November 8, 2013: YRC CEO James Welch presented his case to Teamster local officers three days ago for a five-year contract extension, in order to secure new financing.
It was not an easy sell. A number of officers at the meeting in Dallas asked tough questions, on everything from the botched idea to buy ABF to what else YRC will be asking for.
Welch declined to specify anything else the company would request in bargaining, except new language to curb absenteeism. The materials distributed indicate that wage increases may be in the extension deal.
Welch stressed the urgency of the situation to refinance debt at lower interest rates. He requested to open up the contract and get a vote by 26,000 Teamsters as soon as the end of December on a contract extension. The first debt payment is due February 15, for $69 million, and Welch stated that an extension would need to be in place to secure refinancing from banks.
YRCW has delayed by a week reporting third-quarter earnings as it seeks to start talks with the IBT, according to numerous media reports on the situation.
IBT Freight Director Tyson Johnson told local officials to meet with YRC Teamsters, and then report to the Freight Division on whether they should agree to reopen the contract to discuss an extension.
Some locals are distributing the materials from the November 5 meeting to members, which outline the company's presentation.
YRC Worldwide Inc., saying it intends to negotiate an extended labor contract with the Teamsters union, has delayed release of its quarterly financial report.
The third-quarter financial report originally scheduled for Thursday has been pushed back to Tuesday of next week, a company statement said. The statement, released late Wednesday, did not indicate why a delay was needed.
The Overland Park-based trucking company said it intends to “engage in formal negotiations, extend its current contract (with the International Brotherhood of Teamsters) and increase its competitiveness in the market.”
Chief executive James Welch said in the statement that an extension would help secure jobs of the company’s 26,000 union employees and “substantially increase the likelihood” of refinancing the company’s debts.
Welch, in a letter to employees Oct. 30, said a new Teamsters contract was necessary before lenders would negotiate a refinancing. YRC has more than $1 billion in debts due in 2014 and 2015.
YRC’s announcement said “these developments” led it to postpone its earnings release.
The Teamsters have surrendered pay and benefits under their agreement with the company that expires at the end of March 2015. Their concessions helped the company avoid bankruptcy through two financial reorganizations. But with the economy still sluggish, YRC continues to struggle to return to financial health.
Company executives met in Dallas this week with more than 100 Teamsters officials, including Vic Terranella, president of Local 41 in Kansas City.
Terranella said the company didn’t talk about contract proposals but did say it wants a five-year agreement. He said a YRC official told the union representatives that the new deal would need to address absenteeism issues and profit sharing.
They also said, according to Terranella, that the new agreement would need to take effect immediately after approval rather than after the current contract expires.
The request adds to earlier suggestions that YRC may ask for additional concessions from the union rather than an extension of their current terms. Welch’s letter to employees had said the new contract would need to increase the company’s competitiveness, but it did not specify how.
YRC shares fell 71 cents Wednesday and closed at $10.13. The shares had jumped 28 percent Tuesday on reports that the company plans to ask for more concessions from employees.
YRC Worldwide Inc. had originally been expected to release earnings last week, but then it scheduled them for Thursday. On Wednesday afternoon, the Overland Park based less-than-truckload carrier (Nasdaq: YRCW) delayed its quarterly financial report to Tuesday.
If YRC can negotiate an extended labor contract — or perhaps even a better one — with its union, YRC CEO James Welch said in a Oct. 30 letter to employees that "Our lenders have made it clear the combined company needs to be performing better than it is today, and that we need a labor agreement with our Teamster employees that extends beyond our current expiration and any new debt maturities, and increases our competitiveness, before any refinancing can be completed."
Teamsters previously agreed to a 15 percent cut in wages, suspension of pension payments and reduced vacation time for members. Welch recently wrote that "Management has asked the (Teamsters) to work with us to support our refinancing efforts as an important next step in our turnaround. The time is now. The closer we get to our debt payment due dates, the less control we have over our own destiny."
YRC Worldwide Inc. says it needs the Teamsters to extend existing concessions if the company is to be able to refinance its debts.
James Welch, CEO of the Overland Park based less-than-truckload carrier (Nasdaq: YRCW), sent a letter to employees explaining why company executives are meeting with International Brotherhood of Teamsters leaders Tuesday in Dallas.
