Long-Term Debt | 12 Months Ended |
Dec. 31, 2014 |
Debt Disclosure [Abstract] | |
Long-Term Debt | Long-Term Debt |
Long-term debt at December 31 (in millions): |
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| 2014 | | 2013 | | | | | | | | | | | | | | | | | | | | |
KCSR | | | | | | | | | | | | | | | | | | | | | | | |
Revolving credit facility, variable interest rate, due 2017 | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
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Term loan | — | | | 245.3 | | | | | | | | | | | | | | | | | | | | | |
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4.30% senior notes, due 2043 | 446 | | | 445.9 | | | | | | | | | | | | | | | | | | | | | |
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3.85% senior notes, due 2023 | 199.8 | | | 199.7 | | | | | | | | | | | | | | | | | | | | | |
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RRIF loan, 2.96%, due serially to 2037 | 50.4 | | | 52 | | | | | | | | | | | | | | | | | | | | | |
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Capital lease obligations, due serially to 2019 | 8.2 | | | 9.8 | | | | | | | | | | | | | | | | | | | | | |
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Other debt obligations | 0.2 | | | 0.4 | | | | | | | | | | | | | | | | | | | | | |
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Tex-Mex | | | | | | | | | | | | | | | | | | | | | | | |
RRIF loan, 4.29%, due serially to 2030 | 37.8 | | | 39.4 | | | | | | | | | | | | | | | | | | | | | |
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KCSM | | | | | | | | | | | | | | | | | | | | | | | |
Revolving credit facility, variable interest rate, due 2017 | — | | | — | | | | | | | | | | | | | | | | | | | | | |
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8.0% senior notes, due 2018 | — | | | 62.3 | | | | | | | | | | | | | | | | | | | | | |
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2.35% senior notes, due 2020 | 274.7 | | | 274.7 | | | | | | | | | | | | | | | | | | | | | |
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3.0% senior notes, due 2023 | 448.4 | | | 448.2 | | | | | | | | | | | | | | | | | | | | | |
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Floating rate senior notes, variable interest rate, 0.9331% at December 31, 2014, due 2016 | 250 | | | 250 | | | | | | | | | | | | | | | | | | | | | |
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5.737% financing agreement, due 2023 | 39.2 | | | 43.8 | | | | | | | | | | | | | | | | | | | | | |
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6.195% financing agreement, due 2023 | 30.4 | | | 33.9 | | | | | | | | | | | | | | | | | | | | | |
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9.310% loan agreements, due 2020 | 66.9 | | | 74.6 | | | | | | | | | | | | | | | | | | | | | |
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Capital lease obligations, due serially to 2024 | 13.6 | | | 7.4 | | | | | | | | | | | | | | | | | | | | | |
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Other debt obligations | — | | | 1.3 | | | | | | | | | | | | | | | | | | | | | |
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KCS | | | | | | | | | | | | | | | | | | | | | | | |
Other debt obligations | 0.2 | | | 0.2 | | | | | | | | | | | | | | | | | | | | | |
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Total | 1,865.80 | | | 2,188.90 | | | | | | | | | | | | | | | | | | | | | |
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Less: Debt due within one year | 24.8 | | | 332 | | | | | | | | | | | | | | | | | | | | | |
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Long-term debt | $ | 1,841.00 | | | $ | 1,856.90 | | | | | | | | | | | | | | | | | | | | | |
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KCSR Debt |
Revolving Credit Facility and Term Loans. On January 30, 2014, the Company, KCSR and certain other subsidiaries of the Company that guaranty the KCSR credit agreement entered into an amendment to the KCSR credit agreement which eliminated certain representations as a condition to borrowing under the revolving credit facility (the “KCSR Revolving Facility”), provided for the prepayment of all outstanding term loans (the “Term Loan”) under the KCSR credit agreement on or before February 13, 2014, and increased the borrowing capacity under the KCSR Revolving Facility to $450.0 million. In addition, on January 30, 2014, the Company and KCSR, entered into agreements to establish a $450.0 million commercial paper program for KCSR (the “KCSR Commercial Paper Program”). The KCSR Revolving Facility serves as a backstop for the KCSR Commercial Paper Program, which generally serves as KCSR’s primary means of short-term funding. |
