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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•
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general economic factors, including (without limitation) customer demand in the retail and manufacturing sectors;
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•
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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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•
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competition and competitive pressure on pricing;
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•
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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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•
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changes in pension expense and funding obligations, subject to interest rate volatility;
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•
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increasing costs relating to our self-insurance claims expenses;
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•
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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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•
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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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•
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impediments to our operations and business resulting from anti-terrorism measures;
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•
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the impact of claims and litigation expense to which we are or may become exposed;
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•
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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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•
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our ability to attract and retain qualified drivers and increasing costs of driver compensation;
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•
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a significant privacy breach or IT system disruption;
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•
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risks of operating in foreign countries;
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•
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our dependence on key employees;
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•
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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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•
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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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•
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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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•
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our failure to comply with the covenants in the documents governing our existing and future indebtedness;
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•
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fluctuations in the price of our common stock;
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•
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dilution from future issuances of our common stock;
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•
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our intention not to pay dividends on our common stock;
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•
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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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•
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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 nine months ended September 30, 2017
and
2016
.
Reporting Segment Results of Operations
— an analysis of our results of operations for the
three and nine months ended September 30, 2017
and
2016
for our YRC Freight and Regional Transportation reporting segments.
Certain Non-GAAP Financial Measures
— an analysis of selected non-GAAP financial measures for the
three and nine months ended September 30, 2017
and
2016
and trailing twelve months ended
September 30, 2017
and
2016
.
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 “
third quarter
” and “
first three quarters
” of the years discussed below refer to the
three and nine months
ended
September 30
, respectively.
Our Business
YRC Worldwide is a holding company that, through wholly owned 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 basis and a reporting segment basis. We use several performance metrics, but rely primarily upon 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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•
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Operating Revenue:
Our operating revenue has two primary components: volume (commonly evaluated using number of shipments and weight per shipment) and yield or price (commonly evaluated on a dollar-per-hundred weight basis and a dollar-per-shipment basis). 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 a published national 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 (loss) versus prior periods, as there is a lag in our adjustment of base rates in response to changes in 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 numerous 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.
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•
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Operating Income (Loss):
Operating income (loss) is our operating revenue less operating expenses. Our consolidated operating income (loss) includes certain corporate charges that are not allocated to our YRC Freight and Regional Transportation reporting segments.
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•
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Operating Ratio:
Operating ratio is a common operating performance metric 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 expressed as a percentage.
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•
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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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◦
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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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◦
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Adjusted EBITDA:
a non-GAAP measure that reflects EBITDA, and further adjusts for letter of credit fees, equity-based compensation expense, net gains or losses on property disposals, restructuring professional fees and other transaction costs related to issuances of debt, non-recurring consulting fees, expenses associated with certain lump sum payments to our union employees and gains or losses from permitted dispositions and discontinued operations, 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 credit facilities and to determine certain executive 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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◦
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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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◦
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Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to fund restructuring professional fees and other transaction costs related to issuances of debt, non-recurring consulting fees, letter of credit fees, service interest, principal payments on our outstanding debt or lump sum payments to our union employees required under the Memorandum of Understanding;
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◦
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Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
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◦
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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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◦
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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. For additional information and a reconciliation of our non-GAAP measures and GAAP results, see the “Certain Non-GAAP Financial Measures” section below.
Consolidated Results of Operations
Our consolidated results include the consolidated results of our YRC Freight and Regional Transportation reporting segments as well as any unallocated corporate charges. A more detailed discussion of the operating results of our segments is presented in the “Reporting Segment Results of Operations” section below.
The table below provides summary consolidated financial information for the
third quarter
and
first three quarters
of
2017
and
2016
:
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Third Quarter
|
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First Three Quarters
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(in millions)
|
2017
|
|
2016
|
|
Percent Change
|
|
2017
|
|
2016
|
|
Percent Change
|
Operating revenue
|
$
|
1,251.2
|
|
|
$
|
1,221.3
|
|
|
2.4
|
%
|
|
$
|
3,682.4
|
|
|
$
|
3,549.2
|
|
|
3.8
|
%
|
Operating income
|
$
|
40.1
|
|
|
$
|
38.8
|
|
|
3.4
|
%
|
|
$
|
87.1
|
|
|
$
|
109.4
|
|
|
(20.4
|
)%
|
Nonoperating expenses, net
|
$
|
36.2
|
|
|
$
|
24.4
|
|
|
48.4
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%
|
|
$
|
90.0
|
|
|
$
|
77.0
|
|
|
16.9
|
%
|
Net income (loss)
|
$
|
3.0
|
|
|
$
|
13.9
|
|
|
(78.4
|
)%
|
|
$
|
(3.3
|
)
|
|
$
|
29.0
|
|
|
*NM
|
|
(*) not meaningful
Third Quarter
of
2017
Compared to the
Third Quarter
of
2016
Our consolidated operating revenue
increased
$29.9 million
, or
2.4%
, during the
third quarter
of
2017
compared to the same period in
2016
. The increase in revenue is primarily attributed to an increase in fuel surcharge revenue and yield, combined with an improvement in volume at our Regional Transportation segment.
Total operating expenses
increased
$28.6 million
, or
2.4%
, for the
third quarter
of
2017
compared to the
third quarter
of
2016
, and consisted primarily of an increase in contractual wages and employee benefit costs, higher fuel costs, and an increase in purchased transportation expense.
