UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO CURRENT REPORT ON
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 11, 2003
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YELLOW ROADWAY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-12255 48-0948788
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
10990 Roe Avenue, Overland Park, Kansas 66211
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (913) 696-6100
--------------
Item 2. Acquisition or Disposition of Assets
On December 11, 2003, Yellow Corporation (Yellow) completed the acquisition of
Roadway Corporation (Roadway). Based in Akron, Ohio, Roadway provides
transportation services including long-haul less-than-truckload (LTL) freight
services and regional next-day LTL through its operating entities, Roadway
Express, Inc. and Roadway Next Day Corporation. As a result of the acquisition,
Roadway became an operating subsidiary under the Yellow holding company, which
was renamed Yellow Roadway Corporation (Yellow Roadway). The acquisition was
completed pursuant to an Agreement and Plan of Merger dated as of July 8, 2003,
by and among Yellow Corporation, Yankee LLC (a wholly owned subsidiary of Yellow
that was renamed Roadway LLC upon consummation of the acquisition) and Roadway
Corporation incorporated herein by reference as Exhibit 2.1 to this Current
Report on Form 8-K. Yellow Roadway intends to operate the Roadway subsidiary in
a similar manner as it operated preceding the acquisition. By virtue of the
Agreement and Plan of Merger, the Yellow Roadway board of directors added three
new members, Frank P. Doyle, John F. Fiedler and Phillip J. Meek, all of whom
were Roadway Corporation directors. In addition, James D. Staley, former
President and Chief Executive Officer of Roadway Corporation, became President
and Chief Executive Officer of the operating subsidiary, Roadway LLC.
Consideration for the acquisition included approximately $493 million in cash,
approximately 18 million shares of Yellow Roadway common stock and the
assumption of approximately $140 million in net Roadway indebtedness. The cash
portion of the purchase price was funded primarily through a term loan of $175
million under a new credit facility, a private placement of $250 million of 5.0
percent contingent convertible senior notes due 2023 and a private placement of
$150 million of 3.375 percent contingent convertible senior notes due 2023.
The foregoing is qualified by reference to Exhibit 2.1 to this Current Report on
Form 8-K, which is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of businesses acquired.
The audited financial statements of Roadway Corporation as of
December 31, 2002 and 2001 and for the years ended December
31, 2002, 2001 and 2000, and the unaudited financial
statements as of March 29, 2003 and June 21, 2003 and for the
twelve-weeks ended March 29, 2003 and March 23, 2002 and for
the twenty-four weeks ended June 21, 2003 and June 15, 2002
were filed on Form 8-K under Item 7 on October 21, 2003.
The following financial statements of Roadway Corporation are
included in Exhibit 99.1 hereto and incorporated by reference:
Consolidated balance sheets at September 13, 2003 (unaudited)
and December 31, 2002
Statements of consolidated income (unaudited) for the
thirty-six weeks ended September 13, 2003 and
September 7, 2002
Statements of consolidated cash flows (unaudited) for the
thirty-six weeks ended September 13, 2003 and
September 7, 2002
Notes to condensed consolidated financial statements
(b) Pro forma financial information.
The following pro forma information is included in Exhibit
99.2 hereto and incorporated herein by reference:
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL DATA
Unaudited Condensed Combined Pro Forma Balance Sheet at
September 30, 2003
Unaudited Condensed Combined Pro Forma Statement of Operations
for the Year Ended December 31, 2002
Unaudited Condensed Combined Pro Forma Statement of Operations
for the Nine Months Ended September 30, 2003
Notes to condensed consolidated financial statements
(c) Exhibits.
2.1 Agreement and Plan of Merger, dated as of July 8,
2003, by and among Yellow Corporation, Yankee LLC and
Roadway Corporation (incorporated by reference to
Exhibit 2.1 to Yellow Corporation's Current Report on
Form 8-K, as amended, filed on July 8, 2003, Reg. No.
000-12255). Pursuant to Item 601(b)(2) of Regulation
S-K, certain schedules, exhibits and similar
attachments to this Purchase Agreement have not been
filed with this exhibit. The schedules contain
various items relating to the assets of the business
being acquired and the representations and warranties
made by the parties to the Purchase Agreement. The
registrant agrees to furnish supplementally any
omitted schedule, exhibit or similar attachment to
the SEC upon request.
4.1 Credit Agreement, dated as of December 11, 2003,
among Yellow Roadway Corporation, certain of its
subsidiaries, various lenders, Bank One, NA, and
SunTrust Bank as Co-Syndication Agents; Fleet
National Bank and Wachovia Bank, National Association
as Co-Documentation Agents; Deutsche Bank AG, New
York Branch as Administrative Agent; and Deutsche
Bank Securities, Inc. as Sole Lead Arranger and Sole
Book Running Manager (incorporated by reference to
Exhibit 4.1 to Yellow Roadway Corporation's Current
Report on Form 8-K filed on December 18, 2003, Reg.
No. 000-12255). Certain schedules and exhibits to
this Credit Agreement have not been filed with this
exhibit. The schedules and exhibits contain various
items related to the representations and warranties
made by the parties to the Credit Agreement and forms
of documents executed or to be executed in connection
with the operation of the Credit Agreement. The
registrant agrees to furnish supplementally any
omitted schedule or exhibit to the SEC upon request.
99.1 Certain financial statements of Roadway Corporation
(see Item 7(a) above)
99.2 Certain pro forma financial statements (see Item 7(b)
above)
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.
YELLOW ROADWAY CORPORATION
------------------------------------
(Registrant)
Date: February 11, 2004 By: /s/ Donald G. Barger, Jr.
----------------------- -----------------------------------
Donald G. Barger, Jr.
Senior Vice President and Chief
Financial Officer
.
.
.
