Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements included elsewhere in this report. This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements include those preceded by, followed by or characterized by words such as “will,” “expect,” “intend,” “anticipate,” “believe,” “could,” “should,” “may,” “project,” “forecast,” “propose,” “plan,” “designed,” “estimate,” “enable” and similar expressions which speak only as of the date the statement was made. Forward-looking statements are inherently uncertain, are based upon current beliefs, assumptions and expectations of Company management and current market conditions, and are subject to significant business, economic, competitive, regulatory and other risks, uncertainties and contingencies, known and unknown, many of which are beyond our control. Readers are cautioned not to place undue reliance on any forward-looking statements. Our future financial condition and results could differ materially from those predicted in such forward-looking statements because of a number of factors, including (without limitation):
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general economic factors, including (without limitation) customer demand in the retail and manufacturing sectors;
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business risks and increasing costs associated with the transportation industry, including increasing equipment, operational and technology costs and disruption from natural disasters;
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competition and competitive pressure on pricing;
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the risk of labor disruptions or stoppages if our relationship with our employees and unions were to deteriorate;
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changes in pension expense and funding obligations, subject to interest rate volatility;
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increasing costs relating to our self-insurance claims expenses;
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our ability to finance the maintenance, acquisition and replacement of revenue equipment and other necessary capital expenditures;
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our ability to comply and the cost of compliance with, or liability resulting from violation of, federal, state, local and foreign laws and regulations, including (without limitation) labor laws and laws and regulations regarding the environment;
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impediments to our operations and business resulting from anti-terrorism measures;
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the impact of claims and litigation expense to which we are or may become exposed;
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that we may not realize the expected benefits and costs savings from our performance and operational improvement initiatives;
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our ability to attract and retain qualified drivers and increasing costs of driver compensation;
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a significant privacy breach or IT system disruption;
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risks of operating in foreign countries;
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our dependence on key employees;
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shortages of fuel and changes in the cost of fuel or the index upon which we base our fuel surcharge and the effectiveness of our fuel surcharge program in protecting us against fuel price volatility;
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our ability to generate sufficient liquidity to satisfy our cash needs and future cash commitments, including (without limitation) our obligations related to our indebtedness and lease and pension funding requirements, and our ability to achieve increased cash flows through improvement in operations;
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limitations on our operations, our financing opportunities, potential strategic transactions, acquisitions or dispositions resulting from restrictive covenants in the documents governing our existing and future indebtedness;
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our failure to comply with the covenants in the documents governing our existing and future indebtedness, including financial covenants under our credit facilities, in light of recent operating results;
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fluctuations in the price of our common stock;
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dilution from future issuances of our common stock;
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our intention not to pay dividends on our common stock;
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that we have the ability to issue preferred stock that may adversely affect the rights of holders of our common stock; and
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other risks and contingencies, including (without limitation) the risk factors that are included in our reports filed with the SEC, including those described under “Risk Factors” in our annual report on Form 10-K and quarterly reports on Form 10-Q, including this quarterly report.
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Overview
MD&A includes the following sections:
Our Business
— a brief description of our business and a discussion of how we assess our operating results.
Consolidated Results of Operations
— an analysis of our consolidated results of operations for the
three and six months ended June 30, 2019
and
2018
.
Reporting Segment Results of Operations
— an analysis of our results of operations for the
three and six months ended June 30, 2019
and
2018
for our YRC Freight and Regional Transportation reporting segments.
Certain Non-GAAP Financial Measures
— presentation and an analysis of selected non-GAAP financial measures for the
three and six months ended June 30, 2019
and
2018
and trailing twelve months ended
June 30, 2019
and
2018
.
Financial Condition/Liquidity and Capital Resources
— a discussion of our major sources and uses of cash and an analysis of our cash flows and aggregate contractual obligations and commercial commitments.
The “
second quarter
” and “
first half
” of the years discussed below refer to the
three and six months ended June 30
, respectively.
Our Business
YRC Worldwide is a holding company that, through its operating subsidiaries, offers our 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 its team of experienced service professionals, YRC Worldwide offers industry-leading expertise in LTL shipments and flexible supply chain solutions, ensuring customers can ship industrial, commercial and retail goods with confidence.
We measure the performance of our business on both a consolidated and reporting segment basis and using several metrics, but rely primarily upon (without limitation) operating revenue, operating income (loss), and operating ratio. We also use certain non-GAAP financial measures as secondary measures to assess our operating performance.
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Operating Revenue:
Our operating revenue has two primary components: volume (commonly evaluated using tonnage, tonnage per day, number of shipments, shipments per day or weight per shipment) and yield or price (commonly evaluated using picked up revenue, revenue per hundredweight or revenue per shipment). Yield includes fuel surcharge revenue, which is common in the trucking industry and represents an amount charged to customers that adjusts with changing fuel prices. We base our fuel surcharges on the U.S. Department of Energy fuel index and adjust them weekly. Rapid material changes in the index or our cost of fuel can positively or negatively impact our revenue and operating income as a result of changes in our fuel surcharge. We believe that fuel surcharge is an accepted and important component of the overall pricing of our services to our customers. Without an industry accepted fuel surcharge program, our base pricing for our transportation services would require changes. We believe the distinction between base rates and fuel surcharge has blurred over time, and it is impractical to clearly separate all the different factors that influence the price that our customers are willing to pay. In general, under our present fuel surcharge program, we believe rising fuel costs are beneficial to us and falling fuel costs are detrimental to us in the short term, the effects of which are mitigated over time.
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Operating Income (Loss):
Operating income (loss) is operating revenue less operating expenses. Consolidated operating income (loss) includes certain corporate charges that are not allocated to our reporting segments.
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Operating Ratio:
Operating ratio is a common operating performance measure used in the trucking industry. It is calculated as (i) 100 percent (ii) minus the result of dividing operating income by operating revenue or (iii) plus the result of dividing operating loss by operating revenue, and is expressed as a percentage.
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Non-GAAP Financial Measures:
We use EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, to assess the following:
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EBITDA:
a non-GAAP measure that reflects our earnings before interest, taxes, depreciation, and amortization expense. EBITDA is used for internal management purposes as a financial measure that reflects our core operating performance.
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Adjusted EBITDA:
a non-GAAP measure that reflects EBITDA, and further adjusts for certain net gains or losses on property disposals, non-cash impairment charges, letter of credit expenses, restructuring charges, transaction costs related to issuances of debt, nonrecurring consulting fees, permitted dispositions and discontinued operations, equity-based compensation expense, union vacation restoration charges and non-union pension settlement charges, among other items, as defined in our credit facilities. Adjusted EBITDA is used for internal management purposes as a financial measure that reflects our core operating performance, to measure compliance with financial covenants in our term loan credit agreement and to determine certain management and employee bonus compensation.
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We believe our presentation of EBITDA and Adjusted EBITDA is useful to investors and other users as these measures represent key supplemental information our management uses to compare and evaluate our core underlying business results both on a consolidated basis and across our business segments, particularly in light of our leverage position and the capital-intensive nature of our business. Further, EBITDA is a measure that is commonly used by other companies in our industry and provides a comparison for investors to evaluate the performance of the companies in the industry. Additionally, Adjusted EBITDA helps investors to understand how the company is tracking against our financial covenants in our term loan credit agreement as this measure is calculated as prescribed in our term loan credit agreement and serves as a driving component of key financial covenants.
Our non-GAAP financial measures have the following limitations:
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EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or fund principal payments on our outstanding debt;
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Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or fund principal payments on our outstanding debt, letter of credit expenses, restructuring charges, transaction costs related to debt, union vacation restoration charges, or nonrecurring consulting fees, among other items;
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Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will generally need to be replaced in the future and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
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Equity-based compensation is an element of our long-term incentive compensation package, although Adjusted EBITDA excludes employee equity-based compensation expense when presenting our ongoing operating performance for a particular period; and
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Other companies in our industry may calculate Adjusted EBITDA differently than we do, potentially limiting its usefulness as a comparative measure.
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Because of these limitations, our non-GAAP measures should not be considered a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and use our non-GAAP measures as secondary measures.
Business Strategy Overview
The Company has developed a comprehensive business strategy to achieve long-term profitability and stability. Our strategic roadmap to improved profitability and stability is built upon the proven alliance of our LTL regional and national networks, as well as our recently launched multi-mode freight brokerage solutions, to provide a broad portfolio of freight and business services to our customers.
The key components to our multi-year strategic roadmap include:
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Labor contract ratification, along with implementation of operational efficiencies to achieve service excellence
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Capital structure improvement
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4.