In spite of the increase in revenues, our third quarter 2017 results were negatively impacted by the hurricanes in late August and September. Our volume and tonnage were unfavorably impacted, primarily at YRC Freight and Holland, due to closures at our customer operations, as well as the closure or reduced operations at certain of our own terminals. Due to delayed deliveries and disruption within the network, our operating expenses were also negatively impacted, driven by the reduction in labor productivity, higher local purchased transportation costs, and an increase in costs to relocate revenue equipment, among other items.
Salaries, wages and employee benefits. Salaries, wages and employee benefits
increased
$11.0 million
, or
1.5%
, primarily due to a $7.7 million increase in wages and an $8.2 million increase in employee benefit costs, which are primarily related to contractual rate increases for union employees, partially offset by a $4.0 million decrease in bonus compensation.
Operating expenses and supplies.
Operating expenses and supplies
increased
$9.7 million
, or
4.7%
, primarily due to a $6.5 million increase in fuel expense, which was largely driven by higher fuel prices on a per gallon basis and a $4.8 million increase in technology and operating supply costs.
Purchased transportation
. Purchased transportation
increased
$12.3 million
, or
7.8%
, primarily due to a $7.5 million increase in vehicle rent expense due to equipment shortages and higher usage of operating leases for revenue equipment, a $4.1 million increase in local purchased transportation due to increased volume and hurricane-related impacts, and a $2.5 million increase in rail purchased transportation due to an increase in rail miles.
Other operating expense.
Other operating expense
decreased
$1.9 million
, or
3.0%
, primarily due to a reduction in property damage and liability claims expense of $1.5 million due to favorable development of current year claims.
Gains/losses on property disposals
. Net losses on disposals of property were
$1.3 million
in the
third quarter
of
2017
compared to $
0.2 million
in the
third quarter
of
2016
primarily due to losses on the sale of revenue equipment.
Nonoperating expenses, net.
Nonoperating expenses, net, increased
$11.8 million
in the
third quarter
of
2017
compared to the
third quarter
of
2016
primarily driven by $6.7 million in transaction costs related to the Term Loan Amendment, which is more fully described in the “Debt and Financing” footnote to the consolidated financial statements, and a $3.4 million increase in foreign currency transaction losses.
Our effective tax rate for the
third quarter
of
2017
and
2016
was
23.1%
and
3.5%
, respectively. Significant items impacting the
2017
rate include a benefit recognized due to application of ASC 740 guidance regarding intra-period tax allocation, a net state and foreign tax provision, foreign withholding taxes related to a dividend from a foreign subsidiary, certain permanent items, and a change in the valuation allowance established for the net deferred tax asset balance projected for
December 31, 2017
. The significant items impacting the 2016 rate include a provision for federal alternative minimum tax, a refund from a prior year amended return, a net state and foreign tax provision, 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, 2016. 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-back and 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
September 30, 2017
and
December 31, 2016
, substantially all of our net deferred tax assets were subject to a valuation allowance.
First Three Quarters of
2017
Compared to the First Three Quarters of
2016
Our consolidated operating revenue
increase
d
$133.2 million
, or
3.8%
, during the
first three quarters
of
2017
compared to the same period in
2016
. The
increase
in revenue is primarily attributed to an increase in volume, fuel surcharge revenue, and yield, excluding fuel surcharge.
Total operating expenses for the
first three quarters
of
2017
increased
$155.5 million
, or
4.5%
, compared to the same period in
2016
, and consisted primarily of an increase in contractual wages and employee benefit costs, higher fuel costs, and an increase in purchased transportation expense.
Salaries, wages and employee benefits.
Salaries, wages and employee benefits
increased
$
55.5 million
, or
2.6%
, primarily due to a $29.6 million increase in wages and a $26.4 million increase in employee benefit costs, which are primarily related to contractual rate increases for union employees, combined with an increase in shipping volumes, which required more employee hours to process freight.
Operating expenses and supplies.
Operating expenses and supplies
increased
$
46.9 million
, or
7.9%
, primarily due to a $34.6 million increase in fuel expense, which was largely driven by higher fuel prices on a per gallon basis. Also, operating expenses increased $13.3 million due to higher technology and operating supply costs.
Purchased transportation
. Purchased transportation
increased
$
54.2 million
, or
13.3%
, primarily due to a $26.1 million increase in vehicle rent expense due to higher usage of leased revenue equipment and equipment shortages, a $16.5 million increase in rail purchased transportation due to an increase in rail miles and higher rail rates which were impacted by increased fuel surcharges, and a $12.1 million increase in the use of local purchased transportation due to higher usage of third-party providers.
Other operating expense.
Other operating expense
decreased
$6.8 million
, or
3.5%
, primarily due to a reduction in property damage and liability claims expense of $9.3 million due to unfavorable development of prior year claims that negatively impacted 2016.
Gains/losses on property disposals
. Net losses on disposals of property were $
3.0 million
in the
first three quarters
of
2017
compared to net gains of $11.2 million in the
first three quarters
of
2016
primarily due to the sale of excess real properties.
Nonoperating expenses, net.
Nonoperating expenses, net,
increased
$12.9 million
in the
first three quarters
of
2017
compared to the
first three quarters
of
2016
primarily driven by a primarily driven by $6.7 million in transaction costs related to the Term Loan Amendment and a $3.7 million increase in foreign currency transaction losses in 2017. A $2.3 million gain on the disposal of JHJ was recorded in the
first three quarters
of 2016, with no corresponding gain in the
first three quarters
of 2017.