EXHIBIT 99.1
ROADWAY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 13, 2003 December 31, 2002
------------------ -----------------
(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 132,894 $ 106,929
Accounts receivable, including retained interest
in securitized receivables, net 241,975 230,216
Assets of discontinued operations -- 87,431
Other current assets 48,125 38,496
--------------- ---------------
Total current assets 422,994 463,072
Carrier operating property, at cost 1,509,280 1,515,648
Less allowance for depreciation 1,017,936 1,006,465
--------------- ---------------
Net carrier operating property 491,344 509,183
Goodwill, net 285,874 283,910
Other assets 83,201 79,708
--------------- ---------------
Total assets $ 1,283,413 $ 1,335,873
=============== ===============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 187,924 $ 193,501
Salaries and wages 125,863 151,464
Liabilities of discontinued operations -- 32,407
Other current liabilities 58,951 83,518
--------------- ---------------
Total current liabilities 372,738 460,890
Long-term liabilities:
Casualty claims and other 71,584 78,548
Accrued pension and retiree medical 146,582 135,053
Long-term debt 248,924 273,513
--------------- ---------------
Total long-term liabilities 467,090 487,114
Shareholders' equity:
Common Stock - $.01 par value
Authorized - 100,000,000 shares
Issued - 20,556,714 shares 206 206
Outstanding - 20,422,417 in 2003 and 19,368,590 in 2002
Other shareholders' equity 443,379 387,663
--------------- ---------------
Total shareholders' equity 443,585 387,869
--------------- ---------------
Total liabilities and shareholders' equity $ 1,283,413 $ 1,335,873
=============== ===============
Note: The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See notes to condensed consolidated financial statements.
1
ROADWAY CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Twelve Weeks Ended
(Third Quarter)
September 13, 2003 September 7, 2002
------------------ -----------------
(in thousands, except per share data)
Revenue $ 751,594 $ 681,696
Operating expenses:
Salaries, wages and benefits 477,174 438,017
Operating supplies and expenses 122,412 108,176
Purchased transportation 77,246 63,850
Operating taxes and licenses 18,515 17,966
Insurance and claims expense 15,133 16,483
Provision for depreciation 16,658 18,079
Net (gain) loss on disposal of operating property (5,068) 1,075
Compensation and other expense related to the
acquisition by Yellow Corporation 24,337 --
--------------- ---------------
Total operating expenses 746,407 663,646
--------------- ---------------
Operating income from continuing operations 5,187 18,050
Interest (expense) (4,735) (5,469)
Other (expense), net (1,544) (1,181)
--------------- ---------------
(Loss) income from continuing operations before income taxes (1,092) 11,400
Provision for income taxes 2,309 4,944
--------------- ---------------
(Loss) income from continuing operations (3,401) 6,456
Income from discontinued operations -- 480
--------------- ---------------
Net (loss) income $ (3,401) $ 6,936
=============== ===============
(Loss) earnings per share - basic:
Continuing operations $ (0.18) $ 0.35
Discontinued operations -- 0.03
--------------- ---------------
Total (loss) earnings per share - basic $ (0.18) $ 0.38
=============== ===============
(Loss) earnings per share - diluted:
Continuing operations $ (0.18) $ 0.33
Discontinued operations -- 0.03
--------------- ---------------
Total (loss) earnings per share - diluted $ (0.18) $ 0.36
=============== ===============
Average shares outstanding - basic 19,460 18,478
Average shares outstanding - diluted 19,460 18,914
Dividends declared per share $ 0.05 $ 0.05
See notes to condensed consolidated financial statements.
2
ROADWAY CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Thirty-six Weeks Ended
(Three Quarters)
September 13, 2003 September 7, 2002
------------------ -----------------
(in thousands, except per share data)
Revenue $ 2,247,192 $ 1,936,666
Operating expenses:
Salaries, wages and benefits 1,420,832 1,264,454
Operating supplies and expenses 382,846 314,489
Purchased transportation 227,755 173,134
Operating taxes and licenses 57,069 51,011
Insurance and claims expense 44,774 41,043
Provision for depreciation 50,827 54,319
Net (gain) loss on disposal of operating property (4,227) 1,653
Compensation and other expense related to the
acquisition by Yellow Corporation 24,337 --
--------------- ---------------
Total operating expenses 2,204,213 1,900,103
--------------- ---------------
Operating income from continuing operations 42,979 36,563
Interest (expense) (14,616) (16,406)
Other (expense), net (4,501) (3,891)
--------------- ---------------
Income from continuing operations before income taxes 23,862 16,266
Provision for income taxes 12,790 7,047
--------------- ---------------
Income from continuing operations 11,072 9,219
(Loss) income from discontinued operations (155) 1,642
--------------- ---------------
Net income $ 10,917 $ 10,861
=============== ===============
Earnings (loss) per share - basic:
Continuing operations $ 0.58 $ 0.50
Discontinued operations (0.01) 0.09
--------------- ---------------
Total earnings per share - basic $ 0.57 $ 0.59
=============== ===============
Earnings (loss) per share - diluted:
Continuing operations $ 0.58 $ 0.48
Discontinued operations (0.01) 0.09
--------------- ---------------
Total earnings per share - diluted $ 0.57 $ 0.57
=============== ===============
Average shares outstanding - basic 19,018 18,502
Average shares outstanding - diluted 19,038 18,982
Dividends declared per share $ 0.15 $ 0.15
See notes to condensed consolidated financial statements.
3
ROADWAY CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Thirty-six Weeks Ended
(Three Quarters)
September 13, 2003 September 7, 2002
------------------ -----------------
(in thousands)
Cash flows from operating activities
Income from continuing operations $ 11,072 $ 9,219
Depreciation and amortization 53,226 55,565
Other operating adjustments (10,050) (20,654)
-------------- --------------
Net cash provided by operating activities 54,248 44,130
Cash flows from investing activities
Purchases of carrier operating property (37,427) (46,863)
Sales of carrier operating property 9,516 1,934
Business disposal (acquisition) 47,430 (24,191)
-------------- --------------
Net cash provided (used) by investing activities 19,519 (69,120)
Cash flows from financing activities
Dividends paid (2,941) (2,799)
Sale of treasury shares 8,927 994
(Purchase) of treasury shares (2,203) (14,115)
Transfer from discontinued operation -- 5,000
Long-term (repayments) borrowings (51,851) (5,000)
-------------- --------------
Net cash (used) by financing activities (48,068) (15,920)
Effect of exchange rate changes on cash 305 (200)
-------------- --------------
Net increase (decrease) in cash and cash equivalents from
continuing operations 26,004 (41,110)
Net (decrease) in cash and cash equivalents from discontinued
operations (39) (4,080)
Cash and cash equivalents at beginning of period 106,929 110,432
-------------- --------------
Cash and cash equivalents at end of period $ 132,894 $ 65,242
============== ==============
The following table shows all non-cash investing and financing activities for
the three quarters ended September 13, 2003 and September 7, 2002:
Thirty-six Weeks Ended
(Three Quarters)
September 13, 2003 September 7, 2002
------------------ -----------------
(in thousands)
Investing activities: Issuance of Note Receivable in
connection with the sale of ATS $ 8,000 $ --
Financing activities: Issuance of Treasury shares to fund
various employee stock plans $ 20,935 $ 13,568
See notes to condensed consolidated financial statements.
