UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO CURRENT REPORT ON
FORM 8-K
ON FORM 8-K/A
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
-----------------
YELLOW ROADWAY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-12255 48-0948788
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
10990 Roe Avenue, Overland Park, Kansas 66211
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (913) 696-6100
--------------
This amendment is being filed solely to delete Note 11 regarding Impact
of the Acquisition Related Charges and add a new Note 12 regarding Guarantor and
Non-Guarantor Subsidiaries to the financial statements included in Exhibit 99.1.
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
twelve weeks ended September 13, 2003 and September 7, 2002
and 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.
(c) Exhibits.
99.1 Certain financial statements of Roadway Corporation
(see Item 7(a) 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: March 10, 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.
Note 11--[intentionally omitted]
13
Note 12--Guarantor and Non-Guarantor Subsidiaries
The credit facility borrowings and the senior notes issued in connection with
the acquisition of Arnold are secured by a first-priority perfected lien on all
of the capital stock of the Company's direct subsidiaries. They are also
supported by guarantees provided by all of the Company's material subsidiaries,
which are wholly owned. These guarantees are full and unconditional, joint and
several.
The following condensed consolidating financial statements set forth the
Company's balance sheets, statements of income, and statements of cash flows for
the same time periods as the financial statements presented in Item 1 above. 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.
Condensed Consolidating Balance Sheets
September 13, 2003
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------- ------------ ------------
(in millions)
Cash and cash equivalents $ 47 $ 80 $ 6 $ -- $ 133
Accounts receivable, including retained
interest in securitized receivables, net -- 225 17 -- 242
Due from affiliates 31 283 1 (315) --
Prepaid expenses and supplies -- 20 -- -- 20
Deferred income taxes -- 28 -- -- 28
------------ ------------ ------------- ------------ ------------
Total current assets 78 636 24 (315) 423
Carrier operating property, at cost -- 1,478 31 -- 1,509
Less allowance for depreciation -- 999 19 -- 1,018
------------ ------------ ------------- ------------ ------------
Net carrier operating property -- 479 12 -- 491
Goodwill, net -- 269 17 -- 286
Investment in subsidiaries 580 15 -- (595) --
Deferred income taxes 1 35 1 -- 37
Long-term assets 18 28 -- -- 46
------------ ------------ ------------- ------------ ------------
Total assets $ 677 $ 1,462 $ 54 $ (910) $ 1,283
============ ============ ============= ============ ============
Accounts payable $ (29) $ 210 $ 7 $ -- $ 188
Due to affiliates 261 26 28 (315) --
Salaries and wages 1 122 3 -- 126
Current portion of long-term debt -- 6 -- -- 6
Freight and casualty claims payable -- 52 1 -- 53
------------ ------------ ------------- ------------ ------------
Total current liabilities 233 416 39 (315) 373
Casualty claims and other 1 70 -- -- 71
Long-term debt -- 249 -- -- 249
Accrued pension and retiree medical -- 147 -- -- 147
Total shareholders' equity 443 580 15 (595) 443
------------ ------------ ------------- ------------ ------------
Total liabilities and shareholders' equity $ 677 $ 1,462 $ 54 $ (910) $ 1,283
============ ============ ============= ============ ============
Note 12--Guarantor and Non-Guarantor Subsidiaries (continued)
Condensed Consolidating Balance Sheets
December 31, 2002
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
(in millions)
Cash and cash equivalents $ 12 $ 88 $ 7 $ -- $ 107
Accounts receivable, including retained
interest in securitized receivables, net -- 216 14 -- 230
Due from affiliates 11 330 2 (343) --
Prepaid expenses and supplies -- 17 -- -- 17
Deferred income taxes -- 22 -- -- 22
Assets of discontinued operations -- 87 -- -- 87
------------- ------------- ------------- ------------- -------------
Total current assets 23 760 23 (343) 463
Carrier operating property, at cost -- 1,488 28 -- 1,516
Less allowance for depreciation -- 992 15 -- 1,007
------------- ------------- ------------- ------------- -------------
Net carrier operating property -- 496 13 -- 509
Goodwill, net -- 269 15 -- 284
Investment in subsidiaries 656 4 -- (660) --
Deferred income taxes 4 36 -- -- 40