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KCSR’s credit agreement also consists of a letter of credit facility of $25.0 million (the “Letter of Credit Facility”) and a swing line facility of up to $15.0 million (the “Swing Line Facility”). The Letter of Credit Facility and the Swing Line Facility each constitute usage under the Revolving Facility. |
In addition, KCSR’s credit agreement consisted of a $300.0 million term loan credit facility (“Term Loan Facility”) and a $275.0 million term loan A-2 credit facility (“Term Loan A-2”). On April 29, 2013, KCSR repaid the outstanding $277.5 million principal amount of the Term Loan Facility using a portion of the net proceeds from the issuance of $450.0 million principal amount of the 4.30% senior unsecured notes due May 15, 2043 (the “4.30% Senior Notes”). On February 7, 2014, KCSR borrowed $175.0 million under the KCSR Revolving Facility and used the proceeds and cash on hand to repay the outstanding $245.3 million principal amount of the KCSR Term Loan A-2. On February 14, 2014, KCSR repaid the outstanding $175.0 million principal amount of the KCSR Revolving Facility using proceeds received under the KCSR Commercial Paper Program. |
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The KCSR credit agreement is guaranteed by KCS, together with KCSR and certain subsidiaries named therein as guarantors (the “Subsidiary Guarantors”) and matures on November 15, 2017. Under the KCSR credit agreement, in the event that KCSR’s senior unsecured debt ratings would fall below investment grade at all three primary rating agencies, collateral would be re-pledged and the facilities would revert to secured obligations. In addition, in the event that KCSR achieves a senior unsecured debt rating of BBB/Baa2 or higher by at least two of the three primary rating agencies, the floating interest rates paid on the KCSR Revolving Facility would thereafter be determined by KCSR’s senior unsecured credit rating rather than by KCSR’s leverage ratio. Depending on KCSR’s credit rating during the life of the KCSR credit agreement, the margin KCSR would pay above the London Interbank Offered Rate (“LIBOR”) at any point would be equal to or lower than 1.50%. |
The KCSR credit agreement also contains representations, warranties, covenants and events of default that are customary for credit agreements of this type. The occurrence of an event of default could result in the acceleration of the repayment of any outstanding principal balance of the Revolving Facility and KCSR Commercial Paper Program. |
As of December 31, 2014 and 2013, KCSR had $299.9 million and $200.0 million available under the Revolving Facility, respectively, with no outstanding borrowings. |
4.30% Senior Notes. On April 29, 2013, KCSR issued the 4.30% Senior Notes due May 15, 2043, which bear interest semiannually at a fixed annual rate of 4.30%. The 4.30% Senior Notes were issued at a discount to par value, resulting in a $4.1 million discount and a yield to maturity of 4.355%. The net proceeds from the offering were used to fund the prepayment of the Term Loan Facility, to finance the purchase of certain leased equipment and for other general corporate purposes. The 4.30% Senior Notes are redeemable at KCSR’s option, in whole or in part, prior to November 15, 2042, by paying the greater of either (i) 100% of the principal amount of the 4.30% Senior Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the then-current U.S. Treasury rate plus 25 basis points, plus accrued interest to but excluding the redemption date. On or after November 15, 2042, the 4.30% Senior Notes may be redeemed at KCSR’s option, in whole or in part, at any time at a redemption price equal to 100% of the principal amount, plus any accrued and unpaid interest. |
