UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
FORM 8-K
on Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Delaware 0-12255 48-0948788
--------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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This Amendment No. 1 is being filed to correct the inadvertent omission of Ernst & Young LLP's conformed signature on its report dated January 22, 2004 contained in the original filing.
Item 5. Other Events
Yellow Roadway Corporation is filing the audited consolidated financial statements of Roadway Corporation for the period January 1 to December 11, 2003 and the Years ended December 31, 2002 and 2001. These financial statements are being filed to comply with Item 210.3-10 (g) of Regulation S-X regarding recently acquired subsidiary guarantors.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of businesses acquired. Not applicable
(b) Pro forma financial information. Not applicable
(c) Exhibits.
The following exhibits are filed herewith:
Exhibit No. Description
23.1 Consent of Ernst & Young LLP.
99.1 Roadway Corporation audited Consolidated Balance
Sheets as of December 11, 2003 and December 31,
2002, Consolidated Statements of Income,
Consolidated Statements of Shareholders' Equity
and Consolidated Statements of Cash Flows for the
period January 1 to December 11, 2003 and the
Years ended December 31, 2002 and 2001.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: March 4, 2004 By: /s/ Donald G. Barger, Jr.
-------------------------- ---------------------------------------
Donald G. Barger, Jr.
Senior Vice President and Chief
Financial Officer
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Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated January 22, 2004 with respect to the consolidated financial statements of Roadway Corporation included in Yellow Roadway Corporation's Amendment No. 1 to Current Report on Form 8-K dated March 4, 2004, filed with the Securities and Exchange Commission in the following Registration Statements on Form S-8 (Nos. 33-47946, 333-02977, 333-16697, 333-59255, 333-49618, 333-49620, 333-88268 and 333-111499), the following Registration Statements on Form S-3 (Nos. 333-109896 and 333-113021) and the Registration Statement on Form S-4 (No. 333-108081) of Yellow Roadway Corporation.
/s/ Ernst & Young LLP
Akron, Ohio
March 4, 2004
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EXHIBIT 99.1
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Roadway Corporation and Subsidiaries
The period January 1, 2003 to December 11, 2003 and the
Years ended December 31, 2002 and 2001
with Report of Independent Auditors
Report of Independent Auditors
To the Board of Directors and Shareholder of Roadway Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Roadway Corporation and subsidiaries as of December 11, 2003 and December 31, 2002, and the related statements of consolidated operations, parent company investment, and cash flows for the period January 1, 2003 to December 11, 2003 and each of the two years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Roadway Corporation and subsidiaries at December 11, 2003 and December 31, 2002, and the consolidated results of their operations and their cash flows for the period January 1, 2003 to December 11, 2003 and each of the two years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP Akron, Ohio January 22, 2004 |
Roadway Corporation and Subsidiaries Consolidated Balance Sheets
DECEMBER 11, DECEMBER 31,
2003 2002
--------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents $ 106,307 $ 106,929
Accounts receivable, (including retained interest
in securitized receivables in 2002), net 356,519 230,216
Prepaid expenses and supplies 19,838 16,683
Deferred income taxes 20,360 21,813
Assets of discontinued operations - 87,431
--------------------------------
Total current assets 503,024 463,072
Carrier operating property, at cost 1,486,064 1,515,648
Less allowance for depreciation 995,439 1,006,465
--------------------------------
Net carrier operating property 490,625 509,183
Goodwill, net 286,693 283,910
Deferred income taxes 38,353 39,941
Other assets 46,494 39,767
--------------------------------
Total assets $ 1,365,189 $ 1,335,873
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 303,741 $ 193,501
Salaries and wages 139,572 151,464
Current portion of long-term debt - 33,703
Freight and casualty claims payable 57,962 49,815
Liabilities of discontinued operations - 32,407
--------------------------------
Total current liabilities 501,275 460,890
Long-term liabilities:
Casualty claims and other 63,833 67,882
Deferred income taxes 6,894 10,666
Accrued pension and postretirement health care 149,771 135,053
Long-term debt 225,000 273,513
--------------------------------
Total long-term liabilities 445,498 487,114
Shareholders' equity:
Preferred stock:
Authorized -- 20,000,000 shares; issued -- none - -
Common stock -- $.01 par value:
Authorized -- 100,000,000 shares; issued -- 20,556,714 shares 206 206
Additional paid-in capital 56,560 35,559
Retained earnings 364,431 397,173
Accumulated other comprehensive loss (2,781) (10,090)
Unearned portion of restricted stock awards - (12,896)
Treasury shares (0 shares in 2003 and 1,188,124 shares in 2002) - (22,083)
--------------------------------
Total shareholders' equity 418,416 387,869
--------------------------------
Total liabilities and shareholders' equity $ 1,365,189 $ 1,335,873
================================
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See accompanying notes.
Roadway Corporation and Subsidiaries Consolidated Statements of Operations
JANUARY 1 TO
DECEMBER 11, YEARS ENDED DECEMBER 31
2003 2002 2001
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue $ 3,052,119 $ 3,010,776 $ 2,778,891
Operating expenses:
Salaries, wages and benefits 1,946,709 1,934,482 1,781,243
Operating supplies and expenses 514,050 479,415 477,981
Purchased transportation 314,435 289,612 271,964
Operating taxes and licenses 77,057 76,662 71,360
Insurance and claims 60,080 63,621 47,028
Provision for depreciation 69,782 75,786 70,186
Net (gain) loss on sale of carrier operating
property (2,572) (650) 434
Compensation and other expense related to the
Yellow transactions 53,734 - -
----------------------------------------------
Total operating expenses 3,033,275 2,918,928 2,720,196
----------------------------------------------
Operating income from continuing operations 18,844 91,848 58,695
Other (expense) income:
Interest expense (19,327) (23,268) (2,751)
Other, net (15,481) (6,543) (3,067)
----------------------------------------------
(34,808) (29,811) (5,818)
----------------------------------------------
Income (Loss) from continuing operations
before income taxes (15,964) 62,037 52,877
Provision for income taxes 12,626 26,895 22,214
----------------------------------------------
Income (Loss) from continuing operations (28,590) 35,142 30,663
Income (Loss) from discontinued operations (155) 3,782 174
----------------------------------------------
Net income (loss) $ (28,745) $ 38,924 $ 30,837
==============================================
Basic earnings per share from:
Continuing operations $ 1.90 $ 1.66
Discontinued operations 0.20 0.01
-----------------------------
Basic earnings per share $ 2.10 $ 1.67
=============================
Diluted earnings per share from:
Continuing operations $ 1.85 $ 1.63
Discontinued operations 0.20 0.01
-----------------------------
Diluted earnings per share $ 2.05 $ 1.64
=============================
Dividends declared per share $ 0.20 $ 0.20 $ 0.20
==============================================
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See accompanying notes.
Roadway Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity
ACCUMULATED UNEARNED
ADDITIONAL OTHER PORTION OF
COMMON PAID-IN RETAINED COMPREHENSIVE RESTRICTED TREASURY
TOTAL STOCK CAPITAL EARNINGS (LOSS) INCOME STOCK AWARDS SHARES
--------------------------------------------------------------------------------------
(IN THOUSANDS)
Year ended December 31, 2001
Balance at January 1, 2001 $ 339,871 $ 206 $ 40,430 $ 335,157 $ (6,725) $ (8,990) $ (20,207)
Net income 30,837 - - 30,837 - - -
Foreign currency
translation adjustments (2,424) - - - (2,424) - -
Derivative fair value
adjustments (592) - - - (592) - -
----------
Total comprehensive income 27,821 - - - - - -
Dividends declared (3,871) - - (3,871) - - -
Treasury stock activity -- net (624) - - - - - (624)
Restricted stock award activity (3,302) - (1,875) - - (1,427) -
--------------------------------------------------------------------------------------
Balance at December 31, 2001 359,895 206 38,555 362,123 (9,741) (10,417) (20,831)
Year ended December 31, 2002
Net income 38,924 - - 38,924 - - -
Foreign currency translation
adjustments (615) - - - (615) - -
Derivative fair value
adjustments 266 - - - 266 - -
----------
Total comprehensive income 38,575 - - - - - -
Dividends declared (3,874) - - (3,874) - - -
Treasury stock activity -- net (1,252) - - - - - (1,252)
Restricted stock award activity (5,475) - (2,996) - - (2,479) -
--------------------------------------------------------------------------------------
Balance at December 31, 2002 387,869 206 35,559 397,173 (10,090) (12,896) (22,083)
January 1 to December 11, 2003
Net loss (28,745) (28,745)
Foreign currency translation
adjustments 7,047 7,047
Derivative fair value
adjustments 262 262
----------
Total comprehensive loss (21,436)
Dividends declared (3,997) (3,997)
Treasury stock activity -- net 22,083 22,083
Restricted stock award activity 33,897 21,001 12,896
--------------------------------------------------------------------------------------
Balance at December 11, 2003 $ 418,416 $ 206 $ 56,560 $ 364,431 $ (2,781) $ - $ -
======================================================================================
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See accompanying notes.