Our effective tax rate for the
first three quarters
of
2017
and
2016
was
(13.8)%
and
10.5%
, respectively. The significant items impacting the 2017 rate include a benefit recognized due to application of ASC 740 guidance regarding intra-period tax allocation, a net state and foreign tax provision, foreign withholding taxes related to a dividend from a foreign subsidiary, certain permanent items, and a change in the valuation allowance established for the net deferred tax asset balance projected for December 31, 2017. The significant items impacting the 2016 rate include a provision for federal alternative minimum tax, a refund from a prior year amended return, a net state and foreign tax provision, 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, 2016.
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 our LTL subsidiaries YRC Freight and YRC Reimer.
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YRC Reimer is 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.
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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.
|
YRC Freight Results
YRC Freight represented
63.0%
of consolidated operating revenue for the
third quarter
of
2017
, as compared to
63.7%
for the
third quarter
of
2016
. YRC Freight represented
62.6%
of consolidated operating revenue for the
first three quarters
of
2017
, as compared to
62.8%
for the
first three quarters
of
2016
. The table below provides summary financial information for YRC Freight for the
third quarter
and
first three quarters
of
2017
and
2016
:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
First Three Quarters
|
(in millions)
|
2017
|
|
2016
|
|
Percent Change
|
2017
|
|
2016
|
|
Percent Change
|
Operating revenue
|
$
|
787.8
|
|
|
$
|
777.9
|
|
|
1.3%
|
$
|
2,306.2
|
|
|
$
|
2,228.6
|
|
|
3.5%
|
Operating income
|
$
|
20.3
|
|
|
$
|
20.8
|
|
|
(2.4)%
|
$
|
37.8
|
|
|
$
|
53.3
|
|
|
(29.1)%
|
Operating ratio
(a)
|
97.4
|
%
|
|
97.3
|
%
|
|
(0.1) pp
|
98.4
|
%
|
|
97.6
|
%
|
|
(0.8) pp
|
|
|
(a)
|
pp represents the change in percentage points
|
Third Quarter
of
2017
Compared to the
Third Quarter
of
2016
YRC Freight reported operating revenue of
$787.8 million
in the
third quarter
of
2017
, an
increase
of
$9.9 million
, or
1.3%
, compared to the same period in
2016
. The
increase
in revenue is primarily attributed to an increase in fuel surcharge revenue, combined with an improvement in yield, excluding fuel surcharge. The table below summarizes the key revenue metrics for the YRC Freight reporting segment for the
third quarter
of
2017
compared to the
third quarter
of
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
|
|
2017
|
|
2016
|
|
Percent Change
(b)
|
Workdays
|
62.5
|
|
|
64.0
|
|
|
|
|
|
|
|
|
|
Total picked up revenue (in millions)
(a)
|
$
|
776.3
|
|
|
$
|
763.6
|
|
|
1.7
|
%
|
Total tonnage (in thousands)
|
1,592
|
|
|
1,620
|
|
|
(1.7
|
)%
|
Total tonnage per day (in thousands)
|
25.47
|
|
|
25.31
|
|
|
0.7
|
%
|
Total shipments (in thousands)
|
2,623
|
|
|
2,678
|
|
|
(2.1
|
)%
|
Total shipments per day (in thousands)
|
41.96
|
|
|
41.84
|
|
|
0.3
|
%
|
Total picked up revenue per hundred weight
|
$
|
24.38
|
|
|
$
|
23.57
|
|
|
3.4
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
21.81
|
|
|
$
|
21.31
|
|
|
2.4
|
%
|
Total picked up revenue per shipment
|
$
|
296
|
|
|
$
|
285
|
|
|
3.8
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
$
|
265
|
|
|
$
|
258
|
|
|
2.8
|
%
|
Total weight per shipment (in pounds)
|
1,214
|
|
|
1,210
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
(in millions)
|
2017
|
|
2016
|
(a)
Reconciliation of operating revenue to total picked up revenue:
|
|
|
|
Operating revenue
|
$
|
787.8
|
|
|
$
|
777.9
|
|
Change in revenue deferral and other
|
(11.5
|
)
|
|
(14.3
|
)
|
Total picked up revenue
|
$
|
776.3
|
|
|
$
|
763.6
|
|
|
|
(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 income for YRC Freight was
$20.3 million
in the
third quarter
of
2017
compared to operating income of
$20.8 million
in the
third quarter
of
2016
. Operating expenses increased
$10.4 million
, or
1.4%
, primarily due to an increase in contractual wages and employee benefit costs, higher fuel costs and an increase in purchased transportation expense.
Salaries, wages and employee benefits.
Salaries, wages and employee benefits increased $1.2 million, or 0.3%, primarily due to a $1.5 million increase in employee benefits, which are primarily related to contractual rate increases for union employees.
Operating expenses and supplies
. Operating expenses and supplies increased $3.3 million, or 2.5%, primarily due to a $2.1 million increase in fuel expense, which was driven by higher fuel prices on a per gallon basis.
Purchased transportation
. Purchased transportation increased $7.9 million, or 6.6%, primarily due to a $4.8 million increase in vehicle rent expense due primarily to equipment shortages, a $2.5 million increase in rail purchased transportation due to an increase in rail miles, and a $1.8 million increase in local purchased transportation due to increased volume and hurricane-related impacts.
