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EX-32.1 - CERTIFICATE - YRC Worldwide Inc.dex321.htm
EX-31.2 - CERTIFICATE - YRC Worldwide Inc.dex312.htm
EX-10.1 - AMENDMENT 18 TO CREDIT AGREEMENT - YRC Worldwide Inc.dex101.htm
EX-31.1 - CERTIFICATE - YRC Worldwide Inc.dex311.htm
EX-32.2 - CERTIFICATE - YRC Worldwide Inc.dex322.htm
EX-10.2 - LETTER AGREEMENT - YRC Worldwide Inc.dex102.htm
EX-10.5 - LETTER AGREEMENT - YRC Worldwide Inc.dex105.htm
EX-10.3 - CONSENT AND AM. 5 TO CONTRIBUTION DEFERRAL AGREEMENT - YRC Worldwide Inc.dex103.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 September 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 October 31, 2010

Common Stock, $0.01 par value per share   47,546,639 shares

 

 

 


Table of Contents

 

INDEX

 

Item

        Page  
   PART I – FINANCIAL INFORMATION   

1.

  

Financial Statements

  
  

Consolidated Balance Sheets -
September 30, 2010 and December 31, 2009

     4   
  

Statements of Consolidated Operations -
Three and Nine Months Ended September 30, 2010 and 2009

     5   
  

Statements of Consolidated Cash Flows -
Nine Months Ended September 30, 2010 and 2009

     6   
  

Statement of Consolidated Shareholders’ Equity (Deficit) -
Nine Months Ended September 30, 2010

     7   
  

Notes to Consolidated Financial Statements

     8   

2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     39   

3.

  

Quantitative and Qualitative Disclosures About Market Risk

     59   

4.

  

Controls and Procedures

     59   
   PART II – OTHER INFORMATION   

1.

  

Legal Proceedings

     60   

1A.

  

Risk Factors

     60   

6.

  

Exhibits

     61   
  

Signatures

     62   

 

3


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)

 

     September 30,
2010
    December 31,
2009
 
     (Unaudited)        

Assets

    

Current Assets:

    

Cash and cash equivalents

   $ 114,944      $ 97,788   

Accounts receivable, net

     496,466        442,814   

Prepaid expenses and other

     180,342        242,640   

Current assets of discontinued operations

     —          75,578   
                

Total current assets

     791,752        858,820   
                

Property and Equipment:

    

Cost

     3,290,814        3,529,583   

Less – accumulated depreciation

     (1,683,168     (1,708,371
                

Net property and equipment

     1,607,646        1,821,212   
                

Intangibles, net

     143,871        160,407   

Other assets

     129,801        170,176   

Noncurrent assets of discontinued operations

     —          21,459   
                

Total assets

   $ 2,673,070      $ 3,032,074   
                

Liabilities and Shareholders’ Equity (Deficit)

    

Current Liabilities:

    

Accounts payable

   $ 155,704      $ 154,671   

Wages, vacations and employees’ benefits

     205,051        213,754   

Other current and accrued liabilities

     508,940        392,392   

Current maturities of long-term debt

     210,258        197,127   

Current liabilities of discontinued operations

     —          51,884   
                

Total current liabilities

     1,079,953        1,009,828   
                

Other Liabilities:

    

Long-term debt, less current portion

     850,052        935,782   

Deferred income taxes, net

     149,711        146,576   

Pension and postretirement

     352,224        351,861   

Claims and other liabilities

     362,784        419,883   

Noncurrent liabilities of discontinued operations

     —          954   

Commitments and contingencies

    

Shareholders’ Equity (Deficit):

    

Preferred stock, $1 par value per share

     —          4,346   

Common stock, $0.01 par value per share

     476        40   

Capital surplus

     1,642,613        1,577,300   

Accumulated deficit

     (1,522,631     (1,177,280

Accumulated other comprehensive loss

     (147,923     (144,479

Treasury stock, at cost (123 shares)

     (92,737     (92,737
                

Total YRC Worldwide Inc. shareholders’ equity (deficit)

     (120,202     167,190   
                

Non-controlling interest

     (1,452     —     
                

Total shareholders’ equity (deficit)

     (121,654     167,190   
                

Total liabilities and shareholders’ equity (deficit)

   $ 2,673,070      $ 3,032,074   
                

The accompanying notes are an integral part of these statements.

 

4


Table of Contents

 

STATEMENTS OF CONSOLIDATED OPERATIONS

YRC Worldwide Inc. and Subsidiaries

For the Three and Nine Months Ended September 30

(Amounts in thousands except per share data)

(Unaudited)

 

     Three Months     Nine Months  
     2010     2009     2010     2009  

Operating Revenue

   $ 1,136,836      $ 1,203,977      $ 3,243,081      $ 3,820,916   
                                

Operating Expenses:

        

Salaries, wages and employees’ benefits

     683,034        804,192        2,017,046        2,894,376   

Equity based compensation expense

     2,211        2,032        30,540        28,786   

Operating expenses and supplies

     235,222        274,402        716,011        895,022   

Purchased transportation

     122,882        128,392        337,784        381,404   

Depreciation and amortization

     49,785        58,346        150,491        181,173   

Other operating expenses

     65,967        74,399        186,471        250,290   

(Gains) losses on property disposals, net

     (3,429     (11,138     3,183        (10,579

Impairment charges

     —          —          5,281        —     
                                

Total operating expenses

     1,155,672        1,330,625        3,446,807        4,620,472   
                                

Operating Loss

     (18,836     (126,648     (203,726     (799,556
                                

Nonoperating (Income) Expenses:

        

Interest expense

     43,922        44,371        126,234        114,901   

Equity investment impairment

     —          —          12,338        30,374   

Other, net

     959        2,142        (3,832     6,625   
                                

Nonoperating expenses, net

     44,881        46,513        134,740        151,900   
                                

Loss from Continuing Operations Before Income Taxes

     (63,717     (173,161     (338,466     (951,456

Income tax benefit

     (3,794     (2,078     (9,448     (208,901
                                

Net Loss from Continuing Operations

     (59,923     (171,083     (329,018     (742,555

Net Income (Loss) from Discontinued Operations, net of tax

     (2,514     12,347        (17,876     1,000   
                                

Net Loss

     (62,437     (158,736     (346,894     (741,555

Less: Net Loss Attributable to Non-Controlling Interest

     (696     —          (1,543     —     
                                

Net Loss Attributable to YRC Worldwide Inc.

   $ (61,741   $ (158,736   $ (345,351   $ (741,555
                                

Average Common Shares Outstanding – Basic and Diluted

     46,530        2,381        36,930        2,379   

Loss Per Share – Basic and Diluted

        

Loss from Continuing Operations Attributable to YRC Worldwide Inc.

   $ (1.27   $ (71.84   $ (8.87   $ (312.13

Income (Loss) from Discontinued Operations

     (0.06     5.18        (0.48     0.42   
                                

Net Loss Per Share

   $ (1.33   $ (66.66   $ (9.35   $ (311.71
                                

Amounts attributable to YRC Worldwide Inc. common shareholders:

        

Loss from Continuing Operations, net of tax

   $ (59,227   $ (171,083   $ (327,475   $ (742,555

Income (Loss) from Discontinued Operations, net of tax

     (2,514     12,347        (17,876     1,000   
                                

Net Loss

   $ (61,741   $ (158,736   $ (345,351   $ (741,555
                                

The accompanying notes are an integral part of these statements.