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Customer growth/engagement initiatives
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5.
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Capital investment in equipment and technology
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Labor contract ratification and implementation of operational efficiencies
: During the first half of 2019, the Company ratified a new five-year national master contract (“New NMFA”) for the employees of Holland, New Penn and YRC Freight, which is a critical element for the comprehensive strategic plan for the Company. The New NMFA provides the Company with important changes to create a foundation for revenue growth and operational excellence. The operational changes are expected to provide efficiencies in our workforce by introducing new job classifications and allowing us to employ more flexible work rules to optimize the use of our valuable employee resources. These changes allow us to improve labor mix which should result in reduced costs
per labor hour. For example, prior to the New NMFA, we were unable to fill part-time positions in many key markets across our footprint due to a non-competitive wage package for part-time employees. With the New NMFA, we are now expanding our part-time work force which allows us to reposition our commercial driver’s license (“CDL”) drivers to freight delivery and to deploy part-time employees to dock positions, resulting in lower employee compensation expense and improved productivity. The expansion of purchased transportation that is permitted under the New NMFA provides us opportunities to plan and source our operations using more cost-effective resources and to expand our capacity consistent with our customer growth and engagement initiatives. The New NMFA also allows us to introduce new equipment, referred to as box trucks, into our LTL freight operations, which, along with new non-CDL driver classifications, permits us to provide a lower cost solution to local cartage or short-term rentals.
Capital Structure Improvement
: The Company is currently pursuing new financing alternatives, including a potential refinancing of the Term Loan Agreement to provide for less restrictive financial covenants, as well as potentially lowering interest rates and extending the maturity of the facility as compared to our current Term Loan Agreement.
Network Optimization
: While ongoing investments in equipment and technology remain our primary use of excess operating cash flows, we understand the importance of balancing liquidity and our ongoing investments with the service capacity we need to bring to the market. In the initial phase of our network optimization execution, two of our companies operate independently out of the same service center. Upon implementation of the New NMFA that was ratified on May 14, 2019, we may now consolidate service centers across our operating companies to optimize utilization of our assets and resources, and companies that operate in the same service territory will be serviced through one primary carrier. We believe service center consolidation presents the greatest opportunity for our network optimization initiative. We expect to launch our first consolidation in late 2019, with the majority of network consolidations occurring in 2020. By consolidating service centers, we expect to recognize cost savings in our linehaul and pick-up and delivery operations due to improved density, fewer miles driven and optimization of route planning and labor resources. Over time, this initiative should enhance service and strategically position our network for the growing demand of next-day services, provide productivity improvements and streamline our cost structure as we seek to eliminate redundancies across the network, both in facilities, infrastructure and human capital. Most recently, we have moved forward with certain headcount reductions to remain disciplined with our cost structure, including, but not limited to, the consolidation of the New Penn corporate services.
Customer Growth/Engagement Initiatives
: Creating simplified engagement for customers and an increased service offering are a critical part of our strategic focus on growth and engagement. We completed the final phase of our sales restructuring which consolidated our four distinct sales groups into one enterprise sales organization. This allows customers to buy regional, national and brokerage services from a single point of contact at YRCW while introducing existing customers to additional operating companies. The launch of our third-party brokerage solution , HNRY Logistics in late 2018 is the perfect complement to our LTL, asset-based companies and allow us to better service our customers with a full suite of logistics solutions.
Capital Investment
: Capital allocation remains a top priority for us. We will continue to invest in revenue equipment to improve the age of our fleet as there is an immediate return in improved fuel miles per gallon, reduced vehicle maintenance expense and improved driver morale. Since 2015, more than 35% of our tractor fleet and nearly 30% of our trailer fleet have been upgraded. While the average age of our fleet still lags the industry, the average age of our fleet is no longer increasing.
New National Master Freight Agreement
On May 14, 2019, union employees at operating companies Holland, New Penn and YRC Freight ratified New NMFA, along with all supplemental agreements. The New NMFA outlines terms and conditions of employment that are customary in collective bargaining agreements and apply at a national level across the covered operations, such as wages, health benefits, multiemployer pension plan contribution rates, and various operational items. A few of the highlights in the New NMFA include:
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Hourly wage increases in each year of the contract, beginning April 1, 2019 through 2023
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Health and welfare and pension contribution rate increases
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Restoration of an additional one-week of vacation
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The expanded ability to utilize smaller trucks that can be operated by employees who do not have a CDL
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The ability to utilize additional hours of service, in accordance with Department of Transportation regulations
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The increased ability to utilize purchased transportation at YRC Freight and Holland
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The increased ability to utilize employees in non-driving positions
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A newly-structured performance bonus program for employees
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The new wage improvements allow us to advance our driver hiring and retention efforts to ensure we are adequately staffed with professional CDL drivers and other key personnel at our service centers. The contractual wage increases under the New
NMFA were paid retroactively to April 1, 2019 including the one week of vacation. Additionally, the Company incurred one-time vacation charges in second quarter operating results of $12.4 million to reflect the full year 2018 and first quarter 2019 vacation benefit increase.
The supplemental agreements cover more localized work rules and other terms and conditions of employment. The Company was unable to commence actions to implement the operational efficiencies until the New NMFA, and all supplements, were fully ratified on May 14, 2019.
Consolidated Results of Operations
Our consolidated results include the consolidated results of our reporting segments and unallocated corporate charges. A more detailed discussion of the operating results of our reporting segments is presented in the “Reporting Segment Results of Operations” section below.
The table below provides summary consolidated financial information for the
second quarter
and
first half
of
2019
and
2018
:
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Second Quarter
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First Half
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(in millions)
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2019
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2018
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Percent Change
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2019
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2018
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Percent Change
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Operating revenue
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$
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1,272.6
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$
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1,326.5
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(4.1
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)%
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$
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2,454.9
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$
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2,541.0
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(3.4
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)%
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Operating income (loss)
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14.3
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50.9
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(71.9
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)%
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(17.4
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)
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46.6
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(137.3
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)%
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Nonoperating expenses, net
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28.8
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26.1
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10.3
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%
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55.9
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49.3
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13.4
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%
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Net income (loss)
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(23.6
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)
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14.4
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NM*
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(72.7
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(0.2
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)
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NM*
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Second Quarter
of
2019
Compared to the
Second Quarter
of
2018
Our consolidated operating revenue
decreased
$53.9 million
, or
4.1%
, during the
second quarter
of
2019
compared to the same period in
2018
. The decrease in revenue is primarily attributed to a decrease in tonnage and fuel surcharge revenue, while partially offset by an increase in base yield excluding fuel surcharge.
Total operating expenses
decreased
$17.3 million
, or
1.4%
, for the
second quarter
of
2019
compared to the
second quarter
of
2018
, and consisted primarily of lower purchased transportation expense as well as lower fuel, operating expenses and supplies charges, partially offset by increased salaries, wages and employee benefits.
Salaries, wages and employee benefits
. Salaries, wages and employee benefits
increased
$26.3 million
, or
3.5%
, primarily due to a $19.9 million increase in benefits costs which was largely driven by a $16.8 million increase in union vacation expense due to restoration of benefits from the passage of the New NMFA, an $8.5 million increase in workers’ compensation expense, and a $4.1 million increase in wage expense as a result of a $25.3 million increase in contractual wages rates due to the New NMFA, which was partially offset by a decrease in tonnage that reduced the number of hours needed to process freight. These increases were partially offset by a $7.6 million decrease in short-term incentive compensation.
Fuel, operating expenses and supplies.
Fuel, operating expenses and supplies
decreased
$13.7 million
, or
5.7%
, primarily due to a $10.7 million decrease in fuel expense, which was largely a result of fewer miles driven and lower fuel prices, and a $3.8 million decrease in vehicle maintenance expense.
Purchased transportation
. Purchased transportation
decreased
$19.2 million
, or
10.8%
, primarily due to a $20.9 million decrease in rail and over-the-road purchased transportation expense due partially to reduced shipping volumes and a $2.5 million decrease from reduced usage of local purchased transportation and short-term equipment rentals. Purchased transportation expense also includes a $5.3 million increase in third-party costs for customer-specific logistics solutions.
Other operating expense.
Other operating expense
decreased
$
3.2 million
, or
5.3%
, primarily due to a $2.3 million decrease in cargo claims expense.