First Three Quarters
of
2017
Compared to the
First Three Quarters
of
2016
YRC Freight reported operating revenue of
$2,306.2 million
in the
first three quarters
of
2017
, an
increase
of
$77.6 million
, or
3.5%
, compared to the same period in
2016
. The
increase
in revenue is primarily attributed to an increase in volume, fuel surcharge revenue, and yield, excluding fuel surcharge revenue. The table below summarizes the key revenue metrics for the YRC Freight reporting segment for the
first three quarters
of
2017
compared to the
first three quarters
of
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Three Quarters
|
|
|
|
2017
|
|
2016
|
|
Percent Change
(b)
|
Workdays
|
190.0
|
|
|
191.5
|
|
|
|
|
|
|
|
|
|
Total picked up revenue (in millions)
(a)
|
$
|
2,285.3
|
|
|
$
|
2,208.9
|
|
|
3.5
|
%
|
Total tonnage (in thousands)
|
4,766
|
|
|
4,701
|
|
|
1.4
|
%
|
Total tonnage per day (in thousands)
|
25.08
|
|
|
24.55
|
|
|
2.2
|
%
|
Total shipments (in thousands)
|
7,976
|
|
|
7,875
|
|
|
1.3
|
%
|
Total shipments per day (in thousands)
|
41.98
|
|
|
41.12
|
|
|
2.1
|
%
|
Total picked up revenue per hundred weight
|
$
|
23.97
|
|
|
$
|
23.49
|
|
|
2.0
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
21.47
|
|
|
$
|
21.34
|
|
|
0.6
|
%
|
Total picked up revenue per shipment
|
$
|
287
|
|
|
$
|
280
|
|
|
2.2
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
$
|
257
|
|
|
$
|
255
|
|
|
0.7
|
%
|
Total weight per shipment (in pounds)
|
1,195
|
|
|
1,194
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
First Three Quarters
|
(in millions)
|
2017
|
|
2016
|
(a)
Reconciliation of operating revenue to total picked up revenue:
|
|
|
|
Operating revenue
|
$
|
2,306.2
|
|
|
$
|
2,228.6
|
|
Change in revenue deferral and other
|
(20.9
|
)
|
|
(19.7
|
)
|
Total picked up revenue
|
$
|
2,285.3
|
|
|
$
|
2,208.9
|
|
|
|
(a)
|
Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods and the impact of other
|
|
|
(b)
|
Percent change based on unrounded figures and not the rounded figures presented
|
Operating income for YRC Freight was
$37.8 million
in the
first three quarters
of
2017
compared to
$53.3 million
in the
first three quarters
of
2016
. Operating expenses increased
$93.1 million
, or
4.3%
, primarily due to an increase in contractual wages and
employee benefit costs, higher fuel costs, an increase in purchased transportation expense, and an increase in loss on property disposal expense.
Salaries, wages and employee benefits.
Salaries, wages and employee benefits increased $22.8 million, or 1.8%, primarily due to a $13.8 million increase in wages and an $9.7 million increase in employee benefit costs, which are primarily related to contractual rate increases for union employees, combined with an increase in shipping volumes, which required more employee hours to process freight.
Operating expenses and supplies
. Operating expenses and supplies increased $26.7 million, or 7.0%, primarily due to a $19.0 million increase in fuel expense, which was largely driven by higher fuel prices on a per gallon basis. Also, operating expenses increased by $8.5 million due to higher technology and operating supply costs.
Purchased transportation
. Purchased transportation increased $39.4 million, or 12.7%, primarily due to a $16.5 million increase in rail purchased transportation due to an increase in rail miles and higher rail rates which were impacted by increased fuel surcharges. Vehicle rent expense increased $12.3 million due to higher usage of operating leases and short-term rental expense due to equipment shortages, and local and over-the-road purchased transportation expense increased $8.9 million due to higher usage of third-party providers.
Other operating expense.
Other operating expense decreased $5.2 million, or 4.3%, primarily due to a reduction in property damage and liability claims expense of $5.2 million due to unfavorable development of prior year claims that negatively impacted the second quarter of 2016.
Gains/losses on property disposals
. Net losses on disposals of property were $1.7 million in the
first three quarters
of
2017
compared to net gains of $12.0 million in the
first three quarters
of
2016
, primarily due to the sale of excess real properties.