Roadway Corporation and Subsidiaries Consolidated Statements of Cash Flows
JANUARY 1, TO
DECEMBER 11, YEARS ENDED DECEMBER 31
2003 2002 2001
-------------------------------------------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (28,745) $ 38,924 $ 30,837
Less: (loss) income from discontinued operations (155) 3,782 174
------------------------------------------
(Loss) income from continuing operations (28,590) 35,142 30,663
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 83,348 80,090 71,810
(Gain) loss on sale of carrier operating property (2,572) (650) 434
Stock award amortization 20,500 6,890 4,307
Changes in assets and liabilities from continuing operations:
Accounts receivable (26,302) (46,767) 42,559
Other assets (6,259) (7,176) (7,952)
Accounts payable and accrued items 30,748 39,460 (23,830)
Long-term liabilities 6,815 9,930 2,515
------------------------------------------
Net cash provided by continuing operations 77,688 116,919 120,506
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisitions, net of cash acquired - (24,092) (413,222)
Issuance of long-term note receivable (8,000) - -
Purchases of carrier operating property (58,051) (73,427) (70,540)
Proceeds from sales of carrier operating property 10,663 6,765 4,481
Proceeds from business disposal 55,430 - -
------------------------------------------
Net cash provided (used) by investing activities 42 (90,754) (479,281)
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of accounts receivable - - 100,000
Long-term debt (payments) proceeds (82,216) (17,784) 325,000
Debt issuance costs - - (10,826)
Net dividends paid (3,964) (3,863) (3,871)
Transfers from discontinued operation - 18,000 -
Treasury stock activity -- net 7,508 (14,922) (8,375)
------------------------------------------
Net cash (used) provided by financing activities (78,672) (18,569) 401,928
Effect of exchange rate changes on cash 358 (227) 54
------------------------------------------
Net (decrease) increase in cash and cash equivalents from
continuing operations (584) 7,369 43,207
Net (decrease) increase in cash and cash equivalents from
discontinued operations (38) (10,872) 2,286
Cash and cash equivalents at beginning of year 106,929 110,432 64,939
------------------------------------------
Cash and cash equivalents at end of year $ 106,307 $ 106,929 $ 110,432
==========================================
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See accompanying notes.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements December 11, 2003
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Roadway Corporation (the Company) is a holding company with two primary operating entities, Roadway Express, Inc. and Roadway Next Day Corporation. The Company announced on July 8, 2003 that a definitive agreement had been signed under which Yellow Corporation would acquire Roadway Corporation. On December 12, 2003, the transaction was completed for approximately $1.1 billion, based on a fixed exchange ratio of 1.752 and a 20-day average price per share of $31.51 for Yellow common stock in a half cash, half stock transaction. As a result, effective end of day December 11, 2003 the Company ceased being a separate Registrant with the Securities and Exchange Corporation. Approximately 75% of the Company's employees are represented by various labor unions, primarily the International Brotherhood of Teamsters (IBT). The current agreement with the IBT expires on March 31, 2008.
Effective May 30, 2001, holders of common stock of Roadway Express, Inc. became holders of an identical number of shares of common stock of Roadway Corporation, and Roadway Express, Inc. became a wholly owned subsidiary of Roadway Corporation (the Reorganization). The Reorganization was effected by a merger pursuant to Section 251(g) of the Delaware General Corporation Law, which provides for the formation of a holding company structure without a vote of the shareholders of the Company. The assets and liabilities of Roadway Corporation and its subsidiaries were the same on a consolidated basis after the merger as the assets and the liabilities of Roadway Express, Inc. immediately before the merger.
Roadway Express, Inc. and subsidiaries (Roadway Express) provides long-haul, less-than-truckload (LTL) freight services in North America and offers services to more than 100 countries worldwide in a single business segment.
Roadway Next Day Corporation (Roadway Next Day), formerly known as Arnold Industries, Inc. (Arnold), was acquired on November 30, 2001 and provides regional next-day LTL, and truckload (TL) freight services in two business segments, New Penn Motor Express, Inc. (New Penn) and Arnold Transportation Services (ATS), respectively. On December 26, 2002, the Company entered into an agreement to sell ATS, the TL subsidiary of Roadway Next Day. The transaction was completed on January 23, 2003. No significant gain or loss occurred as a result of this transaction. The Company has reported ATS as a discontinued operation for all periods presented and Roadway Next Day now operates in one business segment, regional next-day LTL (see Notes 3 and 4).
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and operations of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.
CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
DEPRECIATION
Depreciation of carrier operating property is computed by the straight-line method based on the useful lives of the assets. The useful life of structures ranges from 15 to 33 years, and equipment from 3 to 10 years. Major maintenance expenditures that extend the useful life of carrier operating equipment are capitalized and depreciated over 2 to 5 years.
FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings approximate their fair value due to the short-term nature of these instruments.
The carrying value of the Company's senior term loan approximates fair value as these financial instruments bear interest at variable rates based on LIBOR or the prime rate. The $225,000,000 in senior notes had an approximate fair value of $249,165,000 at December 11, 2003, based on quoted market prices.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
The Company recognizes all derivative financial instruments as either assets or liabilities at fair value in the balance sheet. The Company's use of derivative financial instruments is limited principally to interest rate swaps on certain trailer leases as part of its overall risk management policy. The interest rate swaps have been designated as cash flow hedges under Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. Under the provisions of SFAS No. 133, changes in the fair value of interest rate swaps are recognized in other comprehensive income in the statement of shareholders' equity until such time as the hedged items are recognized in net income. Due to the Company's limited use of derivatives, the fair value of these financial instruments, a liability of $64,000 net of tax, has not been separately disclosed on the balance sheet (see Note 10).
RECEIVABLE SALES
Prior to December 11, 2003, the Company sold receivables in securitization transactions, and retained an equity interest in the receivables pool, servicing rights, and a cash reserve account. These constituted the retained interests in the securitized receivables. The estimated fair value was based on the present value of the expected cash flows, which approximated face value adjusted for allowances for anticipated losses. The Company terminated the agreement on December 11, 2003 (see Note 11).
CONCENTRATION OF CREDIT RISKS
The Company sells services and extends 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. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses.
GOODWILL
Goodwill represents costs in excess of net assets of acquired businesses, which prior to January 1, 2002, was amortized using the straight-line method primarily over a period of 20 years.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the purchase method for all business combinations initiated after June 30, 2001. SFAS No. 141 also clarifies the criteria for recognition of intangible assets separately from goodwill. Under SFAS No. 142, separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. SFAS No. 142 also eliminates the amortization of goodwill and indefinite-lived intangible assets for assets acquired after June 30, 2001, and all other goodwill on January 1, 2002.