(Gains)/losses on property disposals
. Net gains on disposals of property were $6.2 million in the
second quarter
of
2019
which were primarily the result of the sale of real property as well as a deferred gain recognized from changes in contractual lease terms, as compared to a $
2.2 million
loss in the
second quarter
of
2018
, primarily due to losses on the disposal of revenue equipment.
Nonoperating expenses, net.
Nonoperating expenses, net,
increased
$2.7 million
in the
second quarter
of
2019
compared to the
second quarter
of
2018
, primarily driven by a $2.7 million increase in interest expense due to higher variable interest rates.
Our effective tax rate for the
second quarter
of
2019
and
2018
was
(62.8)%
and
41.9%
, respectively. The significant items impacting the 2019 rate include a benefit recognized due to application of the exception to the rules regarding intraperiod tax allocation, a provision for net state and foreign taxes, certain permanent items, and a change in the valuation allowance established for the net deferred tax asset balance projected for December 31, 2019. The significant items impacting the 2018 rate include a provision for net state and foreign taxes, certain permanent items, and a change in the valuation allowance established for the net deferred tax asset balance that had been projected for December 31, 2018. We recognize valuation allowances on deferred tax assets if, based on the weight of the evidence, we determine it is more likely than not that such assets will not be realized. Changes in valuation allowances are included in our tax provision in the period of change. In determining whether a valuation allowance is warranted, we evaluate factors such as prior years’ earnings history, expected future earnings, loss carry-forward periods, reversals of existing deferred tax liabilities and tax planning strategies that potentially enhance the likelihood of the realization of a deferred tax asset. At June 30, 2019 and December 31, 2018, substantially all of our net deferred tax assets were subject to a valuation allowance.
First Half
of
2019
Compared to the
First Half
of
2018
Our consolidated operating revenue
decreased
$
86.1 million
, or
3.4%
, during the
first half
of
2019
compared to the same period in
2018
. The decrease in revenue is primarily attributed to a decrease in tonnage and fuel surcharge revenue, while partially offset by an increase in base yield excluding fuel surcharge.
Total operating expenses
decreased
$
22.1 million
, or
0.9%
, for the
first half
of
2019
compared to the
first half
of
2018
, and consisted primarily of lower purchased transportation expense as well as lower fuel, operating expenses and supplies charges, partially offset by increased salaries, wages and employee benefits.
Salaries, wages and employee benefits
. Salaries, wages and employee benefits
increased
$
14.8 million
, or
1.0%
, primarily due to a $24.0 million increase in benefits costs which was largely driven by a $16.8 million increase in union vacation expense due to restoration of benefits from the passage of the New NMFA, a $5.4 million increase in workers’ compensation expense, and a $4.3 million increase in salaries expense. These increases were partially offset by a $10.0 million decrease in short-term incentive compensation and an $8.9 million decrease in wage expense as a result of an increase in contractual wages rates due to the New NMFA, which was more than offset by a decrease in tonnage that reduced the number of hours needed to process freight.
Fuel, operating expenses and supplies.
Fuel, operating expenses and supplies
decreased
$
8.0 million
, or
1.7%
, primarily due to a $16.0 million decrease in fuel expense, which was largely a result of fewer miles driven and lower prices and a $4.6 million decrease in vehicle maintenance expense. These increases were partially offset by a $6.1 million increase in other operating expenses as a result of vendor bankruptcy charges and settlement expenses, and a $3.8 million increase in professional fees as a result of fees associated with our New NMFA.
Purchased transportation
. Purchased transportation
decreased
$
28.3 million
, or
8.5%
, primarily due to a $34.2 million decrease in rail and over-the-road purchased transportation expense due partially to reduced shipping volumes and a $5.2 million decrease from reduced usage of local purchased transportation and short-term equipment rentals. Purchased transportation expense also includes a $7.8 million increase in third-party costs for customer-specific logistics solutions and a $4.1 million increase in long-term equipment rentals in conjunction with the Company’s leasing strategy to reinvest in its fleet.
Other operating expense.
Other operating expense
decreased
$
2.0 million
, or
1.6%
, primarily due to a $3.1 million decrease in operating tax expense as a result of fewer miles driven and a $2.5 million decrease in cargo claims expense, partially offset by a $3.3 million increase in third-party liability claims expense largely due to current year claims.
(Gains)/Losses on property disposals
. Net gains on disposals of property were $4.6 million in the
first half
of
2019
, which were primarily the result of the sale of real property as well as a deferred gain recognized from changes in contractual lease terms, as compared to a $
5.4 million
loss in the
first half
of
2018
, primarily due to losses on the disposal of revenue equipment.
Impairment charges
. During the first quarter of 2019, we recorded an $8.2 million impairment charge at YRC Freight that reflects the write-down of an intangible asset as a result of rebranding strategies, leading to discontinued use of a tradename.
Nonoperating expenses, net.
Nonoperating expenses, net,
increased
$
6.6 million
in the
first half
of
2019
compared to the
first half
of
2018
, primarily driven by a $4.1 million increase in interest expense due to higher variable interest rates and a $1.7 million increase in non-union pension expense.
Our effective tax rate for the
first half
of
2019
and
2018
was
0.8%
and
92.6%
, respectively. The significant items impacting the 2019 rate include a benefit recognized due to application of the exception to the rules regarding intraperiod tax allocation, a provision for net state and foreign taxes, certain permanent items, and a change in the valuation allowance established for the net deferred tax asset balance projected for December 31, 2019. The significant items impacting the 2018 rate include a provision for net state and foreign taxes, foreign withholding taxes related to dividends from a foreign subsidiary, certain permanent items, and a change in the valuation allowance established for the net deferred tax asset balance that had been projected for December 31, 2018.
Reporting Segment Results of Operations
We evaluate our operating performance using our YRC Freight and Regional Transportation reporting segments:
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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 LTL subsidiaries YRC Inc. and YRC Freight Canada Company (both doing business as, and herein referred to as, “YRC Freight”) and HNRY Logistics, Inc. (“HNRY Logistics”), our customer-specific logistics solutions provider. In addition to the United States and Canada, YRC Freight also serves parts of Mexico and Puerto Rico.
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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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The Company uses key operating metrics to provide a comparison with industry peers. Two primary components include volume (commonly evaluated using tonnage, tonnage per day, total shipments, shipments per day or weight per shipment) and yield or price (commonly evaluated as picked up revenue, revenue per hundredweight, or revenue per shipment). With the enhanced focus of service and product expansion and the launch of HNRY Logistics in late 2018, our increase in shipments over 10,000 pounds is growing, impacting the year-over-year revenue per hundredweight metrics that we have historically presented for YRC Freight, which includes the results of operations for HNRY Logistics.
Therefore, the Company has updated its presentation of operating metrics to separately present LTL operating statistics, which represents shipments less than 10,000 pounds. Shipments greater than 10,000 pounds are primarily transported using third-party purchased transportation.
