionally, operating income in 2015 included a profit sharing bonus for eligible union employees at the Regional Transportation segment of
$5.5 million
.
No
such bonus was paid for the years ended
December 31, 2016
or
2014
.
6. Debt and Financing
Our outstanding debt as of
December 31, 2016
and
December 31, 2015
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 (in millions)
|
Par Value
|
|
Discount
|
|
Debt Issuance Costs
|
|
Book
Value
|
|
Stated
Interest Rate
|
|
Effective
Interest Rate
|
Term Loan
|
$
|
638.5
|
|
|
$
|
(2.7
|
)
|
|
$
|
(8.6
|
)
|
|
$
|
627.2
|
|
|
8.00
|
%
|
(a)
|
8.20
|
%
|
ABL Facility
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
N/A
|
|
|
N/A
|
|
Secured Second A&R CDA
|
28.7
|
|
|
—
|
|
|
(0.6
|
)
|
|
28.1
|
|
|
3.3-18.3%
|
|
|
7.5
|
%
|
Unsecured Second A&R CDA
|
73.2
|
|
|
—
|
|
|
—
|
|
|
73.2
|
|
|
3.3-18.3%
|
|
|
7.5
|
%
|
Lease financing obligations
|
269.9
|
|
|
—
|
|
|
(1.3
|
)
|
|
268.6
|
|
|
9.0-18.2%
|
|
|
12.0
|
%
|
Total debt
|
$
|
1,010.3
|
|
|
$
|
(2.7
|
)
|
|
$
|
(10.5
|
)
|
|
$
|
997.1
|
|
|
|
|
|
Current maturities of Term Loan
|
$
|
(6.7
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6.7
|
)
|
|
|
|
|
Current maturities of lease financing obligations
|
(10.1
|
)
|
|
—
|
|
|
—
|
|
|
(10.1
|
)
|
|
|
|
|
Long-term debt
|
$
|
993.5
|
|
|
$
|
(2.7
|
)
|
|
$
|
(10.5
|
)
|
|
$
|
980.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 (in millions)
|
Par Value
|
|
Premium/
(Discount)
|
|
Debt Issuance Costs
|
|
Book
Value
|
|
Stated
Interest Rate
|
|
Effective
Interest Rate
|
Term Loan
|
$
|
686.0
|
|
|
$
|
(4.3
|
)
|
|
$
|
(12.7
|
)
|
|
$
|
669.0
|
|
|
8.25
|
%
|
(a)
|
8.45
|
%
|
ABL Facility(a)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
N/A
|
|
|
N/A
|
|
Secured Second A&R CDA
|
44.7
|
|
|
—
|
|
|
(0.3
|
)
|
|
44.4
|
|
|
3.3-18.3%
|
|
|
7.3
|
%
|
Unsecured Second A&R CDA
|
73.2
|
|
|
—
|
|
|
(0.5
|
)
|
|
72.7
|
|
|
3.3-18.3%
|
|
|
7.3
|
%
|
Lease financing obligations
|
278.0
|
|
|
—
|
|
|
(1.7
|
)
|
|
276.3
|
|
|
10.0-18.2%
|
|
|
12.0
|
%
|
Total debt
|
$
|
1,081.9
|
|
|
$
|
(4.3
|
)
|
|
$
|
(15.2
|
)
|
|
$
|
1,062.4
|
|
|
|
|
|
Current maturities of Term Loan
|
(7.0
|
)
|
|
—
|
|
|
—
|
|
|
(7.0
|
)
|
|
|
|
|
Current maturities of lease financing obligations
|
(8.9
|
)
|
|
—
|
|
|
—
|
|
|
(8.9
|
)
|
|
|
|
|
Long-term debt
|
$
|
1,066.0
|
|
|
$
|
(4.3
|
)
|
|
$
|
(15.2
|
)
|
|
$
|
1,046.5
|
|
|
|
|
|
|
|
(a)
|
As of December 31, 2016 and 2015, respectively, the stated interest rate represented a variable interest rate of 1, 3 or 6-month LIBOR, with a floor of
1.0%
plus a fixed margin ranging from
7.00%
to
7.25%
.
|
Credit Facilities
As of December 31, 2016
we had two primary credit facilities that we utilized to support our liquidity needs: a
$700 million
Term Loan and a
$450 million
ABL Facility. The ABL Facility is used to support our outstanding letters of credit commitments. We have set forth a brief description of our two primary credit facilities and our other financing arrangements in place at
December 31, 2016
below.
$700 Million First Lien Term Loan
On February 13, 2014, we entered into and borrowed in full a
$700 million
term loan credit agreement (the “Term Loan Agreement”), less a
1%
discount, from a syndicate of banks and other financial institutions arranged by Credit Suisse Securities (USA) and Citizens Bank N.A. (formerly known as RBS Citizens, N.A.). No amounts under this Term Loan, once repaid, may be reborrowed. On September 25, 2014, the Company entered into Amendment No. 1 to its Term Loan Agreement, which amended the Term Loan to, among other things, adjust the maximum permitted total leverage ratio through December 31, 2016 and increase the applicable interest rate (subject to the exceptions discussed below) over the same period. On January 31, 2017, the Company entered into Amendment No. 3 to its Term Loan Agreement, which adjusted the maximum permitted total leverage ratio through December 31, 2018 and increased the applicable interest rate, among other things.
The Term Loan requires quarterly principal payments, with remaining amounts outstanding due upon the maturity date of February 13, 2019. Borrowings under the Term Loan can be repaid in whole or in part at any time, without penalty (other than a 1% premium in connection with a repricing transaction within six months of the effective date of Amendment No. 3), subject to required notice periods and compliance with minimum prepayment amounts. As amended, the Term Loan allows for the election of interest at either the applicable LIBOR (subject to a floor of
1.00%
), plus a margin of
7.50%
or an alternative base rate (as defined in the Term Loan Agreement) plus a margin of
6.50%
. The Term Loan provides for an uncommitted incremental facility of up to
$250 million
, which may be used subject to certain financial covenant requirements and satisfaction of other customary conditions.