“Our lenders have made it clear the combined company needs to be performing better than it is today, and that we need a labor agreement with our Teamster employees that extends beyond our current expiration and any new debt maturities, and increases our competitiveness, before any refinancing can be completed,” Welch said in the Oct. 30 letter.
Both YRC and the Teamsters leadership in Washington have declined to comment publicly about whether there will be discussion of extending existing concessions at the Dallas meeting. However, rumors circulating throughout the union suggest the company could be seeking extensions through March 2017 or possibly March 2019.
The existing agreement is based on three rounds of concessions the company and the union agreed on between 2008 and 2010. In those concessions, the union consented to a 15 percent cut in wages, suspension of pension payments through the life of the agreement and reduced vacation time for members.
The deal saves YRC saves an estimated $350 million in labor costs annually. It also gives the Teamsters 25 percent ownership of the company and the right to nominate two members to the YRC board.
Welch's letter explains that although YRC is doing better than it was before Welch took over in July 2011, it has a long way to go before it can ride easy.
He said the company is “almost $1.4 billion” in debt due to “numerous missteps” made by the company’s prior management. Those debts, Welch said, require YRC to make “huge” monthly interest payments that — along with normal expenses — consume all of the company’s extra money.
“These debts will begin coming due in early 2014, and we have limited options and a tight time frame for addressing them,” Welch said in the letter.
The company now faces two choices: declare bankruptcy, or refinance the debt. Welch said lenders will require YRC to have a longer agreement with the labor union, which represents more than 25,000 of YRC's 32,000 employees. The current agreement runs through March 2015.
Welch said that refinancing the company’s debt will improve cash flow so YRC will be in a “far better position” to invest in the company and compete in the industry.
“I believe this is the path we should take because your job is worth saving,” Welch wrote. “Management has asked the (Teamsters) to work with us to support our refinancing efforts as an important next step in our turnaround. The time is now. The closer we get to our debt payment due dates, the less control we have over our own destiny.”
This is not the first time the company has suggested that it’s looking at refinancing the debt. On Aug. 7, when the company declared its second-quarter earnings, CFO Jamie Pierson said in a Securities and Exchange Commission document that Credit Suisse Group AG (NYSE: CS) and the New York-based investment firm MAEVA Group LLC were working on “a broad range of refinancing and recapitalization options.”
In late July, Credit Suisse issued a negative report about the company, saying YRC's stock was due to sag to $7 a share. At the time of that report, YRC stock was trading for more than $29 a share. It since has dropped to less than $9 a share.
The forbearance of YRC Worldwide Inc.'s unionized workforce is about to be tested again.
Tomorrow in Dallas, YRC executives will brief leaders of the Teamsters Union representing about 25,000 YRC employees. The meeting will cover the Overland Park, Kan.-based company's recent performance, its future prospects, and the need to prepare for the first of a round of debt obligations set to come due in 2014, the company said in a brief statement last week.
James L. Welch, the less-than-truckload (LTL) carrier's CEO, essentially outlined the meeting's agenda in a letter sent to employees Oct. 30. Servicing YRC's $1.4 billion debt load leaves the company with no money to reinvest in the business once wages, benefits, and regular operating expenses are paid, Welch said in the letter. YRC's lenders have told the company they will not agree to refinance its debt without, among other things, a new labor agreement that extends beyond the current compact's March 2015 expiration date. YRC's operational performance also needs to improve for its lenders to consent to a debt restructuring, Welch said.
In a true déjà vu moment, Welch said that any refinancing initiative "will require the help of our employees."
This would hardly be the first time YRC has gone to the workers' well. Both sides agreed to three extraordinary concessions during 2009 and 2010. The last round, in September 2010, extended the then-current contract for two years beyond March 2013, cut workers wages by 15 percent (after annual hourly increases in the 40- to 45-cent range), and allowed the company to resume in mid-2011 previously frozen pension contributions but at only one-fourth the level in effect before the freeze. The agreements sparked a lawsuit from unionized rival ABF Freight System Inc., which argued that they violated the National Master Freight Agreement, the pact that has traditionally governed labor relations in the trucking industry, by not being extended to all member companies.
