Attached files

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EX-2.1 - EQUITY INTEREST PURCHASE AGREEMENT - YRC Worldwide Inc.dex21.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - YRC Worldwide Inc.dex321.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - YRC Worldwide Inc.dex311.htm
EX-10.6 - YRC WORLDWIDE INC. DIRECTOR COMPENSATION PLAN - YRC Worldwide Inc.dex106.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - YRC Worldwide Inc.dex322.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - YRC Worldwide Inc.dex312.htm
EX-10.7 - AMENDMENT NO. 7 TO YELLOW PENSION PLAN - YRC Worldwide Inc.dex107.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 0-12255

 

 

YRC Worldwide Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   48-0948788

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

10990 Roe Avenue, Overland Park, Kansas   66211
(Address of principal executive offices)   (Zip Code)

(913) 696-6100

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x


Table of Contents

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at August 3, 2010

Common Stock, $0.01 par value per share   1,183,376,209 shares

 

 

 


Table of Contents

INDEX

 

Item

        Page
   PART I – FINANCIAL INFORMATION   
1.    Financial Statements   
   Consolidated Balance Sheets - June 30, 2010 and December 31, 2009    4
   Statements of Consolidated Operations - Three and Six Months Ended June 30, 2010 and 2009    5
   Statements of Consolidated Cash Flows - Six Months Ended June 30, 2010 and 2009    6
   Statement of Consolidated Shareholders’ Equity (Deficit)- Six Months Ended June 30, 2010    7
   Notes to Consolidated Financial Statements    8
2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    35
3.    Quantitative and Qualitative Disclosures About Market Risk    54
4.    Controls and Procedures    54
   PART II – OTHER INFORMATION   
1.    Legal Proceedings    55
1A.    Risk Factors    55
6.    Exhibits    56
   Signatures    57

 

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Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

YRC Worldwide Inc. and Subsidiaries

(Amounts in thousands except per share data)

 

     June 30,
2010
    December 31,
2009
 
     (Unaudited)        

Assets

    

Current Assets:

    

Cash and cash equivalents

   $ 144,289      $ 97,788   

Accounts receivable, net

     477,032        442,814   

Prepaid expenses and other

     164,305        242,640   

Current assets of discontinued operations

     72,175        75,578   
                

Total current assets

     857,801        858,820   
                

Property and Equipment:

    

Cost

     3,377,307        3,529,583   

Less – accumulated depreciation

     (1,696,071     (1,708,371
                

Net property and equipment

     1,681,236        1,821,212   
                

Intangibles, net

     148,633        160,407   

Other assets

     143,550        170,176   

Noncurrent assets of discontinued operations

     12,063        21,459   
                

Total assets

   $ 2,843,283      $ 3,032,074   
                

Liabilities and Shareholders’ Equity (Deficit)

    

Current Liabilities:

    

Accounts payable

   $ 170,232      $ 154,671   

Wages, vacations and employees’ benefits

     206,006        213,754   

Other current and accrued liabilities

     467,675        392,392   

Current maturities of long-term debt

     245,475        197,127   

Current liabilities of discontinued operations

     59,496        51,884   
                

Total current liabilities

     1,148,884        1,009,828   
                

Other Liabilities:

    

Long-term debt, less current portion

     913,474        935,782   

Deferred income taxes, net

     146,258        146,576   

Pension and postretirement

     352,637        351,861   

Claims and other liabilities

     359,247        419,883   

Noncurrent liabilities of discontinued operations

     37        954   

Commitments and contingencies

    

Shareholders’ Equity (Deficit):

    

Preferred stock, $1 par value per share

     —          4,346   

Common stock, $0.01 par value per share

     11,223        991   

Capital surplus

     1,615,076        1,576,349   

Accumulated deficit

     (1,460,889     (1,177,280

Accumulated other comprehensive loss

     (149,191     (144,479

Treasury stock, at cost (3,079 shares)

     (92,737     (92,737
                

Total YRC Worldwide Inc. shareholders’ equity (deficit)

     (76,518     167,190   
                

Non-controlling interest

     (736     —     
                

Total shareholders’ equity (deficit)

     (77,254     167,190   
                

Total liabilities and shareholders’ equity (deficit)

   $ 2,843,283      $ 3,032,074   
                

The accompanying notes are an integral part of these statements.

 

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Table of Contents

STATEMENTS OF CONSOLIDATED OPERATIONS

YRC Worldwide Inc. and Subsidiaries

For the Three and Six Months Ended June 30

(Amounts in thousands except per share data)

(Unaudited)

 

     Three Months     Six Months  
     2010     2009     2010     2009  

Operating Revenue

   $ 1,119,101      $ 1,226,264      $ 2,106,245      $ 2,616,939   
                                

Operating Expenses:

        

Salaries, wages and employees’ benefits

     682,934        986,685        1,334,012        2,090,184   

Equity based compensation expense (benefit)

     (81,542     (6,271     28,329        26,754   

Operating expenses and supplies

     243,420        282,783        480,789        620,620   

Purchased transportation

     120,803        123,898        214,902        253,012   

Depreciation and amortization

     50,074        59,912        100,706        122,827   

Other operating expenses

     57,309        74,515        120,504        175,891   

(Gains) losses on property disposals, net

     (2,187     (1,040     6,612        559   

Impairment charges

     —          —          5,281        —     
                                

Total operating expenses

     1,070,811        1,520,482        2,291,135        3,289,847   
                                

Operating Income (Loss)

     48,290        (294,218     (184,890     (672,908
                                

Nonoperating (Income) Expenses:

        

Interest expense

     41,385        38,333        82,312        70,530   

Equity investment impairment

     12,338        30,374        12,338        30,374   

Other, net

     (6,697     1,505        (4,791     4,483   
                                

Nonoperating expenses, net

     47,026        70,212        89,859        105,387   
                                

Income (Loss) from Continuing Operations Before Income Taxes

     1,264        (364,430     (274,749     (778,295

Income tax provision (benefit)

     224        (64,948     (5,654     (206,823
                                

Net Income (Loss) from Continuing Operations

     1,040        (299,482     (269,095     (571,472

Net Loss from Discontinued Operations, net of tax

     (11,358     (9,555     (15,361     (11,347
                                

Net Loss

     (10,318     (309,037     (284,456     (582,819

Less: Net Loss Attributable to Non-Controlling Interest

     (847     —          (847     —     
                                

Net Loss Attributable to YRC Worldwide Inc.

   $ (9,471   $ (309,037   $ (283,609   $ (582,819
                                

Average Common Shares Outstanding – Basic

     1,078,254        59,480        801,274        59,427   

Average Common Shares Outstanding – Diluted

     1,079,283        59,480        801,274        59,427   

Basic Earnings (Loss) Per Share

        

Income (Loss) from Continuing Operations

   $ —        $ (5.04   $ (0.33   $ (9.62

Loss from Discontinued Operations

     (0.01     (0.16     (0.02     (0.19
                                

Net Loss Per Share

   $ (0.01   $ (5.20   $ (0.35   $ (9.81
                                

Diluted Earnings (Loss) Per Share

        

Income (Loss) from Continuing Operations

   $ —        $ (5.04   $ (0.33   $ (9.62

Loss from Discontinued Operations

     (0.01     (0.16     (0.02     (0.19
                                

Net Loss Per Share

   $ (0.01   $ (5.20   $ (0.35   $ (9.81
                                

Amounts attributable to YRC Worldwide Inc. common shareholders:

        

Income (Loss) from Continuing Operations

   $ 1,887      $ (299,482   $ (268,248   $ (571,472

Loss from Discontinued Operations, net of tax

     (11,358     (9,555     (15,361     (11,347
                                

Net Loss

   $ (9,471   $ (309,037   $ (283,609   $ (582,819
                                

The accompanying notes are an integral part of these statements.

 

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Table of Contents

STATEMENTS OF CONSOLIDATED CASH FLOWS

YRC Worldwide Inc. and Subsidiaries

For the Six Months Ended June 30

(Amounts in thousands)

(Unaudited)

 

     2010     2009  

Operating Activities:

    

Net loss

   $ (284,456   $ (582,819

Noncash items included in net loss:

    

Depreciation and amortization

     105,228        130,718   

Equity based compensation expense

     28,345        26,754   

Settlement charges

     104        5,755   

Impairment charges

     17,619        30,374   

Losses on property disposals, net

     8,310        587   

Deferred income tax benefit, net

     (5,784     (199,086

Amortization of deferred debt costs

     22,689        10,493   

Other noncash items, net

     (4,701     4,567   

Changes in assets and liabilities, net:

    

Accounts receivable

     (27,635     166,976   

Accounts payable

     17,665        (82,270

Other operating assets

     85,860        67,695   

Other operating liabilities

     22,284        176,839   
                

Net cash used in operating activities

     (14,472     (243,417
                

Investing Activities:

    

Acquisition of property and equipment

     (10,855     (26,026

Proceeds from disposal of property and equipment

     35,781        37,533   

Other

     5,223        (198
                

Net cash provided by investing activities

     30,149        11,309   
                

Financing Activities:

    

Asset backed securitization borrowings, net

     1,114        58,042   

Issuance of long-term debt

     141,795        284,201   

Repayment on long-term debt

     (101,100     (223,449

Debt issuance costs

     (9,568     (47,526

Equity issuance costs

     (17,323     —     

Equity issuance proceeds

     15,906        —     
                

Net cash provided by financing activities

     30,824        71,268   
                

Net Increase (Decrease) In Cash and Cash Equivalents

     46,501        (160,840

Cash and Cash Equivalents, Beginning of Period

     97,788        325,349   
                

Cash and Cash Equivalents, End of Period

   $ 144,289      $ 164,509   
                

Supplemental Cash Flow Information:

    

Income tax refunds, net

   $ 83,288      $ 33,922   

Pension contribution deferral transfer to long-term debt

   $ 4,361      $ 133,227   

The accompanying notes are an integral part of these statements.

 

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STATEMENT OF CONSOLIDATED SHAREHOLDERS’ EQUITY (DEFICIT)

YRC Worldwide Inc. and Subsidiaries

For the Six Months Ended June 30

(Amounts in thousands)

(Unaudited)

 

     2010  

Preferred Stock

  

Beginning balance

   $ 4,346   

Conversion of preferred shares to common shares

     (4,346
        

Ending balance

   $ —     
        

Common Stock

  

Beginning balance

   $ 991   

Conversion of preferred shares to common shares

     9,572   

Shares issued in connection with ABS amendment

     207   

Issuance of equity awards

     4   

At the market issuances of common stock

     449   
        

Ending balance

   $ 11,223   
        

Capital Surplus

  

Beginning balance

   $ 1,576,349   

Share-based compensation

     25,454   

Conversion of preferred shares to common shares

     (5,226

Beneficial conversion feature of 6% notes

     3,341   

Issuance of equity in exchange for debt (net of transaction costs)

     (2,000

Shares issued in connection with ABS amendment

     2,264   

At the market issuances of common stock (net of transaction costs)

     14,939   

Other, net

     (45
        

Ending balance

   $ 1,615,076   
        

Accumulated Deficit

  

Beginning balance

   $ (1,177,280

Net loss attributable to YRC Worldwide Inc.