As of December 11, 2003, the Company had net unamortized goodwill of $286,693,000, including $269,093,000 of goodwill recorded in connection with the Company's acquisition of Roadway Next Day on November 30, 2001 (see Note 3). Amortization of previously existing goodwill resulting from the Company's earlier acquisitions was ended effective January 1, 2002. Goodwill amortization was zero in 2003 and 2002, and $967,000 in 2001. If the provisions of SFAS No. 142 were effective January 1, 2001, the elimination of goodwill amortization would have resulted in an increase to net income of $560,000 ($0.03 per share - diluted) in 2001. The Company completed the required annual goodwill impairment test under SFAS No. 142 for all reporting units effective June 15, 2003 which did not indicate any impairment.
CASUALTY CLAIMS PAYABLE
Casualty claims payable represent management's estimates of claims for property damage and public liability and workers' compensation. The Company manages casualty claims with assistance of a third party administrator (TPA) along with oversight by a major risk management provider. The Company is self-insured for these claims with retention generally limited to $3,000,000. The liability balances are closely monitored by the Company and its TPA using adjuster evaluations of each claim and a statistical benchmarking database for analysis of reserve accuracy. Expenses resulting from workers' compensation claims are included in salaries, wages, and benefits in the accompanying statements of consolidated income.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Roadway recognizes revenue on the date that freight is delivered to the consignee at which time all services have been rendered. In addition, all related expenses are recognized as incurred. Roadway recognizes revenue on a gross basis since the Company is the primary obligor in the arrangement, even if the Company uses other transportation service providers who act on their behalf, because the Company is responsible to the customer for complete and proper shipment, including the risk of physical loss or damage of the goods and cargo claims issues. In addition, Roadway retains all credit risk.
FOREIGN CURRENCY TRANSLATION
Income statement items are translated at average currency exchange rates. Transaction gains and losses are included in determining net income. All balance sheet accounts of foreign operations are translated at the current exchange rate as of the end of the period. The resulting translation adjustment is recorded as a separate component of shareholders' equity.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the period, the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from these estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the carrying value of intangibles and long-lived assets or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation were required, the estimated future undiscounted cash flow associated with the asset would be compared to the asset's carrying amount to determine if a write-down is required. No impairment charge was required for any period presented.
RECLASSIFICATIONS
Certain items in the 2003 financial statements have been reclassified to conform to the 2002 presentation.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
DISCONTINUED OPERATIONS
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which establishes a single accounting model to be used for the impairment or disposal of long-lived assets. Effective January 1, 2002, the Company adopted SFAS No. 144. The Company has reported the operations of ATS as a discontinued operation in the accompanying financial statements and, unless otherwise stated, the notes to the financial statements for all years presented exclude the amounts related to this discontinued operation.
3. BUSINESS ACQUISITION
On November 30, 2001, the Company acquired Arnold Industries, Inc. (Arnold), subsequently named Roadway Next Day Corporation, for cash consideration of $559,839,000, including direct acquisition costs. Included in the acquired assets of Arnold was $50,763,000 in cash, which was used to partially finance the acquisition. Also on November 30, 2001, concurrent with the acquisition of Arnold, the Company sold Arnold's logistics business (ARLO) to members of the ARLO management team for $105,010,000 in cash. The net acquisition consideration of $427,160,000, which included $23,094,000 in income taxes paid by the Company primarily as a result of the sale of ARLO, was financed with borrowings under a new credit facility, proceeds from an accounts receivable securitization, the issuance of $225,000,000 in senior notes, and available cash.
Roadway Next Day operates in the motor carrier industry, principally in the eastern United States, and provides next-day LTL and TL services. Roadway Next Day's trucking activities are conducted by its subsidiaries, New Penn and ATS. New Penn is a leading regional next-day ground LTL carrier operating primarily in New England and the Middle Atlantic states. ATS operates as an inter-regional irregular route and dedicated TL carrier, conducting operations east of the Mississippi and in the southwestern United States.
The acquisition of Roadway Next Day was accounted for as a purchase business combination and accordingly, the assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. The excess of the purchase price paid over the fair value of the net assets acquired, totaling approximately $269,093,000, has been recorded as goodwill. The purchase price allocation reflected in these financial statements for the acquisition has been finalized and is based in part on the results of an independent appraisal of the assets acquired and liabilities assumed. Upon the finalization of the valuation process, $5,630,000 of the amount initially classified as goodwill in the financial statements was reclassified to other tangible and identifiable intangible assets acquired, based on their estimated fair values at the date of the acquisition.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
4. DISCONTINUED OPERATIONS
On December 26, 2002, the Company entered into an agreement to sell ATS to a management group led by the unit's president and a private equity firm, for approximately $55,000,000, consisting of $47,000,000 in cash and an $8,000,000 note. The ATS business segment was acquired as part of the Company's purchase of Roadway Next Day in November 2001, but did not fit the Company's strategic focus of being a LTL carrier. The transaction was completed on January 23, 2003. The Company did not recognize a significant gain or loss as a result of this transaction. The Company has reported the operations of ATS as a discontinued operation in the accompanying financial statements and, unless otherwise stated, the notes to the financial statements for all years presented exclude the amounts related to this discontinued operation.
The following table presents revenue and income from the discontinued operation for the period January 1, 2003 to December 11, 2003 and the year ended December 31, 2002. The 2003 amounts include the results of operations only through the disposal date, January 23, 2003.
JANUARY 1 TO
DECEMBER 11 YEARS ENDED
---------------------------------
2003 2002 2001
---------------------------------
(IN THOUSANDS)
Revenue $ 9,267 $ 171,133 $ 12,857
=================================
Pre-tax income from discontinued operations $ 198 $ 6,251 $ 290
Income tax expense 51 2,469 116
---------------------------------
Income from discontinued operations $ 147 $ 3,782 $ 174
=================================
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Assets and liabilities of the discontinued operation were as follows:
DECEMBER 31
2002
--------------
(IN THOUSANDS)
Assets:
Current assets $ 22,025
Net carrier operating property 64,065
Other assets 1,341
---------
Total assets $ 87,431
=========
Liabilities:
Current liabilities $ 8,104
Long-term liabilities 24,303
---------
Total liabilities 32,407
---------
Net assets of discontinued operations $ 55,024
=========
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Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
5. SEGMENT INFORMATION
The Company provides freight services primarily in two business segments:
Roadway Express and New Penn. Prior to the acquisition of Roadway Next Day in
November 2001, the Company operated only in the Roadway Express segment. The
Roadway Express segment provides long-haul LTL freight services in North America
and offers services to more than 100 countries worldwide. The New Penn segment
provides regional, next-day ground LTL freight service operating primarily in
New England and the Middle Atlantic states.
The Company's reportable segments are identified based on differences in products, services, and management structure. Operating income is the primary measure used by our chief operating decision-maker in evaluating segment profit and loss and in allocating resources and evaluating segment performance. Business segment assets consist primarily of customer receivables, net carrier operating property, and goodwill.
The following tables present information about reported segments for the period January 1, 2003 to December 11, 2003 and the year ended December 31, 2002.
