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Accounting Policies
12 Months Ended
Dec. 31, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Accounting Policies

2. Accounting Policies

Accounting policies refer to specific accounting principles and the methods of applying those principles to fairly present our financial position and results of operations in accordance with generally accepted accounting principles. The policies discussed below include those that management has determined to be the most appropriate in preparing our financial statements.

Basis of Presentation

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. We report on a calendar year basis. The quarters of the Regional Transportation companies (with the exception of New Penn) consist of thirteen weeks that end on a Saturday either before or after the end of March, June and September, whereas all other operating segment quarters end on the natural calendar quarter end.

Use of Estimates

Management makes estimates and assumptions when preparing the financial statements in conformity with U.S. generally accepted accounting principles which affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and highly liquid investments purchased with maturities of three months or less. Under the Company’s cash management system, checks issued but not presented to banks frequently result in book overdraft balances for accounting purposes which are classified within accounts payable in the accompanying consolidated balance sheets.  The change in book overdrafts are reported as a component of operating cash flows for accounts payable as they do not represent bank overdrafts.

Concentration of Credit Risks and Other

We sell services and extend credit based on an evaluation of the customer’s financial condition, without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. We monitor our exposure for credit losses and maintain allowances for anticipated losses.

At December 31, 2019, approximately 79% of our labor force is subject to collective bargaining agreements. In 2019, we agreed to a new labor agreement that, among other things, extend the expiration date of our primary labor agreement from March 31, 2019 to March 31, 2024. This also updated the contribution rates under our multi-employer pension plan. The new agreement provided for wage and benefits increases through the term of the agreement. Finally, the new agreement provided for certain changes to work rules and our use of purchased transportation in certain situations.

Revenue Recognition and Revenue-related Reserves

The Company’s revenues are derived from the transportation services we provide through the delivery of goods over the duration of a shipment.  Upon receipt of the bill of lading, the contract existence criteria is met as evidenced by a legally enforceable agreement between two parties where collectability is probable, thus creating the distinct performance obligation.  The Company has elected to expense initial direct costs as incurred because the average shipment cycle is less than one week.

The YRC Freight and Regional Transportation segments recognize revenue and substantially all the purchased transportation expense on a gross basis because we direct the use of the transportation service provided and remain responsible for the complete and proper shipment.

Inherent within our revenue recognition practices are estimates for revenue associated with shipments in transit and future adjustments to revenue and accounts receivable for billing adjustments and collectability.

We record an allowance for doubtful accounts primarily based on historical uncollectible amounts. We also take into account known factors surrounding specific customers and overall collection trends.  For the reserve for uncollectible accounts, we primarily use historical write-off experience but may also consider customer-specific factors, overall collection trends and economic conditions as part of our ongoing monitoring of credit.  Our process involves performing ongoing credit evaluations of customers, including the market in which they operate and the overall economic conditions. We continually review historical trends and customer specific factors and make adjustments to the allowance for doubtful accounts as appropriate. Our allowance for doubtful accounts totaled $11.4 million and $11.1 million as of December 31, 2019 and 2018, respectively.

Given the nature of our transportation services, future adjustments may arise which creates variability when establishing the transaction price used to recognize revenue. We have a high volume of performance obligations with similar characteristics, therefore we primarily use historical trends to arrive at estimated reserves.  For rerate reserves, which are common for LTL carriers, we assign pricing to bills of lading at the time of shipment based primarily on the weight, general classification of the product, the shipping destination and individual customer discounts. This process is referred to as rating. At various points throughout our process, incorrect ratings could be identified based on many factors, including weight and commodity verifications. Although the majority of rerating occurs in the same month as the original rating, a portion occurs during subsequent periods.  At December 31, 2019 and 2018, our financial statements included a rerate reserve as a reduction to “Accounts Receivable” of $7.9 million and $12.5 million, respectively.

For shipments in transit, we record revenue based on the percentage of service completed as of the period end and recognize delivery costs as incurred. The percentage of service completed for each shipment is based on how far along in the shipment cycle each shipment is in relation to standard transit days.  Standard transit days are defined as our published service days between origin zip code and destination zip code.  The total revenue earned is accumulated for all shipments in transit at a particular period end and recorded as operating revenue.  At December 31, 2019 and 2018, our financial statements included deferred revenue as a reduction to “Accounts Receivable” of $25.2 million and $25.7 million, respectively.

Beginning January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers using a modified retrospective approach.  There was no cumulative effect adjustment recorded.

Revenue Disaggregation

We considered the disclosure requirements for revenue disaggregation guidance in ASC Topic 606, Revenue from Contracts with Customers, and noted that our segments disaggregate our revenues based on geographic and time-based factors as our Regional Transportation segment carriers operate in a smaller geographic footprint and have a shorter length of haul as compared to our YRC Freight segment. For additional information, see the “Business Segments” footnote to the consolidated financial statements. The following table presents disaggregated revenue by revenue source between LTL shipments and total. LTL shipments are defined as shipments less than 10,000 pounds. Beginning in 2019, the Company disaggregated revenue for reporting of key operating metrics, including volume and yield metrics, due to the impacts from shipments over 10,000 pounds.