3.85% Senior Notes. On October 29, 2013, KCSR issued $200.0 million principal amount of 3.85% senior unsecured notes due November 15, 2023 (the “3.85% Senior Notes), which bear interest semiannually at a fixed annual rate of 3.85%. The 3.85% senior notes were issued at a discount to par value, resulting in a $0.3 million discount and a yield to maturity of 3.866%. The net proceeds from the offering were used to finance the purchase of equipment under existing operating leases and replacement equipment as certain operating leases expired, and pay all fees and expenses incurred in connection with the 3.85% Senior Notes offering. Any net proceeds not used for those purposes were used for general corporate purposes. The 3.85% Senior Notes are redeemable at KCSR’s option, in whole or in part, prior to August 15, 2023, by paying the greater of either (i) 100% of the principal amount of the 3.85% Senior Notes to redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the then-current U.S. Treasury rate plus 20 basis points, plus accrued interest to but excluding the redemption date. On or after August 15, 2023, the 3.85% Senior Notes may be redeemed at KCSR’s option, in whole or in part, at any time at a redemption price equal to 100% of the principal amount, plus any accrued and unpaid interest. |
All of KCSR’s senior notes described above are unconditionally guaranteed, jointly and severally, on an unsecured senior basis, by KCS and certain domestic subsidiaries of KCS that guarantee the KCSR credit agreement (the “Note Guarantors”). KCSR’s senior notes and the note guarantees rank pari passu in right of payment with KCSR’s, KCS’s and the Note Guarantors’ existing and future unsecured, unsubordinated obligations. In addition, KCSR’s senior notes include certain covenants which are customary for these types of debt instruments issued by borrowers with similar credit ratings. |
KCSR RRIF Loan Agreement. On February 21, 2012, KCSR, as borrower, entered into a financing agreement with the United States of America represented by the Secretary of Transportation acting through the Administrator of the Federal Railroad Administration (“FRA”). |
The financing agreement provides KCSR with a 25-year, $54.6 million loan under the Railroad Rehabilitation and Improvement Financing Program (the “KCSR RRIF Loan”). The proceeds of the KCSR RRIF Loan were used to reimburse KCSR for 80% of the purchase price of thirty new locomotives (the “Locomotives”) acquired by KCSR in the fourth quarter of 2011. The outstanding principal balance bears interest at 2.96% per annum. KCSR is required to make quarterly principal and interest payments on the KCSR RRIF Loan commencing March 15, 2012, except for the first payment that was comprised solely of interest accrued from the date the funds were advanced to KCSR, which was February 24, 2012. |
The obligations under the financing agreement are secured by a first priority security interest in the Locomotives and certain related rights. In addition, the Company has agreed to guarantee repayment of the amounts due under the financing agreement and certain related agreements. |
The financing agreement contains representations, warranties, covenants and events of default that are similar to those contained in other KCSR debt agreements. The occurrence of an event of default could result in the acceleration of the repayment of any outstanding principal balance of the KCSR RRIF Loan. |
Tex-Mex Debt |
RRIF Loan Agreement. On June 28, 2005, Tex-Mex entered into an agreement with the FRA to borrow $50.0 million to be used for infrastructure improvements in order to accommodate growing freight rail traffic related to the NAFTA corridor. The note bears interest at 4.29% annually and the principal balance amortizes quarterly with a final maturity of July 13, 2030. The loan was made under the Railroad Rehabilitation and Improvement Financing Program administered by the FRA. The loan is guaranteed by Mexrail, which has issued a pledge agreement in favor of the lender equal to the gross revenues earned by Mexrail on per-car fees on traffic crossing the International Rail Bridge in Laredo, Texas. In addition, the Company has agreed to guarantee the scheduled principal payment installments due to the FRA from Tex-Mex under the loan agreement on a rolling five-year basis. |
KCSM Debt |
Revolving Credit Facility. KCSM’s amended and restated credit agreement consists of an unsecured revolving credit facility up to $200.0 million (the “KCSM Revolving Facility”), a letter of credit facility up to $15.0 million (the “KCSM letter of Credit Facility”), and a swing line facility up to $15.0 million (the “KCSM Swing Line Facility”). The KCSM Letter of Credit Facility and the KCSM Swing Line Facility each constitute usage under the KCSM Revolving Facility. The KCSM credit agreement matures on November 15, 2017. |
