UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
Form 8-K
on Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 24, 2005
Yellow Roadway Corporation
(Exact name of registrant as specified in its charter)
Delaware | 0-12255 | 48-0948788 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
10990 Roe Avenue, Overland Park, Kansas |
66211 | |
(Address of principal executive offices) | (Zip Code) |
(913) 696-6100
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
EXPLANATORY NOTE: This Amendment No. 1 to Current Report on Form 8-K is filed solely for the purpose of filing the financial statements of USF Corporation and the pro forma financial statements described in Item 9.01(a) and (b) below.
Item 1.01. Entry into a Material Definitive Agreement.
Second Amended and Restated Receivables Purchase Agreement
Yellow Roadway Receivables Funding Corporation, a wholly owned receivables financing subsidiary of Yellow Roadway Corporation (Yellow Roadway or the Company), entered into a Second Amended and Restated Receivables Purchase Agreement, dated as of May 24, 2005, among Yellow Roadway Receivables Funding Corporation, as Seller; Falcon Asset Securitization Corporation, Blue Ridge Asset Funding Corporation, Three Pillars Funding LLC and Amsterdam Funding Corporation, as Conduits; various financial institutions party to the Agreement, as Committed Purchasers; USF Assurance Co. Ltd., individually and as an agent for itself as an uncommitted purchaser; Wachovia Bank, National Association, as Blue Ridge Agent and LC Issuer, SunTrust Capital Markets, Inc. as Three Pillars Agent; ABN Amro Bank N.V., as Amsterdam Agent; and JPMorgan Chase Bank, N.A., as Falcon Agent and Administrative Agent.
The Second Amended and Restated Receivables Purchase Agreement amends and restates the Companys existing Amended and Restated Receivables Purchase Agreement, dated as of September 10, 2004, among Yellow Roadway Receivables Funding Corporation, as Seller; Falcon Asset Securitization Corporation, Blue Ridge Asset Funding Corporation, and Three Pillars Funding LLC, as Conduits; various financial institutions party to the Agreement as Committed Purchasers; Wachovia Bank, National Association, as Blue Ridge Agent, SunTrust Capital Markets, Inc. as Three Pillars Agent; and Bank One, NA (Main Office Chicago), as Falcon Agent and Administrative Agent (previously filed as Exhibit 10.1 to the Companys Current Report on Form 8-K, filed on September 16, 2004). The Second Amended and Restated Receivables Purchase Agreement increases the aggregate amount available under such agreement to $650 million.
A copy of the Second Amended and Restated Receivables Purchase Agreement is filed with this Current Report on Form 8-K as Exhibit 10.1. Certain exhibits to the Second Amended and Restated Receivables Purchase Agreement have not been filed with the exhibit. The exhibits contain various items related to the forms of documents executed or to be executed in connection with the operation of the Second Amended and Restated Receivables Purchase Agreement. The Company agrees to furnish supplementally any omitted exhibits to the SEC upon request.
Indenture and Registration Rights Agreement related to Senior Floating Rate Notes due 2008
On May 24, 2005, pursuant to the terms of a Purchase Agreement dated May 19, 2005, among Yellow Roadway, certain subsidiary guarantors and Credit Suisse First Boston LLC, as representative of the initial purchasers, Yellow Roadway issued and sold $150,000,000 in aggregate principal amount of its Senior Floating Rate Notes due 2008 (the Notes). After underwriting discounts and expenses, Yellow Roadway received net proceeds of approximately $148.9 million. These proceeds were used to fund a portion of the acquisition of USF (see Item 2.01 below).
The Notes were issued at an issue price of 100%. They bear interest at a floating rate per annum, which resets quarterly, equal to the London Interbank Offered Rate (LIBOR) plus 1.375%, payable quarterly in arrears, on February 15, May 15, August 15 and November 15 of each year, commencing on August 15, 2005. The Notes will mature on May 15, 2008. The Notes may not be redeemed by the Company prior to November 15, 2006, but are redeemable, in whole or in part, at any time and from time to time thereafter at par. Subject to customary limitations, the Notes are jointly and severally guaranteed as to payment by certain of the Companys subsidiaries.
2
The Notes were issued under an Indenture dated as of May 24, 2005, between Yellow Roadway, certain subsidiary guarantors and SunTrust Bank, as Trustee (the Indenture). Restrictive covenants in the Indenture consist of (i) restrictions on the incurrence of certain debt secured by equity interest or debt of subsidiaries of the Company and (ii) customary restrictions on mergers or consolidation with other companies, or the sale or all or substantially all assets by the Company. The Indenture contains customary default provisions for an issue of senior floating rate notes of this nature, including defaults in payment of principal, premium or interest, covenant defaults, cross-defaults to other indebtedness, certain acts of insolvency and unenforceability of, or denial of obligations under, the guarantees. A copy of the Indenture is filed with this Current Report on Form 8-K as Exhibit 4.1.
The Company was advised by the initial purchasers of the Notes that the Notes were offered and resold in the United States pursuant to a Rule 144A private unregistered offering to qualified institutional investors.
Additionally, Yellow Roadway and its subsidiary guarantors entered into a Registration Rights Agreement with the initial purchasers of the Notes, dated as of May 24, 2005, pursuant to which Yellow Roadway will file an exchange offer registration statement to exchange the Notes for publicly registered notes with identical terms or, under certain circumstances, file a shelf registration statement to cover resales of the Notes. A copy of the Registration Rights Agreement is filed with this Current Report on Form 8-K as Exhibit 4.2.
Item 2.01. Completion of Acquisition or Disposition of Assets.
On May 24, 2005, Yellow Roadway completed the acquisition of USF Corporation, a Delaware corporation (USF), through the merger (the Merger) of a wholly owned subsidiary of Yellow Roadway with and into USF, resulting in USF becoming a wholly owned subsidiary of Yellow Roadway. The Merger was completed pursuant to an Agreement and Plan of Merger, dated as of February 27, 2005, and amended as of May 1, 2005, by and among Yellow Roadway, Yankee II LLC and USF (the Merger Agreement). Under the Merger, each share of common stock, par value $0.01 per share, of USF was converted into the right to receive $29.25 in cash and 0.31584 shares of Yellow Roadway common stock.
USF Corporation, a leader in the transportation industry, specializes in delivering comprehensive supply chain management solutions, including high-value next-day, regional and national LTL transportation, third-party logistics, and premium regional and national truckload transportation. The company serves the North American market, including the United States, Canada and Mexico, as well as the U.S. territories of Puerto Rico and Guam. USF Corporation is headquartered in Chicago, Illinois.
Under the Merger, all outstanding shares of USF common stock were converted into the right to receive an aggregate of approximately $835 million and 9 million shares of Yellow Roadway common stock.
In addition, under the Merger Agreement, at the effective time of the Merger, each USF stock option that USF issued was cancelled and, to the extent the exercise price of the applicable option was lower than the deemed per share merger consideration (equal to $46.11, which is the sum of $29.25 plus the product of (i) 0.31584 and (ii) the average of the high and low prices of Yellow Roadway common stock on the date before the closing, as reported on the Nasdaq National Market), the holder of such option received a cash payment. Holders of USF stock options with an exercise price less than the deemed per share merger consideration received cash in an amount equal to:
($46.11 exercise price of the USF stock option) x number of USF shares subject to the USF stock option
3
USF stock options with an exercise price that was equal to or greater than the deemed per share merger consideration were cancelled, and the holder of the USF stock option was not entitled to receive any consideration for the USF stock option.
The cash portion of the merger consideration was financed with a combination of proceeds from the offering of the Notes (see Item 1.01 above), borrowings under the ABS Facility (see Item 1.01 above) and cash on hand.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
See Item 1.01 above.
Following the Merger described in Item 2.01 above, USF, as a subsidiary of Yellow Roadway, and its subsidiaries continue to be obligated on USFs $150 million aggregate principal amount of 8.5% senior notes due April 15, 2010, and USFs $100 million aggregate principal amount of 6.5% senior notes due May 1, 2009 pursuant to an Indenture as of May 5, 1999 (filed as Exhibit 4.1 to USF Corporations Current Report on Form 8-K on May 11, 1999). Yellow Roadway expects to provide a parent guarantee of both series of notes.
Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.
Pursuant to the terms of the Merger Agreement (see Item 2.01 above), Yellow Roadway agreed to take necessary action to appoint one member of USFs Board of Directors as an additional member of Yellow Roadways Board of Directors to be effective as of the first business day following the Merger. Effective May 25, 2005, Yellow Roadways Board of Directors increased the size of the Yellow Roadway Board to election and appointed Mr. Paul J. Liska to serve as a member of the Yellow Roadway Board of Directors along with the ten current Yellow Roadway Board members.
Mr. Liska, age 49, was appointed as Executive Chairman of USF on November 2, 2004. Mr. Liska has been a member of USFs Board of Directors since February 2003. He is currently an Industrial Partner with Ripplewood Holdings LLC, a large private equity investment firm. From October 2002 until November 2003, Mr. Liska was Executive Vice President and President, Credit and Financial Products for Sears Roebuck and Co. From 2001 until 2002, Mr. Liska was Executive Vice President and Chief Financial Officer for Sears Roebuck and Co. Prior to joining Sears Roebuck and Co. in 2002, Mr. Liska was Executive Vice President and Chief Financial Officer of The St. Paul Companies, Inc., which he joined in 1997. Mr. Liska is a director of CNA Financial Corporation, Wintrust Financial Corporation, and Childrens Memorial Hospital.
Item 9.01. Financial Statements and Exhibits.