 

5


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STATEMENTS OF CONSOLIDATED CASH FLOWS

YRC Worldwide Inc. and Subsidiaries

For the Nine Months Ended September 30

(Amounts in thousands)

(Unaudited)

 

     2010     2009  

Operating Activities:

    

Net loss

   $ (346,894   $ (741,555

Noncash items included in net loss:

    

Depreciation and amortization

     155,444        192,160   

Equity based compensation expense

     30,540        28,786   

Pension settlement charges

     104        7,968   

Impairment charges

     17,619        30,374   

Gain on sale of affiliate

     (638     —     

(Gains) losses on property disposals, net

     4,583        (10,555

Deferred income tax benefit, net

     (9,963     (196,134

Amortization of deferred debt costs

     35,697        18,488   

Other noncash items, net

     (2,537     7,477   

Changes in assets and liabilities, net:

    

Accounts receivable

     (37,635     188,164   

Accounts payable

     (3,367     (75,669

Other operating assets

     74,538        67,768   

Other operating liabilities

     73,184        166,987   
                

Net cash used in operating activities

     (9,325     (315,741
                

Investing Activities:

    

Acquisition of property and equipment

     (12,935     (35,179

Proceeds from disposal of property and equipment

     71,343        106,010   

Disposition of affiliate, net of cash sold

     22,883        —     

Other

     5,223        3,462   
                

Net cash provided by investing activities

     86,514        74,293   
                

Financing Activities:

    

Asset backed securitization borrowings (payments), net

     (23,497     40,695   

Issuance of long-term debt

     153,458        471,130   

Repayment of long-term debt

     (187,858     (377,048

Debt issuance costs

     (12,713     (55,907

Equity issuance costs

     (17,323     —     

Equity issuance proceeds

     15,906        —     

Stock issued in connection with the 6% Notes

     11,994        —     
                

Net cash (used in) provided by financing activities

     (60,033     78,870   

Net Increase (Decrease) In Cash and Cash Equivalents

     17,156        (162,578

Cash and Cash Equivalents, Beginning of Period

     97,788        325,349   
                

Cash and Cash Equivalents, End of Period

   $ 114,944      $ 162,771   
                

Supplemental Cash Flow Information:

    

Income tax refunds, net

   $ 83,035      $ 37,613   

Pension contribution deferral transfer to long-term debt

   $ 4,361      $ 157,216   

Lease financing transactions

   $ 29,613      $ 305,080   

Interest paid in stock for the 6% Notes

   $ 2,007      $ —     

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 Nine Months Ended September 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

   $ 40   

Conversion of preferred shares to common shares

     383   

Shares issued in connection with ABS amendment

     10   

At the market issuances of common stock

     18   

Stock issued in connection with the 6% Notes

     23   

Interest paid in stock for the 6% Notes

     2   
        

Ending balance

   $ 476   
        

Capital Surplus

  

Beginning balance

   $ 1,577,300   

Share-based compensation

     27,647   

Conversion of preferred shares to common shares

     3,963   

Beneficial conversion feature of 6% notes

     3,341   

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

     (2,000

Shares issued in connection with ABS amendment

     3,017   

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

     15,370   

Stock issued in connection with the 6% Notes

     11,970   

Interest paid in stock for the 6% Notes

     2,005   
        

Ending balance

   $ 1,642,613   
        

Accumulated Deficit

  

Beginning balance

   $ (1,177,280

Net loss attributable to YRC Worldwide Inc.

     (345,351
        

Ending balance

   $ (1,522,631
        

Accumulated Other Comprehensive Income (Loss)

  

Beginning balance

   $ (144,479

Pension, net of tax:

  

Reclassification of net losses to net income

     2,907   

Deferred tax rate adjustments

     (1,080

Foreign currency translation adjustment

     (5,271
        

Ending balance

   $ (147,923
        

Treasury Stock, At Cost

  

Beginning and ending balance

   $ (92,737
        

Total YRC Worldwide Inc. Shareholders’ Equity (Deficit)

   $ (120,202
        

Noncontrolling Interest

  

Beginning balance

   $ —     

Noncontrolling interest in Jiayu

     115   

Net loss attributable to the noncontrolling interest

     (1,543

Foreign currency translation adjustments

     (24
        

Ending balance

   $ (1,452
        

Total shareholder’s equity (deficit)

   $ (121,654
        

The accompanying notes are an integral part of these statements.

 

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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 ground 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, 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 planned and coordinated the movement of goods worldwide to provide customers a single source for logistics management solutions. On August 13, 2010, we completed the initial closing of the sale of the majority of our YRC Logistics business to a third party. 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 November 1, 2010, approximately 74% of our labor force is subject to various collective bargaining agreements, which predominantly expire in 2015, assuming certain conditions are met. See “Liquidity – Ratification of Labor Agreement Modification”.

 

2. Principles of Consolidation and Accounting Policies

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.

The board of directors approved a reverse stock split effective September 30, 2010 at a ratio of 1:25. The reverse stock split was effective on NASDAQ on October 1, 2010. Fractional shares were not issued in connection with the reverse stock split. Stockholders who otherwise held fractional shares were entitled to a cash payment (without interest or deduction) in respect of

 

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such fractional shares. Fractional shares were collected and pooled by our transfer agent and sold in the open market and the proceeds were allocated to the stockholders’ respective accounts pro rata in lieu of fractional shares.

The reverse stock split reduced the number of shares of our common stock available for issuance under our employee and director equity plans in proportion to the reverse stock split ratio. Under the terms of our outstanding equity awards, the reverse stock split reduced the number of shares of our common stock issuable upon exercise or vesting of such awards in proportion to the reverse stock split ratio and caused a proportionate increase in the exercise price of such awards to the extent they were stock options. The number of shares of our common stock issuable upon exercise or vesting of outstanding equity awards was rounded to the nearest whole share and no cash payment was made in respect of such rounding. Shareholders’ Equity (Deficit) has been retroactively adjusted to give effect to the reverse stock split for all periods presented by reclassifying from Common stock to Capital surplus, the par value of the share reduction in connection with the reverse split. In addition, all share numbers and per share amounts in the Consolidated Financial Statements and Notes to the Consolidated Financial Statements have been retroactively adjusted to give effect to the reverse stock split.

Assets Held for Sale

When we plan to dispose of property or equipment by sale, the asset is carried in the financial statements at the lower of the carrying amount or estimated fair value, less cost to sell and is reclassified to assets held for sale. Additionally, after such reclassification, there is no further depreciation taken on the asset. For an asset to be classified as held for sale, management must approve and commit to a formal plan, the sale should be anticipated during the ensuing year and the asset must be actively marketed, be available for immediate sale, and meet certain other specified criteria.

At September 30, 2010 and December 31, 2009, the net book value of assets held for sale was approximately $79.6 million and $112.8 million, respectively. This amount is included in “Property and Equipment” in the accompanying consolidated balance sheets. We recorded charges of $3.9 million and $27.2 million for the three and nine months ended September 30, 2010, and $6.7 million and $13.8 million for the three and nine months ended September 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 we are 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.

 

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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 September 30, 2010 and December 31, 2009:

 

(in millions)

   September 30, 2010     December 31, 2009  

Capacity:

    

Revolving loan

   $ 772.8      $ 950.0   

ABS Facility

     350.0        400.0   
                

Total maximum capacity

     1,122.8        1,350.0   
                

Amounts outstanding:

    

Revolving loan

     (149.9     (329.1

Letters of credit (9/30/10: $454.2 revolver; $72.2 ABS Facility)

     (526.4     (538.3

ABS Facility borrowings

     (122.8     (146.3
                

Total outstanding

     (799.1     (1,013.7
                

ABS borrowing base limitations

     (155.0     (178.2

Restricted Revolver reserves

     (122.8     (159.8
                

Total restricted capacity

     (277.8     (338.0
                

Unrestricted unused capacity (deficit) (9/30/10: $45.9 revolver; $0.0 ABS Facility)

   $ 45.9      $ (1.7
                

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 in gross proceeds of 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 interests, no funds may be deposited into the New Account, and once funds have been withdrawn they may not be re-deposited. As of September 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.

 

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Amendment No. 18

We 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 provides us with access to the net cash 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 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.

Mandatory Prepayments

Pursuant to the terms of Amendment No. 18, on and after August 10, 2010, 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 August 10, 2010 will be treated as follows:

 

  (i) 25% of the net cash proceeds will be applied in accordance with the provisions 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.

Conversion of Revolving Loans and LC Limits

Amendment No. 18 converted $150 million of outstanding revolving loans to term loans. In addition, Amendment No. 18 reduced the letter of credit sublimit to $550 million and limited foreign currency letters of credit to $25 million. As of September 30, 2010, the senior revolving credit facility had a capacity of $772.8 million and the senior term loan outstanding principle was $260.2 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.