YRC Freight Results
YRC Freight represented
62.9%
of consolidated operating revenue for the
second quarter
of
2019
, as compared to
62.4%
for the
second quarter
of
2018
. YRC Freight represented
62.9%
of consolidated operating revenue for the
first half
of
2019
, as compared to
62.1%
for the
first half
of
2018
. The table below provides summary financial information for YRC Freight for the
second quarter
and
first half
of
2019
and
2018
:
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|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
(in millions)
|
2019
|
|
2018
|
|
Percent Change
|
|
2019
|
|
2018
|
|
Percent Change
|
Operating revenue
|
$
|
800.8
|
|
|
$
|
827.6
|
|
|
(3.2)%
|
|
$
|
1,544.6
|
|
|
$
|
1,578.9
|
|
|
(2.2)%
|
Operating income (loss)
|
16.0
|
|
|
26.8
|
|
|
(40.3)%
|
|
(5.1
|
)
|
|
19.9
|
|
|
NM*
|
Operating ratio
(a)
|
98.0
|
%
|
|
96.8
|
%
|
|
(1.2) pp
|
|
100.3
|
%
|
|
98.7
|
%
|
|
(1.6) pp
|
|
|
(a)
|
pp represents the change in percentage points
|
(*)
not meaningful
Second Quarter
of
2019
Compared to the
Second Quarter
of
2018
YRC Freight reported operating revenue of
$800.8 million
in the
second quarter
of
2019
, a
decrease
of
$26.8 million
, or
3.2%
, compared to the same period in
2018
. The
decrease
in revenue is primarily attributed to a decrease in tonnage and fuel surcharge revenue, partially offset by an improvement in base yield, excluding fuel surcharge. The table below summarizes the key revenue metrics for the YRC Freight reporting segment for the
second quarter
of
2019
compared to the
second quarter
of
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
|
2019
|
|
2018
|
|
Percent Change
(b)
|
Workdays
|
63.5
|
|
|
64.0
|
|
|
|
|
|
|
|
|
|
LTL picked up revenue (in millions)
|
$
|
738.7
|
|
|
$
|
765.5
|
|
|
(3.5
|
)%
|
LTL tonnage (in thousands)
|
1,227
|
|
|
1,327
|
|
|
(7.5
|
)%
|
LTL tonnage per day (in thousands)
|
19.33
|
|
|
20.73
|
|
|
(6.8
|
)%
|
LTL shipments (in thousands)
|
2,474
|
|
|
2,629
|
|
|
(5.9
|
)%
|
LTL shipments per day (in thousands)
|
38.96
|
|
|
41.08
|
|
|
(5.2
|
)%
|
LTL picked up revenue per hundred weight
|
$
|
30.09
|
|
|
$
|
28.85
|
|
|
4.3
|
%
|
LTL picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
26.45
|
|
|
$
|
25.24
|
|
|
4.8
|
%
|
LTL picked up revenue per shipment
|
$
|
299
|
|
|
$
|
291
|
|
|
2.6
|
%
|
LTL picked up revenue per shipment (excluding fuel surcharge)
|
$
|
262
|
|
|
$
|
255
|
|
|
3.0
|
%
|
LTL weight per shipment (in pounds)
|
992
|
|
|
1,009
|
|
|
(1.7
|
)%
|
|
|
|
|
|
|
Total picked up revenue (in millions)
(a)
|
$
|
791.5
|
|
|
$
|
821.0
|
|
|
(3.6
|
)%
|
Total tonnage (in thousands)
|
1,554
|
|
|
1,623
|
|
|
(4.3
|
)%
|
Total tonnage per day (in thousands)
|
24.46
|
|
|
25.36
|
|
|
(3.5
|
)%
|
Total shipments (in thousands)
|
2,511
|
|
|
2,667
|
|
|
(5.9
|
)%
|
Total shipments per day (in thousands)
|
39.54
|
|
|
41.67
|
|
|
(5.1
|
)%
|
Total picked up revenue per hundred weight
|
$
|
25.47
|
|
|
$
|
25.29
|
|
|
0.7
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
22.45
|
|
|
$
|
22.17
|
|
|
1.3
|
%
|
Total picked up revenue per shipment
|
$
|
315
|
|
|
$
|
308
|
|
|
2.4
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
$
|
278
|
|
|
$
|
270
|
|
|
3.0
|
%
|
Total weight per shipment (in pounds)
|
1,238
|
|
|
1,217
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
(in millions)
|
2019
|
|
2018
|
(a)
Reconciliation of operating revenue to total picked up revenue:
|
|
|
|
Operating revenue
|
$
|
800.8
|
|
|
$
|
827.6
|
|
Change in revenue deferral and other
|
(9.3
|
)
|
|
(6.6
|
)
|
Total picked up revenue
|
$
|
791.5
|
|
|
$
|
821.0
|
|
|
|
(a)
|
Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods and the impact
|
of other revenue
|
|
(b)
|
Percent change based on unrounded figures and not the rounded figures presented
|
Operating income for YRC Freight was
$16.0 million
in the
second quarter
of
2019
compared to operating income of
$26.8 million
in the
second quarter
of
2018
. Operating expenses decreased
$16.0 million
, or
2.0%
, primarily due to decreases in purchased transportation expense, and fuel, operating expenses and supplies expense. These decreases were partially offset by increased salaries, wages and employee benefits.
Salaries, wages and employee benefits.
Salaries, wages and employee benefits increased $17.1 million, or 3.8%, primarily due to a $12.7 million increase in benefits costs which was largely driven by a $10.8 million increase in union vacation expense due to restoration of benefits from the passage of the New NMFA, and a $2.7 million increase in workers’ compensation expense. Wage expense for the quarter increased $1.0 million as a result of a $14.6 million increase in contractual wages rates due to the New NMFA, which was partially offset by a decrease in tonnage that reduced the number of hours needed to process freight.
Fuel, operating expenses and supplies
. Fuel, operating expenses and supplies decreased $12.2 million, or 8.1%, primarily due to a $6.9 million decrease in fuel expense, which was largely driven by fewer miles driven and lower prices, a $2.5 million reduction in professional fees largely as a result of lower corporate service fees, and a $2.0 million decrease in vehicle maintenance expense.
Purchased transportation
. Purchased transportation decreased $14.1 million, or 10.2%, primarily due to a $16.1 million decrease in rail and over-the-road purchased transportation expense due partially to reduced shipping volumes and a $3.7 million decrease from reduced usage of local purchased transportation and short-term equipment rentals. Purchased transportation expense also includes a $5.3 million increase in third-party costs for customer-specific logistics solutions and a $2.1 million increase in long-term equipment rentals in conjunction with the Company’s leasing strategy to reinvest in its fleet.
Other operating expense.
Other operating expense decreased $1.8 million, or 5.2%, primarily due to a $1.8 million decrease in cargo claims expense.
(Gains)/Losses on property disposals
. Net gains on disposals of property were $3.2 million in the
second quarter
of
2019
primarily as a result of a deferred gain recognized from changes in contractual lease terms, compared to a $1.8 million loss in the
second quarter
of
2018
, primarily due to losses on the disposal of revenue equipment.
First Half
of
2019
Compared to the
First Half
of
2018
YRC Freight reported operating revenue of $
1,544.6 million
in the
first half
of
2019
, a
decrease
of $
34.3 million
, or
2.2%
, compared to the same period in
2018
. The
decrease
in revenue is primarily attributed to a decrease in tonnage and fuel surcharge revenue, partially offset by an improvement in base yield, excluding fuel surcharge. The table below summarizes the key revenue metrics for the YRC Freight reporting segment for the
first half
of
2019
compared to the
first half
of
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half
|
|
|
|
2019
|
|
2018
|
|
Percent Change
(b)
|
Workdays
|
126.5
|
|
|
127.5
|
|
|
|
|
|
|
|
|
|
LTL picked up revenue (in millions)
|
$
|
1,427.0
|
|
|
$
|
1,464.1
|
|
|
(2.5
|
)%
|
LTL tonnage (in thousands)
|
2,382
|
|
|
2,562
|
|
|
(7.0
|
)%
|
LTL tonnage per day (in thousands)
|
18.83
|
|
|
20.10
|
|
|
(6.3
|
)%
|
LTL shipments (in thousands)
|
4,772
|
|
|
5,045
|
|
|
(5.4
|
)%
|
LTL shipments per day (in thousands)
|
37.72
|
|
|
39.57
|
|
|
(4.7
|
)%
|
LTL picked up revenue per hundred weight
|
$
|
29.95
|
|
|
$
|
28.57
|
|
|
4.8
|
%
|
LTL picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
26.39
|
|
|
$
|
25.08
|
|
|
5.2
|
%
|
LTL picked up revenue per shipment
|
$
|
299
|
|
|
$
|
290
|
|
|
3.0
|
%
|
LTL picked up revenue per shipment (excluding fuel surcharge)
|
$
|
264
|
|
|
$
|
255
|
|
|
3.5
|
%
|
LTL weight per shipment (in pounds)
|
998
|
|
|
1,016
|
|
|
(1.7
|
)%
|
|
|
|
|
|
|
Total picked up revenue (in millions)
(a)
|
$
|
1,529.5
|
|
|
$
|
1,568.6
|
|
|
(2.5
|
)%
|
Total tonnage (in thousands)
|
2,996
|
|
|
3,122
|
|
|
(4.0
|
)%
|
Total tonnage per day (in thousands)
|
23.68
|
|
|
24.48
|
|
|
(3.3
|
)%
|
Total shipments (in thousands)
|
4,842
|
|
|
5,118
|
|
|
(5.4
|
)%
|
Total shipments per day (in thousands)
|
38.28
|
|
|
40.14
|
|
|
(4.6
|
)%
|
Total picked up revenue per hundred weight
|
$
|
25.53
|
|
|
$
|
25.12
|
|
|
1.6
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
22.55
|
|
|
$
|
22.08
|
|
|
2.1
|
%
|
Total picked up revenue per shipment
|
$
|
316
|
|
|
$
|
307
|
|
|
3.1
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
$
|
279
|
|
|
$
|
269
|
|
|
3.6
|
%
|
Total weight per shipment (in pounds)
|
1,238
|
|
|
1,220
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
First Half
|
(in millions)
|
2019
|
|
2018
|
(a)
Reconciliation of operating revenue to total picked up revenue:
|
|
|
|
Operating revenue
|
$
|
1,544.6
|
|
|
$
|
1,578.9
|
|
Change in revenue deferral and other
|
(15.1
|
)
|
|
(10.3
|
)
|
Total picked up revenue
|
$
|
1,529.5
|
|
|
$
|
1,568.6
|
|
|
|
(a)
|
Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods and the impact
|
of other revenue
|
|
(b)
|
Percent change based on unrounded figures and not the rounded figures presented
|
Operating loss for YRC Freight was $
5.1 million
in the
first half
of
2019
compared to operating income of $
19.9 million
in the
first half
of
2018
. Operating expenses decreased $
9.3 million
, or
0.6%
, primarily due to a decrease in purchased transportation expense and fuel, operating expenses and supplies expense. These decreases were partially offset by increased salaries, wages and employee benefits.