Regional Transportation Results
Regional Transportation represented
37.0%
of consolidated operating revenue for the
third quarter
of
2017
, as compared to
36.3%
for the
third quarter
of
2016
. Regional Transportation represented 37.4% of consolidated operating revenue for the
first three quarters
of
2017
, as compared to
37.2%
for the
first three quarters
of
2016
. The table below provides summary financial information for Regional Transportation for the
third quarter
and
first three quarters
of
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
First Three Quarters
|
(in millions)
|
2017
|
|
2016
|
|
Percent Change
|
|
2017
|
|
2016
|
|
Percent Change
|
Operating revenue
|
$
|
463.5
|
|
|
$
|
443.7
|
|
|
4.5%
|
|
$
|
1,376.5
|
|
|
$
|
1,321.3
|
|
|
4.2%
|
Operating income
|
$
|
21.5
|
|
|
$
|
21.9
|
|
|
(1.8)%
|
|
$
|
59.0
|
|
|
$
|
64.9
|
|
|
(9.1)%
|
Operating ratio
(a)
|
95.4
|
%
|
|
95.1
|
%
|
|
(0.3) pp
|
|
95.7
|
%
|
|
95.1
|
%
|
|
(0.6) pp
|
|
|
(a)
|
pp represents the change in percentage points
|
Third Quarter
of
2017
Compared to the
Third Quarter
of
2016
Regional Transportation reported operating revenue of
$463.5 million
for the
third quarter
of
2017
, an
increase
of
$19.8 million
, or
4.5%
, from the
third quarter
of
2016
. The increase in revenue is primarily attributed to an increase in volume and fuel surcharge revenue, while yield, excluding fuel surcharge, is comparable to prior year. The table below summarizes the key revenue metrics for the Regional Transportation reporting segment for the
third quarter
of
2017
compared to the
third quarter
of
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
|
|
2017
|
|
2016
|
|
Percent Change
(b)
|
Workdays
|
62.5
|
|
|
63.0
|
|
|
|
|
|
|
|
|
|
Total picked up revenue (in millions)
(a)
|
$
|
463.4
|
|
|
$
|
443.6
|
|
|
4.5
|
%
|
Total tonnage (in thousands)
|
1,975
|
|
|
1,914
|
|
|
3.2
|
%
|
Total tonnage per day (in thousands)
|
31.60
|
|
|
30.38
|
|
|
4.0
|
%
|
Total shipments (in thousands)
|
2,631
|
|
|
2,622
|
|
|
0.3
|
%
|
Total shipments per day (in thousands)
|
42.10
|
|
|
41.62
|
|
|
1.1
|
%
|
Total picked up revenue per hundred weight
|
$
|
11.73
|
|
|
$
|
11.59
|
|
|
1.2
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
10.52
|
|
|
$
|
10.49
|
|
|
0.3
|
%
|
Total picked up revenue per shipment
|
$
|
176
|
|
|
$
|
169
|
|
|
4.1
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
$
|
158
|
|
|
$
|
153
|
|
|
3.2
|
%
|
Total weight per shipment (in pounds)
|
1,501
|
|
|
1,460
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
(in millions)
|
2017
|
|
2016
|
(a)
Reconciliation of operating revenue to total picked up revenue:
|
|
|
|
Operating revenue
|
$
|
463.5
|
|
|
$
|
443.7
|
|
Change in revenue deferral and other
|
(0.1
|
)
|
|
(0.1
|
)
|
Total picked up revenue
|
$
|
463.4
|
|
|
$
|
443.6
|
|
|
|
(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
$21.5 million
for the
third quarter
of
2017
compared to
$21.9 million
for the
third quarter
of
2016
. Operating expenses increased
$20.2 million
, or
4.8%
, primarily due to an increase in contractual wages and employee benefit costs, higher fuel costs and higher usage of purchased transportation.
Salaries, wages and employee benefits.
Salaries, wages and employee benefits increased $12.2 million, or 4.6%, primarily due to a $6.9 million increase in wages and a $6.9 million increase in employee benefit costs, which are primarily related to contractual rate increases for union employees, combined with an increase in shipping volumes, which required more employee hours to process freight.
Operating expenses and supplies.
Operating expenses and supplies increased $6.4 million, or 7.9%, primarily due to a $4.3 million increase in fuel expense, which was largely driven by higher fuel prices on a per gallon basis.
Purchased transportation
. Purchased transportation increased $4.2 million, or 11.7%, primarily due to a $2.7 million increase in vehicle rent expense due to higher usage of operating leases for revenue equipment, and a $2.3 million increase in local purchased transportation expense due to increased volume.
Other operating expenses
. Other operating expenses decreased $0.7 million, or 2.9%, due to a $1.7 million decrease in our property damage and liability claims as a result of favorable development on current year claims which positively impacted the third quarter of 2017 and unfavorable development of prior year claims that negatively impacted the third quarter of 2016, which was partially offset by increased cargo claims.
First Three Quarters
of
2017
Compared to the
First Three Quarters
of
2016
Regional Transportation reported operating revenue of
$1,376.5 million
for the
first three quarters
of
2017
, an
increase
of $
55.2 million
, or
4.2%
, from the
first three quarters
of
2016
. The
increase
in revenue is primarily attributed to an increase in volume and fuel surcharge revenue, while yield, excluding fuel surcharge, is comparable to prior year. The table below summarizes the key revenue metrics for the Regional Transportation reporting segment for the
first three quarters
of
2017
compared to the
first three quarters
of
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Three Quarters
|
|
|
|
2017
|
|
2016
|
|
Percent Change
(b)
|
Workdays
|
190.0
|
|
|
191.5
|
|
|
|
|
|
|
|
|
|
Total picked up revenue (in millions)
(a)
|
$
|
1,378.8
|
|
|
$
|
1,323.6
|
|
|
4.2
|
%
|
Total tonnage (in thousands)
|
5,935
|
|
|
5,794
|
|
|
2.4
|
%
|
Total tonnage per day (in thousands)
|
31.24
|
|
|
30.26
|
|
|
3.2
|
%
|
Total shipments (in thousands)
|
7,902
|
|
|
7,876
|
|
|
0.3
|
%
|
Total shipments per day (in thousands)
|
41.59
|
|
|
41.13
|
|
|
1.1
|
%
|
Total picked up revenue per hundred weight
|
$
|
11.61
|
|
|
$
|
11.42
|
|
|
1.7
|
%
|
Total picked up revenue per hundred weight (excluding fuel surcharge)
|
$
|
10.43
|
|
|
$
|
10.40
|
|
|
0.3
|
%
|
Total picked up revenue per shipment
|
$
|
174
|
|
|
$
|
168
|
|
|
3.8
|
%
|
Total picked up revenue per shipment (excluding fuel surcharge)
|
$
|
157
|
|
|
$
|
153
|
|
|
2.4
|
%
|
Total weight per shipment (in pounds)
|
1,502
|
|
|
1,471
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
First Three Quarters
|
(in millions)
|
2017
|
|
2016
|
(a)
Reconciliation of operating revenue to total picked up revenue:
|
|
|
|
Operating revenue
|
$
|
1,376.5
|
|
|
$
|
1,321.3
|
|
Change in revenue deferral and other
|
2.3
|
|
|
2.3
|
|
Total picked up revenue
|
$
|
1,378.8
|
|
|
$
|
1,323.6
|
|
|
|
(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
$59.0 million
for the
first three quarters
of
2017
, as compared to
$64.9 million
for the
first three quarters
of
2016
. Operating expenses increased by a
$61.1 million
, or
4.9%
, primarily due to an increase in contractual wages and employee benefit costs, higher fuel costs and higher usage of purchased transportation.