Welch's latest call for sacrifice is unlikely to sit well with Teamster leadership. General President James P. Hoffa, who will not attend tomorrow's meeting, would "rather get his wisdom teeth taken out" than agree to further concessions, said a source familiar with the situation.
As YRC was spiraling downward towards bankruptcy in 2009, Hoffa worked both publicly and behind the scenes to keep the company afloat. He urged the rank-and-file to accept painful concessions and personally lobbied for a controversial debt-for-equity swap in late December that effectively saved YRC but resulted in existing common stock holders being virtually wiped out.
Most of YRC's problems can be laid at the feet of YRC Freight, the company's long-haul unit. The result of a disastrous integration of Yellow Freight System and Roadway Express following Yellow's 2003 purchase of Roadway, YRC Freight had been bleeding red ink for years, offsetting the otherwise stellar performance of the company's three U.S. regional subsidiaries.
Jeffrey A. Rogers, appointed by Welch in 2011 to run YRC Freight, seemed to be making progress on a variety of metrics. Then after a subpar second quarter attributed to the bumpiness of a big network integration, Welch fired Rogers in September and took personal control of the unit. Company sources said Welch had grown increasingly unhappy with the division's performance.
Since reaching an all-time high in 2005, YRC stock has lost nearly all its value. It has engineered two reverse stock splits in the past three years in the hope that the moves would boost the company's equity value by reducing the number of outstanding shares. YRC stock is up more than 23 percent so far this year but has been on a steep decline since it hit a yearly high in early July of above $35 a share. As of midmorning trading today, YRC shares changed hands at $8.51 a share.
Tomorrow's meeting, which had not been on the annual calendar, comes less than a week after the Teamsters ratified a five-year collective bargaining agreement with ABF. The compact, which calls for a 7-percent wage reduction that will be recouped over the contract's life, will yield between $55 million and $65 million in net savings for Fort Smith, Ark.-based ABF, which has the highest cost structure in the LTL industry. That will not only narrow the cost gap between the rivals, but it will likely give ABF the flexibility to pursue business, perhaps some of that being YRC's, that it had to pass on because its old cost structure wouldn't support it. The new contract took effect over the weekend.
Though not publicly mentioned as an agenda item by YRC, it seems doubtful the hours will pass without the impact of the A BF-Teamster contract being discussed. That will add another log to the pile of challenges facing Welch. As the source remarked, "there seems to be no end to [YRC's] problems."
Members of the International Brotherhood of Teamsters' ABF master negotiating committee Oct. 30 accepted ABF Freight System Inc.'s last proposal for the only unapproved supplement to the national master freight agreement after members covered by the Central Region Local Cartage Agreement voted not to authorize a strike, the union announced.
Approval of the last of 27 supplements paves the way for implementation of the master five-year agreement, which covers about 7,500 drivers, dockworkers, mechanics and clerical staff. The agreement, which provides a 7 percent wage reduction, takes effect Nov. 3 and expires .
After the Central Regional Local Cartage Supplement, which covers nearly 1,900 drivers, dock workers and other employees throughout the Midwest, was twice rejected, IBT conducted a strike authorization vote among the members covered by the unapproved supplement. When the ballots were counted Oct. 29, about 70 percent of members who voted declined to authorize a strike, the union said. In such situations the IBT constitution allows the master negotiating committee to accept the company's final offer, the union said.
“We have now arrived at a point where, simply put, there is nothing left to negotiate with this employer and no desire for a strike in the Central Region, based on the vote we received [Oct. 29] from the affected membership,” Gordon Sweeton, a co-chairman of the Teamsters National Freight Industry Negotiating Committee, said in the union's statement. “The responsible course of action is to finalize the agreement.”
Agreement Contains 27 Riders
The Teamsters and ABF, based in Fort Smith, Ark., announced that a majority of IBT members covered by the national master freight agreement voted in favor of ratification.
ABF said in an Oct. 30 statement that 26 out of 27 area supplements were ratified by mid-October. But IBT procedures required that all of the supplemental agreements, or riders, be approved before the national master freight agreement could take effect.