(a) | Financial statements of businesses acquired. |
4
The following financial statements of USF Corporation are included in Exhibit 99.1 hereto and incorporated by reference:
Consolidated Balance Sheets at December 31, 2003 and 2004
Statements of Consolidated Income for the years ended December 31, 2002, 2003 and 2004
Consolidated Statements of Stockholders Equity for the years ended December 31, 2002, 2003 and 2004
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2003 and 2004
Notes to Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2004 and April 2, 2005 (unaudited)
Condensed Consolidated Statements of Operations for the quarters ended April 3, 2004 and April 2, 2005 (unaudited)
Condensed Consolidated Statements of Cash Flows for the quarters ended April 3, 2004 and April 2, 2005 (unaudited)
Notes to Condensed Consolidated Financial Statements
(b) | Pro forma financial information. |
The following pro forma information is included in Exhibit 99.2 hereto and incorporated herein by reference:
Unaudited Condensed Combined Pro Forma Balance Sheet at March 31, 2005
Unaudited Condensed Combined Pro Forma Statement of Operations for the Year Ended December 31, 2004
Unaudited Condensed Combined Pro Forma Statement of Operations for the Three Months Ended March 31, 2005
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements
(c) | Exhibits. |
2.1 | Agreement and Plan of Merger, dated as of February 27, 2005, and amended as of May 1, 2005, by and among USF Corporation, Yellow Roadway Corporation and Yankee II LLC (incorporated by reference to Exhibit 2.1 to Yellow Roadway Corporations Current Report on Form 8-K filed on May 2, 2005). | |
4.1* | Indenture relating to the Senior Floating Rate Notes due 2008, dated as of May 24, 2005, among Yellow Roadway Corporation, certain subsidiary guarantors and SunTrust Bank, as Trustee (including form of note). | |
4.2* | Registration Rights Agreement relating to the Senior Floating Rate Notes due 2008, dated as of May 24, 2005, among Yellow Roadway Corporation, certain subsidiary guarantors and Credit Suisse First Boston LLC, as representative of the initial purchasers. | |
10.1* | Second Amended and Restated Receivables Purchase Agreement, dated as of May 24, 2005, among Yellow Roadway Receivables Funding Corporation, as Seller; Falcon Asset Securitization Corporation, Blue Ridge Asset Funding Corporation, Three Pillars Funding LLC and Amsterdam Funding Corporation, as Conduits; various financial institutions party to the Agreement, as Committed Purchasers; USF Assurance Co. Ltd., individually and as an agent for itself as an uncommitted purchaser; Wachovia Bank, National Association, as Blue Ridge Agent and LC Issuer, SunTrust Capital Markets, Inc. as Three Pillars Agent; ABN Amro Bank N.V., as Amsterdam Agent; and JPMorgan Chase Bank, N.A., as Falcon Agent and Administrative Agent. | |
23.1 | Consent of Deloitte & Touche LLP. | |
99.1 | Certain financial statements of USF Corporation (see Item 9.01(a) above). | |
99.2 | Certain pro forma financial statements (see Item 9.01(b) above). |
* | Filed with the initial filing of this Current Report on Form 8-K on May 26, 2005. |
5
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 hereunto duly authorized.
Date: June 20, 2005
YELLOW ROADWAY CORPORATION | ||
By: |
/s/ Daniel J. Churay | |
Daniel J. Churay Senior Vice President, General Counsel & Secretary | ||
6
INDEX TO EXHIBITS
EXHIBIT NUMBER |
DESCRIPTION | |
2.1 | Agreement and Plan of Merger, dated as of February 27, 2005, and amended as of May 1, 2005, by and among USF Corporation, Yellow Roadway Corporation and Yankee II LLC (incorporated by reference to Exhibit 2.1 to Yellow Roadway Corporations Current Report on Form 8-K filed on May 2, 2005). | |
4.1* | Indenture relating to the Senior Floating Rate Notes due 2008, dated as of May 24, 2005, among Yellow Roadway Corporation, certain subsidiary guarantors and SunTrust Bank, as Trustee (including form of note). | |
4.2* | Registration Rights Agreement relating to the Senior Floating Rate Notes due 2008, dated as of May 24, 2005, among Yellow Roadway Corporation, certain subsidiary guarantors and Credit Suisse First Boston LLC, as representative of the initial purchasers. | |
10.1* | Second Amended and Restated Receivables Purchase Agreement, dated as of May 24, 2005, among Yellow Roadway Receivables Funding Corporation, as Seller; Falcon Asset Securitization Corporation, Blue Ridge Asset Funding Corporation, Three Pillars Funding LLC and Amsterdam Funding Corporation, as Conduits; various financial institutions party to the Agreement, as Committed Purchasers; USF Assurance Co. Ltd., individually and as an agent for itself as an uncommitted purchaser; Wachovia Bank, National Association, as Blue Ridge Agent and LC Issuer, SunTrust Capital Markets, Inc. as Three Pillars Agent; ABN Amro Bank N.V., as Amsterdam Agent; and JPMorgan Chase Bank, N.A., as Falcon Agent and Administrative Agent. | |
23.1 | Consent of Deloitte & Touche LLP. | |
99.1 | Certain financial statements of USF Corporation. | |
99.2 | Certain pro forma financial statements. |
* | Filed with the initial filing of this Current Report on Form 8-K on May 26, 2005. |
7
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements No. 333-109896 and 333-113021 of Yellow Roadway Corporation on Form S-3 and the Registration Statements No. 333-47946, 333-02977, 333-16697, 333-59255, 333-49618, 333-49620, 333-88268, 333-121370, 333-121470, 333-111499 and 333-124847 of Yellow Roadway Corporation on Form S-8 under the Securities Act of 1933 of our report on the consolidated financial statements of USF Corporation and subsidiaries (the Company) dated March 14, 2005 (which report expresses an unqualified opinion and includes explanatory paragraphs related to (i) a change in the Companys revenue recognition methodology and (ii) the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets) appearing in this Current Report on Form 8-K/A under the Securities Act of 1934 dated June 21, 2005.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
June 20, 2005
Exhibit 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
USF Corporation:
We have audited the accompanying consolidated balance sheets of USF Corporation and subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of USF Corporation and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1, effective January 1, 2003, the Company changed its method of accounting for revenue and expense recognition for its less-than-truckload and truckload segments.
As discussed in Note 9, effective January 1, 2002, the Company changed its method of accounting for goodwill and intangible assets upon adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
/s/ DELOITTE & TOUCHE LLP |
March 14, 2005 |
Chicago, Illinois |
USF CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share and per share amounts)
As of December 31 |
||||||||
2004 |
2003 |
|||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash |
$ | 150,798 | $ | 121,659 | ||||
Accounts receivable, less allowances of $11,132 and $11,030, respectively |
310,172 | 271,849 | ||||||
Operating supplies and prepaid expenses |
31,749 | 32,014 | ||||||
Deferred income taxes |
37,724 | 33,717 | ||||||
Total current assets |
530,443 | 459,239 | ||||||
Property and equipment: |
||||||||
Land |
116,003 | 114,531 | ||||||
Buildings and leasehold improvements |
310,931 | 297,808 | ||||||
Equipment |
916,876 | 925,677 | ||||||
Other |
114,028 | 120,997 | ||||||
Total property and equipment |
1,457,838 | 1,459,013 | ||||||
Less accumulated depreciation |
(681,898 | ) | (705,111 | ) | ||||
Total property and equipment less accumulated depreciation |
775,940 | 753,902 | ||||||
Goodwill |
100,813 | 100,813 | ||||||
Other assets |
33,999 | 44,134 | ||||||
Total assets |
$ | 1,441,195 | $ | 1,358,088 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Current debt |
$ | 65 | $ | 60 | ||||
Accounts payable |
65,756 | 57,286 | ||||||
Accrued salaries, wages and benefits |
92,164 | 93,002 | ||||||
Accrued insurance and claims |
63,320 | 52,772 | ||||||
Other |
54,701 | 49,347 | ||||||
Total current liabilities |
276,006 | 252,467 | ||||||
Notes payable and long-term debt |
250,022 | 250,087 | ||||||
Accrued insurance and claims |
94,034 | 80,707 | ||||||
Other |
17,517 | 14,377 | ||||||
Deferred income taxes |
100,638 | 95,661 | ||||||
Total liabilities |
738,217 | 693,299 | ||||||
Commitments and contingencies (Note 10) |
||||||||
Stockholders equity: |
||||||||
Cumulative preferred stock, $0.01 par value per share: 20,000,000 authorized, none issued |
| | ||||||
Common stock, $0.01 par value per share: 80,000,000 authorized, 28,305,456 and 27,453,217 issued and 28,312,040 and 27,447,475 outstanding, respectively |
283 | 275 | ||||||
Paid in capital |
315,811 | 290,833 | ||||||
Treasury stock, at cost |
(172 | ) | | |||||
Accumulated other comprehensive loss |
(10 | ) | | |||||
Retained earnings |
387,066 | 373,681 | ||||||
Total stockholders equity |
702,978 | 664,789 | ||||||
Total liabilities and stockholders equity |
$ | 1,441,195 | $ | 1,358,088 | ||||
See accompanying notes to consolidated financial statements.