 

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

 

Period

   Minimum Consolidated EBITDA  

For the two consecutive fiscal quarters ending September 30, 2010

   $ 50 million   

For the three consecutive fiscal quarters ending December 31, 2010

   $ 100 million   

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.

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 1.0 million shares (25.4 million shares prior to the adjustment for the reverse stock split) of unregistered restricted common stock of the Company of which 0.8 million shares (20.7 million shares prior to the adjustment for the reverse stock split) were issued as of June 30, 2010 and the remaining 0.2 million shares (4.7 million shares prior to the adjustment for the reverse stock split) 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.

On October 20, 2010, we entered into Amendment No. 19 to the ABS Facility.

—Maturity

Amendment No. 19 extends the expiration of the ABS Facility to October 19, 2011; provided, that the ABS Facility will expire on January 10, 2011 if the Agreement for the Restructuring of the YRC Worldwide Inc. Operating Companies, dated September 24, 2010, among the International Brotherhood of Teamsters (the “IBT”) and certain subsidiaries of the Company (the “IBT Agreement”) is not in full force and effect on January 10, 2011.

—Capacity and Availability

Amendment No. 19 reduces the aggregate commitments under the ABS Facility from $350 million to $325 million.

—Interest and Fees

Amendment No. 19 provides for a 1% increase in the Default Rate, LIBOR Rate and LMIR (each as defined in the ABS Facility) on each of April 30, 2011 and June 30, 2011.

In connection with Amendment No. 19, we and the Co-Agents agreed that:

 

   

The $10.0 million fee that was previously due on October 26, 2010 has been deferred and is payable in two installments of $5 million on each of March 1, 2011 and April 30, 2011 unless payment is accelerated due to the occurrence of (i) the Amortization Date (as defined in the ABS Facility) or (ii) a Deferral Termination Event (as defined in the Company’s credit agreement) (each of (i) and (ii), an “Accelerated Deferred Fee Payment Date”); provided, that if the ABS Facility is refinanced, then Yellow Roadway Receivable Funding Corporation (“YRRFC”) will not have to pay any portion of this deferred fee that is due and payable after the refinance date.

 

   

YRRFC will pay the Co-Agents an additional $5 million fee on June 30, 2011 (or an Accelerated Deferred Fee Payment Date) if the ABS Facility is not refinanced by that date.

 

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YRRFC paid the Co-Agents on the effective date of Amendment No. 19 the interest and letter of credit, program and administration fees that were previously deferred, which was approximately $13 million. The portion of such interest and fees in excess of the interest and fee rates in place prior to February 12, 2009 will begin to be deferred from October 20. 2010 until the earlier of March 1, 2011 and an Accelerated Deferred Fee Payment Date, at which time YRRFC will begin to make cash payments for such incremental interest and fees. If the ABS Facility is refinanced by March 1, 2011, then YRRFC will not have to pay the interest and letter of credit, program and administration fees that are deferred from October 20, 2010. We expect these deferred interest and fees to be approximately $4 million from October 20, 2010 through March 1, 2011 based on expected borrowings.

 

   

The letter of credit fees will increase by 1% and the program and administrative fees will each increase by 0.5% on each of April 30, 2011 and June 30, 2011 if the ABS Facility is not refinanced by those dates.

The ABS Facility will be deemed refinanced if: (i) YRRFC has repaid all borrowings under the ABS Facility and has paid the Purchasers (as defined in the ABS Facility) and Co-Agents all amounts due under the ABS Facility; (ii) all letters of credit under the ABS Facility have been surrendered; (iii) the commitments of the Purchasers and LC Issuer have terminated; and (iv) there are no continuing obligations of the Purchasers, Co-Agents and LC Issuer under the ABS Facility.

—Servicer Defaults

Amendment No. 19 provides that a Servicer Default (as defined in the ABS Facility) will occur if, among other things,: (i) the IBT Agreement shall not be in full force and effect; or (ii) the Co-Agents do not consent prior to a restructuring of the Company.

For purposes of the ABS Facility, a restructuring of the Company includes, among other things:

 

   

The issuance of equity if the number of shares of capital stock, on a fully diluted basis, in respect of any such issuances since October 20, 2010 exceeds 5% of the Company’s outstanding shares of capital stock on October 20, 2010; provided, that the issuance of capital stock (i) under the Company’s at-the-market issuance program, (ii) in the conversion of, or payment of interest under, the 6% Notes and (iii) under the Company’s single-employer benefit plans will not count against the 5% limitation described above.

 

   

The issuance of, entering into, restructuring of or refinancing of any debt securities, notes, credit agreements or credit facilities (other than indebtedness arising under the ABS Facility, our Credit Agreement or our 6% Notes) having individually a principal amount in excess of $10 million.

 

   

The exchange or conversion of any obligations or liabilities for or into capital stock, debt securities or any other instrument or agreement described in the two bullets above.

 

   

Any Capital Event (as defined in the IBT Agreement).

 

   

Any amendment, restatement, supplement or other modification to our Credit Agreement or 6% Notes.

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 September 30, 2010 the amounts deferred under the above provision were $78.1 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.

Finally, the interest due in relation to our deferred pension payments under the Contribution Deferral Agreement has also been deferred beginning on January 1, 2010. As of September 30, 2010, interest deferred related to these payments was $7.0 million.

 

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In addition to the deferred interest, we have also deferred the 2010 monthly payments for amounts deferred under the Contribution Deferral Agreement totaling approximately $35 million.

Contribution Deferral Agreement Amendments

Effective May 3, 2010 and August 3, 2010, we entered into Amendment No. 4 and Amendment No. 5 to the Contribution Deferral Agreement, respectively. Pursuant to the Contribution Deferral Agreement dated as of June 17, 2009, with certain of the multiemployer pension funds to which we contribute (the “Contribution Deferral Agreement”), we have deferred the payment of contributions to these funds. Under Amendment No. 4 and Amendment No. 5, 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 and Amendment No. 18, respectively, to the Credit Agreement), except that the Liquidity test under the Contribution Deferral Agreement subtracts any commitment reduction or prepayment under the Credit Agreement.

Effective August 10, 2010, we entered into Amendment No. 6 to the Contribution Deferral Agreement to approve Amendment No. 18 to the Credit Agreement, which allows 100% of the net cash proceeds from the sale of YRC Logistics to 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 to be permanently reduced by 50% of that amount. Additionally, Amendment No. 6 amended the terms of the Contribution Deferral Agreement to require the approval of 90% (rather than 100%) of the pension funds party to the Contribution Deferral Agreement to waive any additional payment of deferred pension obligations and continue the deferral in the event that the Company makes any mandatory prepayment, commitment reduction, additional interest or fee or any other incremental payment to the lenders under the Credit Agreement that was not required as of August 10, 2010.

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 1.8 million shares (44.9 million shares prior to the adjustment for the reverse stock split) for net proceeds of $15.4 million as part of our at the market offerings. No additional at the market transactions were completed during the three months ended September 30, 2010.

 

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Sale of YRC Logistics

In June 2010, we entered into an Equity Interest Purchase Agreement (the “Agreement”) with CEG Holdings, Inc. (now known as MIQ Holdings Inc.) (“CEG”), a subsidiary of Austin Ventures to sell YRC Logistics for an aggregate of approximately $37.0 million in cash. On August 13, 2010, the Company and CEG, held the initial closing of the transactions contemplated by the Agreement. At the initial closing, CEG paid the Company approximately $33.6 million, which included $31.9 million of the purchase price and approximately $1.6 million for retained insurance claims. Approximately $2.3 million of the purchase price was deposited into an escrow account for subsequent closings of foreign subsidiaries and approximately $2.8 million of the purchase price was deposited into an escrow account (one-half of which will be held for 12 months and one-half will be held for 18 months) to satisfy certain indemnification claims by CEG that may arise. Following the initial closing, a succession of delayed closings and payments will occur to transfer certain foreign subsidiaries to CEG as required regulatory approvals and licensing transfers in foreign jurisdictions are obtained. As of September 30, 2010 four delayed closings remained for a total purchase price of $0.8 million. We expect to collect more than $10 million related to the working capital adjustment in the fourth quarter of 2010, subject to final resolution of working capital adjustments between the Company and CEG.