JANUARY 1 TO DECEMBER 11, 2003
---------------------------------------------
ROADWAY
EXPRESS NEW PENN TOTAL
---------------------------------------------
(IN THOUSANDS)
Revenue $ 2,845,457 $ 206,708 $ 3,052,165
Operating expenses:
Salaries, wages and benefits 1,801,170 136,861 1,938,031
Operating supplies 494,459 30,103 524,562
Purchased transportation 312,340 2,095 314,435
Operating taxes and licenses 70,785 5,815 76,600
Insurance and claims 57,032 2,399 59,431
Depreciation 59,993 9,107 69,100
Net (gain) loss on sale of operating
property (2,533) (39) (2,572)
Compensation and other expense related
to the Yellow acquisition 50,393 3,341 53,734
---------------------------------------------
Total operating expenses 2,843,639 189,682 3,033,321
---------------------------------------------
Operating income $ 1,818 $ 17,026 $ 18,844
=============================================
Total assets $ 891,392 $ 406,190 $ 1,297,582
Goodwill $ 17,599 $ 268,894 $ 286,493
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Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
5. SEGMENT INFORMATION (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
----------------------------------------------
ROADWAY
EXPRESS NEW PENN TOTAL
----------------------------------------------
(IN THOUSANDS)
Revenue $ 2,797,582 $ 213,194 $ 3,010,776
Operating expenses:
Salaries, wages and benefits 1,783,872 140,248 1,924,120
Operating supplies 462,838 28,415 491,253
Purchased transportation 287,614 1,998 289,612
Operating taxes and licenses 70,451 6,061 76,512
Insurance and claims 59,286 3,470 62,756
Depreciation 66,510 8,815 75,325
Net (gain) loss on sale of
operating property (654) 4 (650)
----------------------------------------------
Total operating expenses 2,729,917 189,011 2,918,928
----------------------------------------------
Operating income $ 67,665 $ 24,183 $ 91,848
==============================================
Total assets $ 803,563 $ 408,021 $ 1,211,584
Goodwill $ 14,817 $ 269,093 $ 283,910
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Reconciliation of segment operating income from continuing operations to consolidated income from continuing operations before taxes:
JANUARY 1 TO YEAR ENDED
DECEMBER 11 DECEMBER 31
-------------------------
2003 2002
-------------------------
(IN THOUSANDS)
Segment operating income from continuing operations $ 18,844 $ 91,848
Interest (expense) (19,327) (23,268)
Other (expense), net (15,481) (6,543)
-------------------------
Consolidated (loss) income from continuing operations
before income taxes $ (15,964) $ 62,037
=========================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
5. SEGMENT INFORMATION (CONTINUED)
Reconciliation of total segment assets to total consolidated assets:
DEC. 11, 2003 DEC. 31, 2002
----------------------------
(IN THOUSANDS)
Total segment assets $ 1,297,582 $ 1,211,584
Assets of discontinued operations - 87,431
Unallocated corporate assets 77,399 41,351
Elimination of intercompany balances (9,792) (4,493)
--------------------------
Consolidated assets $ 1,365,189 $ 1,335,873
==========================
|
6. CARRIER OPERATING PROPERTY
Carrier operating properties consist of the following:
DEC. 11, 2003 DEC. 31, 2002
----------------------------
(IN THOUSANDS)
Land $ 110,997 $ 109,564
Structures 462,399 459,594
Revenue equipment 633,783 687,467
Other operating property 278,885 259,023
-------------------------
Carrier operating property, at cost 1,486,064 1,515,648
Less allowance for depreciation 995,439 1,006,465
-------------------------
Net carrier operating property $ 490,625 $ 509,183
=========================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
7. ACCOUNTS PAYABLE
Items classified as accounts payable consist of the following:
DEC. 11, 2003 DEC. 31, 2002
----------------------------
(IN THOUSANDS)
Trade and other payables $ 192,300 $ 76,063
Drafts outstanding 41,378 18,456
Income taxes payable - 36,925
Taxes, other than income 30,497 29,688
Multi-employer health, welfare, and
pension plans 39,567 32,369
--------------------------
Accounts payable $ 303,742 $ 193,501
==========================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
JANUARY 1 TO
DECEMBER 11 YEARS ENDED DECEMBER 31
----------------------------------------------
2003 2002 2001
----------------------------------------------
(IN THOUSANDS)
Current taxes:
Federal $ 7,917 $ 29,557 $ 19,655
State 3,147 7,349 3,029
Foreign 4,751 4,776 (766)
----------------------------------------------
15,815 41,682 21,918
Deferred taxes:
Federal (2,753) (13,205) (1,012)
State (435) (1,517) (56)
Foreign (1) (65) 1,364
----------------------------------------------
(3,189) (14,787) 296
----------------------------------------------
Provision for income taxes $ 12,626 $ 26,895 $ 22,214
==============================================
|
In addition to the 2003 provision for income taxes of $12,626,000, income tax benefits of $7,701,000 were allocated directly to shareholders' equity related to the Company's restricted stock awards. Income tax payments were $45,431,000 in 2003, $38,631,000 in 2002, and $25,341,000 in 2001.
Income (loss) before income taxes consists of the following:
JANUARY 1 TO
DECEMBER 11 YEARS ENDED DECEMBER 31
----------------------------------------------
2003 2002 2001
----------------------------------------------
(IN THOUSANDS)
Domestic $ (28,810) $ 50,279 $ 50,445
Foreign 12,846 11,758 2,432
----------------------------------------------
Income before income taxes $ (15,964) $ 62,037 $ 52,877
==============================================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred taxes are as follows:
DEC. 11, 2003 DEC. 31, 2002
-----------------------------
(IN THOUSANDS)
Deferred tax assets:
Freight and casualty claims $ 40,190 $ 40,934
Retirement benefit liabilities 51,964 51,897
Accrued employee benefits 28,808 38,813
Other 10,207 10,274
Valuation allowance (1,930) (2,229)
-------------------------
Total deferred tax assets 129,239 139,689
Deferred tax liabilities:
Depreciation 48,418 53,029
Multi-employer pension plans 28,653 33,420
Other 349 2,152
-------------------------
Total deferred tax liabilities 77,420 88,601
-------------------------
Net deferred tax assets $ 51,819 $ 51,088
=========================
|
At December 11, 2003, the Company had approximately $5,563,000 of foreign operating loss carry forwards, which have expiration dates ranging from 2009 to 2011. For financial reporting purposes, a valuation allowance of $1,930,000 has been recognized to offset the deferred tax asset relating to certain foreign operating loss carry forwards.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
The income tax resulting from the effective tax rate differs from the income tax calculated using the federal statutory rate as set forth in the following reconciliation:
JANUARY 1 TO
DECEMBER 11 YEARS ENDED DEC. 31
-------------------------------------
2003 2002 2001
-------------------------------------
Federal statutory tax $ (5,587) $ 21,713 $ 18,507
State income taxes, net of federal tax benefit 1,763 3,790 1,932
Non-deductible operating costs 2,375 2,198 1,738
Excise Taxes 3,150 - -
Yellow Transaction cost 4,590 - -
Section 280G Limitations 5,386 - -
Impact of foreign operations (7) 325 193
Other, net 956 (1,131) (156)
------------------------------------
Effective tax $ 12,626 $ 26,895 $ 22,214
====================================
|
9. EMPLOYEE BENEFIT PLANS
MULTI-EMPLOYER PLANS
The Company charged to operations $175,349,000 in 2003, $174,007,000 in 2002, and $165,331,000 in 2001 for contributions to multi-employer pension plans for employees subject to labor contracts. The Company also charged to operations $198,978,000 in 2003, $178,955,000 in 2002, and $163,775,000 in 2001 for contributions to multi-employer plans that provide health and welfare benefits to employees and certain retirees who are or were subject to labor contracts. These amounts were determined in accordance with provisions of industry labor contracts. Under provisions of the Multi-employer Pension Plan Amendment Act of 1980, total or partial withdrawal from a plan would result in an obligation to fund a portion of the plan's unfunded vested liability. Management has no intention of changing operations so as to subject the Company to any material obligation.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
RETIREMENT PLANS
The following tables set forth the change in benefit obligation, change in plan assets, funded status, and amounts recognized in the consolidated balance sheets for the defined benefit pension and postretirement health care benefit plans as of December 11, 2003 and December 31, 2002:
PENSION BENEFITS HEALTH CARE BENEFITS
------------------------ -----------------------
2003 2002 2003 2002
--------------------------------------------------------
(IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning
of year $ 386,564 $ 330,790 $ 49,160 $ 41,721
Service cost 17,621 17,520 1,752 1,741
Interest cost 23,680 24,183 2,983 3,156
Actuarial losses 56,824 32,295 1,351 5,024
Benefits paid (27,508) (18,224) (2,312) (2,482)
--------------------------------------------------------
Benefit obligation at end of year 457,181 386,564 52,934 49,160
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year 241,324 308,229 - -
Actual return on plan assets 66,785 (48,681) - -
Benefits paid (27,508) (18,224) - -
--------------------------------------------------------
Fair value of plan assets at end of year 280,601 241,324 - -
FUNDED STATUS
Plan assets less than projected
benefit obligation 176,580 145,240 52,934 49,160
Unamortized:
Net actuarial (loss) (45,250) (26,968) (15,042) (10,281)
Net asset at transition 7,053 8,372 - -
Prior service (cost) benefit (41,926) (43,725) 15,422 13,255
--------------------------------------------------------
Accrued benefit cost $ 96,457 $ 82,919 $ 53,314 $ 52,134
========================================================
|
Plan assets are primarily invested in listed stocks, bonds, and cash equivalents.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes the assumptions used and the related benefit cost information:
PENSION BENEFITS HEALTH CARE BENEFITS
---------------------------------- -------------------------------
2003 2002 2001 2003 2002 2001
-----------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
WEIGHTED-AVERAGE
ASSUMPTIONS
Discount rate 6.25% 6.75% 7.50% 6.25% 6.75% 7.50%
Future compensation 3.25% 3.25% 3.25% - - -
Expected long-term return
on plan assets 8.50% 9.50% 9.50% - - -
COMPONENTS OF NET
PERIODIC BENEFIT COST
Service cost $ 17,621 $ 17,520 $ 17,496 $ 1,752 $ 1,741 $ 1,665
Interest cost 23,680 24,183 22,568 2,983 3,156 2,881
Expected return on plan
assets (18,968) (28,574) (33,841) - - -
Amortization of:
Prior service cost (benefit) 5,191 5,245 5,230 (1,779) (1,477) (305)
Net asset gain at transition (1,319) (1,395) (1,396) - - -
Unrecognized gain 128 (3,940) (8,893) 537 184 (177)
-----------------------------------------------------------------------
Net periodic benefit cost $ 26,333 $ 13,039 $ 1,164 $ 3,493 $ 3,604 $ 4,064
=======================================================================
|
For measurement purposes, the Company assumed a weighted-average annual rate of increase in the per capita cost of health care benefits (health care cost trend rate) of 10.5% for 2004 declining gradually to 5.0% in 2010 and thereafter.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
A decrease in the assumed health care cost trend rate has a significant effect on the amounts reported. For example, a one percentage point decrease in the assumed health care cost trend rate would decrease the accumulated postretirement benefit obligation by $5,938,000 and the service and interest cost components by $618,000 as of December 11, 2003. A one percentage point increase in the assumed health care cost trend rate would have no effect on the accumulated postretirement benefit obligation or the service and interest cost components. The Company's policy regarding the management of health care costs passes increases beyond a fixed threshold to the plan participants.