The Term Loan is secured by a perfected first priority security interest in (subject to permitted liens) substantially all assets of the Company and certain domestic subsidiaries, other than (a) accounts receivable, cash, deposit accounts and other assets related to accounts receivable, which are subject to a second priority interest (subject to permitted liens), and (b) certain owned real property securing the obligations under the Second A&R CDA (subject to permitted liens) (the “CDA Collateral”).
The Term Loan contains conditions, representations and warranties, events of default, and indemnification provisions that are customary for financings of this type, including, but not limited to, mandatory prepayment obligations, a maximum total leverage ratio covenant, limitations on incurrence of debt, investments, capital expenditures, liens on assets, certain sale and leaseback transactions, transactions with affiliates, mergers, consolidations, purchases and sales of assets, and restricted payments.
The Term Loan Agreement governing our Term Loan has certain financial covenants, as amended on January 31, 2017, 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 as defined below).
Our total maximum leverage ratio covenants are as follows:
|
|
|
|
|
Four Consecutive Fiscal Quarters Ending
|
Maximum Total
Leverage Ratio
|
Four Consecutive Fiscal Quarters Ending
|
Maximum Total
Leverage Ratio
|
December 31, 2016
|
3.50 to 1.00
|
March 31, 2018
|
3.50 to 1.00
|
March 31, 2017
|
3.85 to 1.00
|
June 30, 2018
|
3.50 to 1.00
|
June 30, 2017
|
3.85 to 1.00
|
September 30, 2018
|
3.25 to 1.00
|
September 30, 2017
|
3.75 to 1.00
|
December 31, 2018
|
3.25 to 1.00
|
December 31, 2017
|
3.50 to 1.00
|
|
|
Consolidated Adjusted EBITDA, defined in our Term Loan Agreement as “Consolidated EBITDA,” is 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 union employees and gains or losses from permitted dispositions and discontinued operations. Consolidated Total Debt, as defined in our Term Loan Agreement, is
the aggregate principal amount of indebtedness outstanding. Our total leverage ratio for the four quarters ending
December 31, 2016
was
3.40
to 1.00.
$450 Million ABL Facility
On February 13, 2014, we entered into our
$450 million
ABL Facility from a syndicate of banks arranged by Citizens Bank N.A. (formerly known as RBS Citizens, N.A.) (the “ABL Agent”), Merrill Lynch, Pierce, Fenner & Smith and CIT Finance LLC. The ABL Facility terminates on February 13, 2019. YRC Worldwide and our subsidiaries, YRC Freight, Reddaway, Holland and New Penn are borrowers under the ABL Facility, and certain of the Company’s domestic subsidiaries are guarantors thereunder. The ABL Facility matures on February 13, 2019. On June 28, 2016, the Company entered into Amendment No. 2 to the ABL Facility, which extends the maturity from February 13, 2019 to June 28, 2021, so long as 90% of the Term Loan under the Term Loan Agreement is refinanced, replaced or extended with a maturity date of June 28, 2021 or later.
Availability under the ABL Facility is derived by reducing the amount that may be advanced against eligible receivables plus eligible borrowing base cash by certain reserves imposed by the ABL Agent and our outstanding letters of credit and revolving loans. Eligible borrowing base cash is cash that is deposited from time to time into a segregated restricted account and is included in “Restricted amounts held in escrow” in the accompanying consolidated balance sheet. The ABL Facility provides for a $100 million uncommitted accordion to increase the revolving commitment in the future. For the years ended
December 31, 2016
and
2015
, we had
$357.2 million
and
$362.0 million
of outstanding letters of credit, respectively, and no outstanding loans.
At our option, borrowings under the ABL Facility bear interest at either: (i) the applicable LIBOR rate plus
1.75%
, as amended, or (ii) the base rate (as defined in the ABL Facility) plus
0.75%
, as amended.
Letter of credit fees equal to the applicable LIBOR margin in effect (
1.75%
as amended, formerly ranging from
2.00%
to
2.50%
) are charged quarterly in arrears on the average daily stated amount of all letters of credit outstanding during the quarter. Unused line fees are charged quarterly in arrears (such unused line fee percentage is equal to
0.375%
per annum if the average revolver usage is less than 50% or
0.25%
per annum if the average revolver usage is greater than 50%.)
The ABL Facility is secured by a perfected first priority security interest (subject to permitted liens) in accounts receivable, cash, deposit accounts and other assets related to accounts receivable of the Company and the other loan parties and an additional second priority security interest (subject to permitted liens) in substantially all remaining assets of the borrowers and the guarantors other than the CDA Collateral.
The ABL Facility contains conditions, representations and warranties, events of default and indemnification provisions that are customary for financings of this type, including, but not limited to, a springing minimum fixed charge coverage ratio covenant, borrowing base reporting, limitations on incurrence of debt, investments, capital expenditures, liens on assets, certain sale and leaseback transactions, transactions with affiliates, mergers, consolidations, purchases and sales of assets, and restricted payments. Certain provisions relating to investments, restricted payments and capital expenditures are relaxed upon meeting specified payment conditions or debt repayment conditions.
Second Amended and Restated Contribution Deferral Agreement
Certain of our subsidiaries are parties to the Amended and Restated Contribution Deferral Agreement (the “A&R CDA”), which was further amended and restated effective January 31, 2014 (the “Second 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”). There is no mandatory amortization prior to that time. The Deferred Pension Payments and Deferred Interest (each as defined in the A&R CDA) bear interest at a rate as set forth in the Second A&R CDA. The Second A&R CDA, among other things, extended the maturity of deferred pension payments and deferred interest from March 31, 2015 to December 31, 2019. Under the Second A&R CDA, the Funds maintained their first lien on existing first priority collateral.
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.
The obligations under the Second A&R CDA are secured by a perfected first priority security interest in the CDA Collateral.
2014 Financing Transaction
On January 31, 2014, we issued
14,333,334
shares of our Common Stock and
583,334
shares of our Class A 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%
Notes at their maturity on February 15, 2014 and (ii) repurchase approximately
$90.9 million
of our Series A Notes. In February 2014, the Company deposited approximately
$89.6 million
with the trustee to fund the redemption (including accrued interest), and thereby discharged the indenture governing the Series A Notes. The Company used the cash deposited with the trustee to redeem its Series A Notes on August 5, 2014.