Ratification of Labor Agreement Modification

On September 24, 2010, we entered into a tentative labor agreement with the Teamsters National Freight Industry Negotiating Committee (“TNFINC”). TNFINC is the committee that the International Brotherhood of Teamsters (the “Teamsters”) has designated to represent the Teamster employees of the Company in negotiations regarding the tentative agreement. On September 29, 2010, the Board of Directors of the Company approved the tentative agreement, and the Teamsters approved submitting the tentative agreement to the Teamster represented employees of the Company’s subsidiaries for ratification. Our eligible Teamster represented employees ratified the tentative agreement on October 30, 2010.

Ratification of the tentative agreement extended the current expiration of the National Master Freight Agreement (“NMFA”), which currently governs labor terms and conditions for most of the Company’s Teamster employees, from March 31, 2013 to March 31, 2015. The modified NMFA also provides the following:

 

   

The temporary cessation of the payment of pension contributions to the multi-employer pension funds (the “Funds”) in which the company’s subsidiaries participate would continue until June 1, 2011, at which time the Company’s subsidiaries would contribute to those Funds until the end of the extended term of the NMFA at the rate of 25% of the contribution rate in effect on July 1, 2009. Modifications to pension contributions will require the approval of the multi-employer pension funds to which the Company contributes.

 

   

Wage increases were provided for in 2013 and 2014 during the extended term of the NMFA, but the 15% wage reduction was also extended through the extended term of the NMFA and would apply to the new increases.

 

   

Significant changes were made in the work rules applicable to the Company’s subsidiaries and made uniform across all regional and job classification supplemental agreements to the NMFA.

 

   

Health and welfare contribution increases were set at 35 cents per hour during each year of the extended term.

 

   

TNFINC was given the right to approve certain changes of control applicable to the Company. If TNFINC approval is not received, TNFINC may declare the wage, benefit and work rule concessions null and void on a prospective basis.

 

   

In the event of a bankruptcy of the Company, TNFINC may declare the wage, benefit and work rule concessions null and void.

The Company has begun discussions to restructure the debt under its Credit Agreement, which may include additional capital investment (debt and/or equity) by third parties in a recapitalization. The modified NMFA also provides the following:

 

   

TNFINC would have the right to approve the various transactions comprising the restructuring/recapitalization.

 

   

If TNFINC’s approval is not obtained, TNFINC may declare the wage, benefit and work rule concessions null and void on a prospective basis, and the Company would owe its Teamster employees an amount equal to the concessions that in fact benefited the Company prior to the termination.

 

   

TNFINC would have significant rights to participate in the restructuring/recapitalization discussions.

 

   

In deciding whether to give its approval to a restructuring/recapitalization, TNFINC could demand on behalf of Teamster represented employees of the Company’s subsidiaries additional compensation if negotiated performance triggers are met, equity participation, specified terms in the restructuring, specified indebtedness levels resulting from the transactions, governance rights and financial viability criteria.

 

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The Company is required to enter into definitive agreements to effect the restructuring/recapitalization by December 31, 2010 and close those transactions by March 31, 2011, or in each case, such later date as TNFINC would agree and, in each case, on terms and conditions that TNFINC approves.

The Company agreed to expand TNFINC’s board participation from one to two board members upon completion of a restructuring/recapitalization that TNFINC approves.

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 (the “Prior MOU”) 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 without further action by the multi-employer pension funds as described below. In October 2010, the employees in most of our bargaining units who are represented by the Teamsters ratified additional modifications to our collective bargaining agreement (the “MOU”), which, among other items, extends the wage reduction until March 2015, institutes work rule changes, extends the temporary pension contribution cessation until June 1, 2011 and reduces the contribution rate to the multi-employer pension funds to 25% of the July 2009 rate from June 2011 through March 2015. The extension of the temporary pension contribution cessation and the reduced pension contribution rate are subject to the approval of the pension funds.

The MOU requires us to enter into definitive agreements by December 31, 2010 to restructure the debt under our Credit Agreement, which may include additional capital investment (debt and/or equity) by third parties in a recapitalization, and to close the transactions by March 31, 2011. The committee that represents the Teamsters in negotiations regarding our collective bargaining agreement (“TNFINC”) must consent to the terms of the restructure/recapitalization transaction and may modify the deadlines set forth in the MOU.

To continue to have sufficient liquidity to meet our cash flow requirements through December 31, 2010 and into 2011:

 

   

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 continue to defer 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 from the October 20, 2010 renewal of the ABS Facility

 

   

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

 

   

the cost savings under our collective bargaining agreement, including wage reductions, temporary cessation of pension contributions and savings due to work rule changes, must continue;

 

   

we must complete 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.

Some or all of these factors may be beyond our control. We also cannot give assurance that we will continue to maintain covenant compliance under our financing facilities, Contribution Deferral Agreement and labor agreements, the failure of which would have a material adverse effect on our business, financial condition and operating results.

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

 

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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. See our Annual Report on Form 10-K for additional information regarding our ability to continue as a going concern. 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

 

   

we may consider selling non-strategic assets or business lines; 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 December 31, 2010, the temporary cessation of our requirement to make contributions to the multi-employer pension funds in which we participate will end absent the approval of each of our affected multi-employer pension funds to extend the temporary cessation until June 1, 2011. We also need approval of each of these pension funds to resume contributions at a reduced 25% contribution rate after the temporary cessation ends. In addition, under the Contribution Deferral Agreement, 90% approval of the pension funds in interest is required 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. 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 if the pension funds do not approve the extension of the temporary cessation and the reduced contribution rate after the cessation ends. Under the Contribution Deferral Agreement, previously deferred interest and amortized principal payments of $42.0 million are not due until the end of 2011; unless a majority in interest of the pension funds elect to accelerate the payments after termination of the deferral.

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 December 31, 2010. Previously deferred interest and fees under the Credit Agreement of $109.9 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.

The Company renewed its ABS Facility on October 20, 2010 and continued the deferral of the $10 million commitment fee in two payments of $5 million on each of March 1, 2011 and April 30, 2011 and deferred an additional $5 million commitment fee until June 30, 2011. Deferred interest and fees from October 20, 2010 through March 1, 2011, expected to be approximately $4 million, are due and payable on March 1, 2011. However, if we can refinance the ABS Facility prior to the due date of any of these payments, then the payments will be waived.

TNFINC may declare the wage, benefit and work rule concessions in the MOU null and void on a prospective basis, and we would owe our Teamster employees an amount equal to the concessions that in fact benefited us prior to the termination if, among other things, we do not enter into and consummate a restructure/recapitalization transaction that is approved by TNFINC within the December 31, 2010 and March 31, 2011 deadlines set forth in the MOU (which deadlines may be extended by TNFINC). In addition, if the fee and interest deferrals under the Credit Agreement do not continue in 2011, TNFINC has the right to terminate the Prior MOU, which, among other things, would eliminate the 15% wage reduction in place through March 2015 for employees of bargaining units that have ratified the Prior MOU.