4
Roadway Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the twelve and thirty-six weeks ended
September 13, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Roadway Corporation Annual Report on Form 10-K for the year ended December 31,
2002.
Roadway Corporation (the Company) operates on 13 four-week accounting periods
with 12 weeks in each of the first three quarters and 16 weeks in the fourth
quarter.
The Company completed the required transitional goodwill impairment test under
SFAS No. 142 for all reporting units effective June 21, 2003 which did not
indicate any impairment. The Company expects to perform the required annual
goodwill impairment assessment on a recurring basis at the end of the second
quarter each year, or more frequently should any indicators of possible
impairment be identified.
Roadway recognizes revenue on the date that freight is delivered to the
consignee, at which time all services have been rendered. Roadway recognizes
revenue on a gross basis since we are the primary obligor in the arrangement,
even if we use other transportation service providers who act on our behalf,
because we are 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, we retain all credit risk. Related expenses are recognized
as incurred.
Note 2--Stock-based compensation
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. The Company has adopted the disclosure
provision of SFAS No. 148 as of December 31, 2002. As permitted under SFAS No.
123, Accounting for Stock-Based Compensation, and SFAS No. 148, the Company has
elected to follow APB Opinion No. 25, Accounting for Stock Issued to Employees.
The Company has issued stock options for which compensation expense is not
recognized in the Company's financial statements because the exercise price of
the Company's employee stock options was equal to the market price of the
underlying stock on the date of grant.
5
The following table sets forth the impact of stock based compensation had we
elected to follow SFAS 123:
Twelve weeks ended Thirty-six weeks ended
(Third quarter) (Three quarters)
Sept 13, 2003 Sept 7, 2002 Sept 13, 2003 Sept 7, 2002
--------------- --------------- --------------- ---------------
(in thousands, except per share data)
(Loss) income-as reported from:
Continuing operations $ (3,401) $ 6,456 $ 11,072 $ 9,219
Discontinued operations -- 480 (155) 1,642
--------------- --------------- --------------- ---------------
Net (loss) income -as reported $ (3,401) $ 6,936 $ 10,917 $ 10,861
=============== =============== =============== ===============
Add: Stock-based compensation expense
included in reported income from
continuing operations, net of tax effects $ 7,807 $ 1,183 $ 10,088 $ 3,748
Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards, net of tax effects
8,091 1,454 10,807 4,453
--------------- --------------- --------------- ---------------
(Loss) income--pro forma from:
Continuing operations (3,685) 6,185 10,353 8,514
Discontinued operations -- 480 (155) 1,642
--------------- --------------- --------------- ---------------
Net (loss) income--pro forma $ (3,685) $ 6,665 $ 10,198 $ 10,156
=============== =============== =============== ===============
Basic (loss) earnings per share
As reported: continuing operations $ (0.18) $ 0.35 $ 0.58 $ 0.50
As reported: discontinued operations -- 0.03 (0.01) 0.09
--------------- --------------- --------------- ---------------
As reported: total $ (0.18) $ 0.38 $ 0.57 $ 0.59
=============== =============== =============== ===============
Pro forma: continuing operations $ (0.20) $ 0.33 $ 0.54 $ 0.46
Pro forma: discontinued operations -- 0.03 (0.01) 0.09
--------------- --------------- --------------- ---------------
Pro forma total $ (0.20) $ 0.36 $ 0.53 $ 0.55
=============== =============== =============== ===============
Diluted (loss) earnings per share
As reported: continuing operations $ (0.18) $ 0.33 $ 0.58 $ 0.48
As reported: discontinued operations -- 0.03 (0.01) 0.09
--------------- --------------- --------------- ---------------
As reported: total $ (0.18) $ 0.36 $ 0.57 $ 0.57
=============== =============== =============== ===============
Pro forma: continuing operations $ (0.20) $ 0.32 $ 0.54 $ 0.44
Pro forma: discontinued operations -- 0.03 (0.01) 0.09
--------------- --------------- --------------- ---------------
Pro forma: total $ (0.20) $ 0.35 $ 0.53 $ 0.53
=============== =============== =============== ===============
6
Note 3--Pending acquisition of the Company by Yellow Corporation
Roadway Corporation announced on July 8, 2003 that a definitive agreement had
been signed under which Yellow Corporation would acquire Roadway for
approximately $966 million, or $48 per share (based on a fixed exchange ratio
and a 60-day average price per share of $24.95 for Yellow common stock in a half
cash, half stock transaction). If this transaction proceeds to the ultimate
acquisition of Roadway Corporation by Yellow Corporation, Roadway Corporation
will no longer exist as a Registrant. Separate disclosure of audited financial
statements may be required to satisfy financing requirements by creditors,
however, no such reporting requirements have as yet been determined.
Note 4--Discontinued operations
On December 26, 2002, the Company entered into an agreement to sell Arnold
Transportation Services (ATS) to a management group led by the unit's president
and a private equity firm, for approximately $55 million, consisting of $47
million in cash and an $8 million note. The ATS business segment was acquired as
part of the Company's purchase of Arnold Industries, Inc. (subsequently renamed
Roadway Next Day Corporation) in November 2001, but did not fit the Company's
strategic focus of being a less-than-truckload (LTL) carrier. The transaction
was completed on January 23, 2003. The Company recognized a gain of $150,000,
net of tax, as a result of this transaction.