Also on January 31, 2014, certain holders of our Series B Notes exchanged their outstanding balances (including the make-whole premium and additional accrued interest through January 15, 2014) at a price of
$15.00
per share, while certain other holders converted their Series B Notes to our common stock 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 A&R CDA, which, among other things (i) amended and restated the A&R CDA, (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 with a new
$450 million
ABL Facility and a new
$700 million
Term Loan, as more fully described above.
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)
|
|
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
|
|
ABL Facility
|
—
|
|
|
Redeem Series A Notes (on August 5, 2014 and includes accrued interest)
|
89.6
|
|
|
|
|
Fees, Expenses and Original Issuance Discount
|
50.8
|
|
|
|
|
Restricted Cash to Balance Sheet
(a)
|
92.0
|
|
|
|
|
Cash to Balance Sheet
|
16.5
|
|
Total sources
|
$
|
1,040.0
|
|
|
Total uses
|
$
|
1,040.0
|
|
|
|
(a)
|
Under the terms of the ABL Facility, this amount was classified as “restricted amounts held in escrow” in the consolidated balance sheet at the closing date of the ABL Facility.
|
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
|
$
|
124.2
|
|
Unsecured Second A&R CDA
|
73.2
|
|
|
Exchange/conversion of Series B Notes to common stock
|
50.6
|
|
Exchange/conversion of Series B Notes to common stock
|
50.6
|
|
|
|
|
Total sources
|
$
|
174.8
|
|
|
Total uses
|
$
|
174.8
|
|
We accounted 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 recorded a gain on extinguishment of debt of
$11.2 million
associated with this transaction during the year ended December 31, 2014,
$16.3 million
of which related to the acceleration of net premiums on our old debt, partially offset by
$5.1 million
of additional expense related to the fair value of the incremental shares provided to those Series B Note holders who exchanged their outstanding balances at a price of
$15.00
per share. We recorded, in “interest expense” on the statements of consolidated comprehensive income (loss),
$8.0 million
of make-whole interest related to the Series B Notes exchanged during the year ended December 31, 2014. We paid
$43.8 million
of fees associated with these transactions of which
$26.7 million
was recorded as unamortized deferred debt costs in “other assets” in the consolidated balance sheet and will be recognized as interest expense over the term of the Term Loan and ABL Facility and
$17.1 million
offset the equity proceeds of our stock purchase agreements.
On March 14, 2014, the Company held a special meeting of stockholders at which our stockholders approved amending our Certificate of Incorporation to increase the number of authorized shares of Common Stock to
95.0 million
shares and to allow an investor involved in the 2014 Financing Transactions to own more than
19.99%
of outstanding Common Stock. Upon approval of these amendments, each outstanding share of Convertible Preferred Stock automatically converted into four shares of Common Stock and the Company recorded $
18.1 million
related to the amortization of the beneficial conversion feature on preferred stock on the statements of consolidated operations.
Series B Convertible Senior Secured Notes
On July 22, 2011, we issued
$100.0 million
in aggregate principal of our Series B Notes that bore interest at a stated rate of
10.0%
per year and matured on March 31, 2015. Interest was payable on a semiannual basis in arrears only in-kind through the issuance of additional Series B Notes.
On March 25, 2015, we entered into an exchange agreement with certain holders of our Series B Notes to exchange their outstanding principal and accrued interest balances totaling
$17.9 million
at conversion price of
$18.00
per share for an aggregate
994,689
shares of Common Stock. During the year ended December 31, 2015, we recorded
$0.6 million
of additional expense related to the fair value of the incremental shares provide to those holders who exchanged their outstanding balances. At maturity on March 31, 2015, we repaid the holders of the remaining outstanding Series B Notes approximately
$0.3 million
of cash.
As discussed in the “2014 Financing Transaction
”
section, on January 31, 2014, certain holders of our Series B Notes exchanged their outstanding balances as part of an exchange agreement. Not including the exchanges made as part of our 2014 Financing Transactions, during the year ended December 31, 2014,
$1.2 million
of aggregate principal amount of Series B Notes converted into
75,900
shares of our common stock. Upon conversion, we recorded
$0.4 million
of additional interest expense representing the
$0.2 million
make whole premium and
$0.2 million
of accelerated amortization of the discount on Series B Notes converted.
Maturities
The principal maturities over the next five years and thereafter of total debt as of
December 31, 2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Term Loan
|
ABL Facility
|
Second A&R CDA
|
Lease Financing Obligations
(a)
|
Total
|
2017
|
$
|
6.7
|
|
$
|
—
|
|
$
|
—
|
|
$
|
10.1
|
|
$
|
16.8
|
|
2018
|
6.7
|
|
—
|
|
—
|
|
11.8
|
|
18.5
|
|
2019
|
625.1
|
|
—
|
|
101.9
|
|
6.6
|
|
733.6
|
|
2020
|
—
|
|
—
|
|
—
|
|
4.2
|
|
4.2
|
|
2021
|
—
|
|
—
|
|
—
|
|
3.2
|
|
3.2
|
|
Thereafter
|
—
|
|
—
|
|
—
|
|
234.0
|
|
234.0
|
|
Total
|
$
|
638.5
|
|
$
|
—
|
|
$
|
101.9
|
|
$
|
269.9
|
|
$
|
1,010.3
|
|
|
|
(a)
|
Lease financing obligations subsequent to 2021 of
$234.0 million
represent principal cash obligations of
$11.2 million
and the estimated net book value of the underlying assets at the expiration of their associated lease agreements of
$222.8 million
.
|
Fair Value Measurement
The book value and estimated fair values of our long-term debt, including current maturities and other financial instruments, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
(in millions)
|
Book Value
|
|
Fair Value
|
|
Book Value
|
|
Fair Value
|
Term Loan
|
$
|
627.2
|
|
|
$
|
638.1
|
|
|
$
|
669.0
|
|
|
$
|
594.6
|
|
ABL Facility
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Lease financing obligations
|
268.6
|
|
|
259.1
|
|
|
276.3
|
|
|
282.9
|
|
Secured and Unsecured A&R CDA
|
101.3
|
|
|
101.8
|
|
|
117.1
|
|
|
102.1
|
|
Total debt
|
$
|
997.1
|
|
|
$
|
999.0
|
|
|
$
|
1,062.4
|
|
|
$
|
979.6
|
|
The fair values of the Term Loan and Secured and Unsecured A&R CDA were estimated based on observable prices (level two inputs for fair value measurements). The fair value of the lease financing obligations is estimated using a publicly traded secured loan with similar characteristics (level three input for fair value measurement).