We do not expect that we will have sufficient liquidity to pay deferred amounts under the Credit Agreement and CDA, make contributions to multi-employer pension funds in amounts greater than set forth in the MOU or lose wage, benefit and work rule concessions 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. A failure to address these obligations prior to the dates that the deferrals would end or the multi-employer pension fund contributions would begin, or the termination of the wage, benefit and work rule concessions in the MOU, 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)

   September 30, 2010     December 31, 2009  

Revolving credit facility

   $ 149.9      $ 329.1   

Term loan (par value of $260.2 and $111.5)

     261.0        112.6   

ABS borrowings, secured by accounts receivable

     122.8        146.3   

USF senior notes ($45.0 par value)

     —          45.3   

Contingent convertible senior notes

     1.9        21.7   

6% convertible senior notes ($69.4 par value)

     55.3        —     

Pension contribution deferral obligations

     139.7        153.0   

Lease financing obligations

     328.6        318.9   

Other

     1.1        6.0   
                

Total debt

   $ 1,060.3      $ 1,132.9   

Current maturities of long-term debt

     (2.9     (27.6

Current maturities of lease financing obligations

     (3.0     (2.7

Current maturities of pension contribution deferral Obligations

     (81.5     (20.5

ABS borrowings

     (122.8     (146.3
                

Long-term debt

   $ 850.1      $ 935.8   
                

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

Asset-Backed Securitization Facility

At September 30, 2010, our underlying accounts receivable supported total capacity under our ABS Facility of $195.0 million. In addition to the $122.8 million outstanding, the ABS Facility capacity was also reduced by outstanding letters of credit of $72.2 million resulting in no unused capacity at September 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 sold an additional $20.2 million of 6% Notes to the investors in the second closing in August 2010.

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 $10.75 per share ($0.43 per share prior to the adjustment for the reverse stock split), which is equal to a conversion rate of approximately 93 shares (2,326 shares prior to the adjustment for the reverse stock split) 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 our 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 shall be limited to 8,075,200 (201,880,000 prior to the adjustment for the reverse stock split) shares of common stock for $70

 

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million in aggregate principal amount of the 6% Notes, 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.

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 4,000 shares (100,000 shares prior to the adjustment for the reverse stock split) of our common stock per $1,000 in principal amount of Notes (the “Adjusted Conversion Rate”). This had the effect of reducing the conversion price to $0.25 per share ($0.01 per share prior to the adjustment for the reverse stock split). Using this Adjusted Conversion Rate, the investors converted $590,000 of principal amount of their 6% Notes into an aggregate of 2,360,000 shares (59 million shares prior to the adjustment for the reverse stock split) of our common stock. The 2,360,000 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 paid 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 reverted back to the initial conversion rate of approximately 93 shares (2,326 shares prior to the adjustment for the reverse stock split) of common stock per $1,000 in principal amount of the 6% Notes ($10.75 per share, $0.43 per share prior to the adjustment for the reverse stock split)). Any future conversions remain subject to the 6% Note indenture limitation that provides that no more than 8,075,200 shares of common stock may be issued in respect of the 6% Notes.

The proceeds from the second closing were used to fund the repurchase of $19.8 million of the Company’s outstanding 5.0% Contingent Convertible Senior Notes due 2023 pursuant to put options exercised on August 9, 2010.

Assuming that the entire outstanding aggregate principal amount of $69.4 million of 6% Notes had been converted at the note holders’ option as of September 30, 2010 and October 31, 2010, respectively, an aggregate of 5,503,972 shares (137,599,296 shares prior to the adjustment for the reverse stock split), 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, 2,571,228 shares (64,280,704 shares prior to the adjustment for the reverse stock split) of common stock have been issued on account of the 6% Notes and a maximum of 5,503,972 additional shares of our common stock may be issued in respect of the 6% Notes. Such limitation on the number of shares of common stock issuable in respect of the 6% Notes applies on a pro rata basis to all outstanding 6% Notes, which in effect limits the number of shares issuable in respect of the 6% Notes to approximately 79 shares per $1,000 in principal amount of the 6% Notes, or an effective conversion price of approximately $12.61 per share, after the adjustment for the reverse stock split.

We have evaluated the terms of the conversion feature included in the 6% Notes related to the $49.8 million issued in the first closing 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 first tranche of the 6% Notes as a result of this allocation is 6.4%.

We have evaluated the terms of the second closing of the 6% Notes, including the related simultaneous conversion and issuance of common stock in satisfaction of an aggregate principle amount of $0.6 million outstanding 6% Notes. We have determined such transaction to be accounted for as an issuance of debt and equity securities in exchange for $20.2 million of cash proceeds, and have thus allocated the $20.2 million proceeds between the debt and equity securities issued on a relative fair value basis. Accordingly, we allocated $12.0 million of the proceeds to equity as an issuance of common stock and $8.2 million of the proceeds to debt. The resulting yield on the second tranche of the 6% Notes as a result of this allocation is 34.5%.

 

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5. Intangibles

We have the following amortizable intangible assets:

 

       September 30, 2010      December 31, 2009  

(in millions)

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

Customer related

     12.1       $ 200.0       $ 87.4       $ 215.0       $ 87.2   

Marketing related

     8.3         4.1         2.5         3.6         3.2   

Technology based

     —           24.2         24.2         25.6         25.0   
                                      

Intangible assets

      $ 228.3       $ 114.1       $ 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

     0.3        —          0.3   
                        

Balances at September 30, 2010

   $ 11.0      $ 18.7      $ 29.7   
                        

At December 31, 2009, $3.1 million of amortizable intangible assets are included in “Noncurrent assets of discontinued operations” in the accompanying consolidated balance sheet.

During the three months ended March 31, 2010, we determined indicators of impairment were present, primarily due to 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

   $ 20.0       $ 19.1       $ 19.1       $ 19.1       $ 19.1       $ 18.8   

 

6. Other Assets

The components of other assets are as follows:

 

(in millions)

   September 30, 2010      December 31, 2009  

Equity method investments:

     

JHJ International Transportation Co., Ltd.

   $ 41.5       $ 42.0   

Shanghai Jiayu Logistics Co., Ltd.

     —           16.1   

Deferred debt costs

     65.5         87.4   

Other

     22.8         24.7   
                 

Total

   $ 129.8       $ 170.2   
                 

 

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During the nine months ended September 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 & Reorganization

During the first nine months of 2010, we incurred restructuring charges of $11.0 million that consisted of additional severance costs of $7.1 million, including $2.1 million in the National Transportation segment and $4.2 million at the Corporate and other segment as we reduced headcount in response to lower volumes. We also incurred $7.4 million of contract terminations related to lease cancellations related to certain discontinued operations described in Note 15. This is offset by $3.5 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 of $18.6 million 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

     7.1        3.9        11.0   

Payments

     (11.3     (7.3     (18.6
                        

Balance at September 30, 2010

   $ 2.3      $ 16.2      $ 18.5   
                        

Restructuring charges are included in “Salaries, wages and employees’ benefits” as it relates to employee separation costs and “Operating expenses and supplies” as it relates to contract terminations and other costs in the accompanying statements of operations.

 

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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 nine months ended September 30:

 

     Three Months     Nine Months  

(in millions)

   2010     2009     2010     2009  

Service cost

   $ 0.9      $ 0.8      $ 2.7      $ 2.4   

Interest cost

     15.0        15.1        45.1        45.6   

Expected return on plan assets

     (13.1     (13.6     (39.2     (40.7

Amortization of net loss

     1.6        0.8        4.6        2.4   
                                

Net periodic pension cost

   $ 4.4      $ 3.1      $ 13.2      $ 9.7   

Settlement cost

     —          2.2        0.1        8.0   
                                

Total periodic pension cost

   $ 4.4      $ 5.3      $ 13.3      $ 17.7   
                                

We expect to contribute $14.1 million to our pension plans in 2010, of which we have already contributed $9.3 million through the nine months ended September 30, 2010.

 

9. Stock-Based Compensation

On March 1, 2010, we formalized the Second Union Employee Option Plan that provided for a grant of up to 10.5 million (263.7 million prior to the adjustment for the reverse stock split) options to purchase our common stock at an exercise price equal to $12.00 per share ($0.48 per share prior to the adjustment for the reverse stock split), of which substantially all have been granted. These options vested 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 provided for a grant of up to 10.5 million (263.7 million prior to the adjustment for the reverse stock split) 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; separate groups of employees that have similar historical exercise behavior were considered separately for valuation purposes. 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 Non-Union Employee Option Plan in 2010 using the above described model with the following weighted average assumptions:

 

Dividend yield

     -

Expected volatility

     173.2

Risk-free interest rate

     0.61

Expected life (years)

     2   

Fair value per option

   $ 2.25   

Based on the above fair value calculation, we recognized compensation expense of $25.0 million related to these outstanding stock option awards for the nine months ended September 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, cancelled the outstanding SARs and recorded an expense reduction of $83 million reflecting the difference in fair value of the options as compared to the SARs.