Salaries, wages and employee benefits.
Salaries, wages and employee benefits increased $30.5 million, or 3.8%, primarily due to a $15.2 million increase in wages and a $19.0 million increase in employee benefit costs, which are primarily related to contractual rate increases for union employees, combined with an increase in shipping volumes, which required more employee hours to process freight.
Operating expenses and supplies.
Operating expenses and supplies increased $21.7 million, or 9.1%, primarily due to a $15.7 million increase in fuel expense, which was largely driven by higher fuel prices on a per gallon basis.
Purchased transportation
. Purchased transportation increased $14.5 million, or 14.7%, primarily due to a $13.8 million increase in vehicle rent expense due to higher usage of operating leases for revenue equipment.
Other operating expenses
. Other operating expenses decreased $1.7 million, or 2.3%, due to a $4.1 million decrease in our property damage and liability claims as a result of favorable development on current year claims which positively impacted the first three quarters of 2017 and unfavorable development of prior year claims that negatively impacted the first three quarters of 2016. This was partially offset by a $1.4 million increase in operating taxes, primarily due to more fuel gallons purchased, and a $1.1 million increase in cargo claims expense.
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
third quarter
and
first three quarters
of
2017
and
2016
, and the trailing twelve months ended
September 30, 2017
and
2016
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
First Three Quarters
|
|
Trailing Twelve Months Ended
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
September 30, 2017
|
|
September 30, 2016
|
Reconciliation of net income (loss) to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
3.0
|
|
|
$
|
13.9
|
|
|
$
|
(3.3
|
)
|
|
$
|
29.0
|
|
|
$
|
(10.8
|
)
|
|
$
|
5.5
|
|
Interest expense, net
|
25.9
|
|
|
25.5
|
|
|
76.7
|
|
|
77.6
|
|
|
102.1
|
|
|
103.8
|
|
Income tax expense (benefit)
|
0.9
|
|
|
0.5
|
|
|
0.4
|
|
|
3.4
|
|
|
0.1
|
|
|
(12.1
|
)
|
Depreciation and amortization
|
36.7
|
|
|
40.3
|
|
|
111.0
|
|
|
119.5
|
|
|
151.3
|
|
|
159.6
|
|
EBITDA
|
66.5
|
|
|
80.2
|
|
|
184.8
|
|
|
229.5
|
|
|
242.7
|
|
|
256.8
|
|
Adjustments for Term Loan Agreement:
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) losses on property disposals, net
|
1.3
|
|
|
0.2
|
|
|
3.0
|
|
|
(11.2
|
)
|
|
(0.4
|
)
|
|
(10.8
|
)
|
Letter of credit expense
|
1.7
|
|
|
1.7
|
|
|
5.1
|
|
|
6.0
|
|
|
6.8
|
|
|
8.2
|
|
Restructuring professional fees
|
—
|
|
|
—
|
|
|
2.2
|
|
|
—
|
|
|
2.2
|
|
|
—
|
|
Transaction costs related to issuances of debt
|
6.7
|
|
|
—
|
|
|
6.7
|
|
|
—
|
|
|
6.7
|
|
|
—
|
|
Permitted dispositions and other
|
0.3
|
|
|
2.2
|
|
|
1.1
|
|
|
1.8
|
|
|
2.3
|
|
|
1.9
|
|
Equity-based compensation expense
|
1.3
|
|
|
1.5
|
|
|
5.3
|
|
|
6.0
|
|
|
6.6
|
|
|
8.0
|
|
Amortization of ratification bonus
|
—
|
|
|
—
|
|
|
—
|
|
|
4.6
|
|
|
—
|
|
|
9.1
|
|
Non-union pension settlement charge
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28.7
|
|
Other, net
(a)
|
3.6
|
|
|
(0.3
|
)
|
|
7.5
|
|
|
3.1
|
|
|
6.5
|
|
|
3.9
|
|
Adjusted EBITDA
|
$
|
81.4
|
|
|
$
|
85.5
|
|
|
$
|
215.7
|
|
|
$
|
239.8
|
|
|
$
|
273.4
|
|
|
$
|
305.8
|
|
|
|
(a)
|
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
third quarter
and
first three quarters
of
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
First Three Quarters
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Adjusted EBITDA by segment:
|
|
|
|
|
|
|
|
YRC Freight
|
$
|
42.6
|
|
|
$
|
45.3
|
|
|
$
|
105.8
|
|
|
$
|
119.3
|
|
Regional Transportation
|
38.7
|
|
|
40.2
|
|
|
110.3
|
|
|
121.3
|
|
Corporate and other
|
0.1
|
|
|
—
|
|
|
(0.4
|
)
|
|
(0.8
|
)
|
Adjusted EBITDA
|
$
|
81.4
|
|
|
$
|
85.5
|
|
|
$
|
215.7
|
|
|
$
|
239.8
|
|
The reconciliation of operating income (loss), by segment, to Adjusted EBITDA for the
third quarter
and
first three quarters
of
2017
and
2016
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
First Three Quarters
|
YRC Freight segment (in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Reconciliation of operating income to Adjusted EBITDA:
|
|
|
|
|
|
|
|
Operating income
|
$
|
20.3
|
|
|
$
|
20.8
|
|
|
$
|
37.8
|
|
|
$
|
53.3
|
|
Depreciation and amortization
|
21.1
|
|
|
22.9
|
|
|
63.6
|
|
|
67.9
|
|
(Gains) losses on property disposals, net
|
1.0
|
|
|
—
|
|
|
1.7
|
|
|
(12.0
|
)
|
Letter of credit expense
|
1.1
|
|
|
1.1