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On January 30, 2014, KCSM and certain subsidiaries of KCSM that guaranty the KCSM credit agreement entered into an amendment to the KCSM credit agreement which eliminated certain representations as a condition to borrowing under the KCSM Revolving Facility and provided for same-day availability of borrowed funds if desired by KCSM. Also on January 30, 2014, KCSM entered into agreements to establish a $200.0 million commercial paper program for KCSM (the “KCSM Commercial Paper Program”). The KCSM Revolving Facility serves as a backstop for the KCSM Commercial Paper Program, which generally serves as KCSM’s primary means of short-term funding. |
KCSM and certain of its subsidiaries have agreed to subordinate payment of certain intercompany debt, certain KCSM subsidiaries guaranteed repayment of the amounts due under the KCSM credit agreement (up to the amount permitted by KCSM’s outstanding indentures) and certain equity interests as defined in the KCSM credit agreement were pledged to secure obligations under the KCSM credit agreement. |
Under KCSM’s credit agreement, in the event that KCSM’s senior unsecured debt ratings were subsequently to fall below investment grade at all three primary rating agencies, collateral would be re-pledged and the facility would revert to a secured obligation. In addition, in the event that KCSM achieved a senior unsecured debt rating of BBB/Baa2 or higher by at least two of the three primary rating agencies, the floating interest rates paid on the KCSM credit agreement would thereafter be determined by KCSM’s senior unsecured credit rating rather than by KCSM’s leverage ratio. Depending on KCSM’s credit rating during the life of the KCSM credit agreement, the margin KCSM would pay above the LIBOR at any point would be equal to or lower than 1.75%. |
The KCSM credit agreement contains representations, warranties, covenants and events of default that are customary for credit agreements of this type. The occurrence of an event of default could result in the acceleration of the repayment of any outstanding principal balance of the KCSM Revolving Facility. |
As of December 31, 2014 and 2013, KCSM had no amount outstanding under the KCSM Revolving Facility. |
KCSM 8.0% Senior Notes. On January 22, 2010, KCSM issued $300.0 million principal amount of 8.0% senior unsecured notes due February 1, 2018 (the “KCSM 8.0% Senior Notes”), which bore interest semiannually at a fixed annual rate of 8.0%. |
Through May 8, 2013, KCSM purchased $237.2 million principal amount of the tendered KCSM 8.0% Senior Notes, $181.0 million principal amount of the tendered 65/8% senior unsecured notes due December 15, 2020 and $149.7 million principal amount of the tendered 61/8% senior unsecured notes due June 15, 2021 (collectively, the “KCSM Senior Notes Tendered”), in accordance with the terms and conditions of the tender offer using a portion of the proceeds received from the issuance of $275.0 million principal amount of 2.35% senior unsecured notes due May 15, 2020 (the “2.35% Senior Notes”) and $450.0 million principal amount of 3.0% senior unsecured notes due May 15, 2023 (the “3.0% Senior Notes”). |
On February 3, 2014, KCSM redeemed all of the remaining $62.8 million aggregate principal amount of the KCSM 8.0% Senior Notes, at a redemption price (expressed as a percentage of principal amount) of 104%, using a portion of the proceeds from the issuance of $250.0 million principal amount KCSM floating rate senior unsecured notes due October 28, 2016 (the “Floating Rate Senior Notes”), issued in the fourth quarter of 2013. |
2.35% Senior Notes. On May 3, 2013, KCSM issued the 2.35% Senior Notes due May 15, 2020, which bear interest semiannually at a fixed annual rate of 2.35%. The 2.35% Senior Notes were issued at a discount to par value, resulting in a $0.3 million discount and a yield to maturity of 2.368%. KCSM used the net proceeds from the issuance of the 2.35% Senior Notes and the 3.0% Senior Notes to purchase the KCSM Senior Notes Tendered, pay all fees and expenses incurred in connection with the 2.35% Senior Notes and 3.0% Senior Notes offerings and the tender offers, to finance the purchase of certain leased equipment and for other general corporate purposes. The 2.35% Senior Notes are redeemable at KCSM’s option, in whole or in part, prior to April 15, 2020, by paying the greater of either (i) 100% of the principal amount of the 2.35% Senior Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the then-current U.S. Treasury rate plus 20 basis points, plus accrued interest and any additional amounts to but excluding the redemption date. On or after April 15, 2020, the 2.35% Senior Notes may be redeemed at KCSM’s option, in whole or in part, at any time at a redemption price equal to 100% of the principal amount, plus any accrued and unpaid interest. In addition, the notes are redeemable, in whole but not in part, at KCSM’s option at their principal amount, plus any accrued unpaid interest in the event of certain changes in the Mexican withholding tax rate. |