     (283,609
        

Ending balance

   $ (1,460,889
        

Accumulated Other Comprehensive Loss

  

Beginning balance

   $ (144,479

Pension, net of tax:

  

Reclassification of net losses to net income

     1,939   

Deferred tax rate adjustments

     (1,080

Foreign currency translation adjustments

     (5,571
        

Ending balance

   $ (149,191
        

Treasury Stock, At Cost

  

Beginning and ending balance

   $ (92,737
        

Total YRC Worldwide Inc. Shareholders’ Equity (Deficit)

   $ (76,518
        

Noncontrolling Interest

  

Beginning balance

   $ —     

Noncontrolling interest in Jiayu

     115   

Net loss attributable to the noncontrolling interest

     (847

Foreign currency translation adjustments

     (4
        

Ending balance

   $ (736
        

Total shareholder’s equity (deficit)

   $ (77,254
        

The accompanying notes are an integral part of these statements.

 

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YRC Worldwide Inc. and Subsidiaries

(Unaudited)

1. Description of Business

YRC Worldwide Inc. (also referred to as “YRC Worldwide”, “the Company”, “we” or “our”), one of the largest transportation service providers in the world, is a holding company that through wholly owned operating subsidiaries offers its customers a wide range of transportation services. These services include global, national and regional transportation as well as logistics. Our operating subsidiaries include the following:

 

   

YRC National Transportation (“National Transportation”) is the reporting unit for our transportation service providers focused on business opportunities in regional, national and international services. National Transportation provides for the movement of industrial, commercial and retail goods, primarily through regionalized and centralized management and customer facing organizations. This unit includes our less-than-truckload (“LTL”) subsidiary YRC Inc. (“YRC”), and YRC Reimer, a subsidiary located in Canada that specializes in shipments into, across and out of Canada. Approximately 34% of National Transportation shipments are completed in two days or less. In addition to the United States (“U.S.”) and Canada, National Transportation also serves parts of Mexico, Puerto Rico and Guam.

 

   

YRC Regional Transportation (“Regional Transportation”) is the reporting unit for our transportation service providers focused on business opportunities in the regional and next-day delivery markets. Regional Transportation is comprised of New Penn Motor Express (“New Penn”), Holland and Reddaway. These companies each provide regional, next-day ground services in their respective regions through a network of facilities located across the U.S., Canada, Mexico and Puerto Rico. Approximately 94% of Regional Transportation LTL shipments are completed in two days or less.

 

   

YRC Truckload (“Truckload”) reflects the results of Glen Moore, a provider of truckload services throughout the U.S.

 

   

YRC Logistics plans and coordinates the movement of goods worldwide to provide customers a single source for logistics management solutions. In June 2010, we signed an agreement whereby the majority of YRC Logistics will be sold to a third party after the satisfaction of certain closing conditions. In addition, certain other operations ceased during the quarter ended June 30, 2010. As a result, the YRC Logistics segment has been reported as discontinued operations for all periods presented. See Note 15 “Discontinued Operations” for further discussion.

At June 30, 2010, approximately 74% of our labor force of our operating segments is subject to various collective bargaining agreements, which predominantly expire in 2013.

2. Principles of Consolidation

The accompanying consolidated financial statements include the accounts of YRC Worldwide and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in non-majority owned affiliates or those in which we do not have control where the entity is either not a variable interest entity or YRC Worldwide is not the primary beneficiary, are accounted for on the equity method.

Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. Actual results could differ from those estimates. We have prepared the consolidated financial statements, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, all normal recurring adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods included in these financial statements herein have been made. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements pursuant to SEC rules and regulations. Accordingly, the accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009.

Assets Held for Sale

When we plan to dispose of property or equipment by sale, the asset is carried in the financial statements at the lower of the carrying amount or estimated fair value, less cost to sell, and is reclassified to assets held for sale. Additionally, after the

 

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reclassification, there is no further depreciation taken on the asset. For an asset to be classified as held for sale, management must approve and commit to a formal plan, the sale should be anticipated during the ensuing year and the asset must be actively marketed, be available for immediate sale, and meet certain other specified criteria. In addition to the amounts classified as assets and liabilities of discontinued operations, at June 30, 2010 and December 31, 2009, the net book value of properties and equipment held for sale was approximately $106.2 million and $112.8 million, respectively. This amount is included in “Property and Equipment” in the accompanying consolidated balance sheets. We recorded charges of $11.7 million and $23.2 million for the three and six months ended June 30, 2010 and $3.7 million and $7.0 million for the three and six months ended June 30, 2009, respectively, to reduce properties and equipment held for sale to estimated fair value, less cost to sell. These charges are included in “(Gains) Losses on Property Disposals, Net” in the accompanying statements of consolidated operations.

Impairment of Long-Lived Assets

If facts and circumstances indicate that the carrying amount of held-and-used identifiable amortizable intangibles and property, plant and equipment may be impaired, we perform an evaluation of recoverability in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (now included in FASB ASC Topic 360). Our evaluation compares the estimated future undiscounted cash flows associated with the asset or asset group to its carrying amount to determine if a reduction to the carrying amount is required. The carrying amount of an impaired asset would be reduced to fair value if the estimated undiscounted cash flows are insufficient to recover the carrying value of the asset group.

We believe that the accounting estimate related to asset impairment is a critical accounting estimate because: (1) it requires our management to make assumptions about future revenues over the life of the asset, and (2) the impact that recognizing an impairment would have on our financial position, as well as our results of operations, could be material. Management’s assumptions about future revenues require significant judgment because actual revenues have fluctuated in the past and may continue to do so. In estimating future revenues, we use our internal business forecasts. We develop our forecasts based on recent revenue data for existing services and other industry and economic factors. To the extent that YRC is unable to achieve forecasted improvements in shipping volumes and pricing initiatives or realize forecasted cost savings, the Company may incur significant impairment losses on property and equipment or intangible assets.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and asset-backed securitization borrowings approximates their fair value due to the short-term nature of these instruments.

3. Liquidity

The following table provides details of the outstanding components and unused available (deficit) capacity under the Credit Agreement and ABS Facility (each, as defined below) at June 30, 2010 and December 31, 2009:

 

(in millions)

   June 30,
2010
    December 31,
2009
 

Capacity:

    

Revolving loan

   $ 950.0      $ 950.0   

ABS Facility

     350.0        400.0   
                

Total maximum capacity

     1,300.0        1,350.0   
                

Amounts outstanding:

    

Revolving loan

     (358.0     (329.1

Letters of credit (6/30/10: $454.7 revolver; $72.2 ABS Facility)

     (526.9     (538.3

ABS Facility borrowings

     (147.4     (146.3
                

Total outstanding

     (1,032.3     (1,013.7
                

ABS limitations

     (129.5     (178.2

Revolver reserve

     (128.8     (159.8
                

Total restricted capacity

     (258.3     (338.0
                

Unrestricted unused capacity (deficit) (6/30/10: $8.5 revolver; $0.9 ABS Facility)

   $ 9.4      $ (1.7
                

During the quarter ended June 30, 2010, we amended our credit agreements and entered into a new sales agreement for at the market issuances as discussed below.

 

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Credit Agreement Amendments

On May 3, 2010, we entered into Amendment No. 17 and on July 28, 2010, we entered into Amendment No. 18 to our Credit Agreement, dated as of August 17, 2007 (as amended, the “Credit Agreement”). The amendments are described below.

Amendment No. 17

We have entered into an arrangement to sell up to $103 million shares of common stock (on a gross proceeds basis) in an at-the-market issuance program. See “—At Market Issuance Sales Agreement” below. Amendment No. 17 to the Credit Agreement permits us to retain the net proceeds from any such sales as described below:

Equity Issuances

Amendment No. 17 provides that we may receive up to $100 million of net cash proceeds from the issuance of equity interests during the period commencing on May 3, 2010 and ending on the earlier of December 31, 2010 or the date on which we receive $100 million of net cash proceeds from such equity issuances, without having to use such net cash proceeds to make a mandatory prepayment under the Credit Agreement. The net cash proceeds from such equity issuances are deposited into a new deposit account (the “New Account”). We will be able to use the funds in the New Account for general corporate purposes. While any funds are in the New Account, they will not count toward the calculation of Liquidity (as defined in the Credit Agreement), the calculation of Unrestricted Cash (as defined in the Credit Agreement) or the calculation of Excess Cash Flow (as defined in the Credit Agreement) in each case for purposes of the mandatory prepayment requirements. The funds in the New Account will count as Available Cash (as defined in the Credit Agreement). Additionally, we will not be able to request loans under the Credit Agreement until the balance in the New Account is zero. Other than the net cash proceeds from the issuance of such equity interest, no funds may be deposited into the New Account, and once funds have been withdrawn they may not be re-deposited. As of June 30, 2010 the balance in this New Account was $15.4 million which represents our net proceeds from our at the market issuances.

Voluntary Prepayments of Certain Obligations

Amendment No. 17 to the Credit Agreement modifies the restriction on voluntary prepayments of any amounts owing under the Contribution Deferral Agreement or indebtedness, including a prohibition on the Company using the up to $100 million of net cash proceeds from the equity issuance described above to make such voluntary prepayments.

Amendment No. 18

We have entered into an agreement to sell the majority of our logistics business for $37 million (prior to any purchase price adjustments). See “—Sale of YRC Logistics” below. Amendment No. 18 to the Credit Agreement permits us to retain the net proceeds from the sale as described below:

Sale of YRC Logistics

The Credit Agreement requires us to prepay amounts outstanding under the Credit Agreement with 100% of the net cash proceeds received from the sale of YRC Logistics. Pursuant to Amendment No. 18, these net cash proceeds will be applied as follows:

-We have entered into a Contribution Deferral Agreement (as amended, the “Contribution Deferral Agreement”) with certain of the multi-employer pension funds to which the Company contributes. If we enter into an amendment (the “CDA Amendment”) to the Contribution Deferral Agreement to approve Amendment No. 18, 100% of the net cash proceeds from the sale of YRC Logistics will be applied to outstanding unblocked revolver loans under the Credit Agreement (without a corresponding commitment reduction to the unblocked revolver) and the new revolver reserve block under the Credit Agreement will be permanently reduced by 50% of that amount. Amendment No. 18 provides that we must enter into the CDA Amendment prior to August 13, 2010 (or August 27, 2010 if we have received approval from the Supermajority Funds (as defined in the Contribution Deferral Agreement)).

—If the closing of the CDA Amendment and the sale of YRC Logistics occur after the dates described above, then the net cash proceeds will be applied in accordance with the provisions of the Credit Agreement that were applicable to the sale of YRC Logistics prior to giving effect to Amendment No. 18.

