SEC Filing | Yellow Corporation

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For the quarterly period ended March 31, 2005

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-12255

YELLOW ROADWAY CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		48-0948788
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

10990 Roe Avenue, Overland Park, Kansas		66211
(Address of principal executive offices)		(Zip Code)

(913) 696-6100

(Registrant’s telephone number, including area code)

No Changes

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at April 29, 2005
Common Stock, $1 Par Value Per Share		48,866,794 shares

INDEX


Item		Page
PART I – FINANCIAL INFORMATION
1.	Financial Statements

	Consolidated Balance Sheets - March 31, 2005 and December 31, 2004	3

	Statements of Consolidated Operations - Three Months Ended March 31, 2005 and 2004	4

	Statements of Consolidated Cash Flows - Three Months Ended March 31, 2005 and 2004	5

	Notes to Consolidated Financial Statements	6

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

3.	Quantitative and Qualitative Disclosures About Market Risk	26

4.	Controls and Procedures	27

PART II – OTHER INFORMATION

6.	Exhibits	28

	Signatures	29

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

Yellow Roadway Corporation and Subsidiaries

(Amounts in thousands except per share data)


	March 31, 2005			December 31, 2004
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	101,385		$	106,489
Accounts receivable, net		814,202			778,596
Prepaid expenses and other		166,414			168,356

Total current assets		1,082,001			1,053,441

Property and Equipment:
Cost		2,671,736			2,672,289
Less – accumulated depreciation		1,256,731			1,249,571

Net property and equipment		1,415,005			1,422,718

Goodwill		634,364			632,141
Intangibles, net		464,975			468,310
Other assets		49,629			50,559

Total assets	$	3,645,974		$	3,627,169

Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	257,774		$	307,089
Wages, vacations and employees’ benefits		397,026			427,731
Other current and accrued liabilities		233,453			210,519
Current maturities of contingently convertible notes		400,000			250,000
Current maturities of long-term debt		4,400			4,400

Total current liabilities		1,292,653			1,199,739

Other Liabilities:
Long-term debt, less current portion		252,320			403,535
Deferred income taxes, net		319,644			319,839
Claims and other liabilities		511,035			489,865
Commitments and contingencies

Shareholders’ Equity:
Common stock, $1 par value per share		50,976			51,303
Preferred stock, $1 par value per share		—			—
Capital surplus		714,470			694,504
Retained earnings		600,377			550,484
Accumulated other comprehensive loss		(33,016	)		(33,159	)
Unamortized restricted stock awards		(22,864	)		(10,479	)
Treasury stock, at cost (2,093 and 2,066 shares)		(39,621	)		(38,462	)

Total shareholders’ equity		1,270,322			1,214,191

Total liabilities and shareholders’ equity	$	3,645,974		$	3,627,169

The accompanying notes are an integral part of these statements.

STATEMENTS OF CONSOLIDATED OPERATIONS

Yellow Roadway Corporation and Subsidiaries

For the Three Months Ended March 31

(Amounts in thousands except per share data)

(Unaudited)


	2005			2004
Operating Revenue	$	1,677,961		$	1,552,135

Operating Expenses:
Salaries, wages and employees’ benefits		1,033,447			993,550
Operating expenses and supplies		256,457			238,357
Operating taxes and licenses		42,819			40,565
Claims and insurance		28,862			30,013
Depreciation and amortization		45,968			40,606
Purchased transportation		183,653			167,264
(Gains) losses on property disposals, net		(3,234	)		462

Total operating expenses		1,587,972			1,510,817

Operating Income		89,989			41,318

Nonoperating (Income) Expenses:
Interest expense		8,615			11,910
Other		771			(120	)

Nonoperating expenses, net		9,386			11,790

Income Before Income Taxes		80,603			29,528
Income tax provision		30,710			11,372

Net Income	$	49,893		$	18,156

Average Common Shares Outstanding – Basic		48,797			47,874

Average Common Shares Outstanding – Diluted		52,193			48,246

Basic Earnings Per Share	$	1.02		$	0.38

Diluted Earnings Per Share	$	0.96		$	0.38

The accompanying notes are an integral part of these statements.

STATEMENTS OF CONSOLIDATED CASH FLOWS

Yellow Roadway Corporation and Subsidiaries

For the Three Months Ended March 31

(Amounts in thousands)

(Unaudited)


	2005			2004
Operating Activities:
Net income	$	49,893		$	18,156
Noncash items included in net income:
Depreciation and amortization		45,968			40,606
(Gains) losses on property disposals, net		(3,234	)		462
Deferred income tax provision, net		(193	)		(3,602	)
Changes in assets and liabilities, net:
Accounts receivable		(31,334	)		(25,644	)
Accounts payable		(49,755	)		(60,204	)
Other working capital items		1,116			111,285
Claims and other		15,138			10,395
Other, net		3,623			(1,725	)

Net cash provided by operating activities		31,222			89,729

Investing Activities:
Acquisition of property and equipment		(42,723	)		(57,931	)
Proceeds from disposal of property and equipment		8,932			350
Acquisition of companies		(3,203	)		(7,881	)

Net cash used in investing activities		(36,994	)		(65,462	)

Financing Activities:
ABS borrowings, net		—			(58,500	)
Repayment of long-term debt		—			(22,014	)
Proceeds from exercise of stock options		668			1,769

Net cash provided by (used in) financing activities		668			(78,745	)

Net Decrease In Cash and Cash Equivalents		(5,104	)		(54,478	)

Cash and Cash Equivalents, Beginning of Period		106,489			75,166

Cash and Cash Equivalents, End of Period	$	101,385		$	20,688

Supplemental Cash Flow Information:
Income taxes paid (refunds), net	$	10,030		$	(15,146	)
Interest paid		6,826			8,791

The accompanying notes are an integral part of these statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Yellow Roadway Corporation and Subsidiaries

(Unaudited)

1.	Description of Business

Yellow Roadway Corporation (also referred to as “Yellow Roadway,” “we” or “our”), one of the largest transportation service providers in the world, is a holding company that through wholly owned operating subsidiaries offers its customers a wide range of asset and non-asset-based transportation services. Our operating subsidiaries include the following:

•

Yellow Transportation, Inc. (“Yellow Transportation”) is a leading transportation services provider that offers a full range of regional, national and international services for the movement of industrial, commercial and retail goods, primarily through centralized management and customer facing organizations. Approximately 40% of Yellow Transportation shipments are completed in two days or less.

•

Roadway Express, Inc. (“Roadway Express”) is a leading transportation services provider that offers a full range of regional, national and international services for the movement of industrial, commercial and retail goods, primarily through regionalized management and customer facing organizations. Approximately 30% of Roadway Express shipments are completed in two days or less. Roadway Express owns 100% of Reimer Express Lines Ltd. (“Reimer”), located in Canada, that specializes in shipments into, across and out of Canada.

•

Roadway Next Day Corporation is a holding company focused on business opportunities in the regional and next-day delivery lanes. Roadway Next Day Corporation owns 100% of New Penn Motor Express, Inc. (“New Penn”), which provides regional, next-day ground services through a network of facilities located in the Northeastern United States (“U.S.”); Quebec, Canada; and Puerto Rico.

•

Meridian IQ, Inc. (“Meridian IQ”) is a non-asset-based global transportation management company that plans and coordinates the movement of goods throughout the world, providing customers a quick return on investment, more efficient supply-chain processes and a single source for transportation management solutions.