 

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10. Income Taxes

Effective Tax Rate

Our effective tax rate for continuing operations for the three and nine months ended September 30, 2010 was 6.0% and 2.8%, respectively, compared to 1.2% and 22.0% for the three and nine months ended September 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.

Uncertain Tax Positions

In the three months ended September 30, 2010, the Company recorded a reserve of approximately $13.3 million relative to the equity-for-debt financial re-structuring at December 31, 2009. This increase in reserve had no impact on the effective tax rate for either the three months or nine months ended September 30, 2010. Total liabilities for unrecognized tax benefits were $97.0 million and $84.8 million at September 30, 2010 and December 31, 2009, respectively. Amounts recorded for unrecognized tax benefits are included in “Other current and accrued liabilities” in the accompanying balance sheets.

 

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 9.8 million shares (125 million prior to the adjustment for the reverse stock split) to 85 million shares (2.005 billion prior to the adjustment for the reverse stock split) of which five million shares are preferred stock, par value $1.00 per share, and 80 million shares (2 billion prior to the adjustment for the reverse stock split) 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 38,289,193 shares (957,229,822 shares prior to the adjustment for the reverse stock split) of common stock at a ratio of 8.81 shares (220.28 shares prior to the adjustment for the reverse stock split) 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 1.8 million shares (44.9 million shares prior to the adjustment for the reverse stock split) for net proceeds of $15.4 million. No additional At the Market transactions were completed during the three months ended September 30, 2010.

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 1.0 million shares (25.4 million shares prior to the adjustment for the reverse stock split) of common stock of the Company, par value $0.01 per share, of which 0.8 million (20.7 million prior to the adjustment for the reverse stock split) were issued as of June 30, 2010 and the remaining 0.2 million (4.7 million prior to the adjustment for the reverse stock split) were issued on July 22, 2010.

The board of directors approved a reverse stock split effective September 30, 2010 at a ratio of 1:25. The reverse stock split was effective on NASDAQ on October 1, 2010. Fractional shares were not issued in connection with the reverse stock split.

 

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Stockholders who otherwise held fractional shares were entitled to a cash payment (without interest or deduction) in respect of such fractional shares. Fractional shares were collected and pooled by our transfer agent and sold in the open market and the proceeds were allocated to the stockholders’ respective accounts pro rata in lieu of fractional shares.

The reverse stock split reduced the number of shares of our common stock available for issuance under our employee and director equity plans in proportion to the reverse stock split ratio. Under the terms of our outstanding equity awards, the reverse stock split reduced the number of shares of our common stock issuable upon exercise or vesting of such awards in proportion to the reverse stock split ratio and caused a proportionate increase in the exercise price of such awards to the extent they were stock options. The number of shares of our common stock issuable upon exercise or vesting of outstanding equity awards was rounded to the nearest whole share and no cash payment was made in respect of such rounding. Shareholders’ Equity (Deficit) has been retroactively adjusted to give effect to the reverse stock split for all periods presented by reclassifying from Common stock to Capital surplus, the par value of the share reduction in connection with the reverse split. In addition, all share numbers and per share amounts in the Consolidated Financial Statements and Notes to the Consolidated Financial Statements have been retroactively adjusted to give effect to the reverse stock split.

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

 

(in thousands)

   2010  

Beginning balance

     3,965   

Issuance of equity awards, net

     12   

Conversion of preferred stock to common stock

     38,289   

Shares issued for amendment closing fees

     1,016   

Shares issued for long term debt

     2,571   

At the market issuances

     1,795   
        

Ending balance

     47,648   
        

 

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; however, given our net loss position for the three and nine months ended September 30, 2010 and 2009 there were no dilutive securities for these periods.

Antidilutive options and share units were 11,200,000 for the three and nine months ended September 30, 2010, and 690,000 for the three and nine months ended September 30, 2009. Antidilutive convertible senior note conversion shares were 7,000 for the three and nine months ended September 30, 2009 with no corresponding amounts for the three and nine months ended September 30, 2010. Antidilutive 6% convertible senior note conversion shares, including the make whole premium, were 5,503,972 common shares on September 30, 2010 with no corresponding amount at September 30, 2009.

For the nine months ended September 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.

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. Corporate and other operating losses represent residual operating expenses of the holding company, including compensation and benefits and professional services for all periods

 

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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 September 30, 2010

          

Identifiable assets

   $ 1,517.0      $ 900.4      $ 50.4      $ 205.3      $ 2,673.1   

As of December 31, 2009

          

Identifiable assets

     1,807.8        1,023.0        59.6        44.6        2,935.0   

Three months ended September 30, 2010

          

External revenue

     755.0        353.8        20.6        7.4        1,136.8   

Intersegment revenue

     —          0.3        8.2        (8.5     —     

Operating income (loss)

     (21.6     8.6        (2.3     (3.5     (18.8

Three months ended September 30, 2009

          

External revenue

     849.3        338.8        18.9        (3.0     1,204.0   

Intersegment revenue

     —          —          11.0        (11.0     —     

Operating income (loss)

     (122.0     0.3        (1.4     (3.5     (126.6

Nine months ended September 30, 2010

          

External revenue

     2,159.7        1,014.2        57.4        11.8        3,243.1   

Intersegment revenue

     —          0.6        26.5        (27.1     —     

Operating income (loss)

     (173.6     (8.7     (7.3     (14.1     (203.7

Equity investment impairment

           12.3        12.3   

Nine months ended September 30, 2009

          

External revenue

     2,745.7        1,031.6        52.9        (9.3     3,820.9   

Intersegment revenue

     —          0.2        30.6        (30.8     —     

Operating income (loss)

     (661.3     (122.2     (6.0     (10.1     (799.6

Equity investment impairment

     —          —          —          30.4        30.4   

 

14. Comprehensive Loss

Comprehensive loss for the three and nine months ended September 30 follows:

 

     Three Months     Nine Months  

(in millions)

   2010     2009     2010     2009  

Net loss attributable to YRC Worldwide Inc.

   $ (61.7   $ (158.7   $ (345.4   $ (741.6

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

        

Pension:

        

Net actuarial gains

     1.0        0.5        2.9        1.6   

Deferred tax rate adjustment

     —          —          (1.1     —     

Changes in foreign currency translation adjustments

     0.4        4.0        (5.2     7.5   
                                

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

     1.4        4.5        (3.4     9.1   
                                

Comprehensive loss attributable to YRC Worldwide Inc.

   $ (60.3   $ (154.2   $ (348.8   $ (732.5
                                

Comprehensive loss attributable to our non-controlling interest was not material for any period presented.

 

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.

 

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In June 2010, we entered into an Equity Interest Purchase Agreement (the “Agreement”) with CEG Holdings, Inc. (now known as MIQ 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. On August 13, 2010, the Company and CEG held the initial closing of the transactions contemplated by the Agreement. At the initial closing, CEG paid the Company approximately $33.6 million, which included $31.9 million of the purchase price and approximately $1.6 million for retained insurance claims. Approximately $2.3 million of the purchase price was deposited into an escrow account for subsequent closings of foreign subsidiaries, and approximately $2.8 million of the purchase price was deposited into an escrow account (one-half of which will be held for 12 months and one-half will be held for 18 months) to satisfy certain indemnification claims by CEG that may arise. Following the initial closing, a succession of delayed closings and payments will occur to transfer certain foreign subsidiaries to CEG as required regulatory approvals and licensing transfers in foreign jurisdictions are obtained. As of September 30, 2010, four delayed closings remained for a total purchase price of $0.8 million. We recorded a $0.6 million gain on disposition during the three months ended September 30, 2010 and expect to collect more than $10 million related to the working capital adjustment in the fourth quarter of 2010, subject to final resolution of working capital adjustments between the Company and CEG.

CEG did not acquire 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 had 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 and our assets and liabilities from this segment have been reclassified for all periods presented.