 

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Mandatory Prepayments

Pursuant to the terms of Amendment No. 18, from July 28, 2010 through the date of the CDA Amendment, upon a Prepayment Event (as defined in the Credit Agreement) or an Excess Cash Flow Sweep (as defined in the Credit Agreement), a mandatory prepayment will be made in an amount, and in accordance with the provisions of the Credit Agreement, prior to giving effect to Amendment No. 18. Upon effectiveness of the CDA Amendment, the new revolver reserve block will automatically and permanently decrease by the amount by which the new revolver reserve block increased by virtue of any mandatory prepayments during the period above.

On and after the date of the CDA Amendment, upon a Prepayment Event (except for certain sale and leaseback transactions described below) or an Excess Cash Flow Sweep (as defined in the Credit Agreement), a mandatory prepayment will be made in an amount, and in accordance with the provisions of, the Credit Agreement prior to giving effect to Amendment No. 18, except that:

 

  (i) outstanding permitted interim loans will be repaid after (rather than before) new revolver reserve block loans, existing revolver reserve block (performance) loans and unblocked revolver loans (in each case (other than permitted interim loans) with a corresponding permanent commitment reduction), and

 

  (ii) outstanding term loans are paid ratably with the unblocked revolver.

The first $20 million of net cash proceeds received from sale and leaseback transactions received on and after the date of the CDA Amendment will be treated as follows:

—If certain cost reduction criteria established by our lenders under Amendment No. 18 are satisfied:

 

  (i) 25% of the net cash proceeds will be applied in accordance with the provisions applicable after effectiveness of the CDA Amendment described in the paragraph above,

 

  (ii) 75% of the net cash proceeds will be applied to outstanding unblocked revolver loans (without a corresponding commitment reduction to the unblocked revolver), and

 

  (iii) the new revolver reserve block will be permanently reduced by 50% of the net cash proceeds.

—If we do not satisfy the criteria, then 75% of the net cash proceeds will be treated in accordance with (i) above and 25% of the net cash proceeds will be treated in accordance with (ii) above.

Conversion of Revolving Loans and LC Limits

On the date of the CDA Amendment, Amendment No. 18 converts $150 million of outstanding revolving loans to term loans. In addition, Amendment No. 18 reduces the letter of credit sublimit to $550 million and limits foreign currency letters of credit to $25 million. As a result, on the date of the CDA Amendment, the Credit Agreement will provide the Company with an $800 million senior revolving credit facility, which is subject to further reductions, and a senior term loan in an aggregate outstanding principal amount of approximately $261.5 million.

Consolidated EBITDA

The definition of Consolidated EBITDA was amended to include a new add back for charges, expenses and losses incurred with any Permitted Disposition (as defined in the Credit Agreement) or discontinued operations.

Financial Covenants

Our minimum Available Cash covenant requires that we maintain at least $25 million of Available Cash through December 31, 2010 and at least $50 million of Available Cash from and after January 1, 2011.

Our minimum Consolidated EBITDA (as defined in the Credit Agreement) covenant in respect of the periods ending June 30, 2010, September 30, 2010 and December 31, 2010 is as follows:

 

Period

   Minimum Consolidated EBITDA

For the fiscal quarter ending on June 30, 2010

   $ 5 million

For the two consecutive fiscal quarters ending September 30, 2010

   $ 50 million

For the three consecutive fiscal quarters ending December 31, 2010

   $ 100 million

 

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Asset-Backed Securitization Amendments

On May 3, 2010, we, as Performance Guarantor, and the parties to the Third Amended and Restated Receivables Purchase Agreement, dated as of April 18, 2008 (as amended, the “ABS Facility”), entered into Amendment No. 17 to the ABS Facility, which implemented minimum consolidated EBITDA and minimum available cash requirements that are consistent with Amendment No. 17 to the Credit Agreement described above.

On June 11, 2010, we entered into Amendment No. 18 to the ABS Facility. The amended facility (i) reduced the aggregate commitments under the ABS Facility from $400 million to $350 million; and (ii) modified certain calculations under the ABS Facility to reduce the impact of negative effects that the integration of Yellow Transportation and Roadway has had on the ability of the Seller to borrow under the ABS Facility. As a result, solely for the period beginning on June 11, 2010 and ending on July 2, 2010, we were able to borrow additional amounts of approximately $22 million under the ABS Facility.

In connection with Amendment No. 18 to the ABS Facility, we paid fees to the Co-Agents (the “Closing Fees”). The Closing Fees were paid by the Company by the issuance to the Co-Agents (or their designees) of an aggregate of 25.4 million shares of unregistered restricted common stock of the Company of which 20.7 million were issued as of June 30, 2010 and the remaining 4.7 million were issued on July 22, 2010. To value these shares issued in lieu of cash fees, we completed a fair value analysis and concluded that the value of these shares as of June 30, 2010 was $3.0 million.

Interest and Fee Deferrals

In 2009, the Credit Agreement lenders agreed to defer the payment of revolver and term loan interest, letter of credit fees and commitment fees, subject to the deferral exceptions and termination events, for the period:

 

   

beginning December 31, 2009, and

 

   

ending on December 31, 2010, subject to an extension until December 31, 2011 if agreed to by 66 2/3 % of the lenders.

As of June 30, 2010 the amounts deferred under the above provision were $59.0 million.

Additionally, we deferred amendment fees of $31.8 million in October 2009, which are fully earned but not due and payable until the earlier of December 31, 2011 or the occurrence of a termination event.

Additionally, some of the fees and interest due during the term of the ABS Facility have also been deferred. The $10.0 million fee that was due on October 30, 2009 has been deferred until the earliest to occur of the following dates or events (the “Deferred Fee Payment Date”):

 

   

October 26, 2010,

 

   

the Amortization Date (as defined in the ABS Facility), and

 

   

the occurrence of a deferral termination event.

The portion of current letter of credit fees, program fees and administration fees under the ABS Facility in excess of the fees in place prior to February 12, 2009 were deferred also until the Deferred Fee Payment Date. As of June 30, 2010, the amount deferred under this provision was $8.8 million.

Contribution Deferral Agreement Amendments

On May 3, 2010, we entered into Amendment No. 4 to the Contribution Deferral Agreement. Pursuant to the Contribution Deferral Agreement, we have deferred the payment of contributions to these funds. Under Amendment No. 4 the calculation of Liquidity (as defined in the Contribution Deferral Agreement) for the Liquidity Cash Sweep (as defined in the Credit Agreement) thereunder was amended to conform it to the test in the Credit Agreement (after giving effect to Amendment No. 17 to the Credit Agreement), except that the Liquidity test under the Contribution Deferral Agreement subtracts any commitment reduction or prepayment under the Credit Agreement.

We are actively seeking the additional amendments to the Contribution Deferral Agreement described in “—Credit Agreement Amendment – Sale of YRC Logistics” above.

 

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At Market Issuance Sales Agreement

On May 3, 2010, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with Wm Smith & Co and McNicoll, Lewis & Vlak LLC (the “Sales Agents”), under which we may sell up to the amount available for offer and sale under the currently effective Registration Statement on Form S-3 (Registration No. 333-159355) (the “Registration Statement”) of our common stock from time to time through the Sales Agents. The Registration Statement permits the issuance, from time to time, by us of shares of the Company’s common stock, preferred stock and warrants up to an aggregate initial offering price not to exceed $200 million. The Sales Agents may sell the common stock by any method permitted by law deemed to be an ‘at the market’ offering as defined in Rule 415 of the Securities Act of 1933, as amended, including without limitation sales made directly on the NASDAQ Global Select Market, on any other existing trading market for the common stock or to or through a market maker. The Sales Agents may also sell the common stock in privately negotiated transactions, subject to our approval. The compensation to the Sales Agents for sales of common stock sold pursuant to the Sales Agreement will be an aggregate of 3.0% of the gross proceeds of the sales price of common stock sold with respect to the first $25.0 million of gross proceeds and an aggregate of 2.0% of the gross proceeds with respect to gross proceeds in excess of that amount.

The Sales Agreement will terminate on the earliest of (1) the sale of all of the common stock subject to the Sales Agreement, or (2) termination of the Sales Agreement by the Company or the Sales Agents. Either Sales Agent may terminate the Sales Agreement as to itself at any time in certain circumstances, including the occurrence of a material adverse change that, in such Sales Agent’s judgment, may impair its ability to sell the common stock, or a suspension or limitation of trading of the Company’s common stock on NASDAQ. We may terminate the Sales Agreement at any time upon five days prior notice while either Sales Agent may terminate the Sales Agreement as to itself at any time upon five days prior notice. The Sales Agreement contains customary representations, warranties and covenants.

On May 4, 2010, we filed with the SEC a prospectus supplement that contemplates the sale of up to $103 million in gross proceeds of shares of the Company’s common stock from time to time in at-the-market offerings pursuant to the Sales Agreement. Sales pursuant to the Sales Agreement will be made only upon instructions by the Company to the Sales Agents, and we cannot provide any assurances that we will issue any additional shares pursuant to the Sales Agreement.

During the three months ended June 30, 2010, we completed the sale of 44.9 million shares for net proceeds of $15.4 million as part of our at the market offerings.

Sale of YRC Logistics

In June 2010, we entered into an Equity Interest Purchase agreement (the “Agreement”) with CEG Holdings, Inc. (“CEG”), a subsidiary of Austin Ventures to sell YRC Logistics for an aggregate of approximately $37.0 million in cash. Approximately $2.8 million of the purchase price will be deposited into an escrow account at closing to be held for 12 and 18 months to satisfy certain indemnification claims by CEG that may arise. The Agreement is subject to various closing conditions and contains certain termination rights for both the Company and CEG, and further provides that, upon termination of the Agreement under specified circumstances, the Company may be required to pay CEG a termination fee of $1.25 million plus any costs of collection incurred by CEG.

For the six months ended June 30, 2010, net cash used in operating activities for YRC Worldwide was $14.5 million of which YRC Logistics portion was approximately $4.5 million.