Liquidity
Our principal sources of liquidity are cash and cash equivalents, available borrowings under our ABL Facility and any prospective net cash flow from operations. As of
December 31, 2016
, our availability under our ABL Facility was
$89.0 million
, which is derived by reducing the amount that may be advanced against eligible receivables plus eligible borrowing base cash by certain reserves imposed by the ABL Agent and our
$357.2 million
of outstanding letters of credit. Of the
$89.0 million
in availability, we do not expect to access more than
$44.4 million
(“Managed Accessibility”) based on our springing fixed charge coverage ratio (as set forth in our ABL Facility). Our cash and cash equivalents and Managed Accessibility was
$181.1 million
as of
December 31, 2016
.
As of
December 31, 2015
, our availability under our ABL Facility was
$79.7 million
. Of the
$79.7 million
in availability, Managed Accessibility was
$35.5 million
. Our cash and cash equivalents and Managed Accessibility was
$209.3 million
as of December 31, 2015.
Outside of funding normal operations, our principal uses of cash include making contributions to our single-employer pension plans and various multi-employer pension funds, and meeting our other cash obligations, including, but not limited to, paying principal and interest on our funded debt, payments on equipment leases and funding capital expenditures.
Capital Expenditures/Operating Leases
Our capital expenditures for the years ended
December 31, 2016
and
2015
were
$100.6 million
and
$108.0 million
, respectively. These amounts were principally used to fund the purchase of used tractors and trailers, refurbish engines for our revenue fleet, purchase in-cab safety technology and for capitalized costs to improve our technology infrastructure.
For the
year ended December 31, 2016
, we entered into new operating lease commitments for revenue equipment totaling
$126.4 million
, with such payments to be made over the average lease term of
5 years
. As of
December 31, 2016
, our operating lease obligations for
2017
are
$107.4 million
and our total operating lease obligations through 2030 total
$334.7 million
and are expected to increase as we lease additional revenue equipment in future years.
7. Stock Compensation Plans
We reserved
5.0 million
shares for issuance to key management personnel and directors under the 2011 amended and restated long-term incentive and equity award plan. As of
December 31, 2016
,
2.1 million
shares remain available for future issuance under this plan. The plan permits the issuance of restricted stock and stock 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 stock units provide the holders the right to receive one share of our Common Stock upon vesting (and distribution) of one stock unit. The plan requires the exercise price of any option granted to equal 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 and these options had no intrinsic value as of
December 31, 2016, 2015, and 2014
.
Performance Based Awards
In 2015, the Company granted performance stock unit awards to employees under its 2015 long-term incentive plan. The awards provide a target number of stock units that vest equally over
three years
.
A summary of performance-based unvested stock unit activity is as follows:
|
|
|
|
|
|
|
(stock units in thousands)
|
Units (in thousands)
|
Weighted Average Grant-Date Fair Value
|
Unvested at December 31, 2014
|
—
|
|
—
|
|
Granted
|
427
|
|
18.09
|
|
Forfeited
|
(6
|
)
|
18.23
|
|
Unvested at December 31, 2015
|
421
|
|
18.09
|
|
Vested
|
(140
|
)
|
$
|
17.90
|
|
Forfeited
|
(20
|
)
|
16.83
|
|
Unvested at December 31, 2016
|
261
|
|
$
|
17.98
|
|
The Company expenses the grant date fair value of the awards earned in the performance period over the respective service periods. The intrinsic value of unvested shares as of
December 31, 2016
was
$3.5 million
. For the
years ended December 31, 2016 and 2015
, the Company recognized compensation expense of
$2.3 million
and
$3.9 million
, respectively. Unrecognized compensation expense related to performance based awards of
$1.1 million
is expected to be recognized over a weighted-average period of
0.5 years
.
The fair value of the nonvested shares is determined based on the closing trading price of our shares on the grant date. The fair value of shares vested and distributed during the year ended
December 31, 2016
was
$2.5 million
.
In March 2016, the Company granted performance-based stock unit awards to employees that were to be settled in cash upon the achievement of specified performance criteria for 2016. No awards were earned as the 2016 performance criteria were not achieved.
Restricted Stock
A summary of the activity of our unvested restricted stock and stock unit awards are presented in the following table:
|
|
|
|
|
|
|
|
Shares/units
(in thousands)
|
Weighted Average
Grant-Date Fair Value
|
Unvested at December 31, 2013
|
833
|
|
$
|
8.96
|
|
Granted
|
1,046
|
|
15.83
|
|
Vested and distributed
|
(564
|
)
|
13.33
|
|
Forfeited
|
(26
|
)
|
15.38
|
|
Unvested at December 31, 2014
|
1,289
|
|
$
|
12.86
|
|
Granted
|
342
|
|
17.29
|
|
Vested and distributed
|
(835
|
)
|
11.34
|
|
Forfeited
|
(29
|
)
|
10.25
|
|
Unvested at December 31, 2015
|
767
|
|
$
|
14.34
|
|
Granted
|
730
|
|
8.76
|
|
Vested and distributed
|
(269
|
)
|
12.90
|
|
Forfeited
|
(53
|
)
|
11.60
|
|
Unvested at December 31, 2016
|
1,175
|
|
$
|
11.30
|
|
Certain of the directors have deferred receipt of the Common Stock underlying some or all of the restricted stock units they have been awarded until each such director ceases to serve on the Board or, under certain circumstances, upon a change of control. Thus, while some of these restricted stock units have vested, the directors have not yet received the underlying Common Stock. For the years ended
December 31, 2016
,
2015
, and
2014
, the total number of restricted stock units that are vested but for which the underlying Common Stock has not been distributed was
410,000
,
275,000
, and
221,000
, respectively; these shares are shown as unvested in the above table.