The Company has reported the ATS results as a discontinued operation in the
accompanying financial statements and, unless otherwise stated, the notes to the
financial statements for all periods presented exclude the amounts related to
this discontinued operation.
Note 5--Earnings per Share
The following table sets forth the computation of basic and diluted (loss)
earnings per share:
Twelve Weeks Ended Thirty-six Weeks Ended
(Third Quarter) (Three Quarters)
Sept 13, 2003 Sept 7, 2002 Sept 13, 2003 Sept 7, 2002
------------- ------------- ------------- -------------
(in thousands, except per share data)
(Loss) income from:
Continuing operations $ (3,401) $ 6,456 $ 11,072 $ 9,219
Discontinued operations -- 480 (155) 1,642
------------- ------------- ------------- -------------
Net (loss) income $ (3,401) $ 6,936 $ 10,917 $ 10,861
============= ============= ============= =============
Weighted-average shares for
basic earnings per share 19,460 18,478 19,018 18,502
Management incentive stock plans -- 436 20 480
------------- ------------- ------------- -------------
Weighted-average shares for
diluted earnings per share 19,460 18,914 19,038 18,982
============= ============= ============= =============
Basic (loss) earnings per share from:
Continuing operations $ (0.18) $ 0.35 $ 0.58 $ 0.50
Discontinued operations -- 0.03 (0.01) 0.09
------------- ------------- ------------- -------------
Basic earnings per share $ (0.18) $ 0.38 $ 0.57 $ 0.59
============= ============= ============= =============
Diluted (loss) earnings per share from:
Continuing operations $ (0.18) $ 0.33 $ 0.58 $ 0.48
Discontinued operations -- 0.03 (0.01) 0.09
------------- ------------- ------------- -------------
Diluted (loss) earnings per share $ (0.18) $ 0.36 $ 0.57 $ 0.57
============= ============= ============= =============
For all periods presented, there were no stock options or other potentially
dilutive securities that could potentially dilute basic earnings per share in
the future that were not included in the computation of dilutive earnings per
share.
7
Note 6--Segment information
The Company provides freight services in two business segments: Roadway Express
(Roadway) and New Penn Motor Express (New Penn). The Roadway segment provides
long haul, expedited, and regional LTL freight services in North America and
offers services to over 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.
Twelve weeks ended September 13, 2003
(Third Quarter)
Roadway Express New Penn Total
--------------- ------------- -------------
(in thousands)
Revenue $ 700,668 $ 50,926 $ 751,594
Operating expense:
Salaries, wages & benefits 441,446 33,412 474,858
Operating supplies 117,826 7,247 125,073
Purchased transportation 76,729 517 77,246
Operating license and tax 17,025 1,390 18,415
Insurance and claims 14,530 527 15,057
Depreciation 14,250 2,239 16,489
Net (gain) loss on sale of operating property (5,069) 1 (5,068)
Compensation and other expense related to the
Yellow acquisition 23,374 963 24,337
------------- ------------- -------------
Total operating expense 700,111 46,296 746,407
------------- ------------- -------------
Operating income $ 557 $ 4,630 $ 5,187
============= ============= =============
Operating ratio 99.9% 90.9% 99.3%
Total assets $ 802,834 $ 406,365 $ 1,209,199
8
Note 6--Segment information (continued)
Twelve weeks ended September 7, 2002
(Third Quarter)
Roadway Express New Penn Total
--------------- ------------- -------------
(in thousands)
Revenue $ 631,158 $ 50,538 $ 681,696
Operating expense:
Salaries, wages & benefits 402,918 33,171 436,089
Operating supplies 104,540 5,929 110,469
Purchased transportation 63,318 532 63,850
Operating license and tax 16,512 1,420 17,932
Insurance and claims 15,488 784 16,272
Depreciation 15,507 2,452 17,959
Net loss (gain) on sale of operating property 1,129 (54) 1,075
------------- ------------- -------------
Total operating expense 619,412 44,234 663,646
------------- ------------- -------------
Operating income $ 11,746 $ 6,304 $ 18,050
============= ============= =============
Operating ratio 98.1% 87.5% 97.4%
Total assets $ 725,538 $ 366,733 $ 1,092,271
Thirty-six weeks ended September 13, 2003
(Three Quarters)
Roadway Express New Penn Total
--------------- ------------- -------------
(in thousands)
Revenue $ 2,097,068 $ 150,124 $ 2,247,192
Operating expense:
Salaries, wages & benefits 1,313,985 99,512 1,413,497
Operating supplies 369,386 22,158 391,544
Purchased transportation 226,247 1,508 227,755
Operating license and tax 52,586 4,206 56,792
Insurance and claims 42,024 2,165 44,189
Depreciation 43,646 6,680 50,326
Net (gain) loss on sale of operating property (4,288) 61 (4,227)
Compensation and other expense related to the
Yellow acquisition 23,374 963 24,337
------------- ------------- -------------
Total operating expense 2,066,960 137,253 2,204,213
------------- ------------- -------------
Operating income $ 30,108 $ 12,871 $ 42,979
============= ============= =============
Operating ratio 98.6% 91.4% 98.1%
9
Note 6--Segment information (continued)
Thirty-six weeks ended September 7, 2002
(Three Quarters)
Roadway Express New Penn Total
--------------- ------------- -------------
(in thousands)
Revenue $ 1,791,125 $ 145,541 $ 1,936,666
Operating expense:
Salaries, wages & benefits 1,161,888 96,602 1,258,490
Operating supplies 303,527 17,980 321,507
Purchased transportation 171,761 1,373 173,134
Operating license and tax 46,743 4,162 50,905
Insurance and claims 37,840 2,625 40,465
Depreciation 46,192 7,757 53,949
Net loss (gain) on sale of operating property 1,778 (125) 1,653
--------------- ------------- -------------
Total operating expense 1,769,729 130,374 1,900,103
--------------- ------------- -------------
Operating income $ 21,396 $ 15,167 $ 36,563
=============== ============= =============
Operating ratio 98.8% 89.6% 98.1%
Reconciliation of segment operating income to consolidated operating income from
continuing operations before taxes:
Twelve Weeks Ended Thirty-six weeks ended
(Third Quarter) (Three quarters)
Sept 13, 2003 Sept 7, 2002 Sept 13, 2003 Sept 7, 2002
------------- ------------- ------------- -------------
(in thousands)
Segment operating income from
continuing operations $ 5,187 $ 18,050 $ 42,979 $ 36,563
Unallocated corporate income -- -- -- --
Interest (expense) (4,735) (5,469) (14,616) (16,406)
Other (expense), net (1,544) (1,181) (4,501) (3,891)
------------- ------------- ------------- -------------
Consolidated (loss) income from