Risks and Uncertainties Regarding Future Liquidity

In light of our recent operating results, we have satisfied our short term liquidity needs through a combination of borrowings under our credit facilities, retained proceeds from asset sales, sale/leaseback financing transactions, issuances of our common stock, and 6% Notes and an income tax refund from the IRS. In an effort to further manage liquidity, we have also instituted the deferral of pension plan payments and certain interest and fees. As our operating results improve, we expect that cash generated from operations will reduce our need to continue to rely upon these sources of liquidity to meet our short term funding requirements. In August 2009, the employees in most of our bargaining units who are represented by the International Brotherhood of Teamsters (the “Teamsters”) ratified a modification to our collective bargaining agreement to (among other things) implement a 15% wage reduction (which includes the 10% wage reduction previously implemented in January 2009) and a temporary cessation of the requirement for the Company’s subsidiaries to make contributions to union multi-employer pension funds. The wage reduction and the temporary pension contribution cessation have also improved our liquidity position; however, the temporary pension contribution cessation ends at the end of 2010. Based on expected levels of employment in 2011, we estimate that we will contribute approximately $25-30 million per month to multi-employer pension funds in 2011. To continue to have sufficient liquidity to meet our cash flow requirements during 2010:

 

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our operating results must continue to stabilize or recover quarter-over-quarter and shipping volumes must continue to stabilize or recover quarter-over-quarter;

 

   

we must continue to have access to our credit facilities;

 

   

we must renew our ABS Facility in October 2010;

 

   

we must continue to defer at least through 2010 payment of:

 

   

interest and fees to our lenders under the Credit Agreement

 

   

interest and facility fees to purchasers of our accounts receivable pursuant to the ABS Facility

 

   

interest and principal to our pension funds pursuant to the Contribution Deferral Agreement;

 

   

our wage reductions and temporary cessation of pension contributions must continue;

 

   

we must complete the sale/leaseback and real estate sale transactions currently under contract as anticipated; and

 

   

we must continue to implement and realize substantial cost savings measures to match our costs with business levels and to continue to become more efficient.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The uncertainty regarding the Company’s ability to generate sufficient cash flows and liquidity to fund operations raises substantial doubt about the Company’s ability to continue as a going concern (which contemplates the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future). These financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are unable to fund our operations through operating cash flows, existing credit facilities, sales of non-strategic assets and business lines and other capital market transactions, we would consider in court and out of court restructuring alternatives.

We expect to continue to monitor our liquidity carefully, work to reduce this uncertainty and address our cash needs through a combination of one or more of the following actions:

 

   

we continue to, and expect to implement further cost actions and efficiency improvements;

 

   

we will continue to aggressively seek additional and return business from customers;

 

   

if appropriate, we may sell additional equity or pursue other capital market transactions, including pursuant to the Sales Agreement described above;

 

   

we may consider selling non-strategic assets or business lines, such as the sale of YRC Logistics; and

 

   

we expect to carefully manage receipts and disbursements, including amounts and timing, focusing on reducing days sales outstanding and managing days payables outstanding.

At the end of 2010, the temporary cessation of our requirement to make contributions to the multi-employer pension funds in which we participate will end absent a new agreement with the Teamsters to address this requirement. Based upon expected levels of employment in 2011, we estimate that we will be required to contribute approximately $25-30 million per month to multi-employer pension funds in 2011. Absent the consent of two-thirds in interest of the lenders under the Credit Agreement to continue the deferral of interest and fees under the Credit Agreement during 2011, the deferral will terminate at the end of 2010. In addition, for us to continue our deferral of the payment of future interest and the amortized principal to the pension funds during 2011 under the Contribution Deferral Agreement, 90% in interest of the pension funds that are a party to the Contribution Deferral Agreement must vote to continue the deferral.

Previously deferred interest and fees under the Credit Agreement of $90.8 million are not due until the end of 2011, unless a majority in interest of the lenders accelerate the payment because of a termination of the deferral under the Contribution Deferral Agreement or to the extent our cash and unblocked availability under the Credit Agreement and the ABS Facility in 2011 exceeds certain levels set forth in the Credit Agreement. Likewise, under the Contribution Deferral Agreement, previously deferred interest and amortized principal payments of $150.4 million are not due until the end of 2011, unless a majority in interest of the funds elect to accelerate the payments after termination of the deferral. The Company must also renew its ABS Facility in October 2010 and expects to address the continuation of the deferral of ABS Facility fees of $18.8 million in this renewal. In addition, if the fee and interest deferrals under the Credit Agreement do not continue in 2011, the Teamsters have the right to terminate the Amended and Restated Memorandum of Understanding on the Job Security Plan dated July 9, 2009, which, among other things, would eliminate the 15% wage reduction in place since August 2009 through March 2013 for employees of bargaining units that have ratified that plan.

We do not expect that we will have sufficient liquidity to make these payments in 2011. As a result, we are in discussions with all of our stakeholders and we are exploring the restructuring and possible recapitalization of these obligations, which may include the issuance of a significant amount of additional equity. Among other discussions with all of our stakeholders, the Company and the Teamsters are engaged in discussions regarding this requirement and the competitiveness of the Company through two joint labor/management committees that have been formed. A failure to address these obligations prior to 2011 would materially and adversely affect our liquidity and our ability to continue to operate our business in the ordinary course.

 

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4. Debt and Financing

Total debt consisted of the following:

 

(in millions)

   June 30, 2010     December 31, 2009  

Revolving credit facility

   $ 358.0      $ 329.1   

Term loan

     112.4        112.6   

ABS borrowings, secured by accounts receivable

     147.4        146.3   

USF senior notes

     —          45.3   

Contingent convertible senior notes

     21.7        21.7   

6% convertible senior notes

     46.7        —     

Pension contribution deferral obligations

     145.4        153.0   

Lease financing obligations

     326.3        318.9   

Other

     1.0        6.0   
                

Total debt

   $ 1,158.9      $ 1,132.9   

Current maturities of contingent convertible senior notes

     (21.7     (27.6

Current maturities of lease financing obligations

     (2.9     (2.7

Current maturities of pension contribution deferral obligations

     (72.5     (20.5

ABS borrowings

     (147.4     (146.3

Other

     (1.0     —     
                

Long-term debt

   $ 913.4      $ 935.8   
                

As of June 30, 2010, we were in compliance with the various debt covenants under our lending agreements.

Asset-Backed Securitization Facility

At June 30, 2010, our underlying accounts receivable supported total capacity under our ABS Facility of $220.5 million. In addition to the $147.4 million outstanding, the ABS Facility capacity was also reduced by outstanding letters of credit of $72.2 million resulting in unused capacity of $0.9 million at June 30, 2010.

6% Convertible Senior Notes Due 2014

In February 2010, we entered into a note purchase agreement with certain investors pursuant to which the investors agreed to purchase up to $70 million in aggregate principal amount of our 6% convertible senior notes due 2014 (the “6% Notes”). The 6% Notes bear interest at 6%, payable in February and August of each year. The sale of the 6% Notes was structured to occur in two closings. Pursuant to the note purchase agreement, we sold $49.8 million of the 6% Notes to the investors at the first closing in February 2010 and were obligated to sell an additional $20.2 million of 6% Notes to the investors in the second closing, assuming the closing conditions in the note purchase agreement were met. At the first closing, the investors also funded the remaining $20.2 million into an escrow account to be released at the second closing, subject to the escrow agent receiving a certificate from the investors that the closing conditions had been satisfied.

The 6% Notes are convertible, at the note holder’s option, prior to the maturity date into shares of our common stock. The 6% Notes were initially convertible at a conversion price of $0.43 per share, which is equal to a conversion rate of approximately 2,326 shares per $1,000 principal amount of 6% Notes, subject to certain adjustments. The 6% Notes provide for caps within the second anniversary of the first closing such that a holder and its affiliates is not entitled to convert its 6% Notes to the extent that the holder and its affiliates would hold greater than 4.9% of the then outstanding common stock after such conversion, unless timely waived by the holder. The 6% Notes also provide a cap through stated maturity such that any holder and its affiliates is not entitled to convert its notes to the extent that the holder and its affiliates would own greater than 9.9% of the voting power of our stock. Beginning on February 23, 2012, we may convert the 6% Notes pursuant to a mandatory conversion into shares of its common stock if the market price of our common stock meets certain thresholds.

Noteholders who convert their 6% Notes at their option or whose 6% Notes are converted in a mandatory conversion at our option will also receive a make whole premium paid in shares of our common stock. The make whole premium will be payable in additional shares of common stock and will be calculated based on the remaining interest payments on the 6% Notes that would have been received through the original scheduled maturity date of the 6% Notes.

The 6% Notes indenture provides that the maximum number of shares of our common stock that can be issued in respect of the 6% Notes upon conversion or with respect to the payment of interest or in connection with the make whole premium or otherwise

 

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shall be limited to 201,880,000 shares of common stock for $70 million in aggregate principal amount of the 6% Notes as of February 23, 2010, subject to certain adjustments. If the limit is reached, no holder is entitled to any other consideration on account of shares not issued. This limitation terminates if the holders of our common stock approve the termination of this limitation.

As part of the Company’s exchange offer in late 2009, the holders of our 5.0% Net Share Settled Contingent Convertible Senior Notes due 2023 (the “5% CoCos”) voted to amend the indenture for the 5% Notes to eliminate the right of the holders of the 5% CoCos to put their 5% CoCos to us for repayment in August 2010. The trustee of the Indenture refused to give effect to this amendment claiming that a majority of the holders was insufficient to effect the amendment. We sued to seek a court order to direct the trustee to effect the amendment. We lost our claim.

The purchase agreement for the 6% Notes provided, in effect, that if we were to win this claim with respect to the 5% CoCos, we could retain the $20.2 million in proceeds for general corporate purposes; however, if we lost this claim, we would use the proceeds to satisfy its requirements to repurchase any of the 5% CoCos that were put in August 2010. As we lost this claim, the proceeds will be used to retire any of the 5% CoCos that are put for repurchase.

On August 2, 2010, we entered into a letter agreement (the “Letter Agreement”) with the investors to facilitate the issuance of the remaining $20.2 million of 6% Notes, and on August 3, 2010, the issuance and sale of those remaining 6% Notes to the investors was completed. Pursuant to the Letter Agreement, the investors accepted our required certifications that were conditions to closing under the note purchase agreement and, in turn, provided a certificate to the escrow agent to release the $20.2 million in escrowed purchase price. Also pursuant to the Letter Agreement, we temporarily increased the conversion rate under the 6% Note indenture on the date of the second closing for a period of 20 days to 100,000 shares of our Common Stock per $1,000 in principal amount of Notes (the “Adjusted Conversion Rate”). This has the effect of reducing the conversion price to $0.01 per share. Using this Adjusted Conversion Rate, the investors converted $590,000 of principal amount of their 6% into an aggregate of 59 million shares of our common stock. The 59 million shares of common stock did not include any common stock to be issued to holders of 6% Notes in respect of interest on the 6% Notes that we are required to pay on August 16, 2010 (in respect of the August 15th interest payment date set forth in the Notes). Immediately following the 20-day period, the Conversion Rate will revert back to the initial conversion rate of approximately 2,326 shares of common stock per $1,000 in principal amount of the 6% Notes (thereby reverting back to the initial conversion price of $0.43 per share). Following the end of the 20-day period, any future conversions will continue to be subject to the 6% Note indenture limitation that provides that no more than 201,880,000 shares of common stock may be issued in respect of the 6% Notes.

The net proceeds from the second closing were deposited with the 5% CoCos trustee and will be used by the Company to fund the repurchase of up to $20.1 million of the Company’s outstanding 5.0% Net Share Settled Contingent Convertible Senior Notes due 2023 pursuant to put options exercisable as of August 9, 2010.