Salaries, wages and employee benefits.
Salaries, wages and employee benefits increased $15.2 million, or 1.7%, primarily due to a $17.1 million increase in benefits costs which was largely driven by a $10.8 million increase in union vacation expense due to restoration of benefits from the passage of the New NMFA, and a $3.4 million increase in salaries expense, partially offset by a $5.0 million decrease in wage expense as a result of an increase in contractual wages rates due to the New NMFA, which was more than offset by a decrease in tonnage that reduced the number of hours needed to process freight.
Fuel, operating expenses and supplies
. Fuel, operating expenses and supplies decreased $10.0 million, or 3.4%, primarily due to a $9.8 million decrease in fuel expense, which was largely driven by fewer miles driven and lower prices, a $5.2 million decrease in vehicle maintenance expense, and a $3.7 million reduction in professional fees largely as a result of lower corporate service fees. These decreases were partially offset by a $6.6 million increase in other operating expenses as a result of vendor bankruptcy charges and settlement expenses, and a $2.0 million increase in facility maintenance expense.
Purchased transportation
. Purchased transportation decreased $18.2 million, or 7.1%, primarily due to a $26.3 million decrease in rail and over-the-road purchased transportation expense due partially to reduced shipping volumes and a $6.0 million decrease from reduced usage of local purchased transportation and short-term equipment rentals. Purchased transportation expense also includes a $7.8 million increase in third-party costs for customer-specific logistics solutions and a $6.9 million increase in long-term equipment rentals in conjunction with the Company’s leasing strategy to reinvest in its fleet.
(Gains)/Losses on property disposals
. Net gains on disposals of property were $2.0 million in the
first half
of
2019
primarily as a result of a deferred gain recognized from changes in contractual lease terms, compared to a $4.5 million loss in the
first half
of
2018
, primarily due to losses on the disposal of revenue equipment.
Impairment charges.
During the first quarter of 2019, we recorded an $8.2 million impairment charge that reflects the write-down of an intangible asset as a result of rebranding strategies, leading to discontinued use of a tradename.
Regional Transportation Results
Regional Transportation represented
37.1%
of consolidated operating revenue for the
second quarter
of
2019
, as compared to
37.6%
for the
second quarter
of
2018
. Regional Transportation represented
37.1%
of consolidated operating revenue for the
first half
of
2019
, as compared to
37.9%
for the
first half
of
2018
. The table below provides summary financial information for Regional Transportation for the
second quarter
and
first half
of
2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
(in millions)
|
2019
|
|
2018
|
|
Percent Change
|
|
2019
|
|
2018
|
|
Percent Change
|
Operating revenue
|
$
|
471.8
|
|
|
$
|
499.0
|
|
|
(5.5) %
|
|
$
|
910.4
|
|
|
$
|
962.3
|
|
|
(5.4)%
|
Operating income (loss)
|
2.6
|
|
|
29.2
|
|
|
(91.1) %
|
|
(4.4
|
)
|
|
34.4
|
|
|
(112.8)%
|
Operating ratio
(a)
|
99.4
|
%
|
|
94.1
|
%
|
|
(5.3) pp
|
|
100.5
|
%
|
|
96.4
|
%
|
|
(4.1) pp
|
(a) pp represents the change in percentage points
(*)
not meaningful
Second Quarter
of
2019
Compared to the
Second Quarter
of
2018
Regional Transportation reported operating revenue of
$471.8 million
for the
second quarter
of
2019
, a
decrease
of
$27.2 million
, or
5.5%
, from the
second quarter
of
2018
. The decrease in revenue is primarily attributed to a decrease in tonnage and fuel surcharge revenue, partially offset by an improvement in base yield, excluding fuel surcharge. The table below summarizes the key revenue metrics for the Regional Transportation reporting segment for the
second quarter
of
2019
compared to the
second quarter
of
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
|
2019
|
|
2018
|
|
Percent Change
(b)
|
Workdays
|
63.5
|
|
|
64.0
|
|
|
|
|
|
|
|
|
|
LTL picked up revenue (in millions)
|
$
|
439.0
|
|
|
$
|
459.1
|
|
|
(4.4
|
)%
|
LTL tonnage (in thousands)
|
1,499
|
|
|
1,590
|
|
|
(5.7
|
)%
|
LTL tonnage per day (in thousands)
|
23.61
|
|
|
24.84
|
|
|
(4.9
|
)%
|
LTL shipments (in thousands)
|
2,383
|
|
|
2,531
|
|
|
(5.9
|
)%
|
LTL shipments per day (in thousands)
|
37.52
|
|
|
39.55
|
|
|
(5.1
|
)%
|
LTL picked up revenue per hundred weight
|
$
|
14.64
|
|
|
$
|
14.44
|
|
|
1.4
|
%
|
LTL picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
12.90
|
|
|
$
|
12.68
|
|
|
1.8
|
%
|
LTL picked up revenue per shipment
|
$
|
184
|
|
|
$
|
181
|
|
|
1.6
|
%
|
LTL picked up revenue per shipment (excluding fuel surcharge)
|
$
|
162
|
|
|
$
|
159
|
|
|
2.0
|
%
|
LTL weight per shipment (in pounds)
|
1,259
|
|
|
1,256
|
|
|
0.2
|
%
|
|
|
|
|
|
|
Total picked up revenue (in millions)
(a)
|
$
|
472.6
|
|
|
$
|
499.8
|
|
|
(5.4
|
)%
|
Total tonnage (in thousands)
|
1,838
|
|
|
2,002
|
|
|
(8.2
|
)%
|
Total tonnage per day (in thousands)
|
28.95
|
|
|
31.28
|
|
|
(7.4
|
)%
|
Total shipments (in thousands)
|
2,432
|
|
|
2,590
|
|
|
(6.1
|
)%
|
Total shipments per day (in thousands)
|
38.29
|
|
|
40.47
|
|
|
(5.4
|
)%
|
Total picked up revenue per hundred weight
|
$
|
12.85
|
|
|
$
|
12.48
|
|
|
3.0
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
11.34
|
|
|
$
|
10.97
|
|
|
3.3
|
%
|
Total picked up revenue per shipment
|
$
|
194
|
|
|
$
|
193
|
|
|
0.7
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
$
|
171
|
|
|
$
|
170
|
|
|
1.1
|
%
|
Total weight per shipment (in pounds)
|
1,512
|
|
|
1,546
|
|
|
(2.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
(in millions)
|
2019
|
|
2018
|
(a)
Reconciliation of operating revenue to total picked up revenue:
|
|
|
|
Operating revenue
|
$
|
471.8
|
|
|
$
|
499.0
|
|
Change in revenue deferral and other
|
0.8
|
|
|
0.8
|
|
Total picked up revenue
|
$
|
472.6
|
|
|
$
|
499.8
|
|
|
|
(a)
|
Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods
|
|
|
(b)
|
Percent change based on unrounded figures and not the rounded figures presented
|
Operating income for Regional Transportation was
$2.6 million
for the
second quarter
of
2019
compared to operating income of
$29.2 million
for the
second quarter
of
2018
. Operating expenses decreased
$0.6 million
, or
0.1%
, primarily due to decreased purchased transportation expense as well as decreased fuel, operating expenses and supplies expense. These decreases were partially offset by increased salaries, wages and employee benefits.
Salaries, wages and employee benefits.