The Company charged to operations $10,811,000 in 2003, $10,321,000 in 2002, and $10,964,000 in 2001 relating to its defined contribution 401(k) plans. These plans cover employees not subject to labor contracts. Annual contributions are related to the level of voluntary employee participation.
10. LEASES
The Company leases certain terminals and revenue equipment under noncancellable operating leases requiring minimum future rentals aggregating $104,331,000 payable as follows: 2004 -- $37,850,000; 2005 -- $25,296,000; 2006 -- $15,760,000; 2007 -- $10,602,000; 2008 -- $6,839,000 and thereafter $7,984,000. Rental expense for operating leases was $51,770,000, $55,199,000, and $50,761,000, in 2003, 2002, and 2001, respectively.
The Company has an interest rate swap agreement with major commercial banks to fix the interest rate of its trailer leases from variable interest rates principally based on LIBOR. The value of the leases upon which the payments are based was not changed. The agreement, which expires in 2004, fixes the Company's interest costs at 5.62% on leases with a notional amount of $5,912,000.
The fair value of the Company's interest rate swaps at December 11, 2003 is a liability of approximately $64,000, net of income taxes, and has been determined using proprietary financial models developed by the lending institutions which are counterparties to the swap arrangements. As a result of declining interest rates throughout 2003 the Company recognized incremental interest expense of approximately $425,000, which is included in interest expense in the accompanying financial statements. The ineffective portions of the Company's interest rate swap agreements were not material.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
11. SALE OF ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
DECEMBER 11 DECEMBER 31
-------------------------
2003 2002
-------------------------
(IN THOUSANDS)
Accounts receivable $ 362,634 $ 21,031
Retained interest in securitized
accounts receivable - 217,617
Allowance for doubtful accounts (6,115) (8,432)
-----------------------
$ 356,519 $ 230,216
=======================
|
On November 21, 2001, Roadway Express entered into an accounts receivable securitization agreement which matures in 2004, to finance up to $200,000,000 (total commitment) of its domestic accounts receivable. Under this arrangement, undivided interests in Roadway Express' domestic accounts receivable are sold through a special purpose entity (SPE), a wholly owned subsidiary of the Company, without recourse, to a financial conduit. The proceeds were used to partially fund the acquisition of Roadway Next Day and are reported as financing cash flows in the Statement of Consolidated Cash Flows.
The accounts receivable are sold at a discount from the face amount to pay investor yield (LIBOR) on the undivided interests sold to the conduit, for utilization fees (0.25% of the undivided interest sold), and for program fees (0.50% of the total commitment). The discount from the face amount for accounts receivable sold by Roadway Express in 2003 and 2002 aggregated $5,156,000 and $6,384,000 respectively and was directly offset by a gain on allowance for accounts receivable discounts upon the consolidation of the SPE. The financing fees recognized in conjunction with the sale of accounts receivable was $2,372,000 in 2003 and $3,088,000 in 2002.
The arrangement provides that new Roadway Express accounts receivable are immediately sold to the SPE. The Company, through its SPE, retains the risk of credit loss on the receivables and, accordingly the full amount of the allowance for doubtful accounts has been retained on the Consolidated Balance Sheet. The conduit has collection rights to recover payments from the receivables in the designated pool and Roadway Express retains collection and administrative responsibilities for the undivided interests in the pool.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
11. SALE OF ACCOUNTS RECEIVABLE (CONTINUED)
This agreement was terminated on December 11, 2003 immediately prior to Yellow's acquisition of the company. Yellow satisfied our liability to the financial conduit, and we have recorded the resultant obligation to Yellow as a current liability.
The following transactions occurred between Roadway Express and the SPE in 2003 and 2002, respectively: proceeds from the accounts receivable sales, $2,727,878,000, and $2,650,810,000; servicing fees received, $1,863,000, and $1,529,000; payments received on investment in accounts receivable, $2,720,975,000, and $2,598,576,000.
12. FINANCING ARRANGEMENTS
At December 11, 2003 and December 31, 2002, the Company's consolidated debt consists of the following:
DECEMBER 11 DECEMBER 31
------------------------
2003 2002
------------------------
(IN THOUSANDS)
Revolving credit facilities $ - $ -
Senior term loan - 82,216
8.25% senior notes due 2008 225,000 225,000
-----------------------
Sub-total 225,000 307,216
Less current portion - (33,703)
-----------------------
Long-term debt $ 225,000 $ 273,513
=======================
|
At December 31, 2002, the Company had in place a senior revolving credit facility with a sublimit for letters of credit that expired November 30, 2006. The credit facility was terminated effective December 11, 2003 upon consummation of the Yellow transaction. The original amount of the senior revolving credit facility was $150,000,000 with a $100,000,000 sublimit for letters of credit, which was amended on August 6, 2002. The result of the amendment increased the senior revolving credit facility to $215,000,000 and increased the sublimit for letters of credit to $165,000,000. Pricing under the revolving credit facility is at a fluctuating rate based on the alternate base rate as determined by Credit Suisse First Boston (CSFB) or LIBOR, plus an additional margin of 0.50% and 1.50%, respectively. In addition, there is a commitment fee of 0.40% on undrawn amounts. As of December 31, 2002, there were no amounts outstanding under the revolving credit facility, but availability had been reduced by $112,162,000 as a result of the issuance of letters of credit, primarily related to casualty claims.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
12. FINANCING ARRANGEMENTS (CONTINUED)
The credit facility also included a $175,000,000 Senior term loan, which was drawn in full to partially fund the acquisition of Arnold. After-tax proceeds of $75,000,000 from the sale of ARLO were used to pay down borrowings on this facility in 2001. Pricing under the term loan was at a fluctuating rate based on the alternate base rate as determined by CSFB or LIBOR, plus an additional margin of 0.50% and 1.50%, respectively. Prior to the acquisition by Yellow, the Company paid the Senior term loan in full.