2
USF CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of dollars, except share and per share amounts)
Years Ended December 31 |
||||||||||||
2004 |
2003 |
2002 |
||||||||||
Revenue: |
||||||||||||
LTL Trucking |
$ | 2,005,330 | $ | 1,898,668 | $ | 1,866,892 | ||||||
TL Trucking |
133,725 | 128,093 | 114,151 | |||||||||
Logistics |
269,378 | 276,441 | 278,161 | |||||||||
Intercompany eliminations |
(13,854 | ) | (11,063 | ) | (8,678 | ) | ||||||
2,394,579 | 2,292,139 | 2,250,526 | ||||||||||
Operating expenses: |
||||||||||||
LTL Trucking |
1,911,982 | 1,788,113 | 1,761,720 | |||||||||
TL Trucking |
130,357 | 123,430 | 108,840 | |||||||||
Logistics |
259,613 | 267,171 | 265,558 | |||||||||
Freight Forwarding Asia exit costs |
| | 12,760 | |||||||||
Corporate and Other |
42,736 | 28,896 | 29,472 | |||||||||
Intercompany eliminations |
(13,854 | ) | (11,063 | ) | (8,678 | ) | ||||||
2,330,834 | 2,196,547 | 2,169,672 | ||||||||||
Income from operations |
63,745 | 95,592 | 80,854 | |||||||||
Non-operating income (expense): |
||||||||||||
Interest expense |
(20,917 | ) | (20,900 | ) | (20,516 | ) | ||||||
Interest income |
2,824 | 1,867 | 2,708 | |||||||||
Other, net |
(1,794 | ) | (1,274 | ) | (1,054 | ) | ||||||
Total non-operating expense |
(19,887 | ) | (20,307 | ) | (18,862 | ) | ||||||
Income from continuing operations before income taxes and cumulative effect of accounting changes |
43,858 | 75,285 | 61,992 | |||||||||
Income tax expense |
(20,063 | ) | (31,184 | ) | (28,724 | ) | ||||||
Income from continuing operations before cumulative effect of accounting changes |
23,795 | 44,101 | 33,268 | |||||||||
Discontinued operations (freight forwarding segment): |
||||||||||||
Loss from operations, net of tax benefits of $239 and $6,907, respectively |
| (338 | ) | (16,978 | ) | |||||||
Loss from disposal, net of tax benefit of $29,060 |
| | (13,239 | ) | ||||||||
Loss from discontinued operations |
| (338 | ) | (30,217 | ) | |||||||
Income before cumulative effect of accounting changes |
23,795 | 43,763 | 3,051 | |||||||||
Cumulative effect of change in accounting for revenue recognition, net of tax benefits of $1,064 |
| (1,467 | ) | | ||||||||
Cumulative effect of change in accounting for goodwill |
| | (70,022 | ) | ||||||||
Net income/(loss) |
$ | 23,795 | $ | 42,296 | $ | (66,971 | ) | |||||
Income per share from continuing operations: |
||||||||||||
Basic |
$ | 0.86 | $ | 1.62 | $ | 1.23 | ||||||
Diluted |
0.85 | 1.61 | 1.22 | |||||||||
Loss per share from discontinued operations: |
||||||||||||
Basic |
| (0.01 | ) | (1.12 | ) | |||||||
Diluted |
| (0.01 | ) | (1.11 | ) | |||||||
Loss per share cumulative effect of accounting changes: |
||||||||||||
Basic |
| (0.06 | ) | (2.60 | ) | |||||||
Diluted |
| (0.05 | ) | (2.56 | ) | |||||||
Net income/(loss) per share basic |
0.86 | 1.55 | (2.49 | ) | ||||||||
Net income/(loss) per share diluted |
0.85 | 1.55 | (2.45 | ) | ||||||||
Average shares outstanding basic |
27,805,307 | 27,207,392 | 26,900,311 | |||||||||
Average shares outstanding diluted |
27,982,302 | 27,348,711 | 27,331,890 |
See accompanying notes to consolidated financial statements.
3
USF CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Thousands of dollars, except share and per share amounts)
Number of Shares |
Common Stock |
Paid in Capital |
Retained Earnings |
Treasury Stock |
Comprehensive Income/(Loss) |
Foreign Currency Translation Adjustment |
Total Stockholders Equity |
|||||||||||||||||||||
Balance January 1, 2002 |
26,678 | $ | 267 | $ | 270,936 | $ | 418,585 | $ | (1,796 | ) | $ | (340 | ) | $ | 687,652 | |||||||||||||
Net loss |
| | (66,971 | ) | | $ | (66,971 | ) | (66,971 | ) | ||||||||||||||||||
Recognition of previously unrealized loss on foreign currency transactions |
340 | 340 | 340 | |||||||||||||||||||||||||
Comprehensive loss |
$ | (66,631 | ) | |||||||||||||||||||||||||
Dividends declared |
| | (10,051 | ) | | (10,051 | ) | |||||||||||||||||||||
Employee and director stock transactions |
317 | 3 | 6,362 | | 1,796 | 8,161 | ||||||||||||||||||||||
Balance December 31, 2002 |
26,995 | $ | 270 | $ | 277,298 | $ | 341,563 | $ | | $ | | $ | 619,131 | |||||||||||||||
Net income |
42,296 | $ | 42,296 | 42,296 | ||||||||||||||||||||||||
Comprehensive income |
$ | 42,296 | ||||||||||||||||||||||||||
Dividends declared |
(10,178 | ) | (10,178 | ) | ||||||||||||||||||||||||
Employee and director stock transactions |
458 | 5 | 13,535 | | | 13,540 | ||||||||||||||||||||||
Balance December 31, 2003 |
27,453 | $ | 275 | $ | 290,833 | $ | 373,681 | $ | | $ | | $ | 664,789 | |||||||||||||||
Net income |
23,795 | $ | 23,795 | 23,795 | ||||||||||||||||||||||||
Unrealized loss on foreign currency transactions |
(10 | ) | (10 | ) | (10 | ) | ||||||||||||||||||||||
Comprehensive income |
$ | 23,785 | ||||||||||||||||||||||||||
Dividends declared |
(10,410 | ) | (10,410 | ) | ||||||||||||||||||||||||
Employee and director stock transactions |
859 | 8 | 24,978 | (172 | ) | 24,814 | ||||||||||||||||||||||
Balance December 31, 2004 |
28,312 | $ | 283 | $ | 315,811 | $ | 387,066 | $ | (172 | ) | $ | (10 | ) | $ | 702,978 | |||||||||||||
See accompanying notes to consolidated financial statements.
4
USF CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
Years Ended December 31 |
||||||||||||
2004 |
2003 |
2002 |
||||||||||
Cash flows from operating activities: |
||||||||||||
Net income/(loss) |
$ | 23,795 | $ | 42,296 | $ | (66,971 | ) | |||||
Net loss from discontinued operations |
| 338 | 30,217 | |||||||||
Income/(loss) from continuing operations after cumulative effect of accounting changes |
23,795 | 42,634 | (36,754 | ) | ||||||||
Adjustments to reconcile income/(loss) from continuing operations after accounting changes to net cash provided by operating activities: |
||||||||||||
Depreciation of property and equipment |
104,345 | 100,770 | 99,873 | |||||||||
Cumulative effect of accounting changes, net of tax |
| 1,467 | 70,022 | |||||||||
Amortization of intangible assets |
2,033 | 2,369 | 1,235 | |||||||||
Deferred taxes |
970 | 16,468 | (1,232 | ) | ||||||||
(Gain)/loss on sale of property and equipment |
738 | (14,119 | ) | (1,350 | ) | |||||||
Increase in non-current accrued claims and other |
16,467 | 11,005 | 8,244 | |||||||||
Changes in working capital affecting operations: |
||||||||||||
Accounts receivable |
(38,323 | ) | (329 | ) | (21,709 | ) | ||||||
Operating supplies and prepaid expenses |
265 | 1,447 | (2,073 | ) | ||||||||
Accounts payable |
8,469 | 2,069 | (2,500 | ) | ||||||||
Accrued liabilities |
15,000 | 8,124 | 14,386 | |||||||||
Other non-current assets, net |
11,585 | (15,166 | ) | (1,238 | ) | |||||||
Net cash provided by operating activities |
145,344 | 156,739 | 126,904 | |||||||||
Cash flows from investing activities: |
||||||||||||
Acquisitions |
| (4,883 | ) | | ||||||||
Mexico loan |
(3,495 | ) | (5,365 | ) | | |||||||
Capital expenditures |
(145,159 | ) | (116,081 | ) | (141,322 | ) | ||||||
Proceeds from sale of property and equipment |
18,038 | 38,829 | 7,111 | |||||||||
Disposition of USF Asia |
| | (6,000 | ) | ||||||||
Net cash used in investing activities |
(130,616 | ) | (87,500 | ) | (140,211 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Dividends paid |
(10,343 | ) | (10,135 | ) | (10,010 | ) | ||||||
Proceeds from the issuance of common stock |
24,978 | 13,540 | 8,161 | |||||||||
Repurchase of treasury stock |
(172 | ) | | | ||||||||
Proceeds from short-term bank debt |
5 | | | |||||||||
Payments on long-term bank debt |
(65 | ) | (5,143 | ) | (1,042 | ) | ||||||
Net cash provided by/(used in) financing activities |
14,403 | (1,738 | ) | (2,891 | ) | |||||||
Net cash used in discontinued operations |
| | (1,749 | ) | ||||||||
Net increase/(decrease) in cash |
29,139 | 67,501 | (17,947 | ) | ||||||||
Cash at beginning of year |
121,659 | 54,158 | 72,105 | |||||||||
Cash at end of year |
$ | 150,798 | $ | 121,659 | $ | 54,158 | ||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Cash paid during the year for: |
||||||||||||
Interest |
$ | 19,425 | $ | 19,566 | $ | 19,481 | ||||||
Income taxes |
8,147 | 7,389 | 11,437 |
See accompanying notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars, except share and per share amounts)
(1) Summary of Significant Accounting Policies
Basis of Presentation
Our consolidated financial statements include the accounts of USF and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated. We report on a calendar year basis. Our quarters consist of thirteen weeks that end on a Saturday either before or after the end of March, June and September.
Revenue Recognition
Effective January 1, 2003, we changed our method of accounting for revenue and expense recognition for our less-than-truckload (LTL) and truckload (TL) segments. Under the new accounting method, we recognize revenue for LTL and TL operations by the allocation of revenue between reporting periods based on the relative transit time in each reporting period with expenses recognized as incurred. This change in the method of accounting was made to recognize the increase in our length of haul of freight, which resulted from implementation of our new marketing strategies. We believe that the new method of recognizing revenue and expense is preferable. The cumulative effect of change in accounting principle on prior years resulted in an after-tax charge to income of $1,467 (net of income taxes of $1,064) in the first quarter of 2003.