The intrinsic value of unvested shares as of
December 31, 2016
was
$15.6 million
. The Company records expense on a straight-line basis over the vesting term. For the
years ended December 31, 2016, 2015 and 2014
, the Company recorded compensation expense for restricted stock awards of
$5.0 million
,
$4.8 million
, and
$14.4 million
, respectively. Unrecognized compensation expense related to restricted stock awards of
$5.4 million
at December 31, 2016 is expected to be recognized over a weighted-average period of
0.9
years.
The vesting provisions for the restricted stock and stock unit awards and the related number of shares granted during the year ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
Shares/units (in thousands)
|
Vesting Terms
|
2016
|
2015
|
2014
|
50% immediately and 50% on the 1 year anniversary of the grant date
|
—
|
|
—
|
|
456
|
|
25% per year for four years
|
8
|
|
4
|
|
39
|
|
100% immediately
|
123
|
|
69
|
|
54
|
|
20% on February 28, 2015, 60% on July 31, 2015 and 20% on February 28, 2016
|
—
|
|
—
|
|
459
|
|
33.3% per year for three years
|
599
|
|
269
|
|
38
|
|
Total restricted stock and stock units granted
|
730
|
|
342
|
|
1,046
|
|
The fair value of nonvested shares is determined based on the closing trading price of our shares on the grant date. The fair value of shares vested and distributed during the
years ended December 31, 2016, 2015 and 2014
was
$3.5 million
,
$9.5 million
, and
$7.2 million
, respectively.
The outstanding awards under our stock compensation plans provide dividend participation features and are considered participating securities in our earnings per share calculation.
8. Income Taxes
We use the asset and liability method to reflect income taxes on our financial statements, pursuant to ASC 740. We recognize deferred tax assets and liabilities by applying enacted tax rates to the differences between the carrying value of existing assets and liabilities and their respective tax basis and to loss carryforwards. Tax credit carryforwards are recorded as deferred tax assets. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the change occurs. We assess the validity of deferred tax assets and loss and tax credit carryforwards and provide valuation allowances when we determine it is more likely than not that such assets, losses, or credits will not be realized. We have not recognized deferred taxes relative to foreign subsidiaries’ earnings that are deemed to be permanently reinvested. Any related taxes associated with such earnings are not material.
Deferred tax liabilities (assets) were comprised of the following at
December 31
:
|
|
|
|
|
|
|
|
(in millions)
|
2016
|
2015
|
Depreciation
|
$
|
229.5
|
|
$
|
256.3
|
|
Deferred revenue
|
15.8
|
|
13.9
|
|
Intangibles
|
8.9
|
|
16.2
|
|
Gain on debt redemption
|
25.7
|
|
38.5
|
|
State taxes
|
30.2
|
|
32.0
|
|
Other
|
31.5
|
|
27.5
|
|
Deferred tax liabilities
|
341.6
|
|
384.4
|
|
Claims and insurance
|
(149.6
|
)
|
(165.7
|
)
|
Net operating loss carryforwards
|
(302.9
|
)
|
(302.4
|
)
|
Employee benefit accruals
|
(201.8
|
)
|
(221.9
|
)
|
Sale/Leaseback transaction
|
(99.9
|
)
|
(107.0
|
)
|
Other
|
(46.0
|
)
|
(54.4
|
)
|
Deferred tax assets
|
(800.2
|
)
|
(851.4
|
)
|
Valuation allowance
|
461.7
|
|
470.5
|
|
Net deferred tax assets
|
(338.5
|
)
|
(380.9
|
)
|
Net deferred tax liability
|
$
|
3.1
|
|
$
|
3.5
|
|
The net deferred tax liability of
$3.1 million
and
$3.5 million
as of
December 31, 2016
and
2015
, respectively, is included as separate line items in the accompanying balance sheets. Current income tax receivable was
$9.1 million
and
$2.3 million
as of December 31, 2016 and 2015
, respectively, and is included in “Prepaid expenses and other” in the accompanying balance sheets.
As of
December 31, 2016
, the Company has remaining federal net operating loss carryforwards of approximately
$741.5 million
. Deemed ownership changes that occurred in July 2011, in July 2013 and in January 2014 imposed annual and cumulative limits under the Code on the utilization of these carryforwards. These limits are not expected to inhibit the Company’s ability to utilize these losses over their carry forward periods. These carryforwards expire between 2028 and 2036 if not used. As of
December 31, 2016
, the Company has foreign tax credit and other credit carryforwards of approximately
$7.8 million
. Other than
$0.9 million
of minimum tax credit, these credit carryforwards will likely not be utilized and will expire between 2017 and 2018 if not used.
As of December 31, 2016 and 2015
, a valuation allowance of
$461.7 million
and
$470.5 million
has been established for deferred tax assets because, based on available sources of future taxable income, it is more likely than not that those assets will not be realized.