|
|
|
3.3
|
|
|
3.9
|
|
Amortization of ratification bonus
|
—
|
|
|
—
|
|
|
—
|
|
|
3.0
|
|
Other, net
(a)
|
(0.9
|
)
|
|
0.5
|
|
|
(0.6
|
)
|
|
3.2
|
|
Adjusted EBITDA
|
$
|
42.6
|
|
|
$
|
45.3
|
|
|
$
|
105.8
|
|
|
$
|
119.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
First Three Quarters
|
Regional Transportation segment (in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Reconciliation of operating income to Adjusted EBITDA:
|
|
|
|
|
|
|
|
Operating income
|
$
|
21.5
|
|
|
$
|
21.9
|
|
|
$
|
59.0
|
|
|
$
|
64.9
|
|
Depreciation and amortization
|
15.6
|
|
|
17.4
|
|
|
47.4
|
|
|
51.6
|
|
Losses on property disposals, net
|
0.3
|
|
|
0.3
|
|
|
1.3
|
|
|
0.9
|
|
Letter of credit expense
|
0.5
|
|
|
0.6
|
|
|
1.6
|
|
|
2.0
|
|
Amortization of ratification bonus
|
—
|
|
|
—
|
|
|
—
|
|
|
1.6
|
|
Other, net
(a)
|
0.8
|
|
|
—
|
|
|
1.0
|
|
|
0.3
|
|
Adjusted EBITDA
|
$
|
38.7
|
|
|
$
|
40.2
|
|
|
$
|
110.3
|
|
|
$
|
121.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
First Three Quarters
|
Corporate and other (in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Reconciliation of operating loss to Adjusted EBITDA:
|
|
|
|
|
|
|
|
Operating loss
|
$
|
(1.7
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
(9.7
|
)
|
|
$
|
(8.8
|
)
|
Gains on property disposals, net
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Letter of credit expense
|
0.1
|
|
|
—
|
|
|
0.2
|
|
|
0.1
|
|
Restructuring professional fees
|
—
|
|
|
—
|
|
|
2.2
|
|
|
—
|
|
Permitted dispositions and other
|
0.3
|
|
|
2.2
|
|
|
1.1
|
|
|
1.8
|
|
Equity-based compensation expense
|
1.3
|
|
|
1.5
|
|
|
5.3
|
|
|
6.0
|
|
Other, net
(a)
|
0.1
|
|
|
0.3
|
|
|
0.5
|
|
|
0.2
|
|
Adjusted EBITDA
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
(0.4
|
)
|
|
$
|
(0.8
|
)
|
|
|
(a)
|
As required under our Term Loan Agreement, Other, net shown in the above tables 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 ABL Facility and any prospective cash flow from operations. As of
September 30, 2017
, our availability under our ABL Facility was
$94.0 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
$356.0 million
of outstanding letters of credit. Of the
$94.0 million
in availability, our Managed Accessibility was
$49.0 million
based on our springing fixed charge coverage ratio (as set forth in our ABL Facility). Our cash and cash equivalents and Managed Accessibility was
$209.8 million
as of
September 30, 2017
.
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, making payments on our equipment leases, and funding capital expenditures.
As of
September 30, 2017
, we had
$962.4 million
in aggregate par value of outstanding indebtedness, the majority of which matures in 3-5 years. We also have future funding obligations for our single-employer pension plans and various multi-employer pension funds. We expect our funding obligations for the remainder of
2017
for our single-employer pension plans and multi-employer pension funds will be
$14.2 million
and
$23.8 million
, respectively. In addition, we have, and will continue to have, operating lease obligations. As of
September 30, 2017
, our operating lease payment obligations through
2030
totaled
$282.5 million
and are expected to increase as we lease additional revenue equipment. Additionally, for the
first three quarters
of
2017
, we entered into new operating leases for revenue equipment totaling
$26.2 million
in future lease payments, payable over an average lease term of
five
years.
Our capital expenditures for the
first three quarters
of
2017
and
2016
were
$70.8 million
and
$75.4 million
, respectively. These amounts were principally used to fund the purchase of used tractors and trailers, to refurbish engines for our revenue fleet, and for capitalized costs to improve our technology infrastructure.
As of
September 30, 2017
, our Standard & Poor’s Corporate Family Rating was “B-” with a stable outlook and Moody’s Investor Service Corporate Family Rating was “B3” with a positive outlook.
Credit Facility Covenants
Our Term Loan Agreement has certain financial covenants that, among other things, restricts certain capital expenditures and requires us to not exceed a maximum total leverage ratio (defined as Consolidated Total Debt divided by Consolidated Adjusted EBITDA). These covenants were modified as part of the Term Loan Amendment on July 26, 2017, which is more fully described in the “Debt and Financing” footnote to the consolidated financial statements. At September 30, 2017, we were in compliance with all such covenants.