As a result of the change in revenue and expense recognition pro forma income from continuing operations and net income/(loss) for the years ended 2004, 2003, and 2002 follows:
Year |
2004 |
2003 |
2002 |
|||||||
Income from continuing operations before cumulative effect of accounting changes: |
||||||||||
As reported |
$ | 23,795 | $ | 44,101 | $ | 33,268 | ||||
Pro forma |
23,795 | 44,101 | 32,728 | |||||||
Net income/(loss): |
||||||||||
As reported |
$ | 23,795 | $ | 42,296 | $ | (66,971 | ) | |||
Pro forma |
23,795 | 43,763 | (67,511 | ) | ||||||
Income per share from continuing operations before cumulative effect of accounting changes: |
||||||||||
As reported, basic |
$ | 0.86 | $ | 1.62 | $ | 1.23 | ||||
Pro forma, basic |
0.86 | 1.62 | 1.22 | |||||||
As reported, diluted |
0.85 | 1.61 | 1.22 | |||||||
Pro forma, diluted |
0.85 | 1.61 | 1.20 | |||||||
Net income/(loss) per share: |
||||||||||
As reported, basic |
$ | 0.86 | $ | 1.55 | $ | (2.49 | ) | |||
Pro forma, basic |
0.86 | 1.61 | (2.51 | ) | ||||||
As reported, diluted |
0.85 | 1.55 | (2.45 | ) | ||||||
Pro forma, diluted |
0.85 | 1.60 | (2.47 | ) |
Logistics revenue from warehousing is recognized upon the performance of services. Revenue from dedicated fleet shipments is recognized upon delivery, which is generally the same day as the day of pickup. Domestic ocean freight forwarding transportation revenue is recognized at the time freight is tendered to an ocean going vessel at origin.
We periodically engage owner-operator drivers to deliver freight in our LTL business as well as our TL and logistics businesses. In all cases, we remain the primary obligor with our customers and act as the principal in the transaction. In addition, we select the owner-operators to provide these services. We also maintain the risks associated with freight delivery such as losses for damaged or lost freight. As a result, revenue in our LTL, TL, and Logistics segments that is related to freight and other transportation services provided on our behalf by other carriers is reported on a gross basis.
Cash
We consider demand deposits and highly liquid investments purchased with original maturities of three months or less as cash.
6
Allowance for Doubtful Accounts
Our operating segments have credit and collections procedures that are followed to determine which customers are extended credit for services provided. Services provided to customers where we are not able to determine their creditworthiness are done so on a cash on delivery basis. We have developed a methodology based on write-off history that we apply to our open accounts receivable to assess the adequacy of our allowance for doubtful accounts. Our analysis provides for allowance needs that we may have for large customers that may be experiencing financial difficulty, as well as the overall conditions in the economy.
Casualty Claims
Casualty claim reserves represent managements estimates of claims for property damage, public liability and workers compensation. We manage casualty claims with the assistance of a third-party administrator (TPA) along with our insurers. We currently have a retention/deductible of $5,000 for public liability and $2,500 for workers compensation. Extensive analysis enables us to estimate casualty reserves, provide for incurred but not reported cases, and development patterns of cases consistently and adequately. At December 31, 2004 and 2003 we had reserve balances for casualty claims of $142,615 and $120,852, respectively.
Cargo Claims
Our operating procedures are designed to minimize freight from being lost or damaged while in our care. We have developed reporting procedures to monitor the claims activity at each of our terminals and have developed a methodology to assess our accrual needs for cargo claims. This methodology is based on historical payment activity and lag times for reported claims. Our accrual includes an estimation of payments to be made for claims reported, claims incurred but not reported and specific estimations for any unusually large claims. Our accrual at December 31, 2004 and 2003 for these types of claims was $5,065 and $5,462, respectively.
Property and Equipment
Purchases of property and equipment are carried at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over periods ranging from three to twelve years for equipment and 30 years for buildings. Maintenance and repairs are charged to operations when incurred, while expenditures that add to the life of the equipment are capitalized. When tractors and trailers are disposed, a gain or loss is recognized. Amortization of leasehold improvements is recognized over the lesser of the life of the lease or the life of the improvement. Other assets mainly include computer hardware and software, and are depreciated using periods ranging from two to seven years.
We continually evaluate whether events and circumstances have occurred that indicate our long-lived assets may not be recoverable. When factors indicate that our assets should be evaluated for possible impairment, we use an estimate of the related undiscounted future cash flows over the remaining lives of assets in measuring whether or not an impairment has occurred. If an impairment were identified, a loss would be reported to the extent that the carrying value of the related assets exceeded the fair value of those assets as determined by valuation techniques available in the circumstances.
Goodwill
Goodwill was amortized on a straight-line basis up to 40 years through December 31, 2001. Upon adoption of Statement of Financial Accounting Standards (SFAS) No. 142, amortization ceased. The carrying value of goodwill is reviewed on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate that the carrying value may be impaired. (See Note 9).
Income Taxes
Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities provide for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The liability method is used to account for income taxes, which requires deferred taxes to be recorded at the statutory rate to be in effect when the taxes are paid. (See Note 6).
7
Concentration
We are not dependent upon any particular industry. We provide services to a wide variety of customers including many large, publicly held companies. For the year ended December 31, 2004, no single customer accounted for more than 3.3% of our revenue and our 50 largest customers as a group accounted for approximately 25% of total revenue.
Earnings/(Loss) Per Share
Basic earnings/(loss) per share are calculated on net income divided by the weighted-average number of common shares outstanding during the year. Diluted earnings per share are calculated by dividing net income by this weighted-average number of common shares outstanding plus the shares that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares for the year. Unexercised stock options are the only reconciling items between our basic and diluted earnings per share.
The following table presents information necessary to calculate basic and diluted earnings per share and common equivalent shares:
Year |
2004 |
2003 |
2002 | |||
Weighted-average shares outstanding basic |
27,805,307 | 27,207,392 | 26,900,311 | |||
Common stock equivalents |
176,995 | 141,319 | 431,579 | |||
Weighted-average shares and equivalent diluted |
27,982,302 | 27,348,711 | 27,331,890 | |||
Anti-dilutive unexercised stock options excluded from calculations |
648,734 | 862,850 | 1,113,100 |
Stock-based Compensation
SFAS No. 123, Accounting for Stock Based Compensation, establishes a fair value based method of accounting for stock options. We have elected to continue using the intrinsic value method prescribed under Accounting Principles Board (APB) No. 25 as permitted by SFAS No. 123. If we had elected to recognize compensation cost based on the fair value of the options at grant date, as prescribed by SFAS No. 123, our net income and earnings per share would have been reduced to the pro forma amounts indicated in the table below:
Year |
2004 |
2003 |
2002 |
|||||||
Net income/(loss) as reported |
$ | 23,795 | $ | 42,296 | $ | (66,971 | ) | |||
Less: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
3,126 | 4,817 | 5,523 | |||||||
Net income/(loss) pro forma |
$ | 20,669 | $ | 37,479 | $ | (72,494 | ) | |||
Basic earnings/(loss) per share as reported |
$ | 0.86 | $ | 1.55 | $ | (2.49 | ) | |||
Basic earnings/(loss) per share pro forma |
0.75 | 1.38 | (2.69 | ) | ||||||
Diluted earnings/(loss) per share as reported |
0.85 | 1.55 | (2.45 | ) | ||||||
Diluted earnings/(loss) per share pro forma |
0.74 | 1.37 | (2.65 | ) |
Foreign Currency Translation
The financial statements of our former (see Note 2) and current foreign subsidiaries were measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries were translated at exchange rates as of the balance sheet date. Revenue and expenses were translated at average rates of exchange during the year. The resulting cumulative translation adjustments at December 31 of 2004, 2003 and 2002 are included in our consolidated statements of stockholders equity.
Employee Benefit Plans
We contribute to several union-sponsored multi-employer pension plans. These plans are not administered by us, and contributions are determined in accordance with provisions of negotiated labor contracts. Approximately 70% of our contributions are made to the Central States Pension Fund which has suffered significant investment losses in recent years.
The Multi-Employer Pension Plan Amendments Act of 1980 established a continuing liability to such union-sponsored pension plans for an allocated share of each plans unfunded vested benefits upon substantial or total withdrawal by us or upon termination of the pension plans. The amount of liability has not been determined, but we would expect that it would be material. The Central States
8
Pension Funds recent investment performance has adversely affected its funding levels and the fund is seeking corrective measures to address its funding. During the benefit period of the recent legislation, the Central States Plan is expected to meet the minimum funding requirements. If any of these 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 and 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 and additional contributions required, it could have a material adverse impact on our financial results. To date, no withdrawal or termination has occurred or is contemplated other than the potential liability for USF Red Star discussed in Notes 3 and 10. For 2004, 2003 and 2002, our contributions to these pension plans were $81,829, $86,147 and $87,894, respectively.
Use of Estimates
Our management has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R) a revision of SFAS No. 123 Accounting for Stock Based Compensation. This statement supersedes APB Opinion No. 25 and provides guidance on the accounting for transactions in which an entity obtains employee services for share-based payments. This statement does not change the guidance for share-based transaction with non-employees nor employee stock ownership plans originally provided by SFAS No. 123. This statement requires, effective for interim periods beginning after July 15, 2005 that share-based payments made to employees are recognized as compensation expense in an amount equal to the fair value of the share-based payments, typically over any related vesting period. We will adopt the modified prospective method as proposed in SFAS No. 123(R) in our 2005 third quarter. We expect to recognize approximately $2,000 of pre-tax compensation expense in 2005.
(2) Discontinued Operations
On October 30, 2002, we sold our freight forwarding businesses, USF Worldwide Inc. and USF Worldwide Logistics (UK) Ltd. (the Companies) to GPS Logistics, LLC and Seko Worldwide Acquisition LLC (the Transferees) pursuant to a Share Transfer Agreement dated October 17, 2002 through the transfer of the shares of the Companies. As a condition to the transfer and in consideration of Transferees obligation to assume ownership of the stock of the Companies, we agreed to contribute $17,000 in cash to USF Worldwide Inc. As part of the agreement, the Transferees had the option for a period of up to six months from closing to return its interest in certain assets to us for $3,000 in cash. In December 2002, the Transferees exercised their option to return their interest in those certain assets which are the ocean freight forwarding businesses.