A reconciliation between income taxes at the federal statutory rate and the consolidated effective tax rate follows:
|
|
|
|
|
|
|
|
|
2016
|
2015
|
2014
|
Federal statutory rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
State income taxes, net
|
2.9
|
%
|
(50.0
|
)%
|
(4.9
|
)%
|
Foreign tax rate differential
|
(3.3
|
)%
|
43.2
|
%
|
1.4
|
%
|
Permanent differences
|
6.9
|
%
|
(88.6
|
)%
|
(6.4
|
)%
|
Valuation allowance
|
(13.0
|
)%
|
(243.2
|
)%
|
(31.9
|
)%
|
Benefit from intraperiod tax allocation under ASC 740
|
—
|
%
|
265.9
|
%
|
—
|
%
|
Net change in unrecognized tax benefits
|
(10.2
|
)%
|
(11.4
|
)%
|
17.8
|
%
|
Benefit from settlement of litigation & audits
|
—
|
%
|
54.5
|
%
|
1.6
|
%
|
Other, net (primarily prior year return to provision)
|
(5.7
|
)%
|
110.5
|
%
|
6.6
|
%
|
Effective tax rate
|
12.6
|
%
|
115.9
|
%
|
19.2
|
%
|
The income tax provision (benefit) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2016
|
2015
|
2014
|
Current:
|
|
|
|
Federal
|
$
|
(1.7
|
)
|
$
|
(0.8
|
)
|
$
|
(23.6
|
)
|
State
|
(0.7
|
)
|
(1.6
|
)
|
3.7
|
|
Foreign
|
5.9
|
|
7.1
|
|
4.0
|
|
Current income tax provision (benefit)
|
$
|
3.5
|
|
$
|
4.7
|
|
$
|
(15.9
|
)
|
|
|
|
|
Deferred:
|
|
|
|
Federal
|
$
|
—
|
|
$
|
(8.7
|
)
|
$
|
—
|
|
State
|
—
|
|
(3.0
|
)
|
—
|
|
Foreign
|
(0.4
|
)
|
1.9
|
|
(0.2
|
)
|
Deferred income tax benefit
|
$
|
(0.4
|
)
|
$
|
(9.8
|
)
|
$
|
(0.2
|
)
|
|
|
|
|
Income tax provision (benefit)
|
$
|
3.1
|
|
$
|
(5.1
|
)
|
$
|
(16.1
|
)
|
|
|
|
|
Based on the income (loss) before income taxes:
|
|
|
|
Domestic
|
$
|
3.9
|
|
$
|
(33.2
|
)
|
$
|
(106.2
|
)
|
Foreign
|
20.7
|
|
28.8
|
|
22.4
|
|
Income (Loss) before income taxes
|
$
|
24.6
|
|
$
|
(4.4
|
)
|
$
|
(83.8
|
)
|
YRC Worldwide applies the intraperiod tax allocation rules of ASC 740 to allocate income taxes among continuing operations, discontinued operations, extraordinary items, other comprehensive income (loss), and additional paid-in capital when our situation meets the criteria as prescribed in the rule. During 2015, the Company recognized
$11.7 million
of deferred benefit in the statement of consolidated operations and an equal and offsetting deferred tax expense in other comprehensive income included in the statement of consolidated comprehensive loss due to the application of the exception within the intraperiod tax allocation rules. There was no deferred benefit recognized in 2016 or 2014, as the exception did not apply. This allocation has no effect on total tax provision or total valuation allowance.
Uncertain Tax Positions
A rollforward of the total amount of unrecognized tax benefits for the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
(in millions)
|
2016
|
2015
|
Unrecognized tax benefits at January 1
|
$
|
30.6
|
|
$
|
23.1
|
|
|
|
|
|
Increases related to:
|
|
|
|
Tax positions taken during a prior period
|
17.3
|
|
11.5
|
|
|
Tax positions taken during the current period
|
0.4
|
|
0.3
|
|
|
|
|
|
Decreases related to:
|
|
|
|
Tax positions taken during a prior period
|
—
|
|
—
|
|
|
Lapse of applicable statute of limitations
|
(3.0
|
)
|
(3.2
|
)
|
|
Settlements with taxing authorities
|
—
|
|
(1.1
|
)
|
|
|
|
|
Unrecognized tax benefits at December 31
|
$
|
45.3
|
|
$
|
30.6
|
|
At December 31, 2016 and 2015
, there are
$10.9 million
and
$7.6 million
of benefits that, if recognized, would affect the effective tax rate. We accrued interest of
$0.6 million
and
$2.0 million
for the
years ended December 31, 2016 and 2015
and reversed
$1.5 million
and
$3.3 million
of previously accrued interest on uncertain tax positions during the
years ended December 31, 2016 and 2015
for a net reduction of
$0.9 million
and
$1.3 million
for 2016 and 2015. The reversal related primarily to settlements and
other favorable resolution of prior uncertain positions. The total amount of interest accrued for uncertain tax positions is
$2.2 million
and
$3.1 million
as of December 31, 2016 and 2015
. During the year ended
December 31, 2016
, we paid inconsequential amounts of tax and interest to settle foreign audits of tax years 2006 through 2011 for certain of our subsidiaries, and we reduced our previously recorded liability for unrecognized tax benefits accordingly. We have not accrued any penalties relative to uncertain tax positions. We have elected to treat interest and penalties on uncertain tax positions as interest expense and other operating expenses, respectively.
It is reasonably possible that the existing unrecognized tax benefits may decrease over the next twelve months by as much as
$0.9 million
as a result of developments in examinations and/or litigation, or from the expiration of statutes of limitation.
Tax years that remain subject to examination for our major tax jurisdictions as of
December 31, 2016
:
|
|
|
|
Statute remains open
|
|
2005-2015
|
Tax years currently under examination/exam completed
|
|
2005-2013
|
Tax years not examined
|
|
2014-2016
|
9. Business Segments
We report financial and descriptive information about our reportable operating segments on a basis consistent with that used internally for evaluating segment performance and allocating resources to segments. We evaluate performance primarily on operating income.
We charge management fees and other corporate services to our segments based upon usage or on an overhead allocation basis. Corporate and other operating losses represent operating expenses of YRC Worldwide, the parent company, including compensation and benefits and professional services for all periods presented. Corporate identifiable assets primarily refer to cash, cash equivalents, restricted cash and deferred debt issuance costs and our investment in JHJ until March 2016. Intersegment revenue relates to transportation services between our segments.
Revenue from foreign sources totaled
$101.0 million
,
$116.5 million
, and
$137.5 million
for the years ended
December 31, 2016, 2015, and 2014
, respectively, and is mainly derived from Canada and, to a lesser extent, Mexico. Long-lived assets located in foreign countries totaled
$5.2 million
,
$6.5 million
and
$8.7 million
at
December 31, 2016, 2015, and 2014
, respectively.