continuing operations before taxes $ (1,092) $ 11,400 $ 23,862 $ 16,266
============= ============= ============= =============
10
Note 6--Segment information (continued)
Reconciliation of total segment assets to total consolidated assets:
September 13, 2003 December 31, 2002
------------------ -----------------
(in thousands)
Total segment assets $ 1,209,199 $ 1,211,584
Unallocated corporate assets 101,901 41,351
Assets of discontinued operations -- 87,431
Elimination of intercompany balances (27,687) (4,493)
------------- -------------
Consolidated assets $ 1,283,413 $ 1,335,873
============= =============
Note 7--Comprehensive Income
Comprehensive income differs from net income due to foreign currency translation
adjustments and derivative fair value adjustments as shown below:
Twelve weeks Ended Thirty-six weeks ended
(Third Quarter) (Three quarters)
Sept 13, 2003 Sept 7, 2002 Sept 13, 2003 Sept 7, 2002
------------- ------------- ------------- -------------
(in thousands)
Net (loss) income $ (3,401) $ 6,936 $ 10,917 $ 10,861
Foreign currency translation adjustments (707) (628) 5,069 (684)
Derivative fair value adjustment -- 158 126 158
------------- ------------- ------------- -------------
Comprehensive (loss) income $ (4,108) $ 6,466 $ 16,112 $ 10,335
============= ============= ============= =============
Note 8--Goodwill
At December 31, 2002 and September 13, 2003, the Company's goodwill included
$269 million recorded in connection with our acquisition of Arnold Industries
Inc., renamed Roadway Next Day Corporation, on November 30, 2001. The Company
initially recognized goodwill in the amount of $254 million at December 31,
2001. The preliminary purchase price allocation between New Penn Motor Express
(New Penn) and Arnold Transportation Services (ATS) was expected to be adjusted
as estimated fair values of assets acquired and liabilities assumed were
finalized during 2002.
The preliminary allocation of goodwill was calculated based on the historic book
values of assets, liabilities assumed, and an estimated purchase price
allocation for the entity. During 2002, various adjustments were made to the
preliminary purchase price that included direct acquisition costs, finalization
of a third-party appraisal of the assets, an analysis of existing tax
liabilities, and the pending sale of ATS. The third-party property appraisal
resulted in the write-down of carrier operating property values due to the
depressed used equipment market.
The final valuation of ATS was based on the sales price of $55 million,
negotiated on October 2, 2002 between that unit's president, a private equity
firm, and the Company. The price is consistent with actual market valuations
from other interested potential purchasers obtained in the fall of 2002.
11
Note 8--Goodwill (continued)
No indicator of impairment in the value of ATS existed from the date of purchase
through the final sale. There was no change in operational performance during
2002 that would have caused us to modify the value of ATS. Despite declining
overall economic market conditions in 2002 compared to 2001, ATS' operating
revenue and operating income remained constant.
The sale of ATS, while not contemplated at the time of acquisition, was
negotiated within one year of the purchase, and was accordingly deemed the most
reasonable fair value of the ATS entity. In addition, the allocation of goodwill
primarily to New Penn was considered appropriate, as the entity originally
sought in the acquisition of Arnold Industries, Inc. was New Penn. The
acquisition presented Roadway with a strategic opportunity to build upon and
extend its transportation services. New Penn, the less-than-truckload business
unit, has historically had one of the lowest (best) operating ratios in the
industry. The operating ratio is calculated as operating expenses divided by
revenue.
The goodwill allocation between the Roadway Next Day Corporation entities at
December 31, 2001 and December 31, 2002 is as follows (in thousands):
New Penn ATS Roadway Next Day Total
------------ ------------ ---------------- ------------
Preliminary $ 187,576 $ 65,956 -- $ 253,532
Final $ 268,894 -- $ 199 $ 269,093
The following table shows all the changes to goodwill during 2002 (in
thousands). There have been no changes to goodwill since December 31, 2002.
Goodwill, December 31, 2001 $ 253,532
Additional direct transaction costs 998
Net write-down of assets to appraisal value 21,837
Reclassification to intangible assets (5,630)
Tax accrual adjustment (1,644)
-----------
Goodwill, December 31, 2002 $ 269,093
===========
Note 9--Intangible assets other than goodwill
The following table shows the identifiable intangible assets other than
goodwill, and indicates which assets are subject to amortization and the life
assigned to them. These assets are recorded on the books of the New Penn
segment. The estimated aggregate amortization expense is $654,000 in the next
fiscal year and $154,000 in each of the fours years thereafter.
As of September 13, 2003:
Expense
recognized
Accumulated through three
Description Gross amount amortization quarters Life
- ----------- --------------- --------------- --------------- ---------------
Customer contracts $ 770,000 $ 260,615 $ 106,615 5 years
Purchased customer list 3,000,000 2,346,500 346,500 3 years
Trade names 2,750,000 -- -- indefinite
--------------- --------------- ---------------
Total $ 6,520,000 $ 2,607,115 $ 453,115
=============== =============== ===============
12
Note 9--Intangible assets other than goodwill (continued)
As of December 31, 2002:
Expense
recognized
Accumulated through four
Description Gross amount amortization quarters Life
- ----------- --------------- --------------- --------------- ---------------
Customer contracts $ 770,000 $ 154,000 $ 154,000 5 years
Purchased customer list 3,000,000 2,000,000 2,000,000 3 years
Trade names 2,750,000 -- -- indefinite
--------------- --------------- ---------------
Total $ 6,520,000 $ 2,154,000 $ 2,154,000
=============== =============== ===============
Note 10--Contingent Matter
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
million 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 range of the remaining payments that may be due to the former
parent to be $0 to $16 million in additional taxes and $0 to $11 million in
related interest, net of tax benefit. The Company has established a $16 million
deferred tax liability and certain other 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.