During the year ended December 31, 2002, we recognized a loss of $13,239 net of tax benefits on the transfer of our freight forwarding businesses. The calculation of the loss is summarized as follows:
Net assets transferred |
$ | 14,556 | |
Cash paid |
20,000 | ||
Write-off of notes receivable |
6,000 | ||
Transaction fees and expenses |
1,743 | ||
Loss on transfer before income tax benefits |
42,299 | ||
Income tax benefits |
29,060 | ||
Loss, net of income tax benefits |
$ | 13,239 | |
The disposal of our freight forwarding businesses represents the disposal of a component of an entity under SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. Accordingly, the financial position and results of operations of the freight forwarding segment have been classified as discontinued operations and all periods prior to 2003 have been restated.
9
Loss from discontinued operations consisted of the following:
Year |
2004 |
2003 |
2002 |
||||||||
Revenue |
$ | | $ | | $ | 187,638 | |||||
Loss from operations |
| (577 | ) | (23,885 | ) | ||||||
Income tax benefits |
| 239 | 6,907 | ||||||||
Loss from operations, net |
| (338 | ) | (16,978 | ) | ||||||
Loss on disposal |
| | (42,299 | ) | |||||||
Income tax benefits on disposal |
| | 29,060 | ||||||||
Loss on disposal, net |
| | (13,239 | ) | |||||||
Loss from discontinued operations, net |
$ | | $ | (338 | ) | $ | (30,217 | ) | |||
During the first quarter of 2002 we relinquished our 50% interest in our consolidated subsidiary, USF Asia. We recorded a $12,760 charge, which included a $10,000 negotiated payment to our former partner. The remaining $2,760 represented the relinquishment of our net assets to our former partner. We initiated our commitment to dispose of our Asia operation in the fourth quarter of 2001. Accordingly, as required by SFAS No. 144, we applied the provisions of APB Opinion No. 30. The Asia operation was a component of our freight forwarding segment. APB No. 30 required presentation of a business disposal in discontinued operations only when a company disposed of an entire segment. We therefore did not present the Asia operation in discontinued operations.
(3) Restructuring and Impairment Charges
In the 2004 second quarter we shut down USF Red Star, our former Northeast carrier. Subsequent to the closure of USF Red Star, we announced plans to expand USF Hollands operations into the Northeast. As a result of USF Hollands expansion and following the guidance of SFAS No. 144, Accounting for the Impairment of Long-Lived Assets, the results of USF Red Star are reported in continuing operations in the LTL Trucking Revenue and Operating Expenses lines in our financial statements.
Our 2004 financial statements include operating losses and shutdown costs for USF Red Star of $38,556, of which $19,097 represent operating losses primarily for salaries and benefits for our employees assisting in the wind-down of operations, legal fees, and other miscellaneous expenses and $2,961 represent operating losses incurred prior to the shutdown. The remaining $16,498 represents costs associated with exit and disposal activities per SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Due to the shutdown of USF Red Star, we are subject to withdrawal liability for up to 11 multi-employer pension plans. Of the $16,498, $4,988 relates to payments made under the Multi-Employer Pension Plan Amendment Act of 1980 (MEPPA) and $2,083 relate to accruals recognized for two plans. While we cannot estimate the ultimate liability of the remaining 9 plans, these payments were required to be made to certain of these funds under MEPPA. However, we are entitled to review and contest liability assessments provided by various funds as well as determine the mitigating effect of USF Hollands expansion into certain of the geographic areas previously covered by USF Red Star. Refer to Note 10 for more information.
Year-to-Date December 31, 2004 | |||
Shutdown costs: |
|||
Employee severance |
$ | 5,189 | |
Write-off of assets and change in allowance for uncollectible accounts |
3,332 | ||
Operating leases and property taxes |
906 | ||
MEPPA accrual |
2,083 | ||
MEPPA payments |
4,988 | ||
16,498 | |||
Operating losses: |
|||
Prior to shutdown |
2,961 | ||
After shutdown |
19,097 | ||
22,058 | |||
Total shutdown costs and operating losses |
$ | 38,556 | |
10
The following is a summary of the accruals recorded on the balance sheet for lease obligations and severance costs related to the shutdown of USF Red Star:
Lease Obligations |
Severance Costs |
Total |
||||||||||
Balance at December 31, 2003 |
$ | | $ | | $ | | ||||||
Charges |
906 | 5,189 | 6,095 | |||||||||
Payments |
(591 | ) | (4,075 | ) | (4,666 | ) | ||||||
Balance at December 31, 2004 |
$ | 315 | $ | 1,114 | $ | 1,429 | ||||||
During the 2004 second quarter, we abandoned an LTL information technology project because of software stability and performance issues realized at the conclusion of pilot tests in the 2004 second quarter. As a result, we recorded an impairment charge of $5,980 in the Corporate and Other Operating Expenses line in our financial statements to write the asset down to zero.
(4) Operating Leases
We lease certain terminals, warehouses, vehicles and data processing equipment under long-term lease agreements that expire in various years through 2039.
The following is a schedule of future minimum rental payments on leases that had initial or remaining non-cancelable lease terms in excess of one year at December 31, 2004.
Year |
|||
2005 |
$ | 16,882 | |
2006 |
13,462 | ||
2007 |
7,672 | ||
2008 |
4,900 | ||
2009 |
3,557 | ||
Subsequent years |
2,773 | ||
$ | 49,246 | ||
Rental expense in our accompanying consolidated statements of operations for 2004, 2003, and 2002 was $25,959 $27,718 and $29,406, respectively.
(5) Short-Term Borrowings and Long-Term Debt
Long-term debt consists of the following:
2004 |
2003 | |||||
Unsecured notes(a) |
$ | 250,000 | $ | 250,000 | ||
Unsecured lines of credit(b) |
| | ||||
Secured lines of credit(c) |
||||||
Other |
87 | 147 | ||||
250,087 | 250,147 | |||||
Less current maturities |
65 | 60 | ||||
$ | 250,022 | $ | 250,087 | |||
(a) | We issued guaranteed unsecured notes of $150,000 on April 25, 2000 that are due April 15, 2010 and bear interest at 8.5%. The notes are redeemable in whole or part any time before maturity and have no sinking-fund requirements. We also issued guaranteed unsecured notes of $100,000 on May 1, 1999 that are due May 1, 2009 and bear interest at 6.5 %. The notes are redeemable in whole or part any time before maturity and have no sinking-fund requirements. Based upon our incremental borrowing rates for similar types of borrowing arrangements, the fair value of the notes at December 31, 2004 was approximately $286,000. |
Our guaranteed notes are fully and unconditionally guaranteed, on a joint and several basis, on an unsecured senior basis, by substantially all of our direct and indirect domestic subsidiaries (the Subsidiary Guarantors). All of our assets were owned by the Subsidiary Guarantors and substantially all of our operations were conducted by the Subsidiary Guarantors.
11
Accordingly, the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors were substantially equivalent to the assets, liabilities, earnings and equity shown in our consolidated financial statements. Our subsidiaries, other than the Subsidiary Guarantors, are minor. There are no restrictions on our ability to obtain funds from our subsidiaries by dividend or loan. We, therefore, are not required to present separate financial statements of our Subsidiary Guarantors, and other disclosures relating to them.
On January 31, 2000, we filed a Form S-3 shelf registration statement that allowed for the sale of up to $400,000 in additional guaranteed notes. As of December 31, 2004, $250,000 of notes may be issued under this shelf registration statement.
(b) | We have a $200,000 committed credit facility through a syndicate of commercial banks that expires in October 2005. The facility allows up to $125,000 for standby letters of credit to be utilized in our self- insurance program and other letter of credit requirements. The facility has an annual fee and contains customary financial covenants including maintenance of minimum net worth and funded debt to cash flow. At December 31, 2004, we were in compliance with all covenants related to this credit facility. At December 31, 2004, we had no borrowings and had $117,442 in outstanding letters of credit under this facility. In addition to our committed credit facility, we maintained a $10,000 uncommitted line of credit that had no outstanding borrowings at December 31, 2004. This facility and line of credit are used in conjunction with a centralized cash management system to finance our short-term working capital needs thereby assisting us and managing our cash balances. We intend to renew this facility prior to its expiration. |
(c) | On December 28, 2004, we and certain of our subsidiaries completed arrangements for a $100,000 3-year trade receivables securitization facility with ABN AMRO, Inc. As part of this arrangement, we formed a special-purpose, bankruptcy-remote subsidiary (USF Finance Company LLC) with two classes of stock. Class A shares, which have 100% of the voting rights but no beneficial interests, are held exclusively by an external independent entity and Class B shares, which have no voting rights but have 100% of the beneficial interests, are held exclusively by USF Corporation. The sole purpose of USF Finance Company LLC is to buy receivables from certain subsidiaries of ours and sell undivided interests in accounts receivable to certain commercial paper conduits of ABN AMRO Inc. and to USF Assurance Company Ltd (100% owned subsidiary of USF Corporation). The assets of USF Finance Company LLC are not available to pay our claims or any of its entities. |
Sales of undivided interests in the pool of accounts receivables are accounted for as a secured borrowing whereby all receivables outstanding under the program and the corresponding debt will be recognized in our consolidated balance sheet, and as part of the LTL Group for segment reporting in Note 14. USF Finance Company LLC had $190,626 million of accounts receivable at December 31, 2004. There were no securitized borrowings outstanding at December 31, 2004.
The ongoing costs of this program were charged to interest expense in the Consolidated Statements of Operations. At December 31, 2004, we were in compliance with all covenants related to the securitization program.