Also in connection with the acquisition of Roadway Next Day on November 30, 2001, the Company issued $225,000,000 of 8.25% senior notes due December 1, 2008. Interest is due semi-annually on June 1st and December 1st.
In addition, the Company's Canadian subsidiary has $10,000,000 available for borrowing under a secured revolving line of credit and bankers' acceptances. Borrowings are payable upon demand and bear interest at either the bank's prime lending rate, U.S. dollar base rate in Canada, or LIBOR plus 1.50% for periods up to 180 days. At December 11, 2003, no amounts were outstanding on this facility.
The financing arrangements include covenants that require the Company to comply with certain financial ratios, including leverage and fixed-charge coverage ratios, and maintenance of a minimum level of tangible net worth. As of December 11, 2003, the Company was in compliance. Interest expense, which approximates interest paid, amounted to $19,327,000 in 2003, $23,268,000 in 2002, and $2,751,000 in 2001.
13. CONTINGENCIES
The Company has received notices from the Environmental Protection Agency (EPA) that it has been identified as a potentially responsible party (PRP) under the Comprehensive Environmental Response Compensation and Liability Act (Superfund) at certain hazardous waste sites. Such designations are made regardless of the Company's limited involvement at each site. The claims for remediation have been asserted against numerous other entities, which are believed to be financially solvent and are expected to fulfill their proportionate share. The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Based on its investigations, the Company believes that its obligation with regard to these sites is not significant, although there can be no assurances in this regard.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
13. CONTINGENCIES (CONTINUED)
The Company's former parent, Caliber System, Inc., formerly known as Roadway Services, Inc (which was subsequently acquired by FDX Corporation, a wholly owned subsidiary of FedEx Corporation), is currently under examination by the Internal Revenue Service for tax years 1994 and 1995 (years prior to the spin-off of the Company). The IRS has proposed substantial adjustments for these tax years for multi-employer pension plan deductions. The IRS is challenging the timing, not the validity of these deductions. The Company is unable to predict the ultimate outcome of this matter; however, its former parent intends to vigorously contest these proposed adjustments.
Under a tax sharing agreement entered into by the Company and its former parent on January 2, 1996 (the date of the spin-off), the Company is obligated to reimburse the former parent for any additional taxes and interest that relate to the Company's business prior to the spin-off. The amount and timing of such payments is dependent on the ultimate resolution of the former parent's disputes with the IRS and the determination of the nature and extent of the obligations under the tax sharing agreement. On January 16, 2003, the Company made a $14,000,000 payment to its former parent under the tax sharing agreement for taxes and interest related to certain of the proposed adjustments for tax years 1994 and 1995.
We estimate the possible range of the remaining payments that may be due to the former parent to be approximately $0 to $16,000,000 in additional taxes and $0 to $11,000,000 in related interest, net of tax benefit. The Company has established certain reserves with respect to these proposed adjustments. There can be no assurance, however, that the amount or timing of any liability of the Company to the former parent will not have a material adverse effect on the Company's results of operations and financial position.
Various legal proceedings arising from the normal conduct of business are pending but, in the opinion of management, the ultimate disposition of these matters will have no material adverse effect on the financial position or results of operations of the Company.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
14. GUARANTEES OF THE ROADWAY CORPORATION SENIOR NOTES
The following condensed consolidating financial statements set forth the Company's balance sheets as of December 11, 2003 and December 31, 2002 and the statements of operation and statements of cash flows for the period January 1, 2003 to December 11, 2003, and each of the two years in the period ended December 31, 2002. In the following schedules "Parent Company" refers to Roadway Corporation, "Guarantor Subsidiaries" refers to non-minor domestic subsidiaries, and "Non-guarantor subsidiaries" refers to foreign and minor domestic subsidiaries and "Eliminations" represent the adjustments necessary to (a) eliminate intercompany transactions and (b) eliminate the investments in the Company's subsidiaries.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
14. GUARANTEES OF THE ROADWAY CORPORATION SENIOR NOTES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 11, 2003
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------
(IN THOUSANDS)
Cash and cash equivalents $ 23,816 $ 74,969 $ 7,522 $ - $ 106,307
Accounts receivable, including
retained interest in
securitized receivables, net 16,298 335,231 121,794 (116,804) 356,519
Due from affiliates - 20,662 - (20,662) -
Prepaid expenses and supplies - 19,562 276 - 19,838
Deferred income taxes 242 20,118 - - 20,360
Assets of discontinued
operations - - - - -
----------------------------------------------------------------------
Total current assets 40,356 470,542 129,592 (137,466) 503,024
Carrier operating property, at
cost - 1,453,341 32,723 - 1,486,064
Less allowance for depreciation - 976,047 19,392 - 995,439
----------------------------------------------------------------------
Net carrier operating property - 477,294 13,331 - 490,625
Goodwill, net - 269,094 17,599 - 286,693
Investment in subsidiaries (103,951) 19,903 - 84,048 -
Deferred income taxes 1,034 36,708 611 - 38,353
Long-term assets 681,589 14,905 - (650,000) 46,494
----------------------------------------------------------------------
Total assets $ 619,028 $ 1,288,446 $ 161,133 $ (703,418) $ 1,365,189
======================================================================
Accounts payable $ (34,721) $ 210,734 $ 9,159 $ 10,662 $ 195,834
Due to affiliates 7,842 121,684 126,509 (148,128) 107,907
Salaries and wages 999 135,345 3,228 - 139,572
Current portion of long-term
debt - - - - -
Freight and casualty claims
payable - 55,628 2,334 - 57,962
Liabilities of discontinued
operations - - - - -
----------------------------------------------------------------------
Total current liabilities (25,880) 523,391 141,230 (137,466) 501,275
Casualty claims and other 1,492 62,341 - - 63,833
Deferred income taxes - 6,894 - - 6,894
Long-term debt 225,000 650,000 - (650,000) 225,000
Accrued pension and retiree
medical - 149,771 - - 149,771
Total shareholders' equity 418,416 (103,951) 19,903 84,048 418,416
----------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 619,028 $ 1,288,446 $ 161,133 $ (703,418) $ 1,365,189
======================================================================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
14. GUARANTEES OF THE ROADWAY CORPORATION SENIOR NOTES (CONTINUED)
DECEMBER 31, 2002
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------
(IN THOUSANDS)
Cash and cash equivalents $ 11,921 $ 88,272 $ 6,736 $ - $ 106,929
Accounts receivable, including
retained interest in
securitized receivables, net 4 215,459 14,753 - 230,216
Due from affiliates 1,570 32,516 1,538 (35,624) -
Prepaid expenses and supplies 217 16,289 177 - 16,683
Deferred income taxes (1) 21,814 - - 21,813
Assets of discontinued operations - 87,431 - - 87,431
----------------------------------------------------------------------
Total current assets 13,711 461,781 23,204 (35,624) 463,072
Carrier operating property, at cost - 1,487,807 27,841 - 1,515,648
Less allowance for depreciation - 991,429 15,036 - 1,006,465
----------------------------------------------------------------------
Net carrier operating property - 496,378 12,805 - 509,183
Goodwill, net - 269,093 14,817 - 283,910
Investment in subsidiaries 656,038 3,763 - (659,801) -
Deferred income taxes 3,417 35,913 611 - 39,941
Long-term assets 19,799 19,968 - - 39,767
----------------------------------------------------------------------
Total assets $ 692,965 $ 1,286,896 $ 51,437 $ (695,425) $ 1,335,873
======================================================================
Accounts payable $ (10,628) $ 192,514 $ 11,722 $ - $ 193,608
Due to affiliates 1,354 3,361 30,802 (35,624) (107)
Salaries and wages 1,700 146,023 3,741 - 151,464