The Central Region Local Cartage supplemental agreement covers about 1,900 drivers, dock workers and other employees in Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin and one terminal in West Virginia. Cartage workers generally transport goods on docks.
Ken Paff, co-founder and current national organizer of Teamsters for a Democratic Union, a union splinter group, told Bloomberg BNA Oct. 10 that Central Region Local Cartage members had rejected the contract twice because they wanted the union to bargain some more for them. At the time, he said, the international union decided to conduct a strike vote, “although [the Teamsters] have not presented to the members any issues they would be striking for. It appears they simply want to wrap this up.”
Judy R. McReynolds, the president and chief executive officer of Arkansas Best Corp., ABF Freight's parent company, said in the company's Oct. 30 statement that the new agreement “follows several years of sacrifice from our non-union employees.”
“As the transportation and logistics market continues to rapidly evolve,” she added, “we are grateful that our union employees have also recognized the need for ABF Freight to operate much more efficiently so that we can better serve our customers every day.”
Economic Relief for ABF
The master agreement contains a 7 percent wage reduction, but the Teamsters said “with incremental annual wage increases” the reduction will be recouped over the life of the agreement.
Under the new contract, new hires have a one-year-longer wage progression. Hourly and mileage rates will increase 2 percent on in 2014, 2015 and 2016.
On , wages will increase 2.5 percent, raising rates above current levels.
A profit-sharing bonus of 1 percent of W-2 earnings will be issued in years when the operating ratio is 96 or below, 2 percent if 95 or below, and 3 percent if 93 and below.
The cost-of-living allowance will be modified by limiting an increase only to when inflation is in excess of 3.5 percent annually. The annual payment is capped at five cents per hour. According to IBT, the current COLA clause has paid just 10 cents over the past decade because inflation has been so moderate.
Another provision for direct economic relief for ABF is a reduction in paid leave. Beginning in 2014, employees will accrue paid vacation at a lower rate that will reduce annual paid vacation leave by one week.
Under the contract, cuts in wages and benefits will be equal both for employees with union representation and those without representation.
If ABF files for bankruptcy or is sold, the Teamsters national freight industry negotiating committee can terminate the wage reduction. The contract also stipulates that amounts the company saves through wage reductions will be applied to purchases of new freight equipment. No bargaining unit work can be transferred to other trucking companies unless the labor agreement authorizes it.
“The agreement does require the company to continue to participate in the same health, welfare and pension programs,” the union said, “and provides for contribution increases in order to maintain benefit levels retroactive to .”
ABF said in its Oct. 30 statement that wage reductions for employees covered by the contract would take effect during the week of Nov. 3. It also confirmed that increases to workers' health, welfare and pension benefits would be retroactive to Aug. 1, 2013.
IBT's Sweeton said, “We believe that this agreement helps protect our members' health, welfare and pension benefits and will also give the company the ability to compete in a very tough trucking environment, which is good for ABF and the long-term job security of our members.”
According to ABF, the ratified master agreement “achieves the company's stated goals of putting ABF Freight on a path to profitability by allowing the company to reduce costs and become more competitive, while preserving the best-paying jobs in the freight industry for ABF employees” represented by the Teamsters.
Company to Save $55 Million to $65 Million Annually
ABF officials estimated that the labor agreement would lead to an estimated net savings of between $55 million to $65 million on an annualized basis.
The company said the savings would be generated by “wage and vacation reductions and from work-rule and flexibility components of the contract.”
Roy Slagle, ABF's president and chief executive officer, described the new agreement as “a significant step for our company.”
It took a lot of blood, sweat and tears—not to mention many months of hard-nosed negotiations—but financially ailingABF Freight System, the nation’s sixth-largest LTL carrier, has finalized a five-year deal with the Teamsters union that is projected to save the nation’s sixth-largest LTL carrier between $55 and $65 million annually.
The new contract, covering about 7,000 ABF employees, is now ratified and will take effect on Nov. 3, 2013 and run through March 31, 2018.
ABF’s National Master Freight Agreement had been ratified by a narrow margin last June 27.
But because of delays in approval of two “supplemental” agreements, ABF lost out on realizing more than $1 million a week in savings until now.