The aggregate annual maturities of our debt at December 31, 2004 were as follows:
Year |
Amount | ||
2005 |
$ | 65 | |
2006 |
22 | ||
2007 |
| ||
2008 |
| ||
2009 |
100,000 | ||
Subsequent years |
150,000 | ||
$ | 250,087 | ||
(6) Income Taxes
A reconciliation of the statutory federal income tax rate with our effective income tax rate from continuing operations before minority interest and cumulative effect of accounting changes is as follows:
2004 |
2003 |
2002 |
|||||||||||||||||
Year |
Amount |
Tax Rate |
Amount |
Tax Rate |
Amount |
Tax Rate |
|||||||||||||
Federal income tax at statutory rate |
$ | 14,625 | 35.0 | % | $ | 25,792 | 35.0 | % | $ | 21,665 | 35.0 | % | |||||||
State income tax, net of federal tax benefit |
4,880 | 11.1 | % | 2,991 | 4.0 | % | 2,861 | 4.6 | % | ||||||||||
Foreign income taxes |
913 | 0.4 | % | 642 | 0.1 | % | 16 | | |||||||||||
Asia exit costs |
| | | | 3,500 | 5.6 | % | ||||||||||||
Other |
(355 | ) | -0.8 | % | 1,759 | 2.3 | % | 682 | 1.1 | % | |||||||||
Total income tax expense |
$ | 20,063 | 45.7 | % | $ | 31,184 | 41.4 | % | $ | 28,724 | 46.3 | % | |||||||
12
The increase in our 2004 state tax effective rate was primarily attributable to the discontinued operations of USF Red Star and the loss of their future state tax benefits which may have been realizable had they remained in operation. U.S. income taxes and foreign withholding taxes have not been provided for on the undistributed earnings of certain foreign subsidiaries. We intend to reinvest these earnings indefinitely in our foreign subsidiaries.
The components of our provision for income taxes are as follows:
Year |
2004 |
2003 |
2002 |
|||||||||
Current expense: |
||||||||||||
Federal |
$ | 12,509 | $ | 9,421 | $ | 25,147 | ||||||
State |
5,671 | 4,653 | 4,793 | |||||||||
Foreign |
913 | 642 | 16 | |||||||||
19,093 | 14,716 | 29,956 | ||||||||||
Deferred expense: |
||||||||||||
Federal |
(623 | ) | 16,519 | (841 | ) | |||||||
State |
1,593 | (51 | ) | (391 | ) | |||||||
970 | 16,468 | (1,232 | ) | |||||||||
Total income tax expense |
$ | 20,063 | $ | 31,184 | $ | 28,724 | ||||||
The following is a summary of the components of our deferred income tax assets and liabilities at December 31, 2004 and December 31, 2003:
2004 |
2003 |
||||||
Deferred tax assets: |
|||||||
Deferred compensation |
$ | 8,150 | $ | 7,450 | |||
Insurance and claims |
59,309 | 50,840 | |||||
Vacation pay |
10,182 | 10,941 | |||||
Tax loss credit and carry forwards |
4,529 | 3,459 | |||||
Other |
372 | (237 | ) | ||||
82,542 | 72,453 | ||||||
Deferred tax liabilities: |
|||||||
Software development costs |
12,856 | 12,221 | |||||
Property and equipment, principally due to accelerated depreciation |
132,600 | 122,176 | |||||
Net deferred tax liabilities |
$ | 62,914 | $ | 61,944 | |||
As of December 31, 2004 our federal and state net operating loss carry-forwards for income tax purposes were $7,500 and $2,500, respectively. If not utilized, the federal net operating loss carry-forward will expire in 2022, and the state net operating loss carry-forwards will begin to expire in 2005. As of December 31, 2004, our federal and state tax credit carry-forwards for income tax purposes were $600 and $300, respectively. If not utilized, the federal tax credit carry-forwards will begin to expire in 2020, and state tax credit carry-forwards will begin to expire in 2019.
Our tax return for 2002 included a tax loss of $157,700 as a result of actions taken in that year to relinquish our interest in USF Asia and the sale of our freight forwarding business. The total liquidity benefit from this loss will be $57,200. The liquidity benefit is in the form of federal and state cash tax savings beginning in 2002 and ending in 2005 when the loss is expected to be fully utilized. In 2002 a reserve was established to reflect our estimate of the amount that is probable of being payable if the benefit is successfully challenged by the tax authorities. As of December 31, 2004, the reserve balance is $19,500.
Our federal income tax returns for the calendar years 2000, 2001 and 2002 are under examination by the Internal Revenue Service.
(7) Employee Benefit Plans
We maintain a salary deferral 401(k) plan covering substantially all of our employees who are not members of a collective bargaining unit and who meet specified service requirements. Contributions are based upon participants salary deferrals and compensation and are made within Internal Revenue Service limitations. For 2004, 2003 and 2002, our contributions for these plans were $12,400, $11,844 and $11,623, respectively. We do not offer post-employment or post-retirement benefits.
13
We contribute to several union-sponsored multi-employer pension plans. These plans are not administered by us, and contributions are determined in accordance with provisions of negotiated labor contracts. Approximately 70% of our contributions are made to the Central States Pension Fund which has suffered significant investment losses in recent years.
The Multi-Employer Pension Plan Amendments Act of 1980 established a continuing liability to such union-sponsored pension plans for an allocated share of each plans unfunded vested benefits upon substantial or total withdrawal by us or upon termination of the pension plans. The amount of liability has not been determined, but we would expect that it would be material. The Central States Pension Funds recent investment performance has adversely affected its funding levels and the fund is seeking corrective measures to address its funding. During the benefit period of the recent legislation, the Central States Plan is expected to meet the minimum funding requirements. If any of these 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 and 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 and additional contributions required, it could have a material adverse impact on our financial results. To date, no withdrawal or termination has occurred or is contemplated other than the potential liability for USF Red Star discussed in Notes 3 and 10. For 2004, 2003 and 2002, our contributions to these pension plans were $81,829, $86,147 and $87,894, respectively.
We maintain a non-qualified deferred compensation plan for the benefit of a select group of our management. The purpose of the plan is to enhance our ability to attract and retain qualified management personnel by providing an opportunity to defer a portion of their compensation that cannot be deferred under our 401(k) plan. We also maintain a supplemental executive retirement plan (defined contribution) to provide benefits to a select group of our management who contribute significantly to our continued growth, development and future business. In 2004, 2003 and 2002, we contributed $1,023, $1,656 and $1,579, respectively, to this plan. We have established a grantor trust (Rabbi Trust) for benefits payable under our non-qualified deferred compensation and supplemental executive retirement plans.
(8) Common Stock
We maintain two employee stock purchase plans, which provide for the purchase of an aggregate of not more than 1,225,000 shares of our common stock. Each eligible employee may designate the amount of regular payroll deductions, subject to a yearly maximum, that is used to purchase shares at a discount from the month-end market price. At December 31, 2004, 1,117,315 shares had been issued under these plans.
We maintain stock option plans that provide for the granting of options to key employees and non-employee directors to purchase an aggregate of not more than 5,175,000 shares of our common stock. Stock options issued under these plans are exercisable for periods up to ten years from the date an option is granted. At December 31, 2004 there were 1,836,335 shares available for granting under the plans. For all stock options that have been granted by us, the exercise prices of all the stock options were equal to the market prices of the underlying stock on the grant dates, therefore no compensation was recognized.
In 2004, 2003 and 2002, we issued 858,823, 458,302 and 303,377 common shares, respectively, through the exercise of stock options or the purchase, by employees, through our stock option and stock purchase programs. In 2004, we repurchased 5,221 common shares related to the vesting of restricted stock, and in 2003 we repurchased 14,000 common shares in the open market for approximately $336 under a board authorized repurchase program. There were no shares repurchased in 2004 and 2002. At December 31, 2004 we had authorization to repurchase approximately 500,000 additional shares. Repurchased shares were included in Treasury Stock and were the first shares to be used in our employee stock purchase plans or when employees exercised stock options. The repurchased shares were recorded at cost and when issued for employee stock purchase plan allocations or when employees exercise stock options the value of treasury stock was reduced at the average cost per share of all shares available in the treasury stock account. If allocations under the employee stock purchase plans or employee stock option exercises (on a per share price basis) exceeded the current treasury stock average price per share, the excess was recorded as paid in capital.
We estimated the fair value of each option on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for 2004, 2003 and 2002: dividend yield ranging from 1.02% to 1.42%; expected volatility ranging from 26.92% to 41.20%; risk-free interest rates at grant date ranging from 2.48% to 4.51%; and expected lives ranging from 4.35 to 4.53 years.
14
A summary of the status of our stock option plans is presented below:
Year |
2004 |
2003 |
2002 | ||||||||||||||||||
Shares |
Weighted- Average Exercise Price |
Shares |
Weighted- Average Exercise Price |
Shares |
Weighted- Average Exercise Price | ||||||||||||||||
Outstanding at beginning of year |
2,516,843 | $ | 30.23 | 3,133,886 | $ | 29.82 | 2,659,113 | $ | 28.48 | ||||||||||||
Granted |
75,000 | 33.27 | 366,200 | 29.80 | 928,110 | 32.45 | |||||||||||||||
Exercised |
(761,200 | ) | 25.57 | (372,143 | ) | 24.83 | (228,721 | ) | 22.90 | ||||||||||||
Forfeited |
(445,730 | ) | 29.58 | (611,100 | ) | 30.54 | (224,616 | ) | 31.93 | ||||||||||||
Outstanding at end of year |
1,384,913 | 31.71 | 2,516,843 | 30.23 | 3,133,886 | 29.82 | |||||||||||||||
Options exercisable at year end |
953,033 | 31.85 | 1,594,386 | 29.22 | 1,424,497 | 28.03 | |||||||||||||||
Weighted-average fair value of options granted during the year |
$ | 8.87 | $ | 7.05 | $ | 11.81 | |||||||||||||||
The following table summarizes information about stock options outstanding at December 31, 2004:
Outstanding Options |
||||||||||||
Number Outstanding at 12/31/04 |
Weighted- Average Remaining Contractual Life (Years) |
Weighted- Average Exercise Price |
Options Exercisable | |||||||||
Range of Exercise Prices |
Number Exercisable at 12/31/04 |
Weighted- Average Exercise Price | ||||||||||
$19.63-$24.06 |
255,100 | 5.57 | $ | 23.17 | 180,600 | $ | 22.92 | |||||
24.94-27.31 |
190,500 | 3.84 | 25.00 | 190,500 | 25.00 | |||||||
28.92-33.42 |
398,513 | 6.61 | 30.70 | 215,513 | 30.54 | |||||||
34.06-46.63 |
540,800 | 6.07 | 38.84 | 366,420 | 40.59 | |||||||
1,384,913 | 5.83 | $ | 31.71 | 953,033 | $ | 31.85 | ||||||
We have a stockholder rights plan designed to deter coercive takeover tactics and to prevent an acquirer from gaining control without offering a fair price to all of our stockholders. In the event of a non-permitted transaction, we would declare a distribution of one right for each share of common stock outstanding to our stockholders and generally to shares issuable under our stock option plans. In the event of a proposed takeover meeting certain conditions, the rights could be exercised by all holders other than the takeover bidder at an exercise price of half of the current market price of our common stock. This would have the effect of significantly diluting the holdings of the takeover bidder. These rights expire on January 31, 2014.