Assuming that the entire outstanding aggregate principal amount of $49.8 million and $69.4 million of 6% Notes had been converted at the note holders’ option as of June 30, 2010 and August 4, 2010, respectively, an aggregate of 147,091,848 and 142,880,000 shares, respectively, of our common stock would have been issued as a result of such conversion, including the make whole premium described above. As of the date of this report, 59 million shares of common stock have been issued on account of the 6% Notes and a maximum of 142,880,000 additional shares of our common stock may be issued in respect of the 6% Notes.

We have evaluated the terms of the conversion feature included in the 6% Notes under applicable accounting literature, and determined that a portion of the proceeds should be allocated to the beneficial conversion feature as it was in-the-money at the commitment date. Accordingly, we allocated $3.3 million of the proceeds from the first closing to the conversion feature and account for this as a component of equity to be amortized over the term of the 6% Notes. The resulting yield on the 6% Notes as a result of this allocation is 6.4%. We have not yet finalized the accounting as it relates to the various components of the second closing of the indenture.

 

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5. Intangibles

We have the following amortizable intangible assets:

 

          June 30, 2010    December 31, 2009

(in millions)

   Weighted
Average
Life (years)
   Gross
Carrying
Amount
   Accumulated
Amortization
   Gross
Carrying
Amount
   Accumulated
Amortization

Customer related

   11.9    $ 216.9    $ 96.7    $ 215.0    $ 87.2

Marketing related

   6.5      5.1      3.4      3.6      3.2

Technology based

   5.0      25.6      25.6      25.6      25.0
                                

Intangible assets

      $ 247.6    $ 125.7    $ 244.2    $ 115.4
                                

Pre-tax changes in the carrying amount of our indefinite lived tradenames are below:

 

(in millions)

   National
Transportation
    Regional
Transportation
    Total  

Balances at December 31, 2009

   $ 14.0      $ 20.7      $ 34.7   

Impairment charges

     (3.3     (2.0     (5.3

Change in foreign currency exchange rates

     0.2        —          0.2   
                        

Balances at June 30, 2010

   $ 10.9      $ 18.7      $ 29.6   
                        

The above intangible amounts include $2.8 million and $3.1 million as of June 30, 2010 and December 31, 2009, respectively which relate to YRC Logistics which is included in the “Noncurrent assets of discontinued operations” caption in our accompanying consolidated balance sheet for all periods presented.

During the three months ended March 31, 2010, we determined indicators of impairment were present, primarily reduced actual and forecasted revenue, as it relates to our tradenames. Accordingly we performed an impairment test that consisted of a comparison of the fair value of the intangible asset with its carrying amount. We recognized an impairment loss in the amount by which the carrying amount exceeded the fair value of the asset. In making this assessment, we utilized the relief from royalty method, an income approach (level three measurement as defined in SFAS No. 157, “Fair Value Measurements” now included in FASB ASC Topic 820) that includes assumptions as to future revenue, applicable market-based royalty rate and cost of capital, among others.

The impairment charges net of tax were $3.2 million and $2.0 million for National Transportation (the YRC Reimer tradename) and Regional Transportation (the New Penn tradename), respectively.

Estimated amortization expense related to intangible assets for all of 2010 and each of the next five years is as follows:

 

(in millions)

   2010    2011    2012    2013    2014    2015

Estimated amortization expense

   $ 20.9    $ 19.6    $ 19.6    $ 19.6    $ 19.6    $ 19.3

6. Other Assets

The primary components of other assets are as follows:

 

(in millions)

   June 30, 2010    December 31, 2009

Equity method investments:

     

JHJ International Transportation Co., Ltd.

   $ 40.9    $ 42.0

Shanghai Jiayu Logistics Co., Ltd.

     —        16.1

Deferred debt costs

     79.2      87.4

Other

     23.5      24.7
             

Total

   $ 143.6    $ 170.2
             

 

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During the six months ended June 30, 2010, we received dividends in the amount of $1.9 million from our China joint venture, JHJ International Transportation Co., Ltd.

Through March 31, 2010, we have accounted for our 65% ownership in Shanghai Jiayu Logistics Co., Ltd. (“Jiayu”) as an equity method investment as the rights of the minority shareholder were considered extensive and allowed for their ability to veto many business decisions. These rights were primarily provided as a part of the General Manager role held by the minority shareholder. Effective April 1, 2010, the minority shareholder no longer has a role in the management of the operations of the business which changes the conclusions from an accounting perspective regarding the relationship of this joint venture and accordingly, requires that we consolidate Jiayu in our financial statements effective April 1, 2010. In accordance with SFAS No. 141(R) “Business Combinations”, (now included in FASB ASC Topic 805), we completed a fair value analysis of Jiayu as of April 1, 2010, the date of consolidation, and determined the fair value to be less than the carrying value of the equity method investment and as a result, we recorded a $12.3 million impairment charge during the three months ended June 30, 2010. The fair value analysis utilized a discounted cash flow model, an income approach (level three measurement as defined in SFAS No. 157, “Fair Value Measurements” now included in FASB ASC Topic 820) that includes assumptions as to future revenue, operating income, and cost of capital, among others. Additionally as part of the fair value analysis we recorded a tradename and customer list intangible asset and attributed $1.6 million and $2.0 million, respectively, to these intangibles as of April 1, 2010 and attributed lives of 5.3 years and 8.3 years, respectively. The results of Jiayu are included in the ‘Corporate and other’ segment.

7. Restructuring and Reorganization

During the first half of 2010, we incurred additional severance costs of $6.1 million, including $1.9 million in the National Transportation segment, $3.5 million at the Corporate and other segment and $0.7 million in the YRC Logistics segment as we reduced headcount in response to lower volumes. We also incurred $6.7 million of contract terminations related to lease cancellations related to certain discontinued operations described in Note 15. This is offset by $3.6 million in our National segment where we were able to use or sublease locations in excess of our previously recorded estimate.

During 2010, we also made payments under previous restructuring programs, primarily those charges incurred as a result of the headcount reductions and lease cancellations.

We assess the accrual requirements under our restructuring efforts at the end of each reporting period. A rollforward of the restructuring accrual is set forth below:

 

(in millions)

   Employee
Separation
    Contract Termination
and Other Costs
    Total  

Balance at December 31, 2009

   $ 6.5      $ 19.6      $ 26.1   

Restructuring charges, net

     6.1        3.1        9.2   

Payments

     (8.8     (3.8     (12.6
                        

Balance at June 30, 2010

   $ 3.8      $ 18.9      $ 22.7   
                        

8. Employee Benefits

Components of Net Periodic Pension and Other Postretirement Cost

The following table sets forth the components of our company-sponsored pension costs for the three and six months ended June 30:

 

     Three Months     Six Months  

(in millions)

   2010     2009     2010     2009  

Service cost

   $ 0.9      $ 0.8      $ 1.8      $ 1.6   

Interest cost

     15.0        15.2        30.1        30.5   

Expected return on plan assets

     (13.1     (13.1     (26.2     (27.1

Amortization of net loss

     1.6        0.7        3.1        1.6   
                                

Net periodic pension cost

   $ 4.4      $ 3.6      $ 8.8      $ 6.6   

Settlement cost

     0.1        0.8        0.1        5.8   
                                

Total periodic pension cost

   $ 4.5      $ 4.4      $ 8.9      $ 12.4   
                                

 

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We expect to contribute $14.1 million to our pension plans in 2010 of which $5.4 million has been paid during the six months ended June 30, 2010.

9. Stock-Based Compensation

On March 1, 2010, we formalized the Second Union Employee Option Plan that provides for a grant of up to 263.7 million options to purchase our common stock at an exercise price equal to $0.48 per share, of which substantially all have been granted. These options vest immediately and were exercisable upon shareholder approval, which was received on June 29, 2010, at our annual meeting.

On March 1, 2010, we also formalized the Second Union Employee Stock Appreciation Right Plan that provides for a grant of up to 263.7 million cash settled stock appreciation rights (“SARs”). These SARs terminated on June 29, 2010, upon approval of the Union Employee Option Plan discussed above.

The fair value of each option award was estimated on the date the grant was approved by shareholders using the Black-Scholes-Merton pricing model. Expected volatilities were estimated using historical volatility of our common stock. We used historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted was derived from the output of the valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

We valued the award granted under the Union Employee Option Plan in 2010 using the above described model with the following weighted average assumptions:

 

     2010  

Dividend yield

     —  

Expected volatility

     173.2

Risk-free interest rate

     0.61

Expected life of options (years)

     2   

Fair value per option

   $ 0.09   

Based on the fair value calculation above, we recognized compensation expense of $25.0 million related to these outstanding awards for six months ended June 30, 2010, which is included in ‘Equity-based compensation expense’ in our accompanying statement of consolidated operations.

In the first quarter of 2010, we recognized expense of $108.0 million representing our estimate of the fair value of SARs issued to our union employees at the date of issuance on March 1, 2010. Upon approval at the June 29, 2010 shareholder meeting, we issued stock options to our union employees and recorded an expense reduction of $83 million.

10. Income Taxes

Effective Tax Rate

Our effective tax rate for continuing operations for the three and six months ended June 30, 2010 was 17.7% and 2.1%, respectively, compared to 17.8% and 26.6% for the three and six months ended June 30, 2009, respectively. Significant items impacting the 2010 rate include certain permanent items and a valuation allowance established for the net deferred tax asset balance projected for December 31, 2010. We recognize valuation allowances on deferred tax assets if, based on the weight of the evidence, we believe that some or all of our deferred tax 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.

 

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11. Shareholders’ Equity (Deficit)

On February 17, 2010, the Company’s stockholders at a special meeting approved the following:

 

   

an amendment to the Company’s Certificate of Incorporation to reduce the par value of the Company’s common stock from $1.00 to $0.01 per share; and increase the number of authorized shares of the Company’s capital stock from 125 million shares to 2.05 billion shares of which five million shares are preferred stock, par value $1.00 per share, and two billion shares are common stock, par value $0.01 per share; and

 

   

an amendment to the Company’s Certificate of Incorporation to effect a reverse stock split of the Company’s common stock following the effectiveness of the par value reduction and the authorized share increase described above, at a ratio that will be determined by the Company’s board of directors and that will be within a range of one-to-five to one-to-25; and reduce the number of authorized shares of the Company’s common stock by the reverse split ratio.

On February 17, 2010, the Company filed the amendment to its Certificate of Incorporation to increase its authorized common stock and change the par value of the stock. Effective with that amendment, 4,345,514 shares of the Class A preferred stock converted into 957,229,822 shares of common stock at a ratio of 220.28 shares of common stock for each share of Class A preferred stock.

As discussed in Note 3 “Liquidity”, on May 3, 2010, we entered into an At Market Issuance Sales Agreement. During the three months ended June 30, 2010, we sold 44.9 million shares for net proceeds of $15.4 million.

In connection with Amendment No. 18 to the ABS Facility, we paid fees to the Co-Agents (the “Closing Fees”). The Closing Fees were paid by the Company by the issuance to the Co-Agents (or their designees) of an aggregate of 25.4 million shares of common stock of the Company, par value $0.01 per share, of which 20.7 million were issued as of June 30, 2010 and the remaining 4.7 million were issued on July 22, 2010.