3.0% Senior Notes. On May 3, 2013, KCSM issued the 3.0% Senior Notes due May 15, 2023, which bear interest semiannually at a fixed annual rate of 3.0%. The 3.0% Senior Notes were issued at a discount to par value, resulting in a $1.9 million discount and a yield to maturity of 3.048%. KCSM used the net proceeds from the issuance of the 3.0% Senior Notes and the 2.35% Senior Notes to purchase the KCSM Senior Notes Tendered, pay all fees and expenses incurred in connection with the 2.35% Senior Notes and 3.0% Senior Notes offerings and the tender offers, to finance the purchase of certain leased equipment and for other general corporate purposes. The 3.0% Senior Notes are redeemable at KCSM’s option, in whole or in part, prior to February 15, 2023, by paying the greater of either (i) 100% of the principal amount of the 3.0% Senior Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the then-current U.S. Treasury rate plus 20 basis points, plus accrued interest and any additional amounts to but excluding the redemption date. On or after February 15, 2023, the 3.0% Senior Notes may be redeemed at KCSM’s option, in whole or in part, at any time at a redemption price equal to 100% of the principal amount, plus any accrued and unpaid interest. In addition, the notes are redeemable, in whole but not in part, at KCSM’s option at their principal amount, plus any accrued unpaid interest in the event of certain changes in the Mexican withholding tax rate. |
Floating Rate Senior Notes. On October 29, 2013, KCSM issued the Floating Rate Senior Notes due October 28, 2016, which bear interest quarterly at a rate equal to the three-month U.S. dollar LIBOR plus 70 basis points per annum. KCSM used the net proceeds from the issuance of the Floating Rate Senior Notes to pay fees and expenses related to the issuance of the Floating Rate Senior Notes and redeem the outstanding $29.4 million principal amount of the 61/8% Senior Notes. In addition, the Company used the remaining net proceeds to redeem the outstanding $62.8 million principal amount of the KCSM 8.0% Senior Notes during the first quarter of 2014 and to finance the purchase of equipment under existing operating leases and replacement equipment as certain operating leases expired. Any net proceeds not used for these purposes were used for general corporate purposes. The notes are redeemable, in whole but not in part, at KCSM’s option at any time at a redemption price of 100% of their principal amount, plus any accrued unpaid interest in the event of certain changes in the Mexican withholding tax rate. |
All of KCSM’s senior notes described above are denominated in U.S. dollars; are unsecured, unsubordinated obligations; rank pari passu in right of payment with KCSM’s existing and future unsecured, unsubordinated obligations and are senior in right of payment to KCSM’s future subordinated indebtedness. In addition, KCSM’s senior notes include certain covenants which are customary for these types of debt instruments issued by borrowers with similar credit ratings and restrict or prohibit certain actions. |
KCSM Locomotive Financing |
5.737% Financing Agreement. On February 26, 2008, KCSM entered into a financing agreement with Export Development Canada (“EDC”) for an aggregate principal amount of $72.8 million. KCSM used the proceeds to finance 85.0% of the purchase price of forty new SD70ACe locomotives purchased by KCSM in late 2007 and early 2008. KCSM granted EDC a security interest in the locomotives to secure the loan. The financing agreement requires KCSM to make thirty equal semi-annual principal payments of approximately $2.4 million plus interest at an annual rate of 5.737%, with the final payment due and payable on February 28, 2023. |
6.195% Financing Agreement. On September 24, 2008, KCSM entered into a financing agreement with DVB Bank AG (“DVB”) for an aggregate principal amount of $52.2 million. KCSM used the proceeds to finance approximately 80% of the purchase price of twenty-nine ES44AC locomotives purchased by KCSM in June 2008. KCSM granted DVB a security interest in the locomotives to secure the loan. The financing agreement requires KCSM to make sixty equal quarterly principal payments plus interest at an annual rate of 6.195%, with the final payment due and payable on September 29, 2023. |