13
Note 11--Impact of the acquisition-related charges
We are presenting this schedule to provide additional information for
comparability to prior year operating results. This presentation should not be
construed as a better measurement than the income statements as defined by
generally accepted accounting principles. The following tables show the charges
related to the pending acquisition of Roadway Corporation by Yellow Corporation,
and their impact on operating income, operating ratio, income taxes, and
earnings per share. These charges resulted primarily from the vesting of
restricted stock awards, other compensation expense and transaction costs. The
Company's effective tax rate has increased from 42.0% to 53.6% as a result of
the non-deductibility of these acquisition-related costs.
Twelve Weeks Ended September 13, 2003
(Third quarter)
Acquisition
As reported Charges As adjusted
------------ ------------ ------------
Roadway Corporation
Revenue $ 751,594 $ -- $ 751,594
Operating expenses 746,407 (24,337) 722,070
------------ ------------ ------------
Operating Income 5,187 24,337 29,524
Other (expense), net (6,279) -- (6,279)
------------ ------------ ------------
Pretax (loss) income (1,092) 24,337 23,245
Income tax expense 2,309 7,454 9,763
------------ ------------ ------------
Net (loss) income $ (3,401) $ 16,883 $ 13,482
============ ============ ============
(Loss) earnings per share
(diluted) $ (0.18) $ 0.89 $ 0.71
Operating ratio 99.3% 96.1%
Roadway Express
Revenue $ 700,668 $ -- $ 700,668
Operating expenses 700,111 (23,374) 676,737
------------ ------------ ------------
Operating income $ 557 $ 23,374 $ 23,931
============ ============ ============
Operating ratio 99.9% 96.6%
New Penn
Revenue $ 50,926 $ -- $ 50,926
Operating expenses 46,296 (963) 45,333
------------ ------------ ------------
Operating income $ 4,630 $ 963 $ 5,593
============ ============ ============
Operating ratio 90.9% 89.0%
14
Note 11--Impact of the acquisition-related charges (continued)
Thirty-six Weeks Ended September 13, 2003
(Three Quarters)
Acquisition
As reported Charges As adjusted
-------------- -------------- --------------
Roadway Corporation
Revenue $ 2,247,192 $ -- $ 2,247,192
Operating expenses 2,204,213 (24,337) 2,179,876
-------------- -------------- --------------
Operating income 42,979 24,337 67,316
Other (expense), net (19,117) -- (19,117)
-------------- -------------- --------------
Pretax income 23,862 24,337 48,199
Income tax expense 12,790 7,454 20,244
-------------- -------------- --------------
Operating income from
continuing operations 11,072 16,883 27,955
(Loss) from discontinued
operations (155) -- (155)
-------------- -------------- --------------
Net income $ 10,917 $ 16,883 $ 27,800
============== ============== ==============
Earnings per share (diluted) $ 0.57 $ 0.89 $ 1.46
Operating ratio 98.1% 97.0%
Roadway Express
Revenue $ 2,097,068 $ -- $ 2,097,068
Operating expenses 2,066,960 (23,374) 2,043,586
-------------- -------------- --------------
Operating income $ 30,108 $ 23,374 $ 53,482
============== ============== ==============
Operating ratio 98.6% 97.4%
New Penn
Revenue $ 150,124 $ -- $ 150,124
Operating expenses 137,253 (963) 136,290
-------------- -------------- --------------
Operating income $ 12,871 $ 963 $ 13,834
============== ============== ==============
Operating ratio 91.4% 90.8%
15
.
.
.
EXHIBIT 99.2
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
AT SEPTEMBER 30, 2003
Historical Pro Forma
-------------------------- ------------------------------
Roadway (at
September 13,
Yellow 2003) Adjustments Combined
----------- ------------- ----------- -----------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 226,514 $ 132,894 $ (494,146)(1) $ 8,823
150,000 (2)
175,000 (3)
21,500 (4)
(100,000)(5)
(54,462)(6)
(2,250)(6)
(30,365)(7)
(15,862)(8)
Accounts receivable, net 372,761 241,975 25,000 (9) 739,736
100,000 (5)
Prepaid expenses and other 30,856 48,125 (27,704)(10) 51,277
----------- ----------- ----------- -----------
Total current assets 630,131 422,994 (253,289) 799,836
----------- ----------- ----------- -----------
Property and equipment, at cost 1,717,322 1,509,280 333,000 (11) 2,541,666
(1,017,936)(12)
Less: accumulated depreciation (1,137,938) (1,017,936) 1,017,936 (12) (1,137,938)
----------- ----------- ----------- -----------
Net property and equipment 579,384 491,344 333,000 1,403,728
----------- ----------- ----------- -----------
Goodwill 20,603 285,874 587,020 (1) 607,623
(285,874)(13)
Deferred income taxes -- 37,015 (37,015)(10) --
Other assets 45,105 46,186 461,300 (1) 559,863
28,292 (6)
(4,890)(6)
(7,430)(7)
(8,700)(14)
----------- ----------- ----------- -----------
TOTAL ASSETS $ 1,275,223 $ 1,283,413 $ 812,414 $ 3,371,050
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 96,753 $ 187,924 $ (73,409)(15) $ 211,268
Wages, vacations, and employees' benefits 166,448 125,863 292,311
Other current and accrued liabilities 127,723 52,510 (27,704)(10) 231,280
(3,379)(10)
73,409 (15)
(2,250)(6)
9,107 (16)
1,864 (17)
ABS borrowings 50,000 -- 21,500 (4) 71,500
Current maturities of long-term debt 5,008 6,441 (6,441)(7) 5,008
----------- ----------- ----------- -----------
Total current liabilities 445,932 372,738 (7,303) 811,367
----------- ----------- ----------- -----------
Long-term liabilities:
Long-term debt, less current portion 263,963 248,924 150,000 (2) 838,128
175,000 (3)
(23,924)(7)
24,165 (18)
Claims and other liabilities 76,200 61,191 59,961 (16) 197,352