2.	Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Yellow Roadway Corporation and its wholly owned subsidiaries. We have prepared the consolidated financial statements, without audit by independent public accountants, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, all normal recurring adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods included herein have been made. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements pursuant to SEC rules and regulations. Accordingly, the accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2004.

3.	Stock-Based Compensation

Yellow Roadway has various stock-based employee compensation plans, which are described more fully in our Annual Report on Form 10-K for the year ended December 31, 2004. Yellow Roadway accounts for stock options issued under those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. We do not reflect compensation costs in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

We estimated the fair value per option for each option granted in the periods presented using the Black-Scholes option pricing model with the following weighted average assumptions for the three months ended March 31:


	2005	2004
Actual options granted	—		28,000
Dividend yield	n/a		—	%
Expected volatility	n/a		45.2	%
Risk-free interest rate	n/a		2.6	%
Expected option life (years)	n/a		3.6
Fair value per option	n/a	$	12.61

The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, for the three months ended March 31:


(in millions except per share data)	2005		2004
Net income, as reported	$	49.9	$	18.2
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		0.2		0.5

Pro forma net income	$	49.7	$	17.7

Basic earnings per share:
Net income – as reported	$	1.02	$	0.38
Net income – pro forma		1.02		0.37

Diluted earnings per share:
Net income – as reported	$	0.96	$	0.38
Net income – pro forma		0.95		0.37

During the three months ended March 31, 2005, we recorded the issuance of 264,085 share units and 8,975 shares of restricted stock to certain executive officers, key employees and our Board of Directors under our long-term incentive and equity award plan. The weighted-average grant-date fair value of these awards was $59.63 per unit. According to the plan provisions, the share units provide the holders the right to receive one share of common stock upon vesting of one share unit. With respect to 142,226 units awarded, the vesting provision states that 50% of the awarded performance share units will vest three years from the date of grant and the remaining 50% will vest six years from the date of grant. With respect to 114,781 units, the entire award vests on the third anniversary of the date of grant.

The related compensation expense for the share units and restricted stock discussed above is included in the consolidated statements of operations ratably over the service period, defined as the performance period and vesting period combined. The performance share units and restricted stock are not reflected in the fair value or pro forma results above.

4.	Acquisitions

In accordance with SFAS No. 141, Business Combinations (“SFAS No. 141”), we allocate the purchase price of our acquisitions to the tangible and intangible assets and liabilities of the acquired entity based on their fair values. We record the excess purchase price over the fair values as goodwill. The fair value assigned to intangible assets acquired is based on valuations prepared by independent third party appraisal firms using estimates and assumptions provided by management. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), goodwill and intangible assets with indefinite useful lives are not amortized but are reviewed at least annually for impairment. An impairment loss would be recognized to the extent that the carrying amount exceeds the assets’ fair value. Intangible assets with definite useful lives are amortized on a straight-line basis over their respective useful lives.

USF Corporation

On February 27, 2005, Yellow Roadway and USF Corporation (“USF”) announced that they had entered into a definitive agreement pursuant to which Yellow Roadway will acquire USF through the merger of USF with a wholly owned subsidiary of

Yellow Roadway. On May 2, 2005, Yellow Roadway and USF announced revised terms of the proposed transaction, which is expected to have a transaction value of approximately $1.3 billion. Yellow Roadway will also assume approximately $99 million in net USF debt, resulting in a total enterprise value of approximately $1.4 billion. Each USF shareholder is entitled to receive $29.25 per share in cash and 0.31584 shares of Yellow Roadway stock for each share of USF stock. The transaction is subject to the approval of shareholders of USF. Assuming that all conditions to the merger agreement are satisfied or waived, we expect the transaction to close in the second quarter of 2005.

GPS Asia

In March 2005, MIQ LLC exercised and closed its option to purchase GPS Logistics Group Ltd., the Asian operations of GPS Logistics, Inc., and in turn, made a payment of $5.7 million ($3.2 million net of cash acquired). Under the terms of the purchase agreement, this payment is subject to subsequent upward and downward adjustments based on the financial performance of the Asia business through March 2007. Additional earn out payments could be required based on the financial performance of the Asia business during the period March 2007 to March 2009. The pro forma effect of this acquisition is not material to our results of operations.

5.	Goodwill and Intangibles

Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. In accordance with SFAS No. 142, we review goodwill at least annually for impairment based on a fair value approach.

The following table shows the amount of goodwill attributable to our operating segments with goodwill balances and changes therein:


(in millions)	Roadway Express		New Penn			Meridian IQ		Total
Balances at December 31, 2004	$	545.2	$	58.6		$	28.3	$	632.1
Goodwill resulting from acquisition		—		(0.4	)		2.7		2.3

Balances at March 31, 2005	$	545.2	$	58.2		$	31.0	$	634.4

The components of amortizable intangible assets are as follows:


		March 31, 2005				December 31, 2004
(in millions)	Weighted Average Life (years)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer related	17	$	118.2	$	10.9	$	118.2	$	9.0
Marketing related	6		1.0		0.4		1.0		0.4
Technology based	3		17.5		7.5		17.5		6.1

Intangible assets		$	136.7	$	18.8	$	136.7	$	15.5

Total marketing related intangible assets with indefinite lives, primarily tradenames, were $345.6 million at March 31, 2005 and $346.9 million at December 31, 2004. Certain foreign currency translation adjustments are also reflected in the intangible amounts. These intangible assets are not subject to amortization, but are subjected to annual impairment tests.

6.	Employee Benefits

Components of Net Periodic Pension and Other Postretirement Cost

The following table sets forth the components of our pension and other postretirement costs for the three months ended March 31:


	Pension Costs						Other Postretirement Costs
(in millions)	2005			2004			2005			2004
Service cost	$	10.6		$	10.2		$	0.2		$	0.5
Interest cost		14.9			14.5			0.5			0.8
Expected return on plan assets		(13.8	)		(13.3	)		—			—
Amortization of prior service cost		0.4			0.3			0.1			—
Amortization of net loss (gain)		2.6			1.8			(0.1	)		—

Net periodic pension cost	$	14.7		$	13.5		$	0.7		$	1.3

Employer Contributions

We expect to contribute approximately $49.5 million to our pension plans in 2005. As of March 31, 2005, our contributions to the pension plans have not been significant.

7.	Business Segments

We report financial and descriptive information about our reportable operating segments on a basis consistent with that used internally for evaluating segment performance and allocating resources to segments. We manage the segments separately because each requires different operating, marketing and technology strategies. We evaluate performance primarily on adjusted operating income and return on capital.

We have four reportable segments, which are strategic business units that offer complementary transportation services to their customers. Yellow Transportation and Roadway Express are carriers that provide comprehensive regional, national and international transportation services. New Penn is a carrier that focuses on business opportunities in the regional and next-day delivery lanes. Meridian IQ, our non-asset-based segment, provides domestic and international freight forwarding, multi-modal brokerage services, and transportation management services.