Long-term assets 10 30 -- -- 40
------------- ------------- ------------- ------------- -------------
Total assets $ 693 $ 1,595 $ 51 $ (1,003) $ 1,336
============= ============= ============= ============= =============
Accounts payable $ (12) $ 195 $ 11 $ -- $ 194
Due to affiliates 310 2 31 (343) --
Salaries and wages 2 145 4 -- 151
Current portion of long-term debt -- 34 -- -- 34
Freight and casualty claims payable -- 49 1 -- 50
Liabilities of discontinued operations -- 32 -- -- 32
------------- ------------- ------------- ------------- -------------
Total current liabilities 300 457 47 (343) 461
Casualty claims and other 5 62 -- -- 67
Deferred income taxes -- 11 -- -- 11
Long-term debt -- 274 -- -- 274
Accrued pension and retiree medical -- 135 -- -- 135
Total shareholders' equity 388 656 4 (660) 388
------------- ------------- ------------- ------------- -------------
Total liabilities and shareholders' equity $ 693 $ 1,595 $ 51 $ (1,003) $ 1,336
============= ============= ============= ============= =============
Note 12--Guarantor and Non-Guarantor Subsidiaries (continued)
Condensed Consolidating Statements of Income
Twelve Weeks Ended September 13, 2003
(Third Quarter)
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
(in millions)
Revenue $ -- $ 722 $ 30 $ -- $ 752
Operating expenses:
Salaries, wages and benefits 2 466 10 -- 478
Operating supplies and expenses (2) 118 6 -- 122
Purchased transportation -- 68 9 -- 77
Operating taxes and licenses -- 18 1 -- 19
Insurance and claims expenses -- 15 -- 15
Provision for depreciation -- 16 1 -- 17
Net loss on disposal of
operating property -- (5) -- -- (5)
Expense related to acquisition by
Yellow -- 24 -- -- 24
Results of affiliates 7 (2) -- (5) --
------------- ------------- ------------- ------------- -------------
Total operating expenses 7 718 27 (5) 747
------------- ------------- ------------- ------------- -------------
Operating income (7) 4 3 5 5
Other (expense) income, net 6 (12) -- -- (6)
------------- ------------- ------------- ------------- -------------
Income before income taxes (1) (8) 3 5 (1)
Provision for income taxes 2 (1) 1 -- 2
------------- ------------- ------------- ------------- -------------
Net income $ (3) $ (7) $ 2 $ 5 $ (3)
============= ============= ============= ============= =============
Condensed Consolidating Statements of Income
Twelve Weeks Ended September 7, 2002
(Third Quarter)
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
(in millions)
Revenue $ -- $ 654 $ 28 $ -- $ 682
Operating expenses:
Salaries, wages and benefits 1 428 9 -- 438
Operating supplies and expenses (1) 103 6 -- 108
Purchased transportation -- 53 10 -- 63
Operating taxes and licenses -- 18 -- -- 18
Insurance and claims expenses -- 15 1 -- 16
Provision for depreciation -- 17 1 -- 18
Net loss on disposal of
operating property -- 2 -- -- 2
Results of affiliates (12) (1) -- 13 --
------------- ------------- ------------- ------------- -------------
Total operating expenses (12) 635 27 13 663
------------- ------------- ------------- ------------- -------------
Operating income 12 19 1 (13) 19
Other (expense) income, net (1) (7) 1 -- (7)
------------- ------------- ------------- ------------- -------------
Income before income taxes 11 12 2 (13) 12
Provision for income taxes 4 -- 1 -- 5
------------- ------------- ------------- ------------- -------------
Net income $ 7 $ 12 $ 1 $ (13) $ 7
============= ============= ============= ============= =============
Note 12--Guarantor and Non-Guarantor Subsidiaries (continued)
Condensed Consolidating Statements of Income
Thirty-six Weeks Ended September 13, 2003
(Three Quarters)
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
(in millions)
Revenue $ -- $ 2,157 $ 91 $ (1) $ 2,247
Operating expenses:
Salaries, wages and benefits 6 1,385 30 -- 1,421
Operating supplies and expenses (6) 370 20 (1) 383
Purchased transportation -- 201 27 -- 228
Operating taxes and licenses -- 55 2 -- 57
Insurance and claims expenses -- 44 1 -- 45
Provision for depreciation -- 48 2 -- 50
Net loss on disposal of
operating property -- (4) -- -- (4)
Expense related to acquisition by Yellow -- 24 -- -- 24
Results of affiliates (12) (6) -- 18 --
------------- ------------- ------------- ------------- -------------
Total operating expenses (12) 2,117 82 17 2,204
------------- ------------- ------------- ------------- -------------
Operating income 12 40 9 (18) 43
Other (expense) income, net (1) (19) 1 -- (19)
------------- ------------- ------------- ------------- -------------