Accrued pension and postretirement health care 58,308 146,582 82,933 (19) 287,823
Deferred income taxes 27,285 10,393 211,301 (10) 248,979
----------- ----------- ----------- -----------
Total long-term liabilities 425,756 467,090 679,436 1,572,282
----------- ----------- ----------- -----------
Total shareholders' equity 403,535 443,585 585,310 (1) 987,401
(443,585)(20)
(1,444)(21)
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,275,223 $ 1,283,413 $ 812,414 $ 3,371,050
=========== =========== =========== ===========
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
Historical Pro Forma
-------------------------- ------------------------------
Yellow Roadway Adjustments Combined
----------- ----------- ----------- -----------
(in thousands, except per share data)
Revenue $ 2,624,148 $ 3,010,776 $ 3,000 (9) $ 5,637,924
----------- ----------- ----------- -----------
Operating expenses:
Salaries, wages and employees' benefits 1,717,382 1,934,482 2,331 (25) 3,654,195
Operating expenses and supplies 385,522 479,415 (2,154)(15) 862,783
Operating taxes and licenses 75,737 76,662 152,399
Claims and insurance 57,197 63,621 777 (25) 121,595
Depreciation and amortization 79,334 75,786 2,154 (15) 170,584
510 (22)
12,800 (23)
Purchased transportation 253,677 289,612 543,289
(Gains) losses on property disposals, net 425 (650) (225)
Spin-off and reorganization charges 8,010 -- 8,010
----------- ----------- ----------- -----------
Total operating expenses 2,577,284 2,918,928 16,418 5,512,630
----------- ----------- ----------- -----------
Operating income 46,864 91,848 (13,418) 125,294
----------- ----------- ----------- -----------
Interest expense 7,211 23,268 3,249 (15) 52,437
18,709 (25)
ABS facility charges 2,576 3,688 (6,264)(25) --
Other, net (509) 2,855 (3,249)(15) (903)
----------- ----------- ----------- -----------
Nonoperating expenses, net 9,278 29,811 12,445 51,534
----------- ----------- ----------- -----------
Income from continuing operations before
income taxes 37,586 62,037 (25,863) 73,760
Income tax provision 13,613 26,895 (10,345)(26) 30,163
----------- ----------- ----------- -----------
Income from continuing operations $ 23,973 $ 35,142 $ (15,518) $ 43,597
=========== =========== =========== ===========
Earnings per share from continuing operations:
Basic $ 0.86 $ 1.90 $ 0.95
Diluted 0.84 1.85 0.94
Average common shares outstanding:
Basic 28,004 18,507 46,042
Diluted 28,371 18,999 46,409
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
Historical Pro Forma
----------------------------- ----------------------------------
Roadway (for the
three quarters
ended September
Yellow 13, 2003) Adjustments Combined
------------- ------------- ------------- -------------
(in thousands, except per share data)
Revenue $ 2,165,251 $ 2,247,192 $ 6,900 (9) $ 4,419,343
------------- ------------- ------------- -------------
Operating expenses:
Salaries, wages and employees' benefits 1,386,061 1,420,832 2,284 (25) 2,810,191
1,014 (15)
Operating expenses and supplies 320,341 382,846 (453)(15) 702,734
Operating taxes and licenses 59,510 57,069 116,579
Claims and insurance 39,972 44,774 780 (25) 85,864
338 (15)
Depreciation and amortization 62,206 50,827 453 (15) 123,446
360 (22)
9,600 (23)
Purchased transportation 213,971 227,755 441,726
(Gains) losses on property disposals, net 422 (4,227) (3,805)
Acquisition, spin-off and reorganization charges 864 24,337 (24,337)(24) 864
------------- ------------- ------------- -------------
Total operating expenses 2,083,347 2,204,213 (9,961) 4,277,599
------------- ------------- ------------- -------------
Operating income 81,904 42,979 16,861 141,744
------------- ------------- ------------- -------------
Interest expense 11,796 14,616 1,822 (15) 42,690
14,456 (25)
ABS facility charges -- 2,539 (2,539)(25) --
Other, net 1,978 1,962 (3,174)(15) 766
------------- ------------- ------------- -------------
Nonoperating expenses, net 13,774 19,117 10,565 43,456
------------- ------------- ------------- -------------
Income from continuing operations before
income taxes 68,130 23,862 6,296 98,288
Income tax provision 26,775 12,790 2,518(26) 42,083
------------- ------------- ------------- -------------
Income from continuing operations $ 41,355 $ 11,072 $ 3,778 $ 56,205
============= ============= ============= =============
Earnings per share from continuing operations:
Basic $ 1.40 $ 0.58 $ 1.18
Diluted 1.39 0.58 1.17
Average common shares outstanding:
Basic 29,578 19,018 47,616
Diluted 29,832 19,038 47,870
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA
FINANCIAL STATEMENTS
(1) These pro forma adjustments reflect the valuations of Roadway's
tangible and intangible assets and liabilities as well as conforming
accounting policies recorded as of December 11, 2003 in conjunction
with the acquisition. The allocation of the purchase price is
preliminary and subject to adjustment, however, we do not expect
material changes. These unaudited condensed combined pro forma
financial statements are not necessarily indicative of the operating
results or financial position that would have occurred had the
acquisition been consummated at the dates indicated, nor necessarily
indicative of future operating results.
The purchase price for the Roadway acquisition was calculated as
follows (in thousands, except per share data):
Merger consideration of approximately $1,079.5 million, or $48 per
Roadway share (based on an exchange ratio of 1.752 and an average price
per share of $31.51 for Yellow common stock, in a half cash, half stock
transaction).