(9) Goodwill and Other Intangible Assets
Under SFAS No. 142 Goodwill and Other Intangible Assets, previously recorded goodwill and other intangible assets with indefinite lives are no longer amortized but are subject to impairment tests annually. As a result of implementing this new standard, we no longer amortize goodwill and recorded an impairment charge of $70,022 at USF Worldwide, our discontinued freight forwarding segment. The charge was shown as a cumulative effect of change in accounting for goodwill in the first quarter of 2002. Goodwill and other intangible assets consist of the following:
Year |
2004 |
2003 |
||||||||||||||
Average Life (Yrs) |
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
||||||||||||
Amortized intangible assets: |
||||||||||||||||
Customer lists |
5 | $ | 270 | $ | (171 | ) | $ | 9,444 | $ | (7,411 | ) | |||||
Non-competes |
5 | 191 | (73 | ) | 5,347 | (5,184 | ) | |||||||||
Total |
$ | 461 | $ | (244 | ) | $ | 14,791 | $ | (12,595 | ) | ||||||
Intangible assets not subject to amortization: |
||||||||||||||||
Goodwill |
$ | 100,813 | $ | | $ | 100,813 | $ | | ||||||||
Aggregate amortization expense for the year ended December 31, 2004 |
$ | 2,033 | ||||||||||||||
Due to the closure of USF Red Star, the gross carrying amount and accumulated amortization of USF Red Star intangible assets, which net to zero, have been removed from the 2004 financial statements.
The 2004 amortization expense included an $805 write-off of intangible assets due to the closure of USF Red Star.
15
Estimated amortization expense for each of the years ending December 31 is as follows:
Year |
|||
2005 |
$ | 128 | |
2006 |
89 | ||
Total |
$ | 217 | |
The changes in the carrying amount of goodwill during 2004, and the goodwill balances by operating segment as of December 31, 2004 are as follows:
LTL |
TL |
Logistics |
Total | |||||||||
Balance as of December 31, 2002 |
$ | 57,273 | $ | 10,574 | $ | 32,662 | $ | 100,509 | ||||
Additions |
304 | 304 | ||||||||||
Balance as of December 31, 2003 |
57,273 | 10,878 | 32,662 | 100,813 | ||||||||
Additions |
||||||||||||
Balance as of December 31, 2004 |
$ | 57,273 | $ | 10,878 | $ | 32,662 | $ | 100,813 | ||||
(10) Commitments and Contingencies
We contribute to several union sponsored multi-employer pension plans. These plans are not administered by us, and contributions are determined in accordance with provisions of negotiated labor contracts. The Multi-Employer Pension Plan Amendments Act of 1980 established a continuing liability to such union sponsored plans for an allocated share of each plans unfunded vested benefits upon substantial or total withdrawal by us or upon termination of the pension plans. We believe any withdrawal liability could be material. No withdrawal or termination has occurred or is contemplated other than the potential liability for USF Red Star discussed below.
Due to the shutdown of USF Red Star, it is probable that we will be subject to withdrawal payments for up to 11 multi-employer pension plans. We continue to gather information to determine the extent of such withdrawal liability from each of the plans. We accrued $2,083 in 2004 related to two of these plans. Given the lack of current information, complexity of the calculations and the expected mitigation relative to the USF Holland expansion, the final withdrawal liability, which may be material to our financial position, cannot currently be estimated for the remaining 9 plans, and therefore we have not accrued any costs related to these 9 plans. We believe the process to determine withdrawal liability will likely take at least several months, but it could extend to a year or more for the following reasons: the time it will take to obtain information from the pension plans and analyze such information; substantial negotiations with these pension plans over withdrawal liability; and any potential arbitration of the issues, other legal proceedings, and the unknown mitigating effect of the USF Holland expansion. In 2004, $4,988 in payments were made under MEPPA. While we cannot estimate the ultimate liability, these payments were required to be made to certain of these plans under MEPPA. However, we are entitled to review and contest liability assessments provided by various funds as well as determine the mitigating effect of USF Hollands expansion into certain of the geographic areas previously covered by USF Red Star.
On December 23, 2003, Idealease Services, Inc. (Idealease) filed a complaint against Logistics, in the Circuit Court of Cook County in Chicago, Illinois. Idealease is asking the court to require Logistics to specifically perform an alleged contractual obligation to buy back from Idealease a fleet of vehicles it claims is valued at approximately $14,500 or to pay Idealease that amount. Idealease also contends that Logistics is liable for $557 in lease payments and that certain riders to a lease agreement are invalid due to a lack of consideration. Logistics denies the material allegations in the Idealease complaint and plans to vigorously contest the lawsuit in court.
On January 14, 2005, USF Corporation was served with a complaint which was filed by Guaranteed Overnight Delivery, Inc. (G.O.D.) on December 29, 2004 in the Superior Court of New Jersey, Bergen County. In the complaint, G.O.D. alleges that USF Corporation owes G.O.D. $1,324 for services performed by G.O.D. for USF Corporation pursuant to an interline agreement. On January 26, 2005 USF Corporation filed an answer to the Complaint denying all allegations. In addition, USF asserted numerous affirmative defenses (including, but not limited to, failure to sue proper parties, failure to state a claim, offset, and lack of jurisdiction) and filed a Notice of Removal of the case to the United States District Court for the District of New Jersey. USF believes that the debt alleged by G.O.D. is overstated, and that the entire amount owed to G.O.D. is offset by amounts owed by G.O.D. to USF.
On January 26, 2005, USF Bestway, Inc., USF Dugan, Inc., USF Holland, Inc., USF Reddaway, Inc. and USF Red Star, Inc. (USF Carriers) filed a Complaint against G.O.D. in the United States District Court for the District of New Jersey. In the Complaint the USF Carriers allege that G.O.D. owes the USF Carriers $890 for services performed by the USF Carriers for G.O.D. as well as additional undetermined amounts for damage claims sustained in connection with services performed by G.O.D. for the USF Carriers.
16
At no point prior to receipt of the complaint was USF Corporation aware that G.O.D.s claim allegedly amounted to $1,324. USF Carriers intend to vigorously defend G.O.D.s claim and pursue the counterclaim.
On November 19, 2004, the Teamsters National Freight Industry Negotiating Committee (TNFINC) filed a complaint against USF Corporation, USF Red Star Inc. and USF Holland Inc. in the United States District Court for the Eastern District of Pennsylvania. On January 13, 2005, service of process was effectuated on all three USF defendants. TNFINC alleges certain violations of the National Labor Relations Act and asks for damages. Additionally, TNFINC filed a class action suit on behalf of the employees of USF Red Star alleging violations of the federal Worker Adjustment and Retraining Notification Act (WARN) similar to other WARN actions mentioned below. USF intends on vigorously defending this action.
Including the TNFINC WARN action mentioned above, USF Corporation and/or USF Red Star, Inc. are currently named in five class action lawsuits alleging violations of the federal WARN Act. Three WARN class actions are pending in the United States District Court for the Eastern District of Pennsylvania and one each is pending in the United States District Court for the District of Connecticut and the United States District Court for the Western District of New York. The WARN action in the Western District of New York was filed in late January 2005 by former mechanics of USF Red Stars Buffalo, New York terminal.
On September 30, 2004 USF Red Star filed a motion to transfer and consolidate the three original WARN actions with the Multidistrict Litigation Judicial Panel (MDL Panel) requesting that all three cases be consolidated and transferred to the United States District Court for Northern District of New York where USF Red Stars former headquarters are located in Auburn, New York. On February 16, 2005, the MDL Panel transferred three of the five WARN cases to the United States District Court for the Eastern District of Pennsylvania.
We are routinely involved in a number of legal proceedings and claims arising in the ordinary course of business, primarily involving claims for bodily injury and property damage incurred in the transportation of freight. The estimated liability for claims included in liabilities, both current and long-term, is $63,320 and $94,034, respectively, in 2004 and $52,772 and $80,707, respectively, in 2003 reflects the estimated ultimate cost of self-insured claims incurred, but not paid, for bodily injury, property damage, cargo loss and damage, and workers compensation. We believe the outcome of these matters is not expected to have any material adverse effect on our consolidated financial position or results of our operations and have been adequately provided for in our financial statements.
At December 31, 2004, we had capital purchase commitments of $12,399 for land and improvements, $2,885 for revenue equipment, and $2,110 for information technology related projects.
We use underground storage tanks at certain terminal facilities and maintain a comprehensive policy of testing, upgrading, replacing or eliminating these tanks to protect the environment and comply with various Federal and state laws. We take prompt remedial action whenever any contamination is detected.
(11) Related Parties
In 2002, we made a $700 loan to Douglas R. Waggoner, President, USF Bestway Inc., pursuant to our executive relocation program. The loan was due on December 31, 2002 and has been repaid.
William N. Weaver, Jr., a former director, is a member of the law firm of Sachnoff & Weaver, Ltd. An Illinois professional corporation, Sachnoff & Weaver, Ltd. has acted and continues to act as outside counsel to us with regard to certain matters. We believe that the legal fees billed to us for these services were at market rates. We paid $384, $653 and $725 in 2004, 2003 and 2002, respectively, to Sachnoff & Weaver, Ltd.
(12) Acquisitions
In February 2003, we acquired the stock of System 81 Express, Inc., a truckload carrier based in Tennessee that owned or operated approximately 140 tractors and 260 trailers, for approximately $1,900 in cash and $2,800 in assumed debt. In addition, contingent payments totaling $314 were subsequently made to the former owners of System 81 Express. Goodwill and other intangible assets of $304 and $461, respectively, were recorded under the acquisition.