The accounting policies of the segments are the same as those described in the Summary of Accounting Policies note in our Annual Report on Form 10-K for the year ended December 31, 2004. We charge management fees and other corporate services to our segments based on the direct benefits received or as a percentage of revenue. Corporate operating losses represent operating expenses of the holding company, including salaries, wages and benefits, along with incentive compensation and professional services for all periods presented. Corporate identifiable assets primarily refer to cash, cash equivalents and deferred debt issuance costs. Intersegment revenue relates to transportation services provided by Yellow Transportation to Meridian IQ and Roadway Express as well as charges to Yellow Transportation for use of various Meridian IQ service names.

The following table summarizes our operations by business segment:


(in millions)	Yellow Transportation			Roadway Express			New Penn		Meridian IQ		Corporate/ Eliminations			Consolidated
As of March 31, 2005 Identifiable assets	$	1,012.4		$	2,105.4		$	248.8	$	117.6	$	161.8		$	3,646.0

As of December 31, 2004 Identifiable assets		1,030.4			2,110.4			248.9		108.0		129.5			3,627.2

Three months ended March 31, 2005
External revenue		790.5			766.2			65.4		55.9		—			1,678.0
Intersegment revenue		0.7			0.6			—		0.5		(1.8	)		—
Operating income (loss)		48.8			37.1			8.0		1.0		(4.9	)		90.0
Adjustments to operating income^(a)		(2.6	)		(0.6	)		—		—		—			(3.2	)
Adjusted operating income (loss)^(b)		46.2			36.5			8.0		1.0		(4.9	)		86.8

Three months ended March 31, 2004
External revenue		733.8			717.1			56.1		45.1		—			1,552.1
Intersegment revenue		0.7			—			—		0.6		(1.3	)		—
Operating income (loss)		26.4			15.0			5.8		0.6		(6.5	)		41.3
Adjustments to operating income^(a)		0.5			—			—		—		—			0.5
Adjusted operating income (loss)^(b)		26.9			15.0			5.8		0.6		(6.5	)		41.8

(a)

Management excludes these items when evaluating operating income and segment performance to better evaluate the results of our core operations. In the periods presented, adjustments consisted of losses (gains) on property disposals.

(b)

This measurement is used for internal management purposes and should not be construed as a better measurement than operating income as defined by generally accepted accounting principles.

8.	Comprehensive Income

Our comprehensive income for the periods presented includes net income and foreign currency translation adjustments. Comprehensive income for the three months ended March 31 follows:


(in millions)	2005		2004
Net income	$	49.9	$	18.2
Other comprehensive income, net of tax:
Changes in foreign currency translation adjustments		0.6		—

Other comprehensive income		0.6		—

Comprehensive income	$	50.5	$	18.2

9.	Rental Expenses

We incur rental expenses under non-cancelable lease agreements for certain buildings and operating equipment. Rental expense is charged to “operating expenses and supplies” on the Statements of Consolidated Operations. The following table represents the actual rental expense, as reflected in operating income, incurred for the three months ended March 31:


(in millions)	2005		2004
Rental expense	$	27.1	$	23.5

10.	Multi-Employer Pension Plans

Yellow Transportation, Roadway Express and New Penn contribute to approximately 90 separate multi-employer health, welfare and pension plans for employees covered by collective bargaining agreements (approximately 80% of total employees). The largest of these plans, the Central States Southeast and Southwest Areas Pension Plan (the “Central States Plan”) provides retirement benefits to approximately 53% of our total employees. The amounts of these contributions are determined by contract and established in the agreements. The health and welfare plans provide health care and disability benefits to active employees and retirees. The pension plans provide defined benefits to retired participants. We recognize as net pension cost the required contribution for the period and recognize as a liability any contributions due and unpaid.

Under current legislation regarding multi-employer pension plans, a termination, withdrawal or partial withdrawal from any multi-employer plan in an under-funded status would render us liable for a proportionate share of the multi-employer plans’ unfunded vested liabilities. This potential unfunded pension liability also applies to our unionized competitors who contribute to multi-employer plans. Based on the limited information available from plan administrators, which we cannot independently validate, we believe that our portion of the contingent liability in the case of a full withdrawal or termination would be material to our financial position and results of operations. Yellow Transportation, Roadway Express and New Penn have no current intention of taking any action that would subject us to obligations under the legislation.

Yellow Transportation, Roadway Express and New Penn each have collective bargaining agreements with their unions that stipulate the amount of contributions each company must make to union-sponsored, multi-employer pension plans. The Internal Revenue Code and related regulations establish minimum funding requirements for these plans. Under legislation passed in April 2004, qualified multi-employer plans are permitted to exclude certain recent investment losses from the minimum funding formula through 2005. The Central States Plan, in particular, has informed us that its recent investment performance has adversely affected its funding levels and that the fund is seeking corrective measures to address its funding. During the benefit period of the April 2004 legislation, the Central States Plan is expected to meet the minimum funding requirements. In the unlikely event that the Central States Plan does not elect to receive the benefit of the legislation, the Company believes that the plan would not meet the minimum funding requirements that the Code and related regulations require. If any of these multi-employer pension plans, including the Central States Plan, fails to meet minimum funding requirements and the trustees of such a plan are unable to obtain a waiver of the requirements or certain changes in how the applicable plan calculates its funding level from the Internal Revenue Service (“IRS”) or reduce pension benefits to a level where the requirements are met, the IRS could impose an excise tax on all employers participating in these plans. To avoid these taxes, contributions in excess of our contractually agreed upon rates could be required to correct the funding deficiency. If an excise tax were imposed on the participating employers or additional contributions required, it could have a material adverse impact on the financial results of Yellow Roadway.

11.	Guarantees of the Contingent Convertible Senior Notes

In August 2003, Yellow Roadway issued 5.0% contingent convertible senior notes due 2023. In November 2003, we issued 3.375% contingent convertible senior notes due 2023 (the August and November issuances, collectively, may also be known as the “contingent convertible senior notes”). In December 2004, we completed exchange offers pursuant to which holders of the contingent convertible senior notes could exchange their notes for an equal amount of new net share settled contingent convertible senior notes. Substantially all notes were exchanged as a part of the exchange offers. In connection with the net share settled contingent convertible senior notes, the following 100% owned subsidiaries of Yellow Roadway have issued guarantees in favor of the holders of the net share settled contingent convertible senior notes: Yellow Transportation, Inc., Mission Supply Company, Yellow Relocation Services, Inc., Yellow Roadway Technologies, Inc., Meridian IQ, Inc., MIQ LLC (formerly Yellow GPS, LLC), Globe.com Lines, Inc., Roadway LLC, Roadway Next Day Corporation, and Roadway Express, Inc. Each of the guarantees is full and unconditional and joint and several.

The summarized consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantors and issuer because management does not believe that such separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of Yellow Roadway or any guarantor to obtain funds from its subsidiaries by dividend or loan.

The following represents summarized condensed consolidating financial information as of March 31, 2005 and December 31, 2004 with respect to the financial position and for the three months ended March 31, 2005 and 2004 for results of operations and for the statements of cash flows of Yellow Roadway and its subsidiaries. The Parent column presents the financial information of Yellow Roadway, the primary obligor of the contingent convertible senior notes. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the net share settled contingent convertible senior notes. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries governed by foreign laws, Yellow Roadway Receivables Funding Corporation, Yellow Receivables Corporation and Roadway Funding, Inc., the special-purpose entities that are or were associated with our asset backed securitization (“ABS”) agreements.