Cash $ 494,146
Common stock (18.0 million Yellow shares) 585,310
---------------
Total merger consideration 1,079,456
Acquisition costs 17,765
---------------
Total purchase price 1,097,221
Net tangible assets acquired at fair value 48,901*
---------------
Costs in excess of net tangible assets of the acquired company 1,048,320**
Fair value of identifiable intangible assets 461,300
---------------
Goodwill $ 587,020
===============
- ----------
* Net tangible assets acquired at fair value is comprised of the following
(in thousands):
Roadway historical net tangible assets at September 13, 2003 $ 157,711
Purchase accounting adjustments, as described in the following notes:
Merger-related expenses incurred by Roadway (11,045)
Change of control costs for key Roadway executives (15,862)
Planned severance for Roadway employees (1,864)
Write-off of certain deferred financing costs (7,430)
Conform revenue recognition policy 25,000
Adjust property and equipment to fair value 333,000
Adjust certain investments and notes receivable to fair value (8,700)
Adjust senior notes to fair value (24,165)
Conform workers' compensation and property damage policies (69,068)
Adjustment to pension and postretirement health care liabilities (82,933)
Current and deferred income taxes associated with purchase accounting adjustments (245,743)
------------
Total purchase accounting adjustments (108,810)
------------
Net tangible assets acquired at fair value $ 48,901
============
** Allocation of the purchase price among the tangible and intangible
assets is preliminary and subject to change. Any such change may also
impact results of operations.
(2) Reflects gross proceeds of our offering of 3.375% contingent convertible
senior notes due 2023.
(3) Reflects gross proceeds of $175.0 million of secured term loan borrowings
related to the acquisition.
(4) Reflects additional borrowings under Yellow's asset backed securitization
(ABS) facility.
(5) Reflects the elimination of Roadway's ABS facility. As Roadway's ABS
facility received sales treatment for financial reporting purposes and was
therefore not reflected on its balance sheets, elimination of that facility
effectively brought accounts receivable back onto the balance sheet.
(6) Represents costs associated with completing the acquisition of Roadway, our
offering of 3.375% contingent convertible senior notes due 2023, our
offering of 5.0% contingent convertible senior notes due 2023 and other
bank financing transactions related to the Roadway acquisition, as follows
(in thousands):
COSTS
INCURRED AS OF
SEPTEMBER 30,
2003 ESTIMATED
ESTIMATED (SEPTEMBER 13, REMAINING
TOTAL 2003 FOR COSTS TO
COSTS ROADWAY) BE INCURRED
-------------- ------------ ----------------
Direct transaction costs, including investment banking, legal,
accounting and other fees:
Yellow $ 11,560 $ 4,890 $ 6,670
Roadway 13,115 2,070 11,045
Deferred debt issuance costs 36,372 8,080 28,292
Bridge financing costs 4,500 2,250** 2,250
Debt prepayment penalties 2,300 2,300 --
Director, officer and fiduciary insurance premium costs 6,205* -- 6,205
-------------- ------------ ----------------
Total $ 74,052 $ 19,590 $ 54,462
============== ============ ================
- ----------
* This item represents the cost to provide director, officer and
fiduciary liability insurance coverage for Roadway directors, officers
and employees for periods prior to the date of the acquisition. In
accordance with the merger agreement, this coverage will be provided
for six years after the effective date of the acquisition.
** As of September 30, 2003, this amount had been accrued but not paid.
(7) Reflects the payoff of certain existing indebtedness in conjunction with
the bank financing transactions and the write-off of deferred financing
costs.
(8) Represents change of control payments for key Roadway executives.
(9) Represents the adjustment necessary to conform Roadway's revenue
recognition policy to the policy used by Yellow.
(10) Represents the impact on currently payable and deferred income taxes of the
pro forma adjustments presented.
(11) Represents the net adjustment to Roadway's property and equipment to their
estimated fair values.
(12) Represents the elimination of Roadway's historical accumulated
depreciation.
(13) Represents the elimination of the historical goodwill of Roadway.
(14) Represents the write down of certain Roadway investments and notes
receivable to their estimated fair values.
(15) Reflects certain balance sheet and statement of operations
reclassifications made to conform Roadway's presentation to the
presentation used by Yellow.
(16) Represents the adjustment necessary to conform Roadway's workers'
compensation and property damage accrual policies to the policies used by
Yellow.
(17) Represents the accrual for planned severance for Roadway employees.
(18) Represents an increase in the fair value of Roadway's senior notes based on
current market prices.
(19) Represents the adjustment necessary to eliminate previously unrecognized
gains or losses, prior service cost, and transition assets or obligations
related to Roadway's defined benefit pension and postretirement health care
benefit plans for employees not covered by collective bargaining
agreements.
(20) Represents the elimination of Roadway's historical shareholders' equity
balances.
(21) Represents the after-tax impact of bridge financing costs associated with
completing the bank financing transactions.
(22) Adjustment to record additional depreciation expense on the new basis of
Roadway's property and equipment.
(23) Adjustment to record amortization expense on identifiable intangible
assets.
(24) Adjustment to eliminate the expense related to the vesting of restricted
stock awards, other compensation and transaction fees associated with the
acquisition of Roadway by Yellow that were recognized on Roadway's
historical Statement of Consolidated Income for the thirty-six weeks ended
September 13, 2003.
(25) Adjustment to record additional interest expense, letter of credit fees and
amortization of deferred financing costs on borrowings related to our
offering of 3.375% contingent convertible senior notes due 2023, our
offering of 5.0% contingent convertible senior notes due 2023 and other
bank financing transactions related to the acquisition. The estimated
weighted average annual interest rate of the completed and contemplated
debt structure is 5.5%. A 1/8th% change in the variable interest rates
associated with these borrowings would have a $0.3 million effect on annual
interest expense. A $10.0 million change in the amount of borrowings
necessary to finance the acquisition would have a $0.4 million effect on
annual interest expense.
(26) Adjustment to record the income tax impact of the pro forma adjustments at
an effective income tax rate of 40.0%.