“On behalf of all of the people and customers who depend upon ABF Freight, we are pleased that this final step in our lengthy contract negotiation process is now complete,” ABF parent Arkansas Best President and CEO Judy R. McReynolds said in a statement.
McReynolds said the new ABF National Master Freight Agreement achieves the company’s stated goals of putting ABF Freight on a path to profitability by allowing the company to reduce costs and become more competitive.
The contract implementation follows the failure of a strike authorization vote on Oct. 29by employees covered by the Central Region Local Cartage supplement. Some 26 of 27 supplements were ratified by Oct. 14.
Members of the Teamsters’ ABF National Negotiating Committee were polled following the failure of the strike vote authorization. About 70 percent of those voting rejected the strike vote, the Teamsters said. After that failure, the committee determined that the contract is now ratified. That paved the way for the Nov. 3 effective date of the national and all supplemental agreements.
The Teamsters said its Negotiating Committee did not come to this decision lightly. As national negotiating committee co-chairman Gordon Sweeton said, “We have now arrived at a point where, simply put, there is nothing left to negotiate with this employer and no desire for a strike in the Central Region based on the vote we received yesterday from the affected membership. The responsible course of action is to finalize the agreement.”
Company officials said they were relieved the arduous labor negotiations were finally over, and they could begin to realize savings from the concessionary deal.
“This new labor agreement follows several years of sacrifice from our non-union employees,” McReynolds said. “As the transportation and logistics market continues to rapidly evolve, we are grateful that our union employees have also recognized the need for ABF Freight to operate much more efficiently so that we can better serve our customers every day.”
While the new contract is a significant step toward restoring ABF to its historic profitability, ABF President and CEO Roy Slagle said, there is more work to be done in a highly competitive LTL marketplace.
“The implementation of our national five-year agreement is a significant step for our company and we are very pleased to move forward,” Slagle said. “However, this is just one of several initiatives that we are focused on as we continuously look for ways to improve the efficiency of national operations on behalf of our customers.”
At ABF, the 90-year-old LTL unit once made up more than 95 percent of parent Arkansas Best’s revenue. But McReynolds has led Arkansas Best on a road to diversification. Last year, Arkansas Best bought expedited (non-union) carrier Panther Expedited for $125 million to enter the lucrative same-day freight market. Because of that and other diversification moves, ABF this year will account for about 80 percent of Arkansas Best’s overall revenue.
So effectively, instead of competing in the stagnant $35 billion LTL market place, Arkansas Best has gained a foothold into a much larger $200 billion trucking and expedited freight market.
Arkansas Best reported an operating loss of $14.9 million on $1.09 billion revenue the first six months of this year, compared with an operating loss of $15.8 million on $951.4 million revenue for the first half of 2012. It had an $8.5 million net loss the first half of this year, compared with $6.3 million net loss the first half of last year.
Arkansas Best’s second quarter net income of $4.9 million was down 58.8 percent compared to the $11.8 million earned in the second quarter of 2012. But the second quarter 2012 net income included an $8 million tax benefit. Revenue during the quarter was $576.9 million, up from the $510.5 million during the second quarter of 2012
In 2012, the company posted a $7.7 million net loss, a sharp falloff from the $6.159 million net earnings in 2011.
The new labor agreement will result in an estimated net savings between $55 million to $65 million on an annualized basis, according to the company,. This estimate is net of the Aug. 1, 2013 union health, welfare and pension increase. Approximately 75 percent of that annualized amount will be reflected generally pro-rata, in monthly operating results beginning immediately, with the rest expected to be fully realized over the next 24 months.
Savings come from wage and vacation reductions and from work-rule and flexibility components of the contract, the company said. It added the exact amount of savings will depend on the actual level of productivity gains that ABF is able to achieve through those work-rule changes and flexibility components.
Wage reductions for Teamster employees are effective week of Nov. 3, 2013. Increases to health, welfare and pension (HW&P) will be retroactive to Aug. 1. Those accrued HW&P costs have been included in ABF’s third quarter 2013 financial results that will be reported on Nov. 11, the company said.
A local office of ABF Freight System employees represented by the International Brotherhood of Teamsters have rejected a move to strike and will continue to seek approval of a supplemental contract for the office.