Salaries, wages and employee benefits increased $15.6 million, or 5.4%, primarily due to a $7.4 million increase in benefits costs which was largely driven by a $6.0 million increase in union vacation expense due to restoration of benefits from the passage of the New NMFA, a $5.8 million increase in workers’ compensation expense, and a $3.2
million increase in wage expense as a result of an increase in contractual wages rates due to the New NMFA, which was partially offset by a decrease in tonnage that reduced the number of hours needed to process freight. These increases were partially offset by a $2.2 million decrease in short-term incentive compensation.
Fuel, operating expenses and supplies.
Fuel, operating expenses and supplies decreased $6.9 million, or 6.7%, primarily due to a $3.8 million decrease in fuel expense, which was largely driven by fewer miles driven and lower prices, a $1.8 million decrease in vehicle maintenance expense, and a $1.8 million reduction in professional fees largely as a result of lower corporate service fees.
Purchased transportation
. Purchased transportation decreased $5.1 million, or 12.9%, primarily due to a $4.9 million decrease in over-the-road purchased transportation expense due partially to reduced shipping volumes.
Other operating expense.
Other operating expense decreased $1.4 million, or 5.6%, primarily due to a $0.9 million decrease in operating taxes as a result of fewer miles driven.
(Gains)/losses on property disposals
. Net gains on disposals of property were $2.9 million in 2019 as a result on gains on the sale of real property, as compared to net losses of $0.4 million in 2018, primarily due to losses on the disposal of revenue equipment.
First Half
of
2019
Compared to the
First Half
of
2018
Regional Transportation reported operating revenue of $
910.4 million
for the
first half
of
2019
, a
decrease
of $
51.9 million
, or
5.4%
, from the
first half
of
2018
. The decrease in revenue is primarily attributed to a decrease in tonnage and fuel surcharge, partially offset by an improvement in base yield, excluding fuel surcharge. The table below summarizes the key revenue metrics for the Regional Transportation reporting segment for the
first half
of
2019
compared to the
first half
of
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half
|
|
|
|
2019
|
|
2018
|
|
Percent Change
(b)
|
Workdays
|
126.5
|
|
|
127.5
|
|
|
|
|
|
|
|
|
|
LTL picked up revenue (in millions)
|
$
|
843.8
|
|
|
$
|
884.1
|
|
|
(4.5
|
)%
|
LTL tonnage (in thousands)
|
2,887
|
|
|
3,101
|
|
|
(6.9
|
)%
|
LTL tonnage per day (in thousands)
|
22.82
|
|
|
24.32
|
|
|
(6.2
|
)%
|
LTL shipments (in thousands)
|
4,576
|
|
|
4,918
|
|
|
(7.0
|
)%
|
LTL shipments per day (in thousands)
|
36.17
|
|
|
38.58
|
|
|
(6.2
|
)%
|
LTL picked up revenue per hundred weight
|
$
|
14.62
|
|
|
$
|
14.25
|
|
|
2.5
|
%
|
LTL picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
12.91
|
|
|
$
|
12.55
|
|
|
2.9
|
%
|
LTL picked up revenue per shipment
|
$
|
184
|
|
|
$
|
180
|
|
|
2.6
|
%
|
LTL picked up revenue per shipment (excluding fuel surcharge)
|
$
|
163
|
|
|
$
|
158
|
|
|
3.0
|
%
|
LTL weight per shipment (in pounds)
|
1,262
|
|
|
1,261
|
|
|
0.1
|
%
|
|
|
|
|
|
|
Total picked up revenue (in millions)
(a)
|
$
|
911.0
|
|
|
$
|
963.8
|
|
|
(5.5
|
)%
|
Total tonnage (in thousands)
|
3,564
|
|
|
3,916
|
|
|
(9.0
|
)%
|
Total tonnage per day (in thousands)
|
28.17
|
|
|
30.71
|
|
|
(8.3
|
)%
|
Total shipments (in thousands)
|
4,673
|
|
|
5,034
|
|
|
(7.2
|
)%
|
Total shipments per day (in thousands)
|
36.94
|
|
|
39.48
|
|
|
(6.4
|
)%
|
Total picked up revenue per hundred weight
|
$
|
12.78
|
|
|
$
|
12.31
|
|
|
3.9
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
11.30
|
|
|
$
|
10.84
|
|
|
4.2
|
%
|
Total picked up revenue per shipment
|
$
|
195
|
|
|
$
|
191
|
|
|
1.8
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
$
|
172
|
|
|
$
|
169
|
|
|
2.2
|
%
|
Total weight per shipment (in pounds)
|
1,525
|
|
|
1,556
|
|
|
(2.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
First Half
|
(in millions)
|
2019
|
|
2018
|
(a)
Reconciliation of operating revenue to total picked up revenue:
|
|
|
|
Operating revenue
|
$
|
910.4
|
|
|
$
|
962.3
|
|
Change in revenue deferral and other
|
0.6
|
|
|
1.5
|
|
Total picked up revenue
|
$
|
911.0
|
|
|
$
|
963.8
|
|
|
|
(a)
|
Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods
|
|
|
(b)
|
Percent change based on unrounded figures and not the rounded figures presented
|
Operating loss for Regional Transportation was $
4.4 million
for the
first half
of
2019
compared to operating income of $
34.4 million
for the
first half
of
2018
. Operating expenses decreased $
13.1 million
, or
1.4%
, primarily due to decreased purchased transportation expense as well as decreased fuel, operating expenses and supplies expense. These decreases were partially offset by increased salaries, wages and employee benefits.
Salaries, wages and employee benefits.
Salaries, wages and employee benefits increased $8.0 million, or 1.4%, primarily due to a $7.4 million increase in benefits costs which was largely driven by a $6.0 million increase in union vacation expense due to restoration of benefits from the passage of the New NMFA, a $5.4 million increase in workers’ compensation expense, and a $1.9 million increase in salaries expense. These increases were partially offset by a $3.8 million decrease in wage expense as a result
of a $10.7 million increase in contractual wages rates due to the New NMFA, which was more than offset by a decrease in tonnage that reduced the number of hours needed to process freight, and a $2.9 million decrease in short-term incentive compensation.
Fuel, operating expenses and supplies.
Fuel, operating expenses and supplies decreased $6.5 million, or 3.3%, primarily due to a $6.2 million decrease in fuel expense, which was largely driven by fewer miles driven and lower prices.
Purchased transportation
. Purchased transportation decreased $10.2 million, or 13.3%, primarily due to an $8.0 million decrease in over-the-road purchased transportation expense due partially to reduced shipping volumes, and a $2.9 million decrease in long-term equipment rentals due to increased equipment purchases.
Other operating expense.
Other operating expense decreased $2.4 million, or 4.7%, primarily due to a $1.8 million decrease in operating taxes as a result of fewer miles driven.
(Gains)/losses on property disposals
. Net gains on disposals of property were $2.5 million in 2019 as a result on gains on the sale of real property, as compared to net losses of $0.8 million in 2018, primarily due to losses on the disposal of revenue equipment.
Certain Non-GAAP Financial Measures
As discussed in the “Our Business” section, we use certain non-GAAP financial measures to assess performance. These measures should be considered in addition to the results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, our GAAP financial measures. For segment Adjusted EBITDA, we present the reconciliation from operating income (loss) to Adjusted EBITDA as it is consistent with how we measure performance.