 

YRC Freight segment (in millions)

 

2019

 

 

2018

 

LTL revenue

 

$

2,841.0

 

 

$

2,948.1

 

Other revenue

 

 

247.7

 

 

 

249.2

 

Total revenue

 

 

3,088.7

 

 

 

3,197.3

 

 

 

 

 

 

 

 

 

 

Regional Transportation segment (in millions)

 

2019

 

 

2018

 

LTL revenue

 

$

1,653.0

 

 

$

1,742.5

 

Other revenue

 

 

129.7

 

 

 

152.5

 

Total revenue

 

 

1,782.7

 

 

 

1,895.0

 

 

 

 

 

 

 

 

 

 

Consolidated (in millions)

 

2019

 

 

2018

 

LTL revenue

 

$

4,494.0

 

 

$

4,690.6

 

Other revenue

 

 

377.2

 

 

 

401.4

 

Total revenue

 

 

4,871.2

 

 

 

5,092.0

 

 

Self-Insurance Accruals for Claims

Claims and insurance accruals, both current and long-term, reflect the estimated settlement cost of claims for workers’ compensation, property damage and liability claims (also referred to as third-party liability claims), and cargo loss and damage that insurance does not cover. We establish and modify reserve estimates for workers’ compensation and property damage and liability claims primarily based upon actuarial analyses prepared by independent actuaries. These reserves are discounted to present value using a risk-free rate based on the year of occurrence. The risk-free rate is the U.S. Treasury rate for maturities that match the expected payout of such claims and was 2.0%, 2.6% and 1.5% for workers’ compensation claims incurred as of December 31, 2019, 2018 and 2017, respectively. The rate was 2.1%, 2.5% and 1.3% for property damage and liability claims incurred as of December 31, 2019, 2018 and 2017, respectively. The process of determining reserve requirements utilizes historical trends and involves an evaluation of accident frequency and severity, claims management, changes in health care costs and certain future administrative costs. The effect of future inflation for costs is considered in the actuarial analysis. Adjustments to previously established reserves are included in operating results in the year of adjustment.

Expected aggregate undiscounted amounts and material changes to these amounts related to workers’ compensation and property damage and liability claims as of December 31 are presented below:

 

(in millions)

 

Workers’

Compensation

 

 

Third-Party

Liability

Claims

 

 

Total

 

Undiscounted amount at December 31, 2017

 

$

299.3

 

 

$

70.5

 

 

$

369.8

 

Estimated settlement cost for 2018 claims

 

 

95.9

 

 

 

40.0

 

 

 

135.9

 

Claim payments, net of recoveries

 

 

(92.4

)

 

 

(36.2

)

 

 

(128.6

)

Change in estimated settlement cost for prior claim years

 

 

(15.0

)

 

 

(0.7

)

 

 

(15.7

)

Undiscounted settlement cost estimate at December 31, 2018

 

$

287.8

 

 

$

73.6

 

 

$

361.4

 

Estimated settlement cost for 2019 claims

 

 

103.3

 

 

 

35.2

 

 

 

138.5

 

Claim payments, net of recoveries

 

 

(95.9

)

 

 

(36.1

)

 

 

(132.0

)

Change in estimated settlement cost for prior claim years

 

 

(9.6

)

 

 

1.1

 

 

 

(8.5

)

Undiscounted settlement cost estimate at December 31, 2019

 

$

285.6

 

 

$

73.8

 

 

$

359.4

 

Discounted settlement cost estimate at December 31, 2019

 

$

262.2

 

 

$

73.4

 

 

$

335.6

 

 

In addition to the amounts above, accrued settlement cost amounts for cargo claims and other insurance related amounts, none of which are discounted, totaled $13.7 million and $13.9 million at December 31, 2019 and 2018, respectively.

Estimated cash payments to settle claims which were incurred on or before December 31, 2019, for the next five years and thereafter are as follows:

 

(in millions)

 

Workers’

Compensation

 

 

Third-Party

Liability

Claims

 

 

Total

 

2020

 

$

78.3

 

 

$

33.5

 

 

$

111.8

 

2021

 

 

50.1

 

 

 

17.9

 

 

 

68.0

 

2022

 

 

33.3

 

 

 

11.4

 

 

 

44.7

 

2023

 

 

22.0

 

 

 

5.8

 

 

 

27.8

 

2024

 

 

16.4

 

 

 

2.6

 

 

 

19.0

 

Thereafter

 

 

85.5

 

 

 

2.6

 

 

 

88.1

 

Total

 

$

285.6

 

 

$

73.8

 

 

$

359.4

 

 

Equity-Based Compensation

We have various equity-based employee compensation plans, which are described more fully in the “Equity-Based Compensation Plans” footnote to our consolidated financial statements.  We recognize compensation costs for non-vested shares based on the grant date fair value.  For our equity grants, with no performance requirement, we recognize compensation cost on a straight-line basis over the requisite service period (generally three years) based on the grant-date fair value. For our performance-based awards, the Company expenses the grant date fair value of the awards which are probable of being earned in the performance period over the respective service period.