17
(13) Joint Venture
In December, 2003 we began offering transportation and logistics services in Mexico and across the United States/Mexico border through a joint venture with the shareholders of Autolineas Mexicanas S.A. de C.V. (ALMEX). As of December 31, 2004, we had invested $9,360 in the form of a loan, which can be converted to equity at our option. Included in the $9,360 is $500 that was loaned prior to the finalization of the joint venture agreement and secured by the trade receivables of ALMEX. We have the option to eventually own a majority position.
(14) Business Segments
We have four reportable business segments: (1) LTL Trucking, (2) TL Trucking, (3) Logistics and (4) Corporate and Other. Our LTL trucking segment provides regional and inter-regional delivery of goods throughout the U.S., to certain areas of Canada and throughout Mexico via our joint venture with ALMEX. Our TL subsidiary provides premium regional and national TL services. Our Logistics subsidiaries provide solutions to customers logistics and distribution requirements and domestic ocean freight services. The Corporate and Other segment performs support activities to our operating segments including executive, IT, corporate sales and various financial management functions. Our reportable business segments are managed separately because each business has different customer requirements and service offerings.
The accounting policies of our segments are the same as those described in the summary of significant accounting policies. Intangible assets are included in each segments reportable assets, but the amortization of these intangible assets is not included in the determination of a segments income or loss from operations. We evaluate performance based on income or loss from operations before income taxes, interest, amortization of intangibles and other non-operating income (expenses).
Year |
2004 |
2003 |
2002 |
|||||||||
Revenue |
||||||||||||
LTL |
$ | 2,005,330 | $ | 1,898,668 | $ | 1,866,892 | ||||||
TL |
133,725 | 128,093 | 114,151 | |||||||||
Logistics |
269,378 | 276,441 | 278,161 | |||||||||
Intercompany eliminations |
(13,854 | ) | (11,063 | ) | (8,678 | ) | ||||||
Corporate and Other |
| | | |||||||||
Total Revenue from Continuing Operations |
$ | 2,394,579 | $ | 2,292,139 | $ | 2,250,526 | ||||||
Income From Operations |
||||||||||||
LTL |
$ | 93,348 | $ | 110,555 | $ | 105,172 | ||||||
TL |
3,368 | 4,663 | 5,311 | |||||||||
Logistics |
9,765 | 9,270 | 12,603 | |||||||||
Freight Forwarding Asia exit costs |
| | (12,760 | ) | ||||||||
Corporate and Other |
(40,703 | ) | (26,527 | ) | (28,237 | ) | ||||||
Amortization of intangibles |
(2,033 | ) | (2,369 | ) | (1,235 | ) | ||||||
Interest expense |
(20,917 | ) | (20,900 | ) | (20,516 | ) | ||||||
Interest income |
2,824 | 1,867 | 2,708 | |||||||||
Other, net |
(1,794 | ) | (1,274 | ) | (1,054 | ) | ||||||
Income from continuing operations before income taxes, minority interest and cumulative effect of accounting changes |
$ | 43,858 | $ | 75,285 | $ | 61,992 | ||||||
Assets |
||||||||||||
LTL |
$ | 1,004,288 | $ | 1,005,102 | $ | 952,309 | ||||||
TL |
92,346 | 93,523 | 87,336 | |||||||||
Logistics |
146,636 | 142,958 | 154,153 | |||||||||
Corporate and Other |
197,925 | 116,505 | 101,473 | |||||||||
Total Assets |
$ | 1,441,195 | $ | 1,358,088 | $ | 1,295,271 | ||||||
Capital Expenditures |
||||||||||||
LTL |
$ | 104,764 | $ | 72,000 | $ | 99,333 | ||||||
TL |
11,352 | 7,858 | 18,194 | |||||||||
Logistics |
7,803 | 6,197 | 15,324 | |||||||||
Corporate and Other |
21,240 | 30,026 | 8,471 | |||||||||
Total Capital Expenditures |
$ | 145,159 | $ | 116,081 | $ | 141,322 | ||||||
Depreciation Expense |
||||||||||||
LTL |
$ | 72,369 | $ | 73,000 | $ | 72,726 | ||||||
TL |
11,494 | 10,985 | 10,900 | |||||||||
Logistics |
11,958 | 11,998 | 12,208 | |||||||||
Corporate and Other |
8,524 | 4,787 | 4,039 | |||||||||
Total Depreciation Expense |
$ | 104,345 | $ | 100,770 | $ | 99,873 | ||||||
18
(15) Quarterly Financial Information (unaudited)
Quarters |
First |
Second |
Third |
Fourth |
Total | |||||||||||
2004 |
||||||||||||||||
Revenue |
$ | 616,767 | $ | 611,860 | $ | 582,079 | $ | 583,873 | $ | 2,394,579 | ||||||
Income/(loss) from continuing operations |
7,116 | (2,017 | ) | 12,068 | 6,628 | 23,795 | ||||||||||
Net income/(loss) |
7,116 | (2,017 | ) | 12,068 | 6,628 | 23,795 | ||||||||||
Net income/(loss) per share basic |
0.26 | (0.07 | ) | 0.43 | 0.24 | 0.86 | ||||||||||
Net income/(loss) per share diluted |
0.26 | (0.07 | ) | 0.43 | 0.23 | 0.85 | ||||||||||
Dividends declared per share |
0.0933 | 0.0933 | 0.0933 | 0.0933 | 0.37330 | |||||||||||
2003 |
||||||||||||||||
Revenue |
$ | 593,702 | $ | 567,085 | $ | 584,705 | $ | 546,647 | $ | 2,292,139 | ||||||
Income from continuing operations |
4,240 | 8,114 | 13,091 | 18,656 | 44,101 | |||||||||||
Net income |
2,766 | 8,076 | 12,961 | 18,493 | 42,296 | |||||||||||
Net income per share basic |
0.10 | 0.30 | 0.47 | 0.67 | 1.55 | |||||||||||
Net income per share diluted |
0.10 | 0.30 | 0.47 | 0.67 | 1.55 | |||||||||||
Dividends declared per share |
0.0933 | 0.0933 | 0.0933 | 0.0933 | 0.37330 |
(16) Subsequent Events
On February 25, 2005, we sold 100% of the stock of USF Processors Inc. for $4,500 in cash to Carolina Logistic Services Inc. USF Processors Inc. is our food and pharmaceutical reverse logistics operation and is included in our Logistics segment. USF Processors Inc. had revenue of $33,089 in 2004.
On February 27, 2005, USF Corporation (USF) and Yellow Roadway Corporation (Yellow Roadway) entered into a definitive agreement pursuant to which Yellow Roadway will acquire USF through the merger of USF with and into a wholly owned subsidiary of Yellow Roadway. At the effective time of the merger, each USF share will be cancelled and converted into the right to receive either 0.9024 shares of Yellow Roadway common stock or, upon a valid cash election, $45.00 in cash. Notwithstanding the individual elections of the USF shareholders, 50% of the USF shares shall be converted into cash and (I) to the extent more than 50% of the USF shares elect to receive cash, those USF shareholders that elect to receive cash will receive proportionately less cash and more Yellow Roadway stock and (II) to the extent fewer than 50% of the USF shares elect to receive cash, the USF shares that did not elect to receive cash will receive proportionately less Yellow Roadway stock and more cash, such that, in each case, 50% of the USF shares outstanding on the second trading day immediately prior to the closing of the merger will receive cash and 50% will receive Yellow Roadway stock. As a result, the aggregate cash consideration to be paid in the transaction is expected to be $639 million (based on the number of USF shares outstanding as of February 24, 2005). Notwithstanding the foregoing, if the aggregate value of the stock consideration falls below 45% of the total consideration to be paid by Yellow Roadway to USF shareholders pursuant to the definitive agreement, then the aggregate amount of cash consideration and the aggregate amount of stock consideration will be adjusted to the extent necessary to preserve the tax-free treatment of the stock consideration to be received by USF shareholders in the transaction. The transaction is subject to the approval of shareholders of both companies. In addition, the acquisition is subject to the expiration or termination of the waiting period pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions. The parties currently expect the transaction to close in the summer of 2005.
19
Financial Statements
USF Corporation
Condensed Consolidated Balance Sheets
Unaudited (Dollars in Thousands)
As of | ||||||
April 2, 2005 |
December 31, 2004 | |||||
Assets |
||||||
Current assets: |
||||||
Cash |
$ | 151,679 | $ | 150,798 | ||
Accounts receivable, net |
317,355 | 310,172 | ||||
Operating supplies and prepaid expenses |
35,491 | 31,749 | ||||
Deferred income taxes |
35,450 | 37,724 | ||||
Total current assets |
539,975 | 530,443 | ||||
Property and equipment, net |
777,489 | 775,940 | ||||
Goodwill |
99,551 | 100,813 | ||||
Other assets |
33,988 | 33,999 | ||||
Total Assets |
$ | 1,451,003 | $ | 1,441,195 | ||
Liabilities and Stockholders Equity |
||||||
Current liabilities: |
||||||
Current debt |
$ | 65 | $ | 65 | ||
Accounts payable |
79,774 | 65,756 | ||||
Accrued salaries, wages and benefits |
93,609 | 92,164 | ||||
Accrued claims and other |
114,923 | 118,021 | ||||
Total current liabilities |
288,371 | 276,006 | ||||
Long-term liabilities |
||||||
Notes payable and long-term debt |
250,006 | 250,022 | ||||
Accrued claims and other |
108,524 | 111,551 | ||||
Deferred income taxes |
101,187 | 100,638 | ||||
Total liabilities |
748,088 | 738,217 | ||||
Commitments and contingencies (Note 8) |
||||||
Total stockholders equity |
702,915 | 702,978 | ||||
Total Liabilities and Stockholders Equity |
$ | 1,451,003 | $ | 1,441,195 | ||
See accompanying Notes to Condensed Consolidated Financial Statements.
20
USