One would think that YRC Worldwide should be on the road to
financial recovery particularly with all the breaks given to them by banks and
the Teamsters. However it appears that may not be the case. While third quarter
consolidated operating revenues were $1.3bn, a 1.3% increase over third quarter
2012, its operating income declined from $27.3m to $5.8m. What happened?
According to James Welch, CEO of YRC Worldwide and President
of YRC Freight, third quarter revenue was not enough to cover its interest
expenses on debt. Added to that were costs to retool its US network. "The
decline in year-over-year consolidated operational performance for the third
quarter is primarily attributed to YRC Freight. Our third quarter performance
was hindered by declines in service, manpower shortages and declines in yield.
Indeed, YRC Freight, the LTL division, reported a 1.3%
decline in quarterly revenue to $808.7m and an operating income loss of $9.7m.
Meanwhile, its Regional Transport division which includes Holland, Reddaway and
New Penn, noted a 6.4% increase in operating revenue to $444m but a 26.5%
decline in operating income to $20m.
With a $69m debt payment due on February 15 and owing more
than $1bn in debt over the next two years, YRC Worldwide is looking to
refinance or extend the due date of its debt payment. However, lenders have
demanded an extension of YRC’s contract with the International Brotherhood of
Teamsters into 2019 before they will extend the due dates on the company’s
debts.
As such, the company has been in discussions with the
Teamsters. Will the Teamsters concede once again? The existing labor agreement
included a 15% cut in wages, suspension of pension payments and reduced
vacation time for members. YRC began making pension payments in early 2012 at
25% of the rate it paid in 2009. While the Teamsters agreed to these changes in
three rounds of concessions, it may balk at any additional extensions.
If YRC is unsuccessful in its quest for refinancing or delay
of debt payments, it will more than likely face bankruptcy. According to a
Kansas City Business Journal article, CEO James Welch noted in an open letter
to employees, “some companies in our position have simply declared bankruptcy”
but said everyone had “worked too hard and sacrificed too much” to take that
route. However, shareholders lost
control over the company when it under went financial restructurings. As such,
control already lies in the hands of its lenders. YRC Worldwide was once
described as a cat with nine lives. Are there any lives left?