Current portion of long-term debt 33,703 - - - 33,703
Freight and casualty claims
payable - 48,406 1,409 - 49,815
Liabilities of discontinued
operations - 32,407 - - 32,407
----------------------------------------------------------------------
Total current liabilities 26,129 422,711 47,674 (35,624) 460,890
Casualty claims and other 5,454 62,428 - - 67,882
Deferred income taxes - 10,666 - - 10,666
Long-term debt 273,513 - - - 273,513
Accrued pension and retiree
medical - 135,053 - - 135,053
Total shareholders' equity 387,869 656,038 3,763 (659,801) 387,869
----------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 692,965 $ 1,286,896 $ 51,437 $ (695,425) $ 1,335,873
======================================================================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
14. GUARANTEES OF THE ROADWAY CORPORATION SENIOR NOTES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
PERIOD JANUARY 1, 2003 TO DECEMBER 11, 2003
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------
(IN THOUSANDS)
Revenue $ - $ 2,927,375 $ 125,688 $ (944) $ 3,052,119
Operating expenses:
Salaries, wages and benefits 6,397 1,900,058 40,254 - 1,946,709
Operating supplies and expenses (6,972) 494,206 27,760 (944) 514,050
Purchased transportation - 276,384 38,051 - 314,435
Operating taxes and licenses 382 74,515 2,160 - 77,057
Insurance and claims expenses 193 58,095 1,792 - 60,080
Provision for depreciation - 66,444 3,338 - 69,782
Net loss (gain) on disposal of
operating property - (2,150) (422) - (2,572)
Compensation and other expense
related to the Yellow
acquisition - 53,734 - - 53,734
Results of affiliates 10,975 (8,932) - (2,043) -
----------------------------------------------------------------------
Total operating expenses 10,975 2,912,354 112,933 (2,987) 3,033,275
----------------------------------------------------------------------
Operating income from
continuing operations (10,975) 15,021 12,755 2,043 18,844
Other (expenses), net (27,225) (8,962) 1,379 - (34,808)
----------------------------------------------------------------------
Income from continuing operations
before income taxes (38,200) 6,059 14,134 2,043 (15,964)
Provision for income taxes (9,610) 17,035 5,201 - 12,626
----------------------------------------------------------------------
Income from continuing operations (28,590) (10,976) 8,933 2,043 (28,590)
Income from discontinued operations (155) - - - (155)
----------------------------------------------------------------------
Net income $ (28,745) $ (10,976) $ 8,933 $ 2,043 $ (28,745)
======================================================================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
14. GUARANTEES OF THE ROADWAY CORPORATION SENIOR NOTES (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------
(IN THOUSANDS)
Revenue $ - $ 2,886,025 $ 125,743 $ (992) $ 3,010,776
Operating expenses:
Salaries, wages and benefits 7,711 1,887,537 39,234 - 1,934,482
Operating supplies and expenses (7,783) 460,395 27,795 (992) 479,415
Purchased transportation - 249,541 40,071 - 289,612
Operating taxes and licenses 71 74,424 2,167 - 76,662
Insurance and claims expenses 1 62,473 1,147 - 63,621
Provision for depreciation - 72,113 3,673 - 75,786
Net loss (gain) on disposal of
operating property - (396) (254) - (650)
Results of affiliates (56,290) (8,079) - 64,369 -
----------------------------------------------------------------------
Total operating expenses (56,290) 2,798,008 113,833 63,377 2,918,928
----------------------------------------------------------------------
Operating income from
continuing operations 56,290 88,017 11,910 (64,369) 91,848
Other (expenses), net (26,351) (4,896) 1,436 - (29,811)
----------------------------------------------------------------------
Income from continuing operations
before income taxes 29,939 83,121 13,346 (64,369) 62,037
Provision for income taxes (8,985) 30,613 5,267 - 26,895
----------------------------------------------------------------------
Income from continuing operations 38,924 52,508 8,079 (64,369) 35,142
Income from discontinued operations - 3,782 - - 3,782
----------------------------------------------------------------------
Net income $ 38,924 $ 56,290 $ 8,079 $ (64,369) $ 38,924
======================================================================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
14. GUARANTEES OF THE ROADWAY CORPORATION SENIOR NOTES (CONTINUED)
YEAR ENDED DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------
(IN THOUSANDS)
Revenue $ - $ 2,658,095 $ 121,701 $ (905) $ 2,778,891
Operating expenses:
Salaries, wages and benefits 2,639 1,738,683 39,921 - 1,781,243
Operating supplies and expenses 1,066 448,196 29,624 (905) 477,981
Purchased transportation - 231,242 40,722 - 271,964
Operating taxes and licenses - 69,504 1,856 - 71,360
Insurance and claims expenses - 45,503 1,525 - 47,028
Provision for depreciation - 66,617 3,569 - 70,186
Net loss (gain) on disposal of
operating property - 730 (296) - 434
Results of affiliates (34,276) (2,154) - 36,430 -
----------------------------------------------------------------------
Total operating expenses (30,571) 2,598,321 116,921 35,525 2,720,196
----------------------------------------------------------------------
Operating income from
continuing operations 30,571 59,774 4,780 (36,430) 58,695
Other (expenses), net (2,095) (1,695) (2,028) - (5,818)
----------------------------------------------------------------------
Income from continuing operations
before income taxes 28,476 58,079 2,752 (36,430) 52,877
Provision for income taxes (2,361) 23,977 598 - 22,214
----------------------------------------------------------------------
Income from continuing operations 30,837 34,102 2,154 (36,430) 30,663
Income from discontinued operations - 174 - - 174
----------------------------------------------------------------------
Net income $ 30,837 $ 34,276 $ 2,154 $ (36,430) $ 30,837
======================================================================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
14. GUARANTEES OF THE ROADWAY CORPORATION SENIOR NOTES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
PERIOD JANUARY 1, 2003 TO DECEMBER 11, 2003
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------
(IN THOUSANDS)
NET CASH (USED) PROVIDED BY
CONTINUING OPERATING
ACTIVITIES $ (15,813) $ 89,632 $ 3,869 - $ 77,688
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of carrier operating
property, net - (43,945) (3,443) - (47,388)
Business disposal 47,430 - - - 47,430
----------------------------------------------------------------------
Net cash (used) by investing
activities 47,430 (43,945) (3,443) - 42
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends paid (3,964) - - - (3,964)
Transfers to (from) discontinued
operations 58,950 (58,950) - - -
Accounts receivable
securitization - - - - -
Treasury stock activity--net 7,508 - - - 7,508
Debt issuance costs - - - - -
Long-term debt (payments) (82,216) - - - (82,216)
----------------------------------------------------------------------
Net cash provided (used)
by financing activities (19,722) (58,950) - - (78,672)
Effect of exchange rates on cash - - 358 - 358
----------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents from
continuing operations 11,895 (13,263) 784 - (584)
Net (decrease) in cash and cash
equivalents from discontinued
operations- - (38) - - (38)
Cash and cash equivalents at
beginning of year 11,921 88,272 6,736 - 106,929
----------------------------------------------------------------------
Cash and cash equivalents at
end of year $ 23,816 $ 74,971 $ 7,520 $ - $ 106,307
======================================================================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
14. GUARANTEES OF THE ROADWAY CORPORATION SENIOR NOTES (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------
(IN THOUSANDS)
NET CASH (USED) PROVIDED BY
CONTINUING OPERATING
ACTIVITIES $ (54,532) $ 162,551 $ 8,900 $ - $ 116,919
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of carrier operating
property, net - (63,538) (3,124) - (66,662)
Business acquisitions (24,092) - - - (24,092)
----------------------------------------------------------------------
Net cash (used) by investing
activities (24,092) (63,538) (3,124) - (90,754)
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends paid (3,863) - - - (3,863)
Transfers to (from) parent 84,586 (66,586) - - 18,000
Accounts receivable
securitization - - - - -
Treasury stock activity -- net (14,922) - - - (14,922)
Debt issuance costs - - - - -
Long-term debt payments (17,784) - - - (17,784)
----------------------------------------------------------------------
Net cash provided (used)