The following reflects the activity in the shares of our common stock for the six months ended June 30:

 

(in thousands)

   2010

Beginning balance

   99,122

Issuance of equity awards, net

   278

Conversion of preferred stock to common stock

   957,230

Shares issued for amendment closing fees

   20,743

At the market issuances

   44,876
    

Ending balance

   1,122,249
    

12. Earnings (Loss) Per Share

Dilutive securities, consisting of options to purchase our common stock or rights to receive common stock in the future, are included in our calculation of diluted weighted average common shares and totaled 1,029,000 for the three months ended June 30, 2010. Given our net loss position for the six months ended June 30, 2010 and for the three and six months ended June 30, 2009 there were no dilutive securities for these periods.

Antidilutive options and share units were 270,508,000 and 271,537,000 for the three and six months ended June 30, 2010, respectively, and 17,510,000 for the three and six months ended June 30, 2009, respectively. Antidilutive convertible senior note conversion shares were 177,000 for the three and six months ended June 30, 2009 with no corresponding amounts for the three and six months ended June 30, 2010. Antidilutive 6% convertible senior note conversion shares, including the make whole premium, were convertible into 147,092,000 common shares on June 30, 2010 with no corresponding amount at June 30, 2009.

For the six months ended June 30, 2010, the dilutive securities included preferred stock.

13. Business Segments

We report financial and descriptive information about our reportable operating segments on a basis consistent with that used internally for evaluating segment performance and allocating resources to segments. We evaluate performance primarily on operating income and return on committed capital.

 

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We have the following reportable segments, which are strategic business units that offer complementary transportation services to their customers. National Transportation includes carriers that provide comprehensive regional, national and international transportation services. Regional Transportation is comprised of carriers that focus primarily on business opportunities in the regional and next-day delivery markets. Truckload consists of Glen Moore, a domestic truckload carrier. YRC Logistics was reported as a separate segment and is now classified as a discontinued operation. Effective April 1, 2010, the results of Jiayu are reflected in our consolidated results as part of the Corporate segment.

The accounting policies of the segments are the same as those described in the Summary of Accounting Policies note in our Annual Report on Form 10-K for the year ended December 31, 2009. We charge management fees and other corporate services to our segments based on the direct benefits received or as a percentage of revenue. In addition to Jiayu, corporate and other operating losses represent residual operating expenses of the holding company, including compensation and benefits and professional services for all periods presented. Corporate identifiable assets primarily refer to cash, cash equivalents, investments in equity method affiliates and deferred debt issuance costs. Intersegment revenue primarily relates to transportation services between our segments.

The following table summarizes our operations by business segment:

 

(in millions)

   National
Transportation
    Regional
Transportation
    Truckload     Corporate/
Eliminations
    Consolidated  

As of June 30, 2010

          

Identifiable assets

   $ 1,642.5      $ 1,067.6      $ 53.5      $ (17.4   $ 2,746.2   

As of December 31, 2009

          

Identifiable assets

     1,807.8        1,023.0        59.6        13.3        2,903.7   

Three months ended June 30, 2010

          

External revenue

     741.6        351.3        19.1        7.1        1,119.1   

Intersegment revenue

     —          0.2        9.2        (9.4     —     

Operating income (loss)

     33.1        22.4        (2.0     (5.2     48.3   

Equity investment impairment

     —          —          —          12.3        12.3   

Three months ended June 30, 2009

          

External revenue

     873.7        337.9        17.5        (2.8     1,226.3   

Intersegment revenue

     —          —          10.0        (10.0     —     

Operating income (loss)

     (239.5     (48.3     (2.4     (4.0     (294.2

Equity investment impairment

     —          —          —          30.4        30.4   

Six months ended June 30, 2010

          

External revenue

     1,404.7        660.3        36.7        4.6        2,106.3   

Intersegment revenue

     —          0.3        18.4        (18.7     —     

Operating income (loss)

     (152.0     (17.3     (5.0     (10.6     (184.9

Equity investment impairment

     —          —          —          12.3        12.3   

Six months ended June 30, 2009

          

External revenue

     1,896.3        692.8        33.9        (6.1     2,616.9   

Intersegment revenue

     —          0.2        19.6        (19.8     —     

Operating income (loss)

     (539.2     (122.5     (4.6     (6.6     (672.9

Equity investment impairment

     —          —          —          30.4        30.4   

 

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14. Comprehensive Loss

Comprehensive loss for the three and six months ended June 30 follows:

 

     Three Months     Six Months  

(in millions)

   2010     2009     2010     2009  

Net loss attributable to YRC Worldwide Inc.

   $ (9.5   $ (309.0   $ (283.6   $ (582.8

Other comprehensive income attributable to YRC Worldwide Inc., net of tax:

        

Pension:

        

Net actuarial gains

     1.0        0.4        1.9        1.0   

Deferred tax rate adjustment

     —          —          (1.1     —     

Changes in foreign currency translation adjustments

     (7.4     3.8        (5.6     3.5   
                                

Other comprehensive income (loss) attributable to YRC Worldwide Inc.

     (6.4     4.2        (4.8     4.5   
                                

Comprehensive loss attributable to YRC Worldwide Inc.

   $ (15.9   $ (304.8   $ (288.4   $ (578.3
                                

For the three and six months ended June 30, 2010, other comprehensive loss for our minority interest was immaterial.

15. Discontinued Operations

In November 2009, we sold our dedicated contract carriage or “fleet” business to Greatwide Dedicated Transport, LLC for $34 million including certain holdback amounts of $1.8 million for indemnification and working capital adjustments to be settled by the second quarter of 2011. Fleet was a part of our YRC Logistics segment and had revenue of $73.8 million and operating income of $7.1 million for the year ended December 31, 2009. The disposition of this business line did not have a material impact on our financial statements and thus was not originally classified separately as discontinued operations. As a result of this transaction, we recorded a net loss on sale of approximately $0.2 million in the fourth quarter of 2009.

In June 2010, we entered into an Equity Interest Purchase Agreement (the “Agreement”) with CEG Holdings, Inc. (“CEG”), a subsidiary of Austin Ventures, to sell the majority of YRC Logistics for an aggregate of approximately $37.0 million in cash. Approximately $2.8 million of the purchase price will be deposited into an escrow account at closing to be held for 12 and 18 months to satisfy certain indemnification claims by CEG that may arise. The Agreement is subject to various closing conditions and contains certain termination rights for both the Company and CEG, and further provides that, upon termination of the Agreement under specified circumstances, the Company may be required to pay CEG a termination fee of $1.25 million plus any costs of collection incurred by CEG. We expect to record an immaterial gain on disposition upon closing this transaction.

CEG is not acquiring the YRC Logistics pooled distribution business line and instead this activity was shut down during the second quarter of 2010. Pooled distribution had revenue of $10.8 million and incurred an operating loss of $19.1 million for the six months ended June 30, 2010 including shut down costs, primarily lease cancellations and severance of $7.4 million. Revenue activity for pooled distribution ceased in June 2010 and the results are included in discontinued operations in the accompanying consolidated financial statements.

Historically, YRC Logistics was reported as a separate segment in our consolidated operations and was comprised of the YRC Logistics business, the Flow Through business and the Fleet business. As of June 30, 2010, as a result of the proposed sale to CEG and the closure of the pooled distribution business line, we have met the criteria requiring us to present the related financial results of YRC Logistics as discontinued operations and the related assets and liabilities as held-for-sale in the consolidated financial statements for all periods presented. Accordingly, the results of operations of our YRC Logistics segment are separately presented as discontinued operations for all periods presented. Similarly, the assets and liabilities of this segment have been reclassified for all periods presented.

Shared services and corporate overhead costs previously allocated to this segment, totaled $2.5 million and $2.8 million for the three months ended June 30, 2010 and 2009, respectively, and $6.6 million and $6.0 million for the six months ended June 30, 2010 and 2009, respectively, are included in continuing operations in our ‘Corporate and other’ segment.

 

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The major classes of assets and liabilities included in our consolidated balance sheets are as follows:

 

(in millions)

   June 30, 2010    December 31, 2009

Accounts receivable

   $ 69.0    $ 73.0

Prepaid expenses and other current assets, net

     3.2      2.6
             

Current assets

     72.2      75.6
             

Property and equipment, net

     8.6      18.3

Intangibles, net

     2.8      3.1

Other assets, net

     0.7      0.1
             

Noncurrent assets

     12.1      21.5
             

Accounts payable

     51.8      44.1

Wages, vacations and employees’ benefits

     2.6      2.3

Other current and accrued liabilities

     5.1      5.5
             

Current liabilities

     59.5      51.9
             

Claims and other liabilities

     —        1.0
             

Long term liabilities

     —        1.0
             

Net assets

   $ 24.8    $ 44.2
             

Approximately $7.4 million of the liabilities included in the table above represents the restructuring accruals related to the shut down of flow through.

The financial results included in discontinued operations for the three and six months ended June 30 are as follows:

 

     Three months     Six months  

(in millions)

   2010     2009     2010     2009  

Revenue

   $ 76.3      $ 101.8      $ 152.4      $ 213.9   
                                

Operating loss

     (11.6     (5.5     (15.2     (6.0

Income (loss) from operations before income taxes provision (benefit)

     (11.9     (4.2     (16.0     (5.5

Income tax provision (benefit)

     (0.6     5.3        (0.6     5.8   
                                

Net income (loss) from discontinued operations

   $ (11.3   $ (9.5   $ (15.4   $ (11.3
                                

16. Commitments and Contingencies

401(k) Class Action Suit

Four class action complaints were filed in the U.S. District Court for the District of Kansas against the Company and certain of its officers and directors, alleging violations of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), based on similar allegations and causes of action. On November 17, 2009, Eva L. Hanna and Shelley F. Whitson, former participants in the Yellow Roadway Corporation Retirement Plan, filed a class action complaint on behalf of certain persons participating in the plan (or plans that merged with the plan) from April 6, 2009 to the present; on December 7, 2009, Daniel J. Cambra, a participant in the Yellow Roadway Corporation Retirement Savings Plan, filed a class action complaint on behalf of certain persons participating in the plan (or plans that merged with the plan) from October 25, 2007 to the present; on January 15, 2010, Patrick M. Couch, a participant in one of the merged 401(k) plans, filed a class action complaint on behalf of certain persons participating in the plan (or plans that merged with the plan) from March 23, 2006 to the present; and on April 21, 2010, Tawana Franklin, a participant in the YRC Worldwide 401(k) Plan, filed a class action complaint on behalf of certain persons participating in the plan (or plans that merged with the plan) from October 25, 2007 to the present.