Condensed Consolidating Balance Sheets


March 31, 2005 (in millions)	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	78		$	7	$	16		$	—		$	101
Intercompany advances receivable		—			411		54			(465	)		—
Accounts receivable, net		4			45		775			(10	)		814
Prepaid expenses and other		4			147		16			—			167

Total current assets		86			610		861			(475	)		1,082
Property and equipment		—			2,536		136			—			2,672
Less – accumulated depreciation		—			1,234		23			—			1,257

Net property and equipment		—			1,302		113			—			1,415
Investment in subsidiaries		1,395			108		—			(1,503	)		—
Receivable from affiliate		(45	)		51		(6	)		—			—
Goodwill, intangibles and other assets		218			1,107		174			(350	)		1,149

Total assets	$	1,654		$	3,178	$	1,142		$	(2,328	)	$	3,646

Intercompany advances payable	$	—		$	—	$	675		$	(675	)	$	—
Accounts payable		12			217		29			—			258
Wages, vacations and employees’ benefits		7			371		19			—			397
Other current and accrued liabilities		(4	)		223		15			—			234
Current maturities of contingently convertible notes		400			—		—			—			400
Current maturities of long-term debt		—			4		—			—			4

Total current liabilities		415			815		738			(675	)		1,293
Payable to affiliate		(27	)		20		157			(150	)		—
Long-term debt, less current portion		—			252		—			—			252
Deferred income taxes, net		(6	)		286		40			—			320
Claims and other liabilities		20			481		10			—			511
Commitments and contingencies
Shareholders’ equity		1,252			1,324		197			(1,503	)		1,270

Total liabilities and shareholders’ equity	$	1,654		$	3,178	$	1,142		$	(2,328	)	$	3,646


December 31, 2004 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	82		$	7		$	17		$	—		$	106
Intercompany advances receivable		—			484			—			(484	)		—
Accounts receivable, net		3			14			762			—			779
Prepaid expenses and other		4			149			15			—			168

Total current assets		89			654			794			(484	)		1,053
Property and equipment at cost		—			2,541			131			—			2,672
Less – accumulated depreciation		—			1,231			18			—			1,249

Net property and equipment		—			1,310			113			—			1,423
Investment in subsidiaries		1,162			97			—			(1,259	)		—
Receivable from affiliate		8			127			39			(174	)		—
Goodwill, intangibles and other assets		218			953			180			(200	)		1,151

Total assets	$	1,477		$	3,141		$	1,126		$	(2,117	)	$	3,627

Intercompany advances payable	$	—		$	—		$	684		$	(684	)	$	—
Accounts payable		8			276			23			—			307
Wages, vacations and employees’ benefits		17			391			20			—			428
Other current and accrued liabilities		—			117			7			—			124
ABS borrowings		17			66			3			—			86
Current maturities of contingently convertible notes		250			—			—			—			250
Current maturities of long-term debt		—			4			—			—			4

Total current liabilities		292			854			737			(684	)		1,199
Payable to affiliate		—			16			158			(174	)		—
Long-term debt, less current portion		150			254			—			—			404
Deferred income taxes, net		(5	)		286			39			—			320
Claims and other liabilities		18			457			15			—			490
Commitments and contingencies
Shareholders’ equity		1,022			1,274			177			(1,259	)		1,214

Total liabilities and shareholders’ equity	$	1,477		$	3,141		$	1,126		$	(2,117	)	$	3,627


Condensed Consolidating Statements of Operations

For the three months ended March 31, 2005 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	15		$	1,604		$	130		$	(71	)	$	1,678

Operating expenses:
Salaries, wages and employees’ benefits		11			960			62			—			1,033
Operating expenses and supplies		9			294			23			(70	)		256
Operating taxes and licenses		—			41			2			—			43
Claims and insurance		—			28			1			—			29
Depreciation and amortization		—			41			5			—			46
Purchased transportation		—			154			31			(1	)		184
Operating (gains) and losses		—			(3	)		—			—			(3	)

Total operating expenses		20			1,515			124			(71	)		1,588

Operating income (loss)		(5	)		89			6			—			90

Nonoperating (income) expenses:
Interest expense		6			17			11			(26	)		8
Other		(7	)		12			(30	)		26			1

Nonoperating (income) expenses, net		(1	)		29			(19	)		—			9

Income (loss) before income taxes		(4	)		60			25			—			81
Income tax provision (benefit)		—			22			9			—			31
Subsidiary earnings		54			16			—			(70	)		—

Net income (loss)	$	50		$	54		$	16		$	(70	)	$	50


For the three months ended March 31, 2004 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	11		$	1,449		$	105		$	(13	)	$	1,552

Operating expenses:
Salaries, wages and employees’ benefits		11			930			53			—			994
Operating expenses and supplies		5			225			20			(12	)		238
Operating taxes and licenses		—			39			2			—			41
Claims and insurance		1			28			1			—			30
Depreciation and amortization		—			37			4			—			41
Purchased transportation		—			148			19			—			167

Total operating expenses		17			1,407			99			(12	)		1,511

Operating income (loss)		(6	)		42			6			(1	)		41

Nonoperating (income) expenses:
Interest expense		8			8			1			(5	)		12
Other		(31	)		11			(11	)		31			—

Nonoperating (income) expenses, net		(23	)		19			(10	)		26			12

Income (loss) before income taxes		17			23			16			(27	)		29
Income tax provision (benefit)		(3	)		9			5			—			11
Subsidiary earnings		22			(3	)		—			(19	)		—

Net income (loss)	$	42		$	11		$	11		$	(46	)	$	18


Condensed Consolidating Statements of Cash Flows

For the three months ended March 31, 2005 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities:
Net cash provided by (used in) operating activities	$	(24	)	$	6		$	49		$	—		$	31

Investing activities:
Acquisition of property and equipment		—			(34	)		(9	)		—			(43	)
Proceeds from disposal of property and equipment		—			9			—			—			9
Acquisition of companies		(6	)		—			3			—			(3	)

Net cash used in investing activities		(6	)		(25	)		(6	)		—			(37	)

Financing activities:
Proceeds from exercise of stock options		1			—			—			—			1
Intercompany advances / repayments		25			19			(44	)		—			—

Net cash provided by (used in) financing activities		26			19			(44	)		—			1

Net decrease in cash and cash equivalents		(4	)		—			(1	)		—			(5	)
Cash and cash equivalents, beginning of period		82			7			17			—			106

Cash and cash equivalents, end of period	$	78		$	7		$	16		$	—		$	101


For the three months ended March 31, 2004 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities:
Net cash provided by (used in) operating activities	$	66		$	285		$	(37	)	$	(224	)	$	90

Investing activities:
Acquisition of property and equipment		—			(54	)		(3	)		—			(57	)
Proceeds from disposal of property and equipment		—			(1	)		1			—			—
Acquisition of companies		(8	)		—			—			—			(8	)

Net cash used in investing activities		(8	)		(55	)		(2	)		—			(65	)

Financing activities:
ABS borrowings, net		—			—			(59	)		—			(59	)
Repayment of long-term debt		(22	)		—			—			—			(22	)
Proceeds from stock options		2			—			—			—			2
Intercompany advances / repayments		(56	)		(247	)		79			224			—

Net cash provided by (used in) financing activities		(76	)		(247	)		20			224			(79	)

Net decrease in cash and cash equivalents		(18	)		(17	)		(19	)		—			(54	)
Cash and cash equivalents, beginning of Period		19			20			36			—			75

Cash and cash equivalents, end of period	$	1		$	3		$	17		$	—		$	21

12.	Guarantees of the Senior Notes Due 2008

In connection with the senior notes due 2008 that Yellow Roadway assumed by virtue of its merger with Roadway, and in addition to the primary obligor, Roadway LLC, Yellow Roadway and its following 100% owned subsidiaries have issued guarantees in favor of the holders of the senior notes due 2008: Roadway Next Day Corporation, New Penn Motor Express, Inc., Roadway Express, Inc., Roadway Reverse Logistics, Inc. and Roadway Express International, Inc. Each of the guarantees is full and unconditional and joint and several.