by financing activities 48,017 (66,586) - - (18,569)
Effect of exchange rates on cash - - (227) - (227)
----------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents from
continuing operations (30,607) 32,427 5,549 - 7,369
Net (decrease) in cash and cash
equivalents from discontinued
operations - (10,872) - - (10,872)
Cash and cash equivalents at
beginning of year 34,876 74,369 1,187 - 110,432
----------------------------------------------------------------------
Cash and cash equivalents at
end of year $ 4,269 $ 95,924 $ 6,736 $ - $ 106,929
======================================================================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
14. GUARANTEES OF THE ROADWAY CORPORATION SENIOR NOTES (CONTINUED)
YEAR ENDED DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------
(IN THOUSANDS)
NET CASH PROVIDED BY CONTINUING
OPERATING ACTIVITIES $ 21,449 $ 98,486 $ 571 $ - $ 120,506
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of carrier operating
property, net - (63,484) (2,575) - (66,059)
Business acquisitions (453,300) 40,078 - - (413,222)
----------------------------------------------------------------------
Net cash (used) by investing
activities (453,300) (23,406) (2,575) - (479,281)
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends paid 160,616 (164,487) - - (3,871)
Accounts receivable securitization - 100,000 - - 100,000
Treasury stock activity -- net (8,207) (168) - - (8,375)
Debt issuance costs (10,826) - - - (10,826)
Long-term debt 325,000 - - - 325,000
----------------------------------------------------------------------
Net cash provided (used) by
financing activities 466,583 (64,655) - - 401,928
Effect of exchange rates on cash - - 54 - 54
Net increase (decrease) in cash
and cash equivalents from
continuing operations 34,732 10,425 (1,950) - 43,207
Net increase in cash and cash
equivalents from discontinued
operations - 2,286 - - 2,286
----------------------------------------------------------------------
Cash and cash equivalents at
beginning of year - 61,244 3,695 - 64,939
----------------------------------------------------------------------
Cash and cash equivalents at
end of year $ 34,732 $ 73,955 $ 1,745 $ - $ 110,432
======================================================================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
15. GUARANTEES OF THE YELLOW ROADWAY CONTINGENT CONVERTIBLE SENIOR NOTES
The following condensed consolidating financial statements set forth the Company's balance sheet as of December 11, 2003 and the statement of operation and statement of cash flows for the period January 1, 2003 to December 11, 2003. In the following schedules "Guarantor Subsidiaries" refers to Roadway Corporation, Roadway Next Day Corporation (excludes New Penn Motor Express, Inc.), and Roadway Express, Inc. and all remaining subsidiaries are defined as "Non-guarantor subsidiaries" and "Eliminations" represent the adjustments necessary to (a) eliminate intercompany transactions and (b) eliminate the investments in the Company's subsidiaries.
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
15. GUARANTEES OF THE YELLOW ROADWAY CONTINGENT CONVERTIBLE SENIOR NOTES
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 11, 2003
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------------------------------------------------
(IN THOUSANDS)
Cash and cash equivalents $ 76,035 $ 30,272 $ - $ 106,307
Accounts receivable, including
retained interest in
securitized receivables, net 307,443 38,415 10,661 356,519
Due from affiliates 48,640 106,969 (155,609) -
Prepaid expenses and supplies 17,310 2,528 - 19,838
Deferred income taxes 16,730 3,630 - 20,360
Assets of discontinued operations - - - -
-------------------------------------------------------
Total current assets 466,158 181,814 (144,948) 503,024
Carrier operating property, at cost 1,352,073 133,991 - 1,486,064
Less allowance for depreciation 956,606 38,833 - 995,439
-------------------------------------------------------
Net carrier operating property 395,467 95,158 - 490,625
Goodwill, net 200 286,493 - 286,693
Investment in subsidiaries 227,427 - (227,427) -
Deferred income taxes 37,739 614 - 38,353
Long-term assets 690,931 5,563 (650,000) 46,494
-------------------------------------------------------
Total assets $ 1,817,922 $ 569,642 $(1,022,375) $ 1,365,189
=======================================================
Accounts payable $ 161,567 $ 23,606 $ 10,661 $ 195,834
Due to affiliates 129,058 134,458 (155,609) 107,907
Salaries and wages 127,854 11,718 - 139,572
Current portion of long-term debt - - - -
Freight and casualty claims
payable 52,624 5,338 - 57,962
Liabilities of discontinued
operations - - - -
-------------------------------------------------------
Total current liabilities 471,103 175,120 (144,948) 501,275
Casualty claims and other 56,191 7,642 - 63,833
Deferred income taxes (533) 7,427 - 6,894
Long-term debt 725,000 150,000 (650,000) 225,000
Accrued pension and retiree
medical 147,745 2,026 - 149,771
Total shareholders' equity 418,416 227,427 (227,427) 418,416
-------------------------------------------------------
Total liabilities and
shareholders' equity $ 1,817,922 $ 569,642 $(1,022,375) $ 1,365,189
=======================================================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
15. GUARANTEES OF THE YELLOW ROADWAY CONTINGENT CONVERTIBLE SENIOR NOTES
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
PERIOD JANUARY 1, 2003 TO DECEMBER 11, 2003
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------------------------------------------------
(IN THOUSANDS)
Revenue $ 2,718,839 $ 334,224 $ (944) $ 3,052,119
Operating expenses:
Salaries, wages and benefits 1,767,479 179,230 - 1,946,709
Operating supplies and expenses 457,521 57,473 (944) 514,050
Purchased transportation 274,129 40,306 - 314,435
Operating taxes and licenses 69,081 7,976 - 77,057
Insurance and claims expenses 55,888 4,192 - 60,080
Provision for depreciation 57,288 12,494 - 69,782
Net loss (gain) on disposal of
operating property (2,111) (461) - (2,572)
Compensation and other expense
related to the Yellow 50,393 3,341 - 53,734
acquisition
Results of affiliates (15,634) - 15,634 -
-------------------------------------------------------
Total operating expenses 2,714,034 304,551 14,690 3,033,275
-------------------------------------------------------
Operating income from
continuing operations 4,805 29,673 (15,634) 18,844
Other (expenses), net (30,897) (3,911) - (34,808)
-------------------------------------------------------
Income from continuing operations
before income taxes (26,092) 25,762 (15,634) (15,964)
Provision for income taxes 2,498 10,128 - 12,626
-------------------------------------------------------
Income from continuing operations (28,590) 15,634 (15,634) (28,590)
Income from discontinued operations (155) - - (155)
-------------------------------------------------------
Net income $ (28,745) $ 15,634 $ (15,634) $ (28,745)
=======================================================
|
Roadway Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
15. GUARANTEES OF THE YELLOW ROADWAY CONTINGENT CONVERTIBLE SENIOR NOTES
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
PERIOD JANUARY 1, 2003 TO DECEMBER 11, 2003
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------------------------------------------------
(IN THOUSANDS)
NET CASH (USED) PROVIDED BY
CONTINUING OPERATING
ACTIVITIES $ 49,002 $ 28,686 $ - $ 77,688
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of carrier operating
property, net (43,146) (4,242) - (47,388)
Business disposal 47,430 - - 47,430
-------------------------------------------------------
Net cash (used) by investing
activities 4,284 (4,242) - 42
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends received (paid) 159,236 (163,200) - (3,964)
Transfers to (from) parent - - - -
Accounts receivable
securitization - - - -
Treasury stock activity -- net 7,508 - - 7,508
Debt issuance costs - - - -
Long-term debt (payments)
borrowings (232,216) 150,000 - (82,216)
-------------------------------------------------------
Net cash provided (used)
by financing activities (65,472) (13,200) - (78,672)
Effect of exchange rates on cash - 358 - 358
-------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents from
continuing operations (12,186) 11,602 - (584)
Net (decrease) in cash and cash
equivalents from discontinued
operations (18,705) 18,667 - (38)
Cash and cash equivalents at
beginning of year 18,670 88,259 - 106,929
-------------------------------------------------------
Cash and cash equivalents at
end of year $ (12,221) $ 118,528 $ - $ 106,307
=======================================================
|