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

 

(in millions)

   September 30, 2010      December 31, 2009  

Accounts receivable

   $ —         $ 73.0   

Prepaid expenses and other current assets, net

     —           2.6   
                 

Current assets

     —           75.6   
                 

Property and equipment, net

     —           18.3   

Intangibles, net

     —           3.1   

Other assets, net

     —           0.1   
                 

Noncurrent assets

     —           21.5   
                 

Accounts payable

     —           44.1   

Wages, vacations and employees’ benefits

     —           2.3   

Other current and accrued liabilities

     —           5.5   
                 

Current liabilities

     —           51.9   
                 

Claims and other liabilities

     —           1.0   
                 

Long term liabilities

     —           1.0   
                 

Net assets

   $ —         $ 44.2   
                 

Shared services and corporate overhead costs previously allocated to this segment, totaled $0.6 million and $2.4 million for the three months ended September 30, 2010 and 2009, respectively, and $6.8 million and $7.8 million for the nine months ended September 30, 2010 and 2009, respectively, are included in continuing operations in our ‘Corporate and other’ segment.

 

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

 

     Three months     Nine months  

(in millions)

   2010     2009     2010     2009  

Revenue

   $ 41.7      $ 102.4      $ 194.2      $ 316.3   
                                

Operating income (loss)

     (2.6     8.7        (17.9     2.7   

Income (loss) from operations before income taxes

     (2.6     8.1        (18.6     2.5   

Income tax provision (benefit)

     0.5        (4.2     (0.1     1.5   

Gain on sale of affiliate

     0.6        —          0.6        —     
                                

Net income (loss) from discontinued operations

   $ (2.5   $ 12.3      $ (17.9   $ 1.0   
                                

 

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 Savings 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 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. This motion has been fully briefed and is pending before the Court. The plaintiffs filed a motion on October 1, 2010 requesting that the court certify a class consisting of all persons, excluding defendants and their immediate family members, who were participants in the YRC Worldwide 401(k) Plan (or plans that merged with the plan), at any time between October 25, 2007 and the present and whose plan accounts included investments in YRCW common stock (directly and/or through shares in the Company stock fund). Defendants’ response is due November 30, 2010. In the meantime, the parties are continuing discovery on the merits of the plaintiffs’ claims.

 

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ABF Lawsuit

On November 1, 2010, ABF Freight System, Inc. (“ABF”) filed a complaint in the U.S. District court for the Western District of Arkansas against several parties, including YRC Inc., New Penn Motor Express, Inc. and USF Holland Inc. (each a subsidiary of the Company) and the International Brotherhood of Teamsters and the local Teamster unions party to the National Master Freight Agreement (the “NMFA”) alleging violation of the NMFA due to modifications to the NMFA that have provided relief to the Company’s subsidiaries that are party to the NMFA without providing the same relief to ABF. The complaint seeks to have the modifications to the NMFA declared null and void and seeks damages of $750 million from the named defendants. The Company believes the allegations are without merit and intends to vigorously defend the claims.

 

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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 new 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., Roadway LLC, and Roadway Next Day Corporation. Each of the guarantees is full and unconditional and joint and several. Effective August 4, 2010, Global.com Lines Inc. was released as a guarantor in connection with its merger with and into YRC Logistics Global, LLC. Effective August 13, 2010 YRC Logistics, Inc. and YRC Logistics Global, LLC were released as guarantors in connection with the sale of YRC Logistics.

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 September 30, 2010 and December 31, 2009 with respect to the financial position, for the three and nine months ended September 30, 2010 and 2009 for results of operations and for the nine months ended September 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 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

 

September 30, 2010

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 89      $ 8      $ 18      $ —        $ 115   

Intercompany advances receivable

     —          (40     40        —          —     

Accounts receivable, net

     20        (7     485        (1     497   

Prepaid expenses and other

     113        36        31        —          180   
                                        

Total current assets

     222        (3     574        (1     792   

Property and equipment

     —          2,341        948        1        3,290   

Less – accumulated depreciation

     —          (1,341     (342     —          (1,683
                                        

Net property and equipment

     —          1,000        606        1        1,607   

Investment in subsidiaries

     2,228        (18     139        (2,349     —     

Receivable from affiliate

     (457     447        10        —          —     

Intangibles and other assets

     324        188        113        (351     274   
                                        

Total assets

   $ 2,317      $ 1,614      $ 1,442      $ (2,700   $ 2,673   
                                        

Intercompany advances payable

   $ 123      $ 253      $ (176   $ (200   $ —     

Accounts payable

     23        83        51        (1     156   

Wages, vacations and employees’ benefits

     17        124        64        —          205   

Other current and accrued liabilities

     289        141        79        —          509   

Current maturities of long-term debt

     86        —          124        —          210   
                                        

Total current liabilities

     538        601        142        (201     1,080   

Payable to affiliate

     —          —          150        (150     —     

Long-term debt, less current portion

     850        —          —          —          850   

Deferred income taxes, net

     75        (27     102        —          150   

Pension and postretirement

     352        —          —          —          352   

Claims and other liabilities

     357        6        —          —          363   

Commitments and contingencies

          

YRC Worldwide Inc. Shareholders’ equity (deficit)

     145        1,034        1,050        (2,349     (120

Non-controlling interest

     —          —          (2     —          (2
                                        

Total shareholders’ equity (deficit)

     145        1,034        1,048        (2,349     (122
                                        

Total liabilities and shareholders’ equity (deficit)

   $ 2,317      $ 1,614      $ 1,442      $ (2,700   $ 2,673   
                                        

 

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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

     —          (75     225        (150     —     

Long-term debt, less current portion

     891        —          45        —          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

          

Total shareholders’ equity (deficit)

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

Total liabilities and shareholders’ equity (deficit)

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

 

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Condensed Consolidating Statements of Operations

 

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

Operating revenue

   $ —        $ 673      $ 473      $ (9   $ 1,137   
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     3        436        246        —          685   

Operating expenses and supplies

     (3     144        94        —          235   

Purchased transportation

     —          55        77        (9     123   

Depreciation and amortization

     —          31        19          50   

Other operating expenses

     1        42        23        —          66   

Gains on property disposals, net

     —          (3     —          —          (3
                                        

Total operating expenses

     1        705        459        (9     1,156   
                                        

Operating income (loss)

     (1     (32     14        —          (19
                                        

Nonoperating (income) expenses:

          

Interest expense

     34        —          10        —          44   

Other, net

     52        (19     (32     —          1   
                                        

Nonoperating (income) expenses, net

     86        (19     (22     —          45   
                                        

Income (loss) from continuing operations before income taxes

     (87     (13     36        —          (64

Income tax provision (benefit)

     (3     —          (1     —          (4
                                        

Net income (loss) from continuing operations

     (84     (13     37        —          (60

Net loss from discontinued operations, net of tax

     —          (1     (2     —          (3
                                        

Net income (loss)

     (84     (14     35        —          (63

Less: Net loss attributable to non-controlling interest

     —          —          (1     —          (1
                                        

Net income (loss) attributable to YRC Worldwide Inc.