The summarized consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantors and issuer because management does not believe that such separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of Yellow Roadway or any guarantor subsidiary to obtain funds from its subsidiaries by dividend or loan.

The following represents summarized condensed consolidating financial information of Yellow Roadway and its subsidiaries as of March 31, 2005 and December 31, 2004 with respect to the financial position, for the three months ended March 31, 2005 and 2004, for results of operations and for statements of cash flows. The primary obligor column presents the financial information of Roadway LLC. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the senior notes due 2008 including Yellow Roadway, the holding company. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and Yellow Roadway Receivables Funding Corporation, Yellow Receivables Corporation and Roadway Funding, Inc., the special-purpose entities that are or were associated with our ABS agreements.

Condensed Consolidating Balance Sheets


March 31, 2005 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	—		$	86		$	15		$	—		$	101
Intercompany advances receivable		—			517			—			(517	)		—
Accounts receivable, net		—			19			805			(10	)		814
Prepaid expenses and other		11			90			66			—			167

Total current assets		11			712			886			(527	)		1,082
Property and equipment		—			859			1,813			—			2,672
Less – accumulated depreciation		—			78			1,179			—			1,257

Net property and equipment		—			781			634			—			1,415
Investment in subsidiaries		681			48			9			(738	)		—
Receivable from affiliate		107			(61	)		(46	)		—			—
Goodwill, intangibles and other assets		656			1,048			95			(650	)		1,149

Total assets	$	1,455		$	2,528		$	1,578		$	(1,915	)	$	3,646

Intercompany advances payable	$	—		$	—		$	527		$	(527	)	$	—
Accounts payable		—			102			156			—			258
Wages, vacations and employees’ benefits		—			218			179			—			397
Other current and accrued liabilities		9			106			119			—			234
Current maturities of contingently convertible notes		—			400			—			—			400
Current maturities of long-term debt		—			—			4			—			4

Total current liabilities		9			826			985			(527	)		1,293
Payable to affiliate		—			623			27			(650	)		—
Long-term debt, less current portion		243			—			9			—			252
Deferred income taxes, net		(9	)		212			117			—			320
Claims and other liabilities		—			338			173			—			511
Commitments and contingencies
Shareholders’ equity		1,212			529			267			(738	)		1,270

Total liabilities and shareholders’ equity	$	1,455		$	2,528		$	1,578		$	(1,915	)	$	3,646


December 31, 2004 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Cash and cash equivalents	$	—		$	89		$	17	$	—		$	106
Intercompany advances receivable		76			542			—		(618	)		—
Accounts receivable, net		—			(1	)		780		—			779
Prepaid expenses and other		11			69			88		—			168

Total current assets		87			699			885		(618	)		1,053
Property and equipment		—			876			1,796		—			2,672
Less – accumulated depreciation		—			70			1,179		—			1,249

Net property and equipment		—			806			617		—			1,423
Investment in subsidiaries		671			57			1		(729	)		—
Receivable from affiliate		650			(12	)		12		(650	)		—
Goodwill, intangibles and other assets		6			1,045			100		—			1,151

Total assets	$	1,414		$	2,595		$	1,615	$	(1,997	)	$	3,627

Intercompany advances payable	$	—		$	—		$	618	$	(618	)	$	—
Accounts payable		—			123			184		—			307
Wages, vacations and employees’ benefits		—			238			190		—			428
Claims and insurance accruals		—			59			65		—			124
Other current and accrued liabilities		(16	)		71			31		—			86
Current maturities of contingently convertible notes		—			250			—		—			250
Current maturities of long-term debt		—			—			4		—			4

Total current liabilities		(16	)		741			1,092		(618	)		1,199
Payable to affiliate		—			626			24		(650	)		—
Long-term debt, less current portion		244			150			10		—			404
Deferred income taxes, net		(9	)		212			117		—			320
Claims and other liabilities		—			334			156		—			490
Commitments and contingencies
Shareholders’ equity		1,195			532			216		(729	)		1,214

Total liabilities and shareholders’ equity	$	1,414		$	2,595		$	1,615	$	(1,997	)	$	3,627

Condensed Consolidating Statements of Operations


For the three months ended March 31, 2005 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	—		$	739		$	939		$	—		$	1,678

Operating expenses:
Salaries, wages and employees’ benefits		—			505			528			—			1,033
Operating expenses and supplies		—			70			186			—			256
Operating taxes and licenses		—			20			23			—			43
Claims and insurance		—			12			17			—			29
Depreciation and amortization		—			20			26			—			46
Purchased transportation		—			74			110			—			184
Operating (gains) and losses		—			(1	)		(2	)		—			(3	)

Total operating expenses		—			700			888			—			1,588

Operating income (loss)		—			39			51			—			90

Nonoperating (income) expenses:
Interest expense		3			7			11			(13	)		8
Other		(13	)		21			(20	)		13			1

Nonoperating (income) expenses, net		(10	)		28			(9	)		—			9

Income (loss) before income taxes		10			11			60			—			81
Income tax provision		4			5			22			—			31
Subsidiary earnings		44			38			—			(82	)		—

Net income (loss)	$	50		$	44		$	38		$	(82	)	$	50


For the three months ended March 31, 2004 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Operating revenue	$	—		$	751		$	814	$	(13	)	$	1,552

Operating expenses:
Salaries, wages and employees’ benefits		—			491			503		—			994
Operating expenses and supplies		—			127			123		(12	)		238
Operating taxes and licenses		—			18			23		—			41
Claims and insurance		—			15			15		—			30
Depreciation and amortization		—			18			23		—			41
Purchased transportation		—			70			98		(1	)		167

Total operating expenses		—			739			785		(13	)		1,511

Operating income (loss)		—			12			29		—			41

Nonoperating (income) expenses:
Interest expense		3			21			6		(18	)		12
Other		(13	)		(6	)		2		17			—

Nonoperating (income) expenses, net		(10	)		15			8		(1	)		12

Income (loss) before income taxes		10			(3	)		21		1			29
Income tax provision		4			(1	)		8		—			11
Subsidiary earnings		4			13			—		(17	)		—

Net income (loss)	$	10		$	11		$	13	$	(16	)	$	18

Condensed Consolidating Statements of Cash Flows


For the three months ended March 31, 2005 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by (used in) operating activities	$	31		$	(62	)	$	62		$	—	$	31

Investing activities:
Acquisition of property and equipment		—			(12	)		(31	)		—		(43	)
Proceeds from disposal of property and equipment		—			2			7			—		9
Acquisition of companies		—			(6	)		3			—		(3	)

Net cash used in investing activities		—			(16	)		(21	)		—		(37	)