The following table summarizes our operations by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
YRC Freight
|
|
Regional Transportation
|
|
Corporate/Eliminations
|
|
Consolidated
|
2016
|
|
|
|
|
|
|
|
External revenue
|
$
|
2,958.9
|
|
|
$
|
1,739.3
|
|
|
$
|
(0.7
|
)
|
|
$
|
4,697.5
|
|
Operating income (loss)
|
53.2
|
|
|
81.3
|
|
|
(10.2
|
)
|
|
124.3
|
|
Identifiable assets
|
1,208.7
|
|
|
642.9
|
|
|
(81.6
|
)
|
|
1,770.0
|
|
Acquisition of property and equipment
|
(73.2
|
)
|
|
(27.4
|
)
|
|
—
|
|
|
(100.6
|
)
|
Proceeds from disposal of property and equipment
|
31.3
|
|
|
3.8
|
|
|
—
|
|
|
35.1
|
|
Depreciation and amortization
|
90.3
|
|
|
69.5
|
|
|
—
|
|
|
159.8
|
|
2015
|
|
|
|
|
|
|
|
External revenue
|
$
|
3,055.7
|
|
|
$
|
1,776.9
|
|
|
$
|
(0.2
|
)
|
|
$
|
4,832.4
|
|
Operating income (loss)
|
18.0
|
|
|
85.4
|
|
|
(10.4
|
)
|
|
93.0
|
|
Identifiable assets
(a)
|
1,351.5
|
|
|
652.9
|
|
|
(125.0
|
)
|
|
1,879.4
|
|
Acquisition of property and equipment
|
(59.2
|
)
|
|
(48.7
|
)
|
|
(0.1
|
)
|
|
(108.0
|
)
|
Proceeds from disposal of property and equipment
|
12.0
|
|
|
5.5
|
|
|
—
|
|
|
17.5
|
|
Depreciation and amortization
|
93.1
|
|
|
70.7
|
|
|
(0.1
|
)
|
|
163.7
|
|
2014
|
|
|
|
|
|
|
|
External revenue
|
$
|
3,237.4
|
|
|
$
|
1,831.4
|
|
|
$
|
—
|
|
|
$
|
5,068.8
|
|
Operating income (loss)
|
0.5
|
|
|
66.1
|
|
|
(21.1
|
)
|
|
45.5
|
|
Identifiable assets
(a)
|
1,462.1
|
|
|
685.7
|
|
|
(182.7
|
)
|
|
1,965.1
|
|
Acquisition of property and equipment
|
(37.0
|
)
|
|
(32.2
|
)
|
|
—
|
|
|
(69.2
|
)
|
Proceeds from disposal of property and equipment
|
23.2
|
|
|
(2.4
|
)
|
|
—
|
|
|
20.8
|
|
Depreciation and amortization
|
98.0
|
|
|
65.8
|
|
|
(0.2
|
)
|
|
163.6
|
|
|
|
(a)
|
Due to the adoption of ASU 2015-03,
Interest - Imputation of Interest
, “Identifiable assets” were updated for respective years to reflect the reclassification of unamortized debt issuance costs.
|
10. Shareholders’ Deficit
As discussed in the “Debt and Financing” footnote, on January 31, 2014, we issued
14,333,334
shares of our Common Stock and
583,334
of our Convertible Preferred Stock pursuant to the Stock Purchase Agreements, for an aggregate
$250.0 million
in cash. On March 14, 2014, the Company held a special meeting of stockholders at which our stockholders approved amending our Certificate of Incorporation to increase the number of authorized shares of Common Stock to
95.0 million
and to allow an investor involved in the 2014 Financing Transactions to own more than
19.99%
of outstanding Common Stock. Upon approval of these amendments, each outstanding share of Convertible Preferred Stock automatically converted into four shares of Common Stock and the Company recorded
$18.1 million
related to the amortization of the beneficial conversion feature on preferred stock on the statements of consolidated comprehensive income (loss).
In 2011, the Company designated
one
of its authorized shares of preferred stock as its Series A Voting Preferred Stock. The Series A Voting Preferred Stock has a
$1
liquidation value and entitles the holder to elect two directors to the Company’s Board of Directors. The
one
share of Series A Voting Preferred Stock was issued to the IBT on July 22, 2011 in connection with the financial restructuring. The Series A Voting Preferred Stock was recorded at its liquidation value.
The following reflects the activity in the shares of our preferred and common stock for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares
|
|
Common Shares
|
|
2016
|
2015
|
2014
|
|
2016
|
2015
|
2014
|
Beginning balance
|
—
|
|
—
|
|
—
|
|
|
32,141
|
|
30,667
|
|
10,173
|
|
Issuance of Common Shares
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
14,333
|
|
Issuance of Convertible Preferred Shares
|
—
|
|
—
|
|
583
|
|
|
—
|
|
—
|
|
—
|
|
Conversion of Preferred Shares to Common Shares
|
—
|
|
—
|
|
(583
|
)
|
|
—
|
|
—
|
|
2,333
|
|
Issuance of equity in exchange for debt
|
—
|
|
—
|
|
—
|
|
|
—
|
|
995
|
|
3,471
|
|
Issuance of equity awards, net
|
—
|
|
—
|
|
—
|
|
|
332
|
|
479
|
|
357
|
|
Ending balance
|
—
|
|
—
|
|
—
|
|
|
32,473
|
|
32,141
|
|
30,667
|
|
Our Term Loan agreement in place as of
December 31, 2016
, restricts the ability of YRC Worldwide to declare dividends on its outstanding capital stock.
11. Earnings (Loss) Per Share
We calculate basic earnings (loss) per share by dividing our net earnings (loss) available to common shareholders by our weighted-average shares outstanding at the end of the period. The calculation for diluted earnings per share adjusts the weighted average shares outstanding for our dilutive unvested shares and stock units using the treasury stock method and for our convertible notes using the if-converted method. Our calculations for basic and dilutive earnings (loss) per share for the years ended
December 31, 2016, 2015, and 2014
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except per share data, shares and stock units in thousands)
|
|
2016
|
|
2015
|
|
2014
|
Basic and dilutive net income (loss) available to common shareholders
|
|
$
|
21.5
|
|
|
$
|
0.7
|
|
|
$
|
(85.8
|
)
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
32,416
|
|
|
31,736
|
|
|
28,592
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Unvested shares and stock units
(b)
|
|
624
|
|
|
616
|
|
|
—
|
|
Series B Notes
|
|
—
|
|
|
240
|
|
|
—
|
|
Dilutive weighted average shares outstanding
|
|
33,040
|
|
|
32,592
|
|
|
28,592
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
(a)
|
|
$
|
0.66
|
|
|
$
|
0.02
|
|
|
$
|
(3.00
|
)
|
Diluted earnings (loss) per share
(a)
|
|
$
|
0.65
|
|
|
$
|
0.02
|
|
|
$
|
(3.00
|
)
|
(a)
Earnings (loss) per share is based on unrounded figures and not the rounded figures presented.