We believe that our results of operations will be sufficient to allow us to comply with the covenants in the Term Loan Agreement, fund our operations, increase working capital as necessary to support our planned revenue growth and fund capital expenditures for at least the next twelve months. To maintain compliance with the maximum total leverage ratio over the tenor of the Term Loan and satisfy our liquidity needs, we would have to achieve operating results that reflect a slight improvement to our 2016 Adjusted EBITDA. Means for improving our profitability may include streamlining our support structure, as well as ongoing successful implementation and realization of pricing, productivity and efficiency initiatives, in addition to increased volume, some of which are outside of our control. During the first half of 2017, the Company strategically identified opportunities to streamline overhead costs and reduce operational inefficiencies and those cost reductions continue to be expected through the remainder of 2017.
Cash Flows
Operating Cash Flow
Cash flows provided by operating activities were
$64.2 million
during the
first three quarters
of
2017
, compared to
$86.0 million
during the
first three quarters
of
2016
. The decrease in operating cash flows was primarily attributable to a $29.1 million increase in accounts receivable, impacted by growth in operating revenue and an increase to days sales outstanding, a $23.5 million decrease in cash from net income (adjusted for non-cash operating items), partially offset by a $30.8 million decrease to other working capital accounts primarily related to the timing of payments.
Investing Cash Flow
Cash flows provided by investing activities was
$22.4 million
during the
first three quarters
of
2017
compared to
$44.9 million
during the
first three quarters
of
2016
, largely driven by a net receipt of
$85.0 million
in restricted escrow refunds in
2017
compared to a net receipt of
$79.2 million
in
2016
. Offsetting this increase, net proceeds from the disposal of property decreased $18.3 million during the
first three quarters
of
2017
as compared to the
first three quarters
of
2016
, and cash flows in
2016
included
$14.6 million
in net proceeds from the sale of JHJ with no similar cash flow in 2017.
Financing Cash Flow
Cash flows used in financing activities for the
first three quarters
of
2017
and
2016
was
$62.5 million
and
$28.3 million
, respectively, which consists primarily of repayments on our long-term debt as well as the payment of debt issuance costs in 2017.
Contractual Obligations and Other Commercial Commitments
The following sections provide aggregated information regarding our contractual cash obligations and other commercial commitments as of
September 30, 2017
.
Contractual Cash Obligations
The following table reflects our cash outflows that we are contractually obligated to make as of
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
(in millions)
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
ABL Facility
(a)
|
$
|
28.4
|
|
|
$
|
7.1
|
|
|
$
|
14.3
|
|
|
$
|
7.0
|
|
|
$
|
—
|
|
Term Loan
(b)
|
865.8
|
|
|
75.6
|
|
|
148.5
|
|
|
641.7
|
|
|
—
|
|
Lease financing obligations
(c)
|
110.8
|
|
|
42.9
|
|
|
39.7
|
|
|
14.1
|
|
|
14.1
|
|
Pension deferral obligations
(d)
|
117.1
|
|
|
7.6
|
|
|
109.5
|
|
|
—
|
|
|
—
|
|
Workers’ compensation, property damage and liability claims obligations
(e)
|
365.8
|
|
|
99.0
|
|
|
117.1
|
|
|
52.0
|
|
|
97.7
|
|
Operating leases
(f)
|
282.5
|
|
|
99.7
|
|
|
127.2
|
|
|
41.7
|
|
|
13.9
|
|
Other contractual obligations
(g)
|
17.6
|
|
|
17.0
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
Capital expenditures and other
(h)
|
101.2
|
|
|
101.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total contractual obligations
|
$
|
1,889.2
|
|
|
$
|
450.1
|
|
|
$
|
556.9
|
|
|
$
|
756.5
|
|
|
$
|
125.7
|
|
|
|
(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. The extended maturity date to July 26, 2022 is subject to the extension of the Second A&R CDA.
|
|
|
(c)
|
The lease financing obligations include interest payments of
$70.9 million
and principal payments of
$39.9 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, which include interest, under contractual lease arrangements primarily for revenue equipment and are not included on the Company’s consolidated balance sheets.
|
|
|
(g)
|
Other contractual obligations includes future service agreements and certain maintenance agreements and are not included on the Company’s consolidated balance sheets.
|
|
|
(h)
|
Capital expenditure obligations primarily includes noncancelable purchase and lease orders for revenue equipment not yet delivered and are not included in the Company’s consolidated balance sheets.
|
Other Commercial Commitments
The following table reflects other commercial commitments or potential cash outflows that may result from a contingent event, such as a need to borrow short-term funds due to insufficient free cash flow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
$
|
94.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
94.0
|
|
|
$
|
—
|
|
Letters of credit
(b)
|
356.0
|
|
|
—
|
|
|
—
|
|
|
356.0
|
|
|
—
|
|
Surety bonds
(c)
|
128.7
|
|
|
115.2
|
|
|
13.5
|
|
|
—
|
|
|
—
|
|
Total commercial commitments
|
$
|
578.7
|
|
|
$
|
115.2
|
|
|
$
|
13.5
|
|
|
$
|
450.0
|
|
|
$
|
—
|
|
|
|
(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. Managed Accessibility was
$49.0 million
.
|
|
|
(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 other than operating leases, other contractual obligations for service agreements and capital purchases, letters of credit and surety bonds, which are reflected in the above tables.