Financing activities:
Proceeds from exercise of stock options		—			1			—			—		1
Intercompany advances / repayments		(31	)		74			(43	)		—		—

Net cash provided by (used in) financing activities		(31	)		75			(43	)		—		1

Net decrease in cash and cash equivalents		—			(3	)		(2	)		—		(5	)
Cash and cash equivalents, beginning of period		—			89			17			—		106

Cash and cash equivalents, end of period	$	—		$	86			15		$	—	$	101

Condensed Consolidating Statements of Cash Flows


For the three months ended March 31, 2004 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by (used in) operating activities	$	14		$	79		$	(3	)	$	—	$	90

Investing activities:
Acquisition of property and equipment		—			(16	)		(41	)		—		(57	)
Proceeds from disposal of property and equipment		—			—			—			—		—
Acquisition of companies		—			(8	)		—			—		(8	)

Net cash used in investing activities		—			(24	)		(41	)		—		(65	)

Financing activities:
ABS borrowings, net		—			—			(59	)		—		(59	)
Repayment of long-term debt		—			(22	)		—			—		(22	)
Proceeds from exercise of stock options		—			2			—			—		2
Intercompany advances / repayments		(14	)		(89	)		103			—		—

Net cash provided by (used in) financing activities		(14	)		(109	)		44			—		(79	)

Net decrease in cash and cash equivalents		—			(54	)		—			—		(54	)
Cash and cash equivalents, beginning of period		—			62			13			—		75

Cash and cash equivalents, end of period	$	—		$	8		$	13		$	—	$	21

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements of Yellow Roadway Corporation (also referred to as “Yellow Roadway,” “we” or “our”). MD&A and certain statements in the Notes to Consolidated Financial Statements include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21 of the Securities Exchange Act of 1934, as amended (each a “forward-looking statement”). Forward-looking statements include those preceded by, followed by or include the words “should,” “could,” “may,” “expect,” “believe,” “estimate” or similar expressions. Our actual results could differ materially from those projected by these forward-looking statements due to a number of factors, including (without limitation), inflation, inclement weather, price and availability of fuel, competitor pricing activity, expense volatility, ability to capture cost synergies, changes in equity and debt markets, a downturn in general or regional economic activity, effects of a terrorist attack, and labor relations, including (without limitation), the impact of work rules, work stoppages, strikes or other disruptions, any obligations to multi-employer health, welfare and pension plans, wage requirements and employee satisfaction.

Results of Operations

Our Results of Operations section focuses on the highlights and significant items that impacted our operating results during the first quarter. Our discussion will also explain the adjustments to operating income that management excludes when internally evaluating segment performance since the items are not related to the segments’ core operations. Please refer to our Business Segments note for further discussion.

Yellow Transportation Results

Yellow Transportation represented approximately 47% of our consolidated revenue in the first quarter of 2005 and 2004. The table below provides summary financial information for Yellow Transportation for the three months ended March 31:


(in millions)	2005			2004			Percent Change
Operating revenue	$	791.2		$	734.5		7.7	%
Operating income		48.8			26.4		84.8	%
Adjustments to operating income^(a)		(2.6	)		0.5		420.0	%
Adjusted operating income^(b)		46.2			26.9		71.7	%
Operating ratio		93.8	%		96.4	%	(2.6	)^(c)
Adjusted operating ratio		94.2	%		96.3	%	(2.1	)

(a)	Represents charges that management excludes when evaluating segment performance to better understand our core operations (see discussion below).

(b)	This measurement is used for internal management purposes and should not be construed as a better measurement than operating income as defined by generally accepted accounting principles

(c)	Percentage points.

Three months ended March 31, 2005 compared to three months ended March 31, 2004

Yellow Transportation reported record first quarter revenue in 2005 of $791.2 million, representing an increase of $56.7 million or 7.7% from the first quarter of 2004. The revenue increase resulted from improved yield, higher fuel surcharge revenue and a continued emphasis on premium services. The fuel surcharge, adjusted weekly and based on a national index, represents an amount charged to customers that adjusts for changing fuel prices and is common throughout the transportation industry. The two primary components of less-than-truckload (“LTL”) revenue are tonnage, comprised of the number of shipments and the weight per shipment, and price, usually evaluated on a per hundred weight basis. In the first quarter of 2005, Yellow Transportation LTL tonnage declined by 1.0% per day and LTL revenue per hundred weight improved by 8.4% from the first quarter of 2004.

During the first quarter of 2005, a new next-day offering was introduced that was successfully implemented with excellent operational performance. Additionally, premium services, an integral part of our strategy to offer a broad portfolio of services and meet the increasingly complex transportation needs of our customers, continued to deliver significant revenue growth. Premium services at Yellow Transportation include, among others, Exact Express®, an expedited and time-definite ground service with a 100% satisfaction guarantee. Total Exact Express revenue increased in the first quarter of 2005 by 17.1%.

Yellow Transportation operating income improved by $22.4 million or 84.8% in the first quarter of 2005 compared to the first quarter of 2004. Operating income increased due to higher revenue, including fuel surcharge revenue, and our continued ability to effectively balance volume and price. Increased wage and benefit rates, primarily contractual, and increased purchased transportation partially offset the operating income improvement. Operating expenses as a percentage of revenue decreased in the first quarter of 2005 by 2.6 percentage points compared to the first quarter of 2004, resulting in an operating ratio of 93.8%. Operating ratio refers to a common industry measurement calculated by dividing a company’s operating expenses by its operating revenue.

In addition to the operating ratio, we evaluate our results based on incremental margins, or the change in adjusted operating income divided by the change in revenue. The incremental margin at Yellow Transportation from the first quarter of 2004 to the first quarter of 2005 was 34% which is above our 15 to 20% long-term goal. In any given quarter, our incremental margin may be above or below our targeted level of 15 to 20%. However, over the longer-term, our expectation is to average a 15 to 20% incremental margin.

Adjustments to operating income represent charges that management excludes when evaluating segment performance to better understand the results of our core operations. Management excludes the impact of gains and losses from the disposal of property as they reflect charges not related to the segment’s primary business. For the three months ended March 31, 2005 and 2004, adjustments to operating income were ($2.6) million and $0.5 million.

Roadway Express Results

Roadway Express represented approximately 46% of our consolidated revenue in the first quarter of 2005 and 2004. The table below provides summary financial information for Roadway Express for the three months ended March 31:


(in millions)	2005			2004			Percent Change
Operating revenue	$	766.8		$	717.1		6.9	%
Operating income		37.1			15.0		147.3	%
Adjustments to operating income^(a)		(0.6	)		—		100.0	%
Adjusted operating income^(b)		36.5			15.0		143.3	%
Operating ratio		95.2	%		97.9	%	(2.7	)^(c)
Adjusted operating ratio		95.2	%		97.9	%	(2.7	)

(a)	Represents charges that management excludes when evaluating segment performance to better understand our core operations.

(b)	This measurement is used for internal management purposes and should not be construed as a better measurement than operating income as defined by generally accepted accounting principles

(c)	Percentage points.