Consolidated Adjusted EBITDA
The reconciliation of net income (loss) to EBITDA and EBITDA to Adjusted EBITDA (defined in our Term Loan Agreement as “Consolidated EBITDA”) for the
second quarter
and first half of
2019
and
2018
, and the trailing twelve months ended
June 30, 2019
and
2018
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
|
Trailing Twelve Months Ended
|
(in millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
June 30, 2019
|
|
June 30, 2018
|
Reconciliation of net income (loss) to Adjusted EBITDA
(a)
:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(23.6
|
)
|
|
$
|
14.4
|
|
|
$
|
(72.7
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(52.3
|
)
|
|
$
|
(4.7
|
)
|
Interest expense, net
|
27.8
|
|
|
25.5
|
|
|
54.3
|
|
|
51.0
|
|
|
107.8
|
|
|
102.6
|
|
Income tax expense (benefit)
|
9.1
|
|
|
10.4
|
|
|
(0.6
|
)
|
|
(2.5
|
)
|
|
13.0
|
|
|
(9.3
|
)
|
Depreciation and amortization
|
38.5
|
|
|
37.6
|
|
|
78.5
|
|
|
75.3
|
|
|
150.9
|
|
|
148.7
|
|
EBITDA
|
51.8
|
|
|
87.9
|
|
|
59.5
|
|
|
123.6
|
|
|
219.4
|
|
|
237.3
|
|
Adjustments for Term Loan Agreement:
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) losses on property disposals, net
|
(6.2
|
)
|
|
2.2
|
|
|
(4.6
|
)
|
|
5.4
|
|
|
(30.8
|
)
|
|
3.1
|
|
Property gains on certain disposals
(b)
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
|
29.3
|
|
|
0.4
|
|
Impairment charges
|
—
|
|
|
—
|
|
|
8.2
|
|
|
—
|
|
|
8.2
|
|
|
—
|
|
Letter of credit expense
|
1.6
|
|
|
1.7
|
|
|
3.2
|
|
|
3.4
|
|
|
6.4
|
|
|
6.8
|
|
Restructuring charges
|
0.5
|
|
|
0.6
|
|
|
0.5
|
|
|
1.2
|
|
|
1.6
|
|
|
2.1
|
|
Transaction costs related to issuances of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8.1
|
|
Nonrecurring consulting fees
|
1.9
|
|
|
1.7
|
|
|
4.3
|
|
|
3.2
|
|
|
8.8
|
|
|
3.2
|
|
Permitted dispositions and other
|
—
|
|
|
0.2
|
|
|
(1.1
|
)
|
|
0.7
|
|
|
(1.5
|
)
|
|
1.1
|
|
Equity-based compensation expense
|
1.1
|
|
|
3.2
|
|
|
3.4
|
|
|
4.8
|
|
|
4.9
|
|
|
7.3
|
|
Union vacation charge
|
4.2
|
|
|
—
|
|
|
4.2
|
|
|
—
|
|
|
4.2
|
|
|
—
|
|
Non-union pension settlement charge
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.9
|
|
|
7.6
|
|
Nonrecurring item (vendor bankruptcy)
|
—
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
|
8.0
|
|
|
—
|
|
Other, net
(c)
|
2.7
|
|
|
2.9
|
|
|
6.4
|
|
|
3.8
|
|
|
9.3
|
|
|
9.4
|
|
Adjusted EBITDA
|
$
|
57.6
|
|
|
$
|
100.8
|
|
|
$
|
87.7
|
|
|
$
|
146.5
|
|
|
$
|
278.7
|
|
|
$
|
286.4
|
|
|
|
(a)
|
Certain reclassifications have been made to prior year to conform to current year presentation.
|
|
|
(b)
|
Certain property gains are added back in the calculation of Adjusted EBITDA pursuant to the Term Loan Agreement which permits gains from the sale of excess property with continuing operations.
|
|
|
(c)
|
As required under our Term Loan Agreement, Other, net shown above consists of the impact of certain items to be included in Adjusted EBITDA.
|
Segment Adjusted EBITDA
The following represents Adjusted EBITDA by segment for the
second quarter
and first half of
2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
(in millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Adjusted EBITDA by segment:
|
|
|
|
|
|
|
|
YRC Freight
|
$
|
39.5
|
|
|
$
|
54.5
|
|
|
$
|
57.8
|
|
|
$
|
76.6
|
|
Regional Transportation
|
19.1
|
|
|
46.8
|
|
|
30.4
|
|
|
69.4
|
|
Corporate and other
|
(1.0
|
)
|
|
(0.5
|
)
|
|
(0.5
|
)
|
|
0.5
|
|
Adjusted EBITDA
|
$
|
57.6
|
|
|
$
|
100.8
|
|
|
$
|
87.7
|
|
|
$
|
146.5
|
|
The reconciliation of operating income (loss), by segment, to Adjusted EBITDA for the
second quarter
and first half of
2019
and
2018
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
YRC Freight segment (in millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Reconciliation of operating income (loss) to Adjusted EBITDA
(a)
:
|
|
|
|
|
|
|
|
Operating income (loss)
|
$
|
16.0
|
|
|
$
|
26.8
|
|
|
$
|
(5.1
|
)
|
|
$
|
19.9
|
|
Depreciation and amortization
|
21.6
|
|
|
21.5
|
|
|
44.5
|
|
|
43.1
|
|
(Gains) losses on property disposals, net
|
(3.2
|
)
|
|
1.7
|
|
|
(2.1
|
)
|
|
4.5
|
|
Property gains on certain disposals
(b)
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
Impairment charges
|
—
|
|
|
—
|
|
|
8.2
|
|
|
—
|
|
Letter of credit expense
|
1.0
|
|
|
1.1
|
|
|
2.0
|
|
|
2.1
|
|
Restructuring charges
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Non-union pension and postretirement benefits
|
(0.3
|
)
|
|
0.6
|
|
|
(0.4
|
)
|
|
1.1
|
|
Nonrecurring consulting fees
|
1.7
|
|
|
1.6
|
|
|
3.8
|
|
|
3.1
|
|
Union vacation charge
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
Nonrecurring item (vendor bankruptcy)
|
—
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
Other, net
(c)
|
0.1
|
|
|
0.8
|
|
|
0.6
|
|
|
2.3
|
|
Adjusted EBITDA
|
$
|
39.5
|
|
|
$
|
54.5
|
|
|
$
|
57.8
|
|
|
$
|
76.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
Regional Transportation segment (in millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Reconciliation of operating income (loss) to Adjusted EBITDA:
|
|
|
|
|
|
|
|
Operating income (loss)
|
$
|
2.6
|
|
|
$
|
29.2
|
|
|
$
|
(4.4
|
)
|
|
$
|
34.4
|
|
Depreciation and amortization
|
16.7
|
|
|
16.1
|
|
|
33.5
|
|
|
32.2
|
|
(Gains) losses on property disposals, net
|
(3.0
|
)
|
|
0.4
|
|
|
(2.5
|
)
|
|
0.8
|
|
Letter of credit expense
|
0.6
|
|
|
0.5
|
|
|
1.1
|
|
|
1.1
|
|
Nonrecurring consulting fees
|
0.2
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
Union vacation charge
|
1.6
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
Other, net
(c)
|
0.4
|
|
|
0.6
|
|
|
0.6
|
|
|
0.9
|
|
Adjusted EBITDA
|
$
|
19.1
|
|
|
$
|
46.8
|
|
|
$
|
30.4
|
|
|
$
|
69.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
First Half
|
Corporate and other (in millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Reconciliation of operating loss to Adjusted EBITDA:
|
|
|
|
|
|
|
|
Operating loss
|
$
|
(4.3
|
)
|
|
$
|
(5.1
|
)
|
|
$
|
(7.9
|
)
|
|
$
|
(7.7
|
)
|
Depreciation and amortization
|
0.2
|
|
|
0.1
|
|
|
0.5
|
|
|
0.1
|
|
Losses on property disposals, net
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Letter of credit expense
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Restructuring charges
|
0.5
|
|
|
0.6
|
|
|
0.5
|
|
|
1.1
|
|
Permitted dispositions and other
|
—
|
|
|
0.2
|
|
|
(1.1
|
)
|
|
0.7
|
|
Non-union pension and postretirement benefits
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(0.4
|
)
|
|
(0.2
|
)
|
Equity-based compensation expense
|
1.1
|
|
|
3.2
|
|
|
3.4
|
|
|
4.8
|
|
Other, net
(c)
|
1.7
|
|
|
0.6
|
|
|
4.4
|
|
|
1.5
|
|
Adjusted EBITDA
|
$
|
(1.0
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
0.5
|
|
|
|
(a)
|
Certain reclassifications have been made to prior year to conform to current year presentation.
|
|
|
(b)
|
Certain property gains are added back in the calculation of Adjusted EBITDA pursuant to the Term Loan Agreement which permits gains from the sale of excess property with continuing operations.
|
|
|
(c)
|
As required under our Term Loan Agreement, Other, net shown above consists of the impact of certain items to be included in Adjusted EBITDA.
|
Liquidity and Capital Resources
Our principal sources of liquidity are cash and cash equivalents, available borrowings under our asset-based loan facility and any prospective net cash flow from operations. As of
June 30, 2019
, our maximum availability under our ABL Facility was
$81.6 million
. Our Managed Accessibility was
$39.3 million
, which represents the maximum amount we would access on the ABL Facility and is adjusted for eligible receivables plus eligible borrowing base cash measured at
June 30, 2019
. Our cash and cash equivalents and Managed Accessibility were
$156.8 million
.
For the December 31, 2018 borrowing base certificate, which was filed in January of 2019, we transferred
$25.0 million
of cash into restricted cash to maintain the 10% threshold, as permitted under the ABL Facility, which transfer effectively put our cash and cash equivalents and Managed Accessibility to
$203.8 million
.