(b)
Includes unvested shares of Common Stock, unvested stock units, and vested stock units for which the underlying Common Stock has not been distributed.
Given our net loss position for the year ended December 31, 2014, there are no dilutive securities for these periods.
Our anti-dilutive securities for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
(shares and stock units in thousands)
|
2016
|
2015
|
2014
|
Anti-dilutive unvested shares, options, and stock units
(a)
|
196
|
|
71
|
|
1,072
|
|
Anti-dilutive Series B Notes
|
—
|
|
—
|
|
982
|
|
(a)
Includes unvested shares of Common Stock, unvested stock units, and vested stock units for which the underlying Common Stock has not been distributed.
12. Commitments, Contingencies, and Uncertainties
Financial Matters
We incur rental expenses under noncancelable operating lease agreements for certain buildings and operating equipment. Rental expense is charged to “Operating expense and supplies” or “Purchased transportation” on the accompanying statements of operations. Rental expense was
$140.8 million
,
$119.3 million
and
$98.7 million
for the
years ended December 31, 2016, 2015 and 2014
, respectively.
At
December 31, 2016
, we were committed under noncancelable lease agreements requiring minimum annual rentals payable as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
Minimum annual rentals
|
$
|
107.4
|
|
$
|
88.4
|
|
$
|
61.4
|
|
$
|
39.5
|
|
$
|
18.9
|
|
$
|
19.1
|
|
We expect in the ordinary course of business that leases will be renewed or replaced as they expire. The leases provide for fixed and escalating rentals and contingent escalating rentals based on the Consumer Price Index not to exceed certain specified amounts. We record rent expense for our operating leases on a straight-line basis over the base term of the lease agreements.
As of
December 31, 2016
, we have
$6.5 million
committed for capital expenditures to be completed during
2017
.
California Labor Law Change
In October 2015, California adopted new rules governing the payment of piece-rate compensation. New California Labor Code section 226.2 sets forth requirements for the payment of a separate hourly wage for “nonproductive” time worked by piece-rate employees, and separate payment for compensable rest and recovery periods to those employees. The Company continues to assess the impact of this new law and ongoing compliance measures. We believe the possible loss or range of loss is inconsequential to our consolidated financial statements.
Other Environmental Matters
Incidental to the Company's business in the ordinary course, our equipment is involved in motor vehicle accidents and experiences damage, mechanical failures and cargo issues. From time to time, these matters result in the discharge of hazardous materials into the environment. The Company is sometimes responsible for the clean-up and remediation costs associated with these discharges, depending on local regulations and who is determined to be at fault. For the years ended December 31,
2016
,
2015
, and
2014
, the Company spent approximately
$9.1 million
,
$8.1 million
, and
$8.0 million
, respectively, to comply with applicable laws regulating the discharge of materials into the environment, which included such clean-up and remediation costs.
Other Legal Matters
We are involved in litigation or proceedings that arise in ordinary business activities. When possible, we insure against these risks to the extent we deem prudent, but no assurance can be given that the nature or amount of such insurance will be sufficient to fully indemnify us against liabilities arising out of pending and future legal proceedings. Many of these insurance policies contain self-insured retentions in amounts we deem prudent. Based on our current assessment of information available as of the date of these consolidated financial statements, we believe that our consolidated financial statements include adequate provisions for estimated costs and losses that may be incurred within the litigation and proceedings to which we are a party.
13. Related Party Transactions
In
2016
, the Company had approximately
$5.1 million
in revenues related to transportation services and
$3.3 million
in purchased transportation expense for transportation management and logistics services with Logistics Planning Services (“LPS”). As of December 31, 2016, the related party receivable and payable, respectively, are inconsequential to the financial statements. We continue to do business with LPS in 2017. LPS is a wholly-owned subsidiary of Hall Enterprises, Inc. (“HEI”). Justin Hall, our Chief Commercial Officer since June 1, 2016, serves as a director of, and owns
14.5%
of the equity in, HEI. Mr. Hall’s family owns the remaining equity in HEI and Mr. Hall’s father serves as the chairman of the board of HEI. Mr. Hall served as the president of LPS until May 2016, when he resigned as a condition of accepting employment at the Company. Mr. Hall does not set pricing, negotiate transactions, or otherwise control the Company’s business relationship with LPS.
On February 20, 2013, we entered into an Advisory Agreement with MAEVA Group, LLC (“MAEVA”), a company owned and controlled by Harry J. Wilson and of which Mr. Wilson is Chairman and CEO. Mr. Wilson served until March 2, 2014 as a director of the Company appointed by the IBT pursuant to its rights as a holder of the Series A Voting Preferred Stock and was not an independent director of the Company. Under the Advisory Agreement, MAEVA provided advisory, analytical, consulting and other services to us in connection with one or more potential transactions and/or other strategic initiatives.
We paid MAEVA a
$5.5 million
completion fee in January 2014 in connection with the completion of the 2014 Financing Transactions. Additionally in February 2014, we paid MAEVA an incremental fee of
$3.5 million
in recognition of its critical role and performance in designing and leading a series of highly complicated, challenging and interdependent transactions that were critical to the Company’s 2014 Financing Transactions. The term of the Advisory Agreement was extended for the first two months of 2014 in connection with the implementation of the 2014 Financing Transactions. Our entry into the Advisory Agreement and the fees paid to MAEVA in connection with the 2014 Financing Transactions were approved by the independent members of the Board.
14. Subsequent Events
On January 31, 2017, the Company entered into Amendment No. 3 to its Term Loan Agreement, which adjusted the maximum permitted total leverage ratio through December 31, 2018 and increased the applicable interest rate, among other things, as referenced in the “Debt and Financing” footnote to the consolidated financial statements.