In general, the complaints allege that the defendants breached their fiduciary duties under ERISA by providing participants Company common stock as part of their matching contributions and by not removing the stock fund as an investment option in the plans in light of the Company’s financial condition. Although some Company matching contributions were made in Company common stock, participants were not permitted to invest their own contributions in the Company stock fund. The complaints allege that the defendants failed to prudently and loyally manage the plans and assets of the plans; imprudently invested in

 

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Company common stock; failed to monitor fiduciaries and provide them with accurate information; breached the duty to properly appoint, monitor, and inform the Benefits Administrative Committee; misrepresented and failed to disclose adverse financial information; breached the duty to avoid conflict of interest; and are subject to co-fiduciary liability. Each of the complaints seeks, among other things, an order compelling defendants to make good to the plan all losses resulting from the alleged breaches of fiduciary duty, attorneys’ fees, and other injunctive and equitable relief. Based on the four separate complaints previously filed, the Company believes the allegations are without merit and intends to vigorously contest the claims.

On March 3, 2010, the Court entered an order consolidating three of the four cases and, on April 1, 2010, the plaintiffs filed a consolidated complaint. The consolidated complaint asserts the same claims as the previously-filed complaints but names as defendants certain former officers of the Company in addition to those current officers and directors that have already been named. The fourth case (Franklin) was consolidated with the first three cases on May 12, 2010. The defendants moved to dismiss the consolidated complaint on June 1, 2010 and the plaintiffs’ filed their memorandum in opposition on August 6, 2010. Defendants intend to submit a reply brief on or before September 15, 2010.

Put Litigation

On January 28, 2010, the Company filed a petition for declaratory judgment in the district court of Johnson County, Kansas against Deutsche Bank Trust Company Americas, as trustee (the “Trustee”), under the indenture, dated as of December 31, 2004, relating to the Company’s 5% Net Share Settled Contingent Convertible Senior Notes due 2023 (the “5% Notes”) and the indenture, dated as of December 31, 2004, relating to the Company’s 3.375% Net Share Settled Contingent Convertible Senior Notes due 2023 (the “3.375% Notes”), seeking a declaratory judgment that each of the indentures should be amended to eliminate the option of each holder to have its 5% Notes and 3.375% Notes, as applicable, repurchased by the Company as of the dates set forth in each of the indentures, including August 9, 2010 in respect of the 5% Notes and November 26, 2012 in respect of the 3.375% Notes (the “Put Option”), as a result of the consents the Company received in connection with its debt-for-equity exchange offers that were completed on December 31, 2009. The Trustee subsequently removed the case to the United States District Court for the District of Kansas (the “Court”). Both parties submitted motions for summary judgment. On July 1, 2010, the Court ordered that each motion for summary judgment be granted in part and denied in part. With respect to the Put Option, the Court ruled in favor of the Trustee with respect to its motions for summary judgment and concluded that the Company could not eliminate the Put Option without the consent of each holder of 5% Notes and 3.375% Notes, as applicable, affected.

 

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17. Guarantees of the Contingent Convertible Senior Notes

In August 2003, YRC Worldwide issued 5.0% contingent convertible senior notes due 2023. In November 2003, we issued 3.375% contingent convertible senior notes due 2023. In December 2004, we completed exchange offers pursuant to which holders of the contingent convertible senior notes could exchange their notes for an equal amount of net share settled contingent convertible senior notes. Substantially all notes were exchanged as part of the exchange offers. In connection with the net share settled contingent convertible senior notes, the following 100% owned subsidiaries of YRC Worldwide have issued guarantees in favor of the holders of the net share settled contingent convertible senior notes: YRC Inc., YRC Enterprise Services, Inc., YRC Logistics, Inc., YRC Logistics Global, LLC, Globe.com Lines, Inc., Roadway LLC and Roadway Next Day Corporation. Each of the guarantees is full and unconditional and joint and several. Effective August 4, 2010, Globe.com Lines, Inc. was merged with and into its parent YRC Logistics Global, LLC.

The condensed consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantors and issuer because management does not believe that separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of YRC Worldwide or any guarantor to obtain funds from its subsidiaries by dividend or loan.

The following represents condensed consolidating financial information as of June 30, 2010 and December 31, 2009 with respect to the financial position and for the three and six months ended June 30, 2010 and 2009 for results of operations and for the six months ended June 30, 2010 and 2009 for the statements of cash flows of YRC Worldwide and its subsidiaries. The Parent column presents the financial information of YRC Worldwide, the primary obligor of the contingent convertible senior notes. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the net share settled contingent convertible senior notes. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and Yellow Roadway Receivables Funding Corporation, the special-purpose entity that is associated with our ABS agreement.

Condensed Consolidating Balance Sheets

 

June 30, 2010 (in millions)    Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 115      $ 6      $ 23      $ —        $ 144   

Intercompany advances receivable

     —          (45     45        —          —     

Accounts receivable, net

     9        (15     484        (1     477   

Prepaid expenses and other

     (26     123        68        —          165   

Current assets of discontinued operations

     —          44        28        —          72   
                                        

Total current assets

     98        113        648        (1     858   

Property and equipment

     —          2,421        954        2        3,377   

Less – accumulated depreciation

     —          (1,365     (331     —          (1,696
                                        

Net property and equipment

     —          1,056        623        2        1,681   

Investment in subsidiaries

     2,214        (115     233        (2,332     —     

Receivable from affiliate

     (334     210        124        —          —     

Intangibles and other assets

     331        191        123        (353     292   

Noncurrent assets of discontinued operations

     —          4        8        —          12   
                                        

Total assets

   $ 2,309      $ 1,459      $ 1,759      $ (2,684   $ 2,843   
                                        

Intercompany advances payable

   $ 147      $ 235      $ (182   $ (200   $ —     

Accounts payable

     31        88        52        (1     170   

Wages, vacations and employees’ benefits

     18        126        62        —          206   

Other current and accrued liabilities

     263        131        74        —          468   

Current maturities of long-term debt

     97        —          149        —          246   

Current liabilities of discontinued operations

     —          27        32        —          59   
                                        

Total current liabilities

     556        607        187        (201     1,149   

Payable to affiliate

     —          —          —          —          —     

Long-term debt, less current portion

     904        (65     224        (150     913   

Deferred income taxes, net

     79        (32     99        —          146   

Pension and postretirement

     353        —          —          —          353   

Claims and other liabilities

     352        6        1        —          359   

Noncurrent liabilities of discontinued operations

     —          —          —          —          —     

Commitments and contingencies

          

YRC Worldwide Inc. Shareholders’ equity (deficit)

     65        943        1,249        (2,333     (76

Non-controlling interest

     —          —          (1     —          (1
                                        

Total shareholders’ equity (deficit)

     65        943        1,248        (2,333     (77
                                        

Total liabilities and shareholders’ equity (deficit)

   $ 2,309      $ 1,459      $ 1,759      $ (2,684   $ 2,843   
                                        

 

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Table of Contents
December 31, 2009 (in millions)    Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 69      $ 9      $ 20      $ —        $ 98   

Intercompany advances receivable

     —          (54     54        —          —     

Accounts receivable, net

     10        (21     455        (1     443   

Prepaid expenses and other

     71        130        41        —          242   

Current assets of discontinued operations

     —          38        38        —          76   
                                        

Total current assets

     150        102        608        (1     859   

Property and equipment

     —          2,565        964        —          3,529   

Less – accumulated depreciation

     —          (1,402     (306     —          (1,708
                                        

Net property and equipment

     —          1,163        658        —          1,821   

Investment in subsidiaries

     2,999        (38     237        (3,198     —     

Receivable from affiliate

     (314     213        101        —          —     

Intangibles and other assets

     337        192        152        (350     331   

Noncurrent assets of discontinued operations

     —          6        15        —          21   
                                        

Total assets

   $ 3,172      $ 1,638      $ 1,771      $ (3,549   $ 3,032   
                                        

Intercompany advances payable

   $ 146      $ 212      $ (158   $ (200   $ —     

Accounts payable

     32        83        41        (1     155   

Wages, vacations and employees’ benefits

     33        131        50        —          214   

Other current and accrued liabilities

     194        151        47        —          392   

Current maturities of long-term debt

     45        6        146        —          197   

Current liabilities of discontinued operations

     —          24        28        —          52   
                                        

Total current liabilities

     450        607        154        (201     1,010   

Payable to affiliate

     —          —          —          —          —     

Long-term debt, less current portion

     891        (75     270        (150     936   

Deferred income taxes, net

     85        (36     98        —          147   

Pension and postretirement

     352        —          —          —          352   

Claims and other liabilities

     414        5        1        —          420   

Noncurrent liabilities of discontinued operations

     —          —          1        —          1   

Commitments and contingencies

          

Shareholders’ equity

     980        1,137        1,247        (3,198     166   
                                        

Total liabilities and shareholders’ equity

   $ 3,172      $ 1,638      $ 1,771      $ (3,549   $ 3,032   
                                        

 

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Table of Contents

Condensed Consolidating Statements of Operations

 

For the three months ended June 30, 2010 (in millions)    Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ —        $ 702      $ 428      $ (11   $ 1,119   
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     3        366        232        —          601   

Operating expenses and supplies

     (4     148        100        —          244   

Purchased transportation

     —          99        33        (11     121   

Depreciation and amortization

     —          31        19        —          50   

Other operating expenses

     1        35        21        —          57   

(Gains) losses on property disposals, net

     —          (3     1        —          (2

Impairment charges

     —          —          —          —          —     
                                        

Total operating expenses

     —          676        406        (11     1,071   
                                        

Operating income (loss)

     —          26        22        —          48   
                                        

Nonoperating (income) expenses:

          

Interest expense

     32        —          9        —          41   

Equity investment impairment

     —          —          12        —          12   

Other, net

     43        (18     (31     —          (6
                                        

Nonoperating (income) expenses, net

     75        (18     (10     —          47   
                                        

Income (loss) from continuing operations before income taxes

     (75     44        32        —          1   

Income tax provision (benefit)

     1        (1     —          —          —     
                                        

Net income (loss) from continuing operations

     (76     45        32        —          1   

Net income (loss) from discontinued operations, net of tax

     —          2        (14     —          (12
                                        

Net income (loss)

     (76     47        18        —          (11

Less: Net loss attributable to non-controlling interest

     —          —          (1     —          (1
                                        

Net income (loss) attributable to YRC Worldwide Inc.