Three months ended March 31, 2005 compared to three months ended March 31, 2004

Roadway Express reported revenue of $766.8 million in the first quarter of 2005 compared to $717.1 million in the same quarter of 2004. The revenue increase was driven by a 6.5% increase in overall revenue per hundred weight and a 6.0% increase in LTL revenue per hundred weight. A continued emphasis on premium products, which grew 68% compared to the first quarter of 2004, also contributed to the increase in revenue. Modest increases in revenue were also attributable to the increases in tonnage per day of .9%, .5% of which is LTL. Fuel surcharge revenue also contributed to the increased revenue.

Roadway Express reported operating income of $37.1 million for the first quarter, an improvement of 147.3% or $22.1 million over the first quarter of 2004. Overall operating expenses were controlled in line with the increase in business volume. Operating supplies, net of fuel related costs, were reduced compared to the first quarter of 2004. Continued efficiencies in synergy activities and positive trends in insurance claims as well as increased fuel surcharge revenue also contributed to the favorable results. The segment experienced somewhat lower efficiencies related to inconsistent adjustment to volumes and the initial implementation of organizational changes in our Regional Service Centers. Roadway Express has experienced significant improvement in these cost areas late in the quarter as the initiatives came to a more complete implementation. Roadway Express reported a first quarter operating ratio of 95.2%, a 2.7 percentage point improvement over the first quarter of 2004.

New Penn Results

New Penn represented approximately 4% of our consolidated revenue in the first quarter of 2005 and 2004. The table below provides summary financial information for New Penn for the three months ended March 31:


(in millions)	2005			2004			Percent Change
Operating revenue	$	65.4		$	56.1		16.6	%
Operating income		8.0			5.8		37.9	%
Adjustments to operating income^(a)		—			—		—
Adjusted operating income^(b)		8.0			5.8		37.9	%
Operating ratio		87.7	%		89.7	%	(2.0	)^(c)
Adjusted operating ratio		87.7	%		89.7	%	(2.0	)

(a)	Represents charges that management excludes when evaluating segment performance to better understand our core operations.

(b)	This measurement is used for internal management purposes and should not be construed as a better measurement than operating income as defined by generally accepted accounting principles

(c)	Percentage points.

Three months ended March 31, 2005 compared to three months ended March 31, 2004

New Penn reported revenue of $65.4 million in the first quarter of 2005 compared to reported revenue of $56.1 million in the first quarter of 2004. The 16.6% revenue improvement from the first quarter of 2004 to the first quarter of 2005 resulted primarily from a 9.7% increase in LTL tonnage per day, and a 7.8% increase in LTL revenue per hundred weight. New Penn continued to gain profitable new customers on a year-over-year quarterly basis through strong sales initiatives and closure of a major competitor in the Northeast region, where New Penn primarily operates and favorable general economic conditions.

Operating income at New Penn was $8.0 million in the first quarter of 2005 compared to $5.8 million in the first quarter of 2004. Operating income results continued to exceed management’s expectations. Increased revenue, including fuel surcharge revenue, combined with stringent cost management significantly contributed to an operating ratio improvement of 2.0 percentage points from the prior year period resulting in a first quarter 2005 operating ratio of 87.7% compared to the first quarter of 2004 operating ratio of 89.7%.

Meridian IQ Results

Meridian IQ is our non-asset-based segment that plans and coordinates the movement of goods throughout the world. Meridian IQ represented approximately 3% of our consolidated revenue in the first quarter of 2005 and 2004. The table below provides summary financial information for Meridian IQ for the three months ended March 31:


(in millions)	2005		2004		Percent Change
Operating revenue	$	56.4	$	45.7	23.4	%
Operating income		1.0		0.6	66.6	%

Three months ended March 31, 2005 compared to three months ended March 31, 2004

In the first quarter of 2005, Meridian IQ revenue increased by $10.7 million or 23.4% from the first quarter of 2004. The significant increase in revenue resulted from a combination of strong organic growth within Meridian IQ existing services and recent acquisitions. Operating income also increased from $0.6 million in the first quarter of 2004 to $1.0 million in the first quarter of 2005. The improved operating results are reflective of the increased revenue and scalability.

Consolidated Results

Our consolidated results for the three months ended March 31, 2005 include the results of each of the operating segments previously discussed. The following discussion focuses on items that management evaluates on a consolidated basis, as segment results have been discussed previously.

Three months ended March 31, 2005 compared to three months ended March 31, 2004

The table below provides summary consolidated financial information for the three months ended March 31:


(in millions)	2005		2004		Percent Change
Operating revenue	$	1,678.0	$	1,552.1	8.1	%
Operating income		90.0		41.3	117.9	%
Nonoperating expenses, net		9.4		11.8	(20.3	)%
Net income	$	49.9	$	18.2	174.2	%

Each of our operating segments contributed to the revenue growth, which resulted from a combination of improving economic conditions, increased fuel surcharge revenue, increased premium services and non-asset-based acquisitions. Operating revenue increased by $125.9 million from first quarter 2004 to the first quarter of 2005.

Operating income increased $48.7 million for the three months ended March 31, 2005 versus the comparable year ago period, mostly due to increased revenue and the corresponding incremental margins at our operating segments. Corporate expenses in the first quarter of 2005 increased by $2 million from the first quarter of 2004 due to increased professional services costs associated with the compliance with Section 404 of the Sarbanes-Oxley Act of 2002, offset by corporate-allocated management fees.

Nonoperating expenses were favorably impacted by decreased interest expense that resulted from lower average debt balances in the first quarter of 2005 compared to those included in first quarter of 2004.

Our effective tax rate for the first quarter of 2005 was 38.1% compared to 38.5% in the first quarter of 2004. As we record our tax provision based on our full year forecasted results, we expect this rate to approximate 38.1% for the remainder of the year. Variations in the rate could result from our income allocation among subsidiaries and their relative state tax rates, in addition to tax planning strategies that may be implemented throughout the year.

Financial Condition

Liquidity

Our liquidity needs arise primarily from capital investment in new equipment, land and structures, and information technology, as well as funding working capital requirements. To provide short-term and longer-term liquidity, we maintain capacity under a $500 million unsecured credit agreement and a $450 million asset backed securitization (“ABS”) agreement involving Yellow Transportation and Roadway Express accounts receivable. We believe these facilities provide adequate capacity to fund our current working capital and capital expenditure requirements.

The following table provides details of the outstanding components and available unused capacity under the current bank credit agreement and ABS agreement at each period end:


(in millions)	March 31, 2005			December 31, 2004
Capacity:
Revolving loan	$	500.0		$	500.0
ABS facility		450.0			450.0

Total capacity		950.0			950.0

Amounts outstanding:
Letters of credit under revolver loan		(276.4	)		(275.4	)
ABS facility		—			—

Total outstanding		(276.4	)		(275.4	)

Available unused capacity	$	673.6		$	674.6

Contingently Convertible Notes

On March 31, 2005, the conversion triggers with respect to the $250 million contingent convertible senior notes and the $150 million contingent convertible senior notes had been met. Accordingly, as of March 31, 2005, our note holders had the right, at their option, to convert their notes, in whole or in part, into cash and shares of our common stock, subject to certain limitations. This conversion option, coupled with our obligation to settle any conversion by remitting to the note holder the accreted value of the note in cash, resulted in the classification of the $400 million contingent convertible senior notes as a current liability on the accompanying consolidated balance sheet as of March 31, 2005. The future balance sheet classification of these liabilities will be monitored at each quarterly reporting date, and will be determined based on an analysis of the various conversion rights described above. We believe the likelihood of a note holder presenting their notes for conversion to be remote.