The table below summarizes cash and cash equivalents and Managed Accessibility as of
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
(in millions)
|
June 30, 2019
|
|
December 31, 2018
|
Cash and cash equivalents
|
$
|
117.5
|
|
|
$
|
227.6
|
|
Changes to restricted cash
|
—
|
|
|
(25.0
|
)
|
Managed Accessibility
|
39.3
|
|
|
1.2
|
|
Total cash and cash equivalents and Managed Accessibility
|
$
|
156.8
|
|
|
$
|
203.8
|
|
Outside of funding normal operations, our principal uses of cash include making contributions to various multi-employer pension funds and our single-employer pension plans, and meeting our other cash obligations including, but not limited to, paying principal and interest on our funded debt, making payments on our equipment leases, and funding capital expenditures.
As of
June 30, 2019
, we had
$865.0 million
in aggregate par value of outstanding indebtedness, the majority of which matures in approximately three years. We also have future funding obligations for our various multi-employer pension funds and single-employer pension plans. We expect our funding obligations for the remainder of
2019
for our multi-employer pension funds and single-employer pension plans will be
$62.5 million
and
$5.7 million
, respectively. In addition, we have, and will continue to have, operating lease obligations. As of
June 30, 2019
, our operating lease payment obligations through
2030
totaled
$426.6 million
and are expected to increase as we lease additional revenue equipment. For the
first half
of
2019
, we entered into new operating leases for revenue equipment totaling
$64.0 million
in future lease payments, payable over an average lease term of
four
years.
Our capital expenditures for the
first half
of
2019
and
2018
were
$70.6 million
and
$46.5 million
, respectively. These amounts were principally used to fund the purchase of used tractors and trailers, for capitalized costs to improve our technology infrastructure and to refurbish engines for our revenue fleet. For the
six months ended June 30, 2019
we entered into new operating lease commitments for revenue equipment with a capital equivalent value of $77.9 million.
As of
June 30, 2019
, our Standard & Poor’s Corporate Family Rating was “B-” with a stable outlook. As of July 25, 2019, our Moody’s Investor Service Corporate Family Rating was “B2” with a stable outlook.
Risks and Uncertainties Regarding Compliance with Credit Facility Financial Covenants
We believe that our results of operations will be sufficient to allow us to comply with the covenants in the Term Loan Agreement for at least the next twelve months. Our ability to satisfy our liquidity needs and meet our future covenants during the next twelve months and thereafter is dependent upon our ability to achieve operating results that reflect improvement over our first half 2019 results. Although we are currently in compliance with the maximum total leverage ratio covenant under our Term Loan Agreement, the covenant levels tighten in the coming quarters. Means for improving our profitability include the successful implementation of network optimization, and the realization of pricing, productivity and efficiency initiatives, as well as increased volume, all of which may not be within our control. If we are unable to achieve the improved results required to comply with this covenant in one or more quarters over the next twelve months, we will need to take more specific actions as described below.
We may decide to pay down a sufficient amount of the Term Loan to comply with the covenant. We currently believe that the results of our operations will be sufficient to allow us to make such payments and fund our operations for the next twelve months. Means for improving our ability to make such payments may include the requirement to pursue certain actions, including but not limited to, reducing capital expenditures for revenue equipment and technology, accelerating terminal closures identified through the network optimization plan, reducing headcount, and seeking additional cost reductions in the organization, all of which may
not be within our control. Some of those actions might adversely affect our operations and financial performance over the long-term.
The Company is currently pursuing new financing alternatives, including a potential refinancing of the Term Loan Agreement to provide for less restrictive financial covenants, as well as potentially lowering interest rates and extending the maturity of the facility as compared to our current Term Loan Agreement.
Cash Flows
Operating Cash Flow
Cash used in operating activities was
$29.5 million
during the
first half
of
2019
, compared to
$71.5 million
of cash provided during the
first half
of
2018
. The increase in cash used was primarily attributable to a $72.5 million increase in net loss, and the remaining difference is primarily related to timing differences in working capital accounts.
Investing Cash Flow
Cash used in investing activities was
$62.3 million
during the
first half
of
2019
compared to
$42.3 million
during the
first half
of
2018
, the increase of $20.0 million was largely driven by higher revenue equipment acquisitions partially offset by higher cash proceeds from the sale of real property.
Financing Cash Flow
Cash used in financing activities for the
first half
of
2019
and
2018
was
$18.3 million
and
$16.2 million
, respectively, which consist primarily of repayments on our long-term debt.
Contractual Obligations and Other Commercial Commitments
The following sections provide aggregated information regarding our contractual cash obligations and other commercial commitments as of
June 30, 2019
.
Contractual Cash Obligations
The following table reflects our cash outflows that we are contractually obligated to make as of
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
(in millions)
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
ABL Facility
(a)
|
$
|
15.4
|
|
|
$
|
6.9
|
|
|
$
|
8.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Term Loan
(b)
|
741.5
|
|
|
76.0
|
|
|
146.9
|
|
|
518.6
|
|
|
—
|
|
Lease financing obligations
(c)
|
386.3
|
|
|
42.1
|
|
|
81.1
|
|
|
79.8
|
|
|
183.3
|
|
Pension deferral obligations
(d)
|
93.5
|
|
|
7.3
|
|
|
14.0
|
|
|
72.2
|
|
|
—
|
|
Workers’ compensation, property damage and liability claims obligations
(e)
|
358.0
|
|
|
100.6
|
|
|
115.4
|
|
|
50.0
|
|
|
92.0
|
|
Operating leases
(f)
|
426.6
|
|
|
145.3
|
|
|
209.8
|
|
|
60.0
|
|
|
11.5
|
|
Other contractual obligations
(g)
|
19.1
|
|
|
13.9
|
|
|
5.1
|
|
|
0.1
|
|
|
—
|
|
Capital expenditures and other
(h)
|
35.1
|
|
|
35.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total contractual obligations
|
$
|
2,075.5
|
|
|
$
|
427.2
|
|
|
$
|
580.8
|
|
|
$
|
780.7
|
|
|
$
|
286.8
|
|
|
|
(a)
|
The ABL Facility includes future payments for the letter of credit and unused line fees and are not included on the Company’s consolidated balance sheets.
|
|
|
(b)
|
The Term Loan includes principal and interest payments but excludes unamortized discounts.
|
|
|
(c)
|
The lease financing obligations include interest payments of
$352.4 million
and principal payments of
$33.9 million
. The remaining principal obligation is offset by the estimated book value of leased property at the expiration date of each lease agreement.
|
|
|
(d)
|
Pension deferral obligations includes principal and interest payments on the Second A&R CDA.
|
|
|
(e)
|
The workers’ compensation, property damage and liability claims obligations represent our estimate of future payments for these obligations, not all of which are contractually required.
|
|
|
(f)
|
Operating leases represent future payments under contractual lease arrangements primarily for revenue equipment.
|
|
|
(g)
|
Other contractual obligations include future service agreements and certain maintenance agreements and are not included on the Company’s consolidated balance sheets.
|
|
|
(h)
|
Capital expenditure and other obligations primarily includes noncancelable orders for revenue equipment the Company will either purchase or lease. If leased, the cash obligations will be scheduled over the multi-year term of the lease and ROU assets and liabilities will be recorded upon lease execution.
|
Other Commercial Commitments
The following table reflects other commercial commitments or potential cash outflows that may result from a contingent event.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Per Period
|
(in millions)
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
ABL Facility availability
(a)
|
$
|
81.6
|
|
|
$
|
—
|
|
|
$
|
81.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Letters of credit
(b)
|
341.3
|
|
|
—
|
|
|
341.3
|
|
|
—
|
|
|
—
|
|
Surety bonds
(c)
|
122.6
|
|
|
112.4
|
|
|
10.2
|
|
|
—
|
|
|
—
|
|
Total commercial commitments
|
$
|
545.5
|
|
|
$
|
112.4
|
|
|
$
|
433.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(a)
|
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.
|
|
|
(b)
|
Letters of credit outstanding are generally required as collateral to support self-insurance programs and do not represent additional liabilities as the underlying self-insurance accruals are already included in our consolidated balance sheets.
|
|
|
(c)
|
Surety bonds are generally required for workers’ compensation to support self-insurance programs, which include certain bonds that do not have an expiration date but are redeemable on demand, and do not represent additional liabilities as the underlying self-insurance accruals are already included in our consolidated balance sheets.
|
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements except for other contractual obligations for service agreements and capital purchases, letters of credit and surety bonds, which are reflected in the above tables.