According to the Teamsters, 77% of union members in the region voted, with 70% rejecting a the option to strike.
Teamsters officials will now "poll the ABF Master Negotiating Committee within the next 24 hours to determine whether to accept ABF's final offer on the last remaining open supplement."
A five-year contract between Fort Smith-based Arkansas Best – the parent company of ABF Freight – and the International Brotherhood of Teamsters was approved June 27, but some supplemental provisions were rejected. Officials with both sides negotiated the rejected provisions, and the seven "local/area supplements" were again placed on the local ballots for approval.
Only the Central Region Local Cartage supplement has not been approved.
The contract, once ratified by all local regions, will cover about 7,500 employees of ABF Freight System who are members of the union. Most of those workers are drivers. ABF is the largest subsidiary of Arkansas Best, a transportation holding company. The contract includes an immediate 7% wage reduction that is recovered by the fifth year of the contract. The company was also able to negotiate for flexibility in work schedules and work across job classifications. Most of those workers are drivers.
"ABF wishes to thank our customers for their patience and commitment to ABF during this long and complicated process, as many people on both sides of the table worked to ensure a stronger future for our company and our employees in a very competitive marketplace," noted a company statement issued late Tuesday (Oct. 29). "The company also recognizes and appreciates the sacrifices from our union and our non-union employees to put ABF on a better path to sustained profitability for years to come."
Members of the International Brotherhood of Teamsters are preparing to meet with company leadership from YRC Worldwide Inc. in Dallas, and the topic on everyone's mind is concessions.
Late on Monday, the Overland Park-based less-than-truckload carrier (Nasdaq: YRCW) sent out a statement calling Teamster leadership to meet in Dallas on Nov. 5. The statement said company leadership will be on hand to discuss the company's "recent performance, future prospects, corporate refinancing opportunities and the need to pro-actively align multiple stakeholders in advance of 2014 debt obligation deadlines."
The statement also pointed out the upcoming deadline for the current agreement between the company and the labor union that represents 25,000 of the company's 32,000 employees. That agreement, based on a series of concessions that cut Teamster wages and stopped pension payments, runs through March 2015. It saves YRC more than $350 million in labor costs annually.
Representatives of the Teamsters' national office in Washington, D.C., declined to comment on the situation. However, other members of the union think the meeting may touch on the topic.
Vic Terranella, president of Kansas City's Teamsters Local 41, who is going to the meeting in Dallas said he received official communication from the union on Tuesday announcing company leadership will be at the meeting to speak directly with local Teamster leadership. Otherwise, he said, he hasn't heard anything official.
There have been rumors swirling that YRC is looking to extend that current agreement for two more years through March 2017.
"But that's just talk on the streets," Terranella said.
Terranella said he doubts YRC will discuss concessions during the meeting, because he thinks the company would not begin negotiations by addressing the locals rather than the Teamster's National Freight Industry Negotiating Committee negotiators.
Ken Paff, the national organizer for Teamster dissident group Teamsters for a Democratic Union, said "insiders" informed him YRC is going to look for a five-year extension of current wage and pension freezes as part of a wider effort to refinance the company. That would extend the current agreement through March 2019.
Paff said he believes the meeting is being called so company leaders can "present their case" directly to the union. He said he thinks a five-year extension would be a "very hard sell."
Representatives of YRC were not immediately available to comment on whether or not further concessions will be discussed, or considered going forward.
The market has not reacted positively to the meeting call. Since the company made the announcement, the company's stock has fallen from $11.16 a share at close of market on Monday to less than $9.40 a share about an hour before close of market Tuesday.
October 29, 2013: On November 5, YRC execs will meet with the IBT Freight Division and all freight local unions to press for a contract extension, reportedly until 2019. Hoffa and the Freight Division have agreed to allow YRC to address local union officials in Dallas.
The meeting will come two days before YRC is expected to announce its third quarter results. The company is aiming to refinance its debt, and wants a long-term Teamster agreement in place to get bank financing.
Hoffa's appointee to YRC's Board of Directors, Harry Wilson, has been the point man in pushing for getting a contract extension in place.
A Yahoo Finance report is available here.
IBT Freight Division letter to locals is available here.