YELLOW (EX-YRC WORLDWIDE) Cautionary Note Regarding Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements included elsewhere in this report. This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). Forward-looking statements include those preceded by, followed by or characterized by words such as "will," "expect," "intend," "anticipate," "believe," "could," "should," "may," "project," "forecast," "propose," "plan," "designed," "estimate," "enable" and similar expressions which speak only as of the date the statement was made. Forward-looking statements are inherently uncertain, are based upon current beliefs, assumptions and expectations of Company management and current market conditions, and are subject to significant business, economic, competitive, regulatory and other risks, uncertainties and contingencies, known and unknown, many of which are beyond our control. Readers are cautioned not to place undue reliance on any forward-looking statements. Our future financial condition and results could differ materially from those predicted in such forward-looking statements because of a number of business, financial and liquidity, and common stock related factors, including (without limitation):
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our ability to attract and retain qualified drivers and increasing costs of driver compensation;
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the impact of compliance with Executive Order 14042 and any
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the risk of labor disruptions or stoppages if our relationship with our employees and unions were to deteriorate;
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general economic factors, including (without limitation) impacts of COVID-19 and customer demand in the retail and manufacturing sectors;
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the widespread outbreak of an illness or any other communicable disease, including the effects of pandemics comparable to COVID-19, or any other public health crisis, as well as regulatory measures implemented in response to such events;
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interruptions to our computer and information technology systems and sophisticated cyber-attacks;
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business risks and increasing costs associated with the transportation industry, including increasing equipment, operational and technology costs, disruption from natural disasters, and impediments to our operations and business resulting from anti-terrorism measures;
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competition and competitive pressure on pricing;
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changes in pension expense and funding obligations, subject to interest rate volatility;
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increasing costs relating to our self-insurance claims expenses;
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our ability to comply and the cost of compliance with, or liability resulting from violation of, federal, state, local and foreign laws and regulations, including (without limitation) labor laws and laws and regulations regarding the environment and climate change initiatives;
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the impact of claims and litigation expense to which we are or may become exposed;
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that we may not realize the expected benefits and costs savings from our performance and operational improvement initiatives;
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a significant privacy breach or IT system disruption;
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our dependence on key employees;
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our ability to finance the maintenance, acquisition and replacement of revenue equipment and other necessary capital expenditures;
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seasonality and the impact of weather;
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shortages of fuel and changes in the cost of fuel or the index upon which we base our fuel surcharge and the effectiveness of our fuel surcharge program in protecting us against fuel price volatility;
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damage to our corporate reputation may cause our business to suffer;
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risks of operating in foreign countries;
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our failure to comply with the covenants in the documents governing our existing and future indebtedness;
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our ability to generate sufficient liquidity to satisfy our indebtedness and cash interest payment obligations, lease obligations and pension funding obligations;
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fluctuations in the price of our common stock;
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dilution from future issuances of our common stock;
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we are not permitted to pay dividends on our common stock in the foreseeable future;
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that we have the ability to issue preferred stock that may adversely affect the rights of holders of our common stock; and
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other risks and contingencies, including (without limitation) the risk factors
that are included in our reports filed with the
Overview
MD&A includes the following sections:
Our Business: a brief description of our business and a discussion of how we assess our operating results.
Consolidated Results of Operations: an analysis of our consolidated results of
operations for the three and six months ended
Certain Non-GAAP Financial Measures: presentation and an analysis of selected
non-GAAP financial measures for the three and six months ended
Financial Condition, Liquidity and Capital Resources: a discussion of our major sources and uses of cash and an analysis of our cash flows and, if applicable, material changes in our contractual obligations and commercial commitments.
The "second quarter" and "first half" of the years discussed below refer to the
three and six months ended
Our Business
We measure the performance of our business using several metrics, but rely primarily upon (without limitation) operating revenue, operating income (loss), and operating ratio. We also use certain non-GAAP financial measures as secondary measures to assess our operating performance.
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Operating Revenue: Our operating revenue has two primary components: volume
(commonly evaluated using tonnage, tonnage per day, number of shipments,
shipments per day or weight per shipment) and yield or price (commonly evaluated
using picked up revenue, revenue per hundredweight or revenue per shipment).
Yield includes fuel surcharge revenue, which is common in the trucking industry
and represents an amount charged to customers that adjusts with changing fuel
prices. We base our fuel surcharges on the
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Operating Income (Loss): Operating income (loss) is operating revenue less operating expenses.
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Operating Ratio: Operating ratio is a common operating performance measure used in the trucking industry. It is calculated as (i) 100 percent (ii) minus the result of dividing operating income by operating revenue or (iii) plus the result of dividing operating loss by operating revenue, and is expressed as a percentage.
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Non-GAAP Financial Measures: We use EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, to assess the following:
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EBITDA: a non-GAAP measure that reflects our earnings before interest, taxes, depreciation, and amortization expense. EBITDA is used for internal management purposes as a financial measure that reflects our core operating performance.
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Adjusted EBITDA: a non-GAAP measure that reflects EBITDA, and further adjusts for letter of credit fees, equity-based compensation expense, net gains or losses on property disposals, restructuring charges, transaction costs related to issuances of debt, non-recurring consulting fees, non-cash impairment charges and the gains or losses from permitted dispositions, discontinued operations, and certain non-cash expenses, charges and losses (provided that if any of such non-cash expenses, charges or losses represents an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period will be subtracted from Consolidated EBITDA in such future period to the extent paid). All references to "Adjusted EBITDA" throughout this section and the rest of this report refer to "Adjusted EBITDA" calculated under our UST Credit Agreements and the Term Loan Agreement (collectively, the "TL Agreements") (defined therein as "Consolidated EBITDA") unless otherwise specified. Consolidated EBITDA is also a defined term in our ABL Facility and the definition there aligns with the prior definition of Consolidated EBITDA under the Prior Term Loan Agreement. Adjusted EBITDA is used for internal management purposes as a financial measure that reflects our core operating performance, to measure compliance with financial covenants in our TL Agreements and to determine certain management and employee bonus compensation.
We believe our presentation of EBITDA and Adjusted EBITDA is useful to investors and other users as these measures represent key supplemental information our management uses to compare and evaluate our core underlying business results, particularly in light of our leverage position and the capital-intensive nature of our business. Further, EBITDA is a measure that is commonly used by other companies in our industry and provides a comparison for investors to evaluate the performance of the companies in the industry. Additionally, Adjusted EBITDA helps investors to understand how the company is tracking against our financial covenant in our TL Agreements as this measure is calculated as defined in our TL Agreements and serves as a driving component of our key financial covenants.
Our non-GAAP financial measures have the following limitations:
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EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or fund principal payments on our outstanding debt;
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Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or fund principal payments on our outstanding debt, letter of credit fees, restructuring charges, transaction costs related to the issuance of debt, non-cash expenses, charges or losses, or nonrecurring consulting fees, among other items;
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Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will generally need to be replaced in the future and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
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Equity-based compensation is an element of our long-term incentive compensation package, although Adjusted EBITDA excludes employee equity-based compensation expense when presenting our ongoing operating performance for a particular period; and
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Other companies in our industry may calculate Adjusted EBITDA differently than we do, potentially limiting its usefulness as a comparative measure.
Because of these limitations, our non-GAAP measures should not be considered a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and use our non-GAAP measures as secondary measures.
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