Cash Flow Measurements

We use free cash flow as a measurement to manage working capital and capital expenditures. Free cash flow indicates cash available after normal capital expenditures have been funded. Free cash flow may be used to fund additional capital expenditures, to reduce outstanding debt (including current maturities), to invest in our growth strategies or other prudent uses of cash. This measurement is used for internal management purposes and should not be construed as a better measurement than net cash from operating activities as defined by generally accepted accounting principles. The following table illustrates our calculation for determining free cash flow for the three months ended March 31:


(in millions)	2005			2004
Net cash from operating activities	$	31.2		$	89.7
Net property and equipment additions		(33.8	)		(57.6	)
Proceeds from exercise of stock options		0.7			1.8

Free cash flow	$	(1.9	)	$	33.9

The $35.8 million decrease in free cash flow from the first quarter of 2004 to the first quarter of 2005 resulted from decreased operating cash flow of $58.5 million. Operating cash flows decreased from the first quarter of 2004 to the first quarter of 2005 primarily due to a decrease in other working capital fluctuations of $110.2 million offset by an increase in operating income of $48.7 million. Other working capital fluctuations primarily related to $87.0 million change in employee wage and benefit accruals, including a $39.3 million change in performance incentive accruals, and $10.6 million change in accrued taxes.

Other items considered in evaluating free cash flow include net property and equipment additions and proceeds from the exercise of stock options. In the first three months of 2005, net property and equipment additions decreased by $23.8 million compared to the first three months of 2004. Gross property and equipment additions for the first quarter of 2005 were $42.7 million versus $57.9 million for the first quarter of 2004. Our proceeds received from the exercise of stock options decreased by $1.1 million in the first three months of 2005 compared to the first three months of 2004 due to the decrease in the exercise of stock options.

Contractual Obligations and Other Commercial Commitments

The following table reflects other commercial commitments or potential cash outflows that may result from a contingent event, such as a need to borrow short-term funds due to insufficient free cash flow.


	Amount of Commitment Expiration Per Period
(in millions)	Less than 1 year		2-3 years		4-5 years		After 5 years		Total
Available line of credit	$	—	$	—	$	223.6	$	—	$	223.6
Letters of credit		276.4		—		—		—		276.4
Lease guarantees		1.3		2.0		0.4		—		3.7
Surety bonds		50.5		6.7		0.1		—		57.3

Total commercial commitments	$	328.2	$	8.7	$	224.1	$	—	$	561.0

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have exposure to a variety of market risks, including the effects of interest rates, equity prices, foreign exchange rates and fuel prices.

Risk from Interest Rates and Equity Prices

To provide adequate funding through seasonal business cycles and minimize overall borrowing costs, we historically utilized both fixed rate and variable rate financial instruments with varying maturities. Given the favorable interest rate markets in 2003, we issued and entered into a significant amount of fixed-rate debt for the acquisition of Roadway. At March 31, 2005, we had 100% of our outstanding debt at fixed rates.

The table below provides information regarding our interest rate risk related to fixed-rate debt as of March 31, 2005. Principal cash flows are stated in millions and weighted average interest rates are by contractual maturity. We estimate the fair value of our industrial development bonds by discounting the principal and interest payments at current rates available for debt of similar terms and maturity. The fair values of our senior notes due 2008 and contingent convertible senior notes have been calculated based on the quoted market prices at March 31, 2005. The market price for the contingent convertible senior notes reflects the combination of debt and equity components of the convertible instrument.


(in millions)	2005			2006		2007		2008			2009			Thereafter			Total		Fair Value
Fixed-rate debt	$	4.4		$	—	$	—	$	227.5		$	1.0		$	406.0		$	638.9	$	928.9
Average interest rate		5.25	%		—		—		8.22	%		6.13	%		4.40	%

Foreign Exchange Rates

Revenue, operating expenses, assets and liabilities of our Canadian, Mexican, United Kingdom and Asian subsidiaries are denominated in local currencies, thereby creating exposure to fluctuations in exchange rates. The risks related to foreign currency exchange rates are not material to our consolidated financial position or results of operations. On March 31, 2005, we entered into a foreign currency hedge with a notional amount of $6.9 million and a maturity of June 30, 2005. This instrument is to effectively hedge our exposure to foreign currency fluctuations on certain intercompany debt with GPS Logistics (EU) Ltd., a wholly owned subsidiary.

Fuel Price Volatility

Yellow Transportation, Roadway Express and New Penn currently have effective fuel surcharge programs in place. As discussed under “Results of Operations – Yellow Transportation,” these programs are well established within the industry and customer acceptance of fuel surcharges remains high. Because the amount of fuel surcharge is based on average, national diesel fuel prices and is reset weekly, our exposure to fuel price volatility is significantly reduced.

Item 4. Controls and Procedures

We maintain a rigorous set of disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our principal executive and financial officers have evaluated our disclosure controls and procedures as of the end of the period covered by this report and have determined that the Company’s disclosure controls and procedures are effective.

There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 6. Exhibits


31.1		Certification of William D. Zollars pursuant to Exchange Act Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Donald G. Barger, Jr. pursuant to Exchange Act Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of William D. Zollars pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Donald G. Barger, Jr. pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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 thereunto duly authorized.


		YELLOW ROADWAY CORPORATION
		Registrant

Date: May 9, 2005		/s/ William D. Zollars
		William D. Zollars
		Chairman of the Board of
		Directors, President & Chief
		Executive Officer

Date: May 9, 2005		/s/ Donald G. Barger, Jr.
		Donald G. Barger, Jr.
		Senior Vice President
		& Chief Financial Officer

Section 302 CEO Certification

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

EXCHANGE ACT RULES 13A-14 AND 15D-14,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William D. Zollars, certify that:

(1)	I have reviewed this report on Form 10-Q of Yellow Roadway Corporation;

(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 9, 2005		/s/ William D. Zollars
		William D. Zollars
		Chairman of the Board of
		Directors, President & Chief
		Executive Officer

Section 302 CFO Certification

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

EXCHANGE ACT RULES 13A-14 AND 15D-14,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Donald G. Barger, Jr., certify that:

(1)	I have reviewed this report on Form 10-Q of Yellow Roadway Corporation;

(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 9, 2005		/s/ Donald G. Barger, Jr.
		Donald G. Barger, Jr.
		Senior Vice President
		& Chief Financial Officer

Section 906 CEO Certification

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Yellow Roadway Corporation on Form 10-Q for the period ended March 31, 2005, as filed with the Securities and Exchange Commission of the date hereof (the “Report”), I, William D. Zollars, Chief Executive Officer of Yellow Roadway Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Yellow Roadway Corporation.


Date: May 9, 2005		/s/ William D. Zollars
		William D. Zollars
		Chairman of the Board of
		Directors, President & Chief
		Executive Officer

Section 906 CFO Certification

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Yellow Roadway Corporation on Form 10-Q for the period ended March 31, 2005, as filed with the Securities and Exchange Commission of the date hereof (the “Report”), I, Donald G. Barger, Jr., Chief Financial Officer of Yellow Roadway Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Yellow Roadway Corporation.


Date: May 9, 2005		/s/ Donald G. Barger, Jr.
		Donald G. Barger, Jr.
		Senior Vice President
		& Chief Financial Officer

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