Income before income taxes 11 21 10 (18) 24
Provision for income taxes -- 9 4 -- 13
------------- ------------- ------------- ------------- -------------
Net income $ 11 $ 12 $ 6 $ (18) $ 11
============= ============= ============= ============= =============
Condensed Consolidating Statements of Income
Thirty-six Weeks Ended September 7, 2002
(Three Quarters)
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
(in millions)
Revenue $ -- $ 1,856 $ 82 $ (1) $ 1,937
Operating expenses:
Salaries, wages and benefits 4 1,235 26 -- 1,265
Operating supplies and expenses (4) 300 19 (1) 314
Purchased transportation -- 146 27 -- 173
Operating taxes and licenses -- 50 1 -- 51
Insurance and claims expenses -- 40 1 -- 41
Provision for depreciation -- 51 3 -- 54
Net loss on disposal of
operating property -- 2 -- -- 2
Results of affiliates (12) (3) -- 15 --
------------- ------------- ------------- ------------- -------------
Total operating expenses (12) 1,821 77 14 1,900
------------- ------------- ------------- ------------- -------------
Operating income 12 35 5 (15) 37
Other (expense) income, net (1) (20) 1 -- (20)
------------- ------------- ------------- ------------- -------------
Income before income taxes 11 15 6 (15) 17
Provision for income taxes -- 5 3 -- 8
------------- ------------- ------------- ------------- -------------
Income from continuing operations 11 10 3 (15) 9
Income from discontinued operations -- 2 -- -- 2
------------- ------------- ------------- ------------- -------------
Net income $ 11 $ 12 $ 3 $ (15) $ 11
============= ============= ============= ============= =============
Note 12--Guarantor and Non-Guarantor Subsidiaries (continued)
Condensed Consolidating Statement of Cash Flows
Thirty-six Weeks Ended September 13, 2003
(Three Quarters)
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
(in millions)
Net cash (used) provided by operating
activities $ (21) $ 74 $ 1 $ -- $ 54
Cash flows from investing activities
Purchases of carrier operating property, net -- (35) (2) -- (37)
Sales of carrier operating property -- 10 -- -- 10
Issuance of long-term note receivable (8) -- -- -- (8)
Business disposal 55 -- -- -- 55
------------- ------------- ------------- ------------- -------------
Net cash (used) in investing activities 47 (25) (2) -- 20
Cash flows from financing activities
Dividends received (paid) (3) -- -- -- (3)
Transfers to (from) parent 57 (57) -- -- --
Treasury stock activity--net 7 -- -- -- 7
Debt issuance costs -- -- -- -- --
Long-term borrowings (repayment) (52) -- -- -- (52)
------------- ------------- ------------- ------------- -------------
Net cash provided (used) in financing
activities 9 (57) -- -- (48)
Effect of exchange rate changes on cash -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Net (decrease) increase in cash and cash
equivalents 35 (8) (1) -- 26
Cash and cash equivalents at beginning
of year 12 88 7 -- 107
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at end of year $ 47 $ 80 $ 6 $ -- $ 133
============= ============= ============= ============= =============
Condensed Consolidating Statement of Cash Flows
Thirty-six Weeks Ended September 7, 2002
(Three Quarters)
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
(in millions)
Net cash (used) provided by operating
activities $ (33) $ 69 $ 8 $ -- $ 44
Cash flows from investing activities
Purchases of carrier operating property, -- (44) (3) -- (47)
net
Sales of carrier operating property -- 2 -- -- 2
Business acquisitions, net of cash (24) -- -- -- (24)
------------- ------------- ------------- ------------- -------------
Net cash (used) in investing activities (24) (42) (3) -- (69)
Cash flows from financing activities
Dividends received (paid) 44 (47) -- -- (3)
Accounts receivable securitization -- -- -- -- --
Treasury stock activity--net (13) -- -- -- (13)
Transfer from discontinued operations -- 5 -- -- 5
Long-term borrowings (repayment) (5) -- -- -- (5)
------------- ------------- ------------- ------------- -------------
Net cash provided (used) in financing
activities 26 (42) -- -- (16)
Net (decrease) increase in cash and cash
equivalents from continuing operations (31) (15) 5 -- (41)
------------- ------------- ------------- ------------- -------------
Net (decrease) increase in cash and cash
equivalents from discontinued operations -- (4) -- -- (4)
Cash and cash equivalents at beginning
of year 35 74 1 -- 110
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at end of year $ 4 $ 55 $ 6 $ -- $ 65
============= ============= ============= ============= =============