   $ (84   $ (14   $ 36      $ —        $ (62
                                        
For the three months ended September 30, 2009 (in millions)    Parent     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ —        $ 807      $ 411      $ (14   $ 1,204   
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     9        617        180        —          806   

Operating expenses and supplies

     (6     108        173        —          275   

Purchased transportation

     —          114        28        (14     128   

Depreciation and amortization

     —          38        20        —          58   

Other operating expenses

     1        55        18        —          74   

Gains on property disposals, net

     —          (10     (1     —          (11
                                        

Total operating expenses

     4        922        418        (14     1,330   
                                        

Operating income (loss)

     (4     (115     (7     —          (126
                                        

Nonoperating (income) expenses:

          

Interest expense

     31        —          14        —          45   

Other, net

     22        (7     (13     —          2   
                                        

Nonoperating (income) expenses, net

     53        (7     1        —          47   
                                        

Income (loss) from continuing operations before income taxes

     (57     (108     (8     —          (173

Income tax provision (benefit)

     (6     2        2        —          (2
                                        

Net income (loss) from continuing operations

     (51     (110     (10     —          (171

Net income from discontinued operations, net of tax

     —          7        5        —          12   
                                        

Net income (loss)

     (51     (103     (5     —          (159
                                        

 

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

Operating revenue

   $ —        $ 2,002      $ 1,273      $ (32   $ 3,243   
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     11        1,308        729        —          2,048   

Operating expenses and supplies

     (11     430        297        —          716   

Purchased transportation

     —          237        133        (32     338   

Depreciation and amortization

     —          93        58        —          151   

Other operating expenses

     3        123        60        —          186   

Gains on property disposals, net

     —          (2     5        —          3   

Impairment charges

     —          —          5        —          5   
                                        

Total operating expenses

     3        2,189        1,287        (32     3,447   
                                        

Operating income (loss)

     (3     (187     (14     —          (204
                                        

Nonoperating (income) expenses:

          

Interest expense

     98        1        27        —          126   

Equity investment impairment

     —          —          12        —          12   

Other, net

     133        (46     (90     —          (3
                                        

Nonoperating (income) expenses, net

     231        (45     (51     —          135   
                                        

Income (loss) from continuing operations before income taxes

     (234     (142     37        —          (339

Income tax provision (benefit)

     (8     (1     (1     —          (10
                                        

Net income (loss) from continuing operations

     (226     (141     38        —          (329

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

     —          3        (21     —          (18
                                        

Net income (loss)

     (226     (138     17        —          (347

Less: Net loss attributable to non-controlling interest

     —          —          (2     —          (2
                                        

Net income (loss) attributable to YRC Worldwide Inc.

   $ (226   $ (138   $ 19      $ —        $ (345
                                        
For the nine months ended September 30, 2009 (in millions)    Parent     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ —        $ 2,614      $ 1,247      $ (40   $ 3,821   
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     28        2,044        851        —          2,923   

Operating expenses and supplies

     (25     590        331        (1     895   

Purchased transportation

     —          335        86        (40     381   

Depreciation and amortization

     —          121        60        —          181   

Other operating expenses

     2        174        74        —          250   

Gains on property disposals, net

     —          (10     —          —          (10
                                        

Total operating expenses

     5        3,254        1,402        (41     4,620   
                                        

Operating income (loss)

     (5     (640     (155     1        (799
                                        

Nonoperating (income) expenses:

          

Interest expense

     79        2        34        —          115   

Equity investment impairment

     —          —          30        —          30   

Other, net

     40        (15     (19     1        7   
                                        

Nonoperating (income) expenses, net

     119        (13     45        1        152   
                                        

Income (loss) from continuing operations before income taxes

     (124     (627     (200     —          (951

Income tax provision (benefit)

     (208     (6     5        —          (209
                                        

Net income (loss) from continuing operations

     84        (621     (205     —          (742

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

     —          2        (1     —          1   
                                        

Net income (loss)

   $ 84      $ (619   $ (206   $ —        $ (741
                                        

 

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Condensed Consolidating Statements of Cash Flows

 

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

Operating activities:

           

Net cash (used in) provided by operating activities

   $ (75   $ (66   $ 132      $ —         $ (9
                                         

Investing activities:

           

Acquisition of property and equipment

     —          (6     (7     —           (13

Proceeds from disposal of property and equipment

     —          61        10        —           71   

Disposition of affiliate

     23        —          —          —           23   

Other

     2        —          3        —           5   
                                         

Net cash provided by investing activities

     25        55        6        —           86   
                                         

Financing activities:

           

Asset-backed securitization borrowings, net

     —          —          (23     —           (23

Borrowing of long-term debt, net

     17        (6     (46     —           (35

Debt issuance costs

     (12     —          (1     —           (13

Equity issuance costs

     (17     —          —          —           (17

Equity issuance proceeds

     16        —          —          —           16   

Stock issued in connection with the 6% Notes

     12        —          —          —           12   

Intercompany advances / repayments

     54        16        (70     —           —     
                                         

Net cash provided by (used in) financing activities

     70        10        (140     —           (60
                                         

Net increase (decrease) in cash and cash equivalents

     20        (1     (2     —           17   

Cash and cash equivalents, beginning of period

     69        9        20        —           98   
                                         

Cash and cash equivalents, end of period

   $ 89      $ 8      $ 18      $ —         $ 115   
                                         
For the nine months ended September 30, 2009 (in millions)    Parent     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations      Consolidated  

Operating activities:

           

Net cash provided by (used in) operating activities

   $ (28   $ (550   $ 262      $ —         $ (316
                                         

Investing activities:

           

Acquisition of property and equipment

     —          (28     (7     —           (35

Proceeds from disposal of property and equipment

     —          82        24        —           106   

Other

     4        —          —          —           4   
                                         

Net cash provided by investing activities

     4        54        17        —           75   
                                         

Financing activities:

           

Asset-backed securitization payments, net

     —          —          41        —           41   

Borrowing of long-term debt, net

     95        (1     —          —           94   

Debt issuance costs

     (42     —          (14     —           (56

Intercompany advances / repayments

     (196     499        (303     —           —     
                                         

Net cash provided by (used in) financing activities

     (143     498        (276     —           79   
                                         

Net increase (decrease) in cash and cash equivalents

     (167     2        3        —           (162

Cash and cash equivalents, beginning of period

     295        9        21        —           325   
                                         

Cash and cash equivalents, end of period

   $ 128      $ 11      $ 24      $ —         $ 163   
                                         

 

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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., 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, Global.com Lines Inc. was released as a guarantor in connection with its merger with and into YRC Logistics Global, LLC. Effective August 13, 2010 YRC Logistics, Inc. and YRC Logistics Global, LLC were released as guarantors in connection with the sale of YRC Logistics.

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 September 30, 2010 and December 31, 2009, with respect to the financial position and for the three and nine months ended September 30, 2010 and 2009, for results of operations and for the nine months ended September 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 Sheet

 

September 30, 2010

(in millions)

   Primary
Obligor
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 89      $ 9      $ 17      $ —        $ 115   

Intercompany advances receivable

     —          (47     47        —          —     

Accounts receivable, net

     20        —          477        —          497   

Prepaid expenses and other

     113        46        21        —          180   
                                        

Total current assets

     222        8        562        —          792   

Property and equipment

     —          3,103        186        1        3,290   

Less – accumulated depreciation

     —          (1,595     (88     —          (1,683
                                        

Net property and equipment

     —          1,508        98        1        1,607   

Investment in subsidiaries

     2,228        99        22        (2,349     —     

Receivable from affiliate

     (457     747        (290     —          —     

Intangibles and other assets

     324        235        66        (351     274   
                                        

Total assets

   $ 2,317      $ 2,597      $ 458      $ (2,699   $ 2,673   
                                        

Intercompany advances payable

   $ 123      $ 203      $ (126   $ (200   $ —     

Accounts payable

     23        104        29        —          156   

Wages, vacations and employees’ benefits

     17        173        15        —          205   

Other current and accrued liabilities

     289        191        29        —          509   

Current maturities of long-term debt

     86        —          124        —          210   
                                        

Total current liabilities

     538        671        71        (200     1,080   

Payable to affiliate

     —          —          150        (150     —     

Long-term debt, less current portion

     850        —          —          —          850   

Deferred income taxes, net

     75        61        14        —          150   

Pension and postretirement

     352        —          —          —          352   

Claims and other liabilities

     357        6        —          —          363   

Commitments and contingencies

          

YRC Worldwide Inc. Shareholders’ equity (deficit)

     145        1,859        225        (2,349     (120

Non-controlling interest

     —          —          (2     —          (2
                                        

Total shareholders’ equity (deficit)

     145        1,859        223        (2,349     (122
                                        

Total liabilities and shareholders’ equity (deficit)

   $ 2,317      $ 2,597      $ 458      $ (2,699   $ 2,673   
                                        

 

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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

     —          (59     59        —          —     

Accounts receivable, net

     10        (18     452        (1     443   

Prepaid expenses and other

     71        162        9        —          242   

Current assets of discontinued operations

     —          51        25        —          76   
                                        

Total current assets

     150        146        564        (1     859   

Property and equipment

     —          3,338        191        —&