   $ (76   $ 47      $ 19      $ —        $ (10
                                        
For the three months ended June 30, 2009 (in millions)    Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ —        $ 828      $ 411      $ (13   $ 1,226   
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     8        651        321        —          980   

Operating expenses and supplies

     (8     213        78        (1     282   

Purchased transportation

     —          109        28        (13     124   

Depreciation and amortization

     —          41        19        —          60   

Other operating expenses

     —          53        22        —          75   

(Gains) losses on property disposals, net

     —          (2     1        —          (1

Impairment charges

     —          —          —          —          —     
                                        

Total operating expenses

     —          1,065        469        (14     1,520   
                                        

Operating income (loss)

     —          (237     (58     1        (294
                                        

Nonoperating (income) expenses:

          

Interest expense

     26        1        11        —          38   

Equity investment impairment

     —          —          30        —          30   

Other, net

     16        10        (25     1        2   
                                        

Nonoperating (income) expenses, net

     42        11        16        1        70   
                                        

Income (loss) from continuing operations before income taxes

     (42     (248     (74     —          (364

Income tax provision (benefit)

     (60     (8     3        —          (65
                                        

Net income (loss) from continuing operations

     18        (240     (77     —          (299

Net loss from discontinued operations, net of tax

     —          (6     (4     —          (10
                                        

Net income (loss)

   $ 18      $ (246   $ (81   $ —        $ (309
                                        

 

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Table of Contents
For the six months ended June 30, 2010 (in millions)    Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ —        $ 1,329      $ 800      $ (23   $ 2,106   
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     8        872        482        —          1,362   

Operating expenses and supplies

     (8     286        203        —          481   

Purchased transportation

     —          182        56        (23     215   

Depreciation and amortization

     —          62        39        —          101   

Other operating expenses

     2        81        37        —          120   

(Gains) losses on property disposals, net

     —          1        6        —          7   

Impairment charges

     —          —          5        —          5   
                                        

Total operating expenses

     2        1,484        828        (23     2,291   
                                        

Operating income (loss)

     (2     (155     (28     —          (185
                                        

Nonoperating (income) expenses:

          

Interest expense

     64        1        17        —          82   

Equity investment impairment

     —          —          12        —          12   

Other, net

     81        (27     (58     —          (4
                                        

Nonoperating (income) expenses, net

     145        (26     (29     —          90   
                                        

Income (loss) from continuing operations before income taxes

     (147     (129     1        —          (275

Income tax provision (benefit)

     (5     (1     —          —          (6
                                        

Net income (loss) from continuing operations

     (142     (128     1        —          (269

Net income (loss) from discontinued operations, net of tax

     —          4        (20     —          (16
                                        

Net loss

     (142     (124     (19     —          (285

Less: Net loss attributable to non-controlling interest

     —          —          (1     —          (1
                                        

Net income (loss) attributable to YRC Worldwide Inc.

   $ (142   $ (124   $ (18   $ —        $ (284
                                        
For the six months ended June 30, 2009 (in millions)    Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ —        $ 1,807      $ 836      $ (26   $ 2,617   
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     19        1,427        671        —          2,117   

Operating expenses and supplies

     (19     482        158        (1     620   

Purchased transportation

     —          221        58        (26     253   

Depreciation and amortization

     —          83        40        —          123   

Other operating expenses

     1        119        56        —          176   

Losses on property disposals, net

     —          —          1        —          1   

Impairment charges

     —          —          —          —          —     
                                        

Total operating expenses

     1        2,332        984        (27     3,290   
                                        

Operating income (loss)

     (1     (525     (148     1        (673
                                        

Nonoperating (income) expenses:

          

Interest expense

     48        2        20        —          70   

Equity investment impairment

     —          —          30        —          30   

Other, net

     18        (8     (6     1        5   
                                        

Nonoperating (income) expenses, net

     66        (6     44        1        105   
                                        

Loss from continuing operations before income taxes

     (67     (519     (192     —          (778

Income tax provision (benefit)

     (202     (8     3        —          (207
                                        

Net income (loss) from continuing operations

     135        (511     (195     —          (571

Net loss from discontinued operations, net of tax

     —          (5     (6     —          (11
                                        

Net income (loss)

   $ 135      $ (516   $ (201   $ —        $ (582
                                        

 

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Condensed Consolidating Statements of Cash Flows

 

For the six months ended June 30, 2010 (in millions)    Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations    Consolidated  

Operating activities:

           

Net cash provided by (used in) operating activities

   $ (16   $ (66   $ 67      $ —      $ (15
                                       

Investing activities:

           

Acquisition of property and equipment

     —          (5     (6     —        (11

Proceeds from disposal of property and equipment

     —          32        4        —        36   

Other

     2        —          3        —        5   
                                       

Net cash provided by investing activities

     2        27        1        —        30   
                                       

Financing activities:

           

Asset backed securitization borrowings, net

     —          —          1        —        1   

Borrowing of long-term debt, net

     92        (6     (45     —        41   

Debt issuance costs

     (9     —          (1     —        (10

Equity issuance costs

     (17     —          —          —        (17

Equity issuance proceeds

     16        —          —          —        16   

Intercompany advances / repayments

     (22     42        (20     —        —     
                                       

Net cash provided by (used in) financing activities

     60        36        (65     —        31   
                                       

Net increase (decrease) in cash and cash equivalents

     46        (3     3        —        46   

Cash and cash equivalents, beginning of period

     69        9        20        —        98   
                                       

Cash and cash equivalents, end of period

   $ 115      $ 6      $ 23      $ —      $ 144   
                                       
For the six months ended June 30, 2009 (in millions)    Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations    Consolidated  

Operating activities:

           

Net cash provided by (used in) operating activities

   $ 94      $ (139   $ (197   $ —      $ (242
                                       

Investing activities:

           

Acquisition of property and equipment

     —          (22     (4     —        (26

Proceeds from disposal of property and equipment

     —          36        1        —        37   

Other

     —          —          —          —        —     
                                       

Net cash provided by (used in) investing activities

     —          14        (3     —        11   
                                       

Financing activities:

           

Asset backed securitization borrowings, net

     —          —          58        —        58   

Borrowing of long-term debt, net

     62        (1     —          —        61   

Debt issuance costs

     (37     —          (11     —        (48

Intercompany advances / repayments

     (293     128        165        —        —     
                                       

Net cash provided by (used in) financing activities

     (268     127        212        —        71   
                                       

Net increase (decrease) in cash and cash equivalents

     (174     2        12        —        (160

Cash and cash equivalents, beginning of period

     295        9        21        —        325   
                                       

Cash and cash equivalents, end of period

   $ 121      $ 11      $ 33      $ —      $ 165   
                                       

 

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18. Guarantees of the 6% Convertible Senior Notes Due 2014

On February 23, 2010, and August 3, 2010, we issued $70 million in aggregate principal amount of our new 6% convertible senior notes due 2014 (the “6% notes”). In connection with the 6% notes, the following 100% owned subsidiaries of YRC Worldwide have issued guarantees in favor of the holders of the notes: YRC Inc., YRC Enterprise Services, Inc., YRC Logistics, Inc., YRC Logistics Global, LLC, Globe.com Lines, Inc., Roadway LLC, Roadway Next Day Corporation, YRC Regional Transportation, Inc., USF Sales Corporation, USF Holland Inc., USF Reddaway Inc., USF Glen Moore Inc., YRC Logistics Services, Inc. and IMUA Handling Corporation. Each of the guarantees is full and unconditional and joint and several. Effective August 4, 2010, Globe.com Lines, Inc. was merged with and into its parent YRC Logistics Global, LLC.

The condensed consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantors and issuer because management does not believe that such separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of YRC Worldwide or any guarantor to obtain funds from its subsidiaries by dividend or loan.

The following represents condensed consolidating financial information as of June 30, 2010 and December 31, 2009, with respect to the financial position and for the three and six months ended June 30, 2010 and 2009, for results of operations and for the six months ended June 30, 2010 and 2009 for the statement of cash flows of YRC Worldwide and its subsidiaries. The Parent column presents the financial information of YRC Worldwide, the primary obligor of the 6% notes. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the 6% notes. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and Yellow Roadway Receivables Funding Corporation, the special-purpose entity that is associated with our ABS agreement.

Condensed Consolidating Balance Sheets

 

June 30, 2010 (in millions)    Primary
Obligor
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 115      $ 8      $ 21      $ —        $ 144   

Intercompany advances receivable, net

     —          (52     52        —          —     

Accounts receivable, net

     9        (5     473        —          477   

Prepaid expenses and other

     (26     163        28        —          165   

Current assets of discontinued operations

     —          49        23        —          72   
                                        

Total current assets

     98        163        597        —          858   

Property and equipment

     —          3,185        192        —          3,377   

Less – accumulated depreciation

     —          (1,609     (87     —          (1,696
                                        

Net property and equipment

     —          1,576        105        —          1,681   

Investment in subsidiaries

     2,214        118        —          (2,332     —     

Receivable from affiliate

     (334     499        (165     —          —     

Intangibles and other assets

     331        239        72        (350     292   

Noncurrent assets of discontinued operations

     —          10        2        —          12   
                                        

Total assets

   $ 2,309      $ 2,605      $ 611      $ (2,682   $ 2,843   
                                        

Intercompany advances payable

   $ 147      $ 182      $ (129   $ (200   $ —     

Accounts payable

     31        109        30        —          170   

Wages, vacations and employees’ benefits

     18        172        16        —          206   

Other current and accrued liabilities

     263        175        30        —          468   

Current maturities of long-term debt

     97        —          149        —          246   

Current liabilities of discontinued operations

     —          40        19        —          59   
                                        

Total current liabilities

     556        678        115        (200     1,149   

Payable to affiliate

     —          —          —          —          —     

Long-term debt, less current portion

     904        7        152        (150     913   

Deferred income taxes, net

     79        53        14        —          146   

Pension and postretirement

     353        —          —          —          353   

Claims and other liabilities

     352        7        —          —          359   

Noncurrent liabilities of discontinued operations

     —          —          —          —          —     

Commitments and contingencies

          

YRC Worldwide Inc. Shareholders’ equity (deficit)

     65        1,860        331        (2,332     (76

Non-controlling interest

     —          —          (1     —          (1
                                        

Total shareholders’ equity (deficit)

     65        1,860        330        (2,332     (77
                                        

Total liabilities and shareholders’ equity (deficit)

   $ 2,309      $ 2,605      $ 611      $ (2,682   $ 2,843   
                                        

 

30


Table of Contents
December 31, 2009 (in millions)    Primary
Obligor
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 69      $ 10      $ 19      $ —        $ 98   

Intercompany advances receivable, net

     —          (59     59        —          —     

Accounts receivable, net

     10        (18     451        —          443   

Prepaid expenses and other

     71        162        9        —          242   

Current assets of discontinued operations

     —          51        25        —          76   
                                        

Total current assets

     150        146        563        —          859   

Property and equipment

     —          3,338        191        —          3,529   

Less – accumulated depreciation

     —          (1,628     (80     —          (1,708
                                        

Net property and equipment

     —          1,710        111        —          1,821   

Investment in subsidiaries

     2,999        164        35        (3,198     —     

Receivable from affiliate

     (313     486        (173     —          —     

Intangibles and other assets

     337        245        99        (350     331   

Noncurrent assets of discontinued operations

     —          19        2        —          21   
                                        

Total assets

   $ 3,173      $ 2,770      $ 637      $ (3,548   $ 3,032   
                                        

Intercompany advances payable

   $ 146      $ 178      $ (124   $ (200   $ —     

Accounts payable

     32        99        24        —          155   

Wages, vacations and employees’ benefits

     34        167        13        —          214   

Other current and accrued liabilities

     194        186        12        —          392   

Current maturities of long-term debt

     45        6