Property and Equipment

The following is a summary of the components of our property and equipment at cost as of December 31:

 

(in millions)

 

2019

 

 

2018

 

Land

 

$

239.9

 

 

$

243.7

 

Structures

 

 

788.4

 

 

 

791.3

 

Revenue equipment

 

 

1,228.2

 

 

 

1,257.4

 

Technology equipment and software

 

 

291.7

 

 

 

259.7

 

Other(a)

 

 

213.4

 

 

 

213.8

 

Total property and equipment, at cost

 

$

2,761.6

 

 

$

2,765.9

 

 

 

(a)

Other consists of miscellaneous equipment used in field operations.

We carry property and equipment at cost less accumulated depreciation. We compute depreciation using the straight-line method based on the following service lives:

 

 

 

Years

Structures

 

10 - 30

Revenue equipment

 

10 - 20

Technology equipment and software

 

3 - 7

Other

 

3 - 10

 

We charge maintenance and repairs to expense as incurred and betterments are capitalized. The cost of replacement tires is expensed at the time those tires are placed into service, as is the case with other repair and maintenance costs. Leasehold improvements are capitalized and amortized over the shorter of their useful lives or the remaining lease term.

In addition to purchasing new revenue equipment, we also rebuild the engines of our tractors (at certain time or mile intervals).  Because rebuilding an engine increases its useful life, we capitalize these costs and depreciate over the remaining useful life of the unit. The cost of engines on newly acquired revenue equipment is capitalized and depreciated over the estimated useful life of the related equipment.

Our investment in technology equipment and software consists primarily of freight movement, automation, administrative, and related software. The Company capitalizes certain costs associated with developing or obtaining internal-use software. Capitalizable costs include external direct costs of materials and services utilized in developing or obtaining the software and payroll and payroll-related costs for employees directly associated with the development of the project.

For the years ended December 31, 2019, 2018 and 2017, depreciation expense was $150.5 million, $145.9 million and $147.7 million, respectively.

Long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the long-lived assets, the carrying value would be reduced to the estimated fair value. Future cash flow estimates for an impairment review would be based on the lowest level of identifiable cash flows, which are at the operating company level.

Fair Value of Financial Instruments 

From time to time, we hold financial assets held at fair value, which consists of restricted cash held in escrow. Restricted amounts held in escrow are invested in money market accounts and are recorded at fair value based on quoted market prices and have typically been level 1 fair value assets.  Assets are considered level 1 if their valuations are based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.  As of December 31, 2019 and 2018, we had no restricted amounts held in escrow. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates their fair value due to the short-term nature of these instruments.

The fair value of our long-term debt is included in the “Debt and Financing” footnote to the consolidated financial statements.

Newly-Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases, which requires lessees to recognize a right-to-use asset and a lease obligation for all leases.  Additional qualitative and quantitative disclosures, including significant judgments made by management, are required. The new standard became effective for the Company for its annual reporting period beginning January 1, 2019, including interim periods within that reporting period.  The Company adopted the standard using a modified retrospective approach with the effective date of the standard as the date of initial application.

The Company elected the package of three practical expedients which allows entities to not reassess initial direct costs, lease classification for existing or expired leases, and lease definition for existing or expired contracts as of the effective date of January 1, 2019.  Additionally, the Company did not elect the hindsight method practical expedient which would have allowed us to reassess lease terms and impairment. For leases with a term of twelve months or less, the Company has made an accounting policy election in which the right of use lease (“ROU”) asset and lease liability will not be recognized on the consolidated balance sheet. The Company does not separate lease and non-lease components for its revenue equipment and real property leases.  The Company reassessed the accounting for debt financing obligations under the new standard and determined the historical accounting remained appropriate under the new standard.

The adoption of this standard impacted our consolidated balance sheet through the recognition of $378.8 million in ROU assets and liabilities as of January 1, 2019.  Lease deposits in the amount of $25.4 million were reclassified from “Other assets” to a reduction of “Operating lease liabilities” per the consolidated balance sheet upon adoption of the new standard.

The new standard did not impact the calculation of our financial covenants defined under the terms of our credit agreements.

See the “Leases” footnote to the consolidated financial statements for additional information.   

Impact of Recently-Issued Accounting Standards

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime expected credit loss and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset, including trade receivables. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13 is effective for public companies for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.  The Company does not expect this standard to have a material impact on our financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software, that aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.  The Company adopted this standard on January 1, 2020, but the adoption is not expected to have a material impact on the Company’s consolidated financial statements during 2020.

In December 2019, the FASB issued ASU 2019-12, Income Taxes.  The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes.  ASU 2019-12 is effective for public companies for annual periods beginning after December 15, 2020, including interim periods within those fiscal years.  The Company does not expect this standard to have a material impact on our financial statements.