9.310% Loan Agreements. On September 1, 2011, KCSM, as borrower, entered into five Loan Agreements (each a “Loan Agreement”, and collectively, the “Loan Agreements”) with General Electric Capital Corporation, as lender (“GE”), each with a principal amount of approximately $18.2 million. KCSM used the loan proceeds to finance approximately 88% of the purchase price of seventy-five GE AC4400 CW locomotives (the “Locomotives”) purchased by KCSM from GE on September 1, 2011. The Locomotives were previously leased by KCSM from GE pursuant to a Lease Agreement dated April 30, 1998. The Lease Agreement, which had been accounted for as an operating lease, was terminated with the purchase of the Locomotives by KCSM. To secure the loans from GE, KCSM transferred legal ownership of the Locomotives to five irrevocable trusts established by KCSM to which GE is the primary beneficiary and KCSM has a right of reversion upon satisfaction of the obligations of the Loan Agreements. |
Each Loan Agreement requires KCSM to make thirty-eight quarterly principal payments plus interest at an annual rate of 9.31%, which approximates the implicit interest rate in the Lease Agreement. The final payments are due and payable on December 15, 2020. |
KCSM’s locomotive financing agreements contain representations, warranties and covenants typical of such equipment loan agreements. Events of default in the financing agreements include, but are not limited to, certain payment defaults, certain bankruptcy and liquidation proceedings and the failure to perform any covenants or agreements contained in the financing agreements. Any event of default could trigger acceleration of KCSM’s payment obligations under the terms of the financing agreements. |
Debt Covenants Compliance |
The Company was in compliance with all of its debt covenants as of December 31, 2014. |
Other Debt Provisions |
Change in Control Provisions. Certain loan agreements and debt instruments entered into or guaranteed by the Company and its subsidiaries provide for default in the event of a specified change in control of the Company or particular subsidiaries of the Company. |
Leases and Debt Maturities |
The Company leases transportation equipment, as well as office and other operating facilities, under various capital and operating leases. Rental expenses under operating leases were $76.4 million, $106.7 million, and $108.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. Operating leases that contain scheduled rent adjustments are recognized on a straight-line basis over the term of the lease. Contingent rentals and sublease rentals were not significant. Minimum annual payments and present value thereof under existing capital leases, other debt maturities and minimum annual rental commitments under non-cancelable operating leases are as follows (in millions): |
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| Long- | | Capital Leases | | Total | | | | |
Term | Debt |
Years | Debt | Minimum | | Less | | Net | | | Operating Leases | | Total |
| Lease | Interest | Present | |
| Payments | | Value | |
2015 | $ | 20 | | | $ | 6.8 | | | $ | 2 | | | $ | 4.8 | | | $ | 24.8 | | | $ | 74.5 | | | $ | 99.3 | |
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2016 | 270.8 | | | 6.3 | | | 1.7 | | | 4.6 | | | 275.4 | | | 67.6 | | | 343 | |
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2017 | 22 | | | 4 | | | 1.3 | | | 2.7 | | | 24.7 | | | 57.3 | | | 82 | |
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2018 | 35.2 | | | 3.9 | | | 1.1 | | | 2.8 | | | 38 | | | 37.3 | | | 75.3 | |
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2019 | 15.5 | | | 2.7 | | | 0.8 | | | 1.9 | | | 17.4 | | | 30.5 | | | 47.9 | |
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Thereafter | 1,480.50 | | | 6.7 | | | 1.7 | | | 5 | | | 1,485.50 | | | 98.5 | | | 1,584.00 | |
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Total | $ | 1,844.00 | | | $ | 30.4 | | | $ | 8.6 | | | $ | 21.8 | | | $ | 1,865.80 | | | $ | 365.7 | | | $ | 2,231.50 | |
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In the normal course of business, the Company enters into long-term contractual requirements for future goods and services needed for the operations of the business. Such commitments are not in excess of expected requirements and are not reasonably likely to result in performance penalties or payments that would have a material adverse effect on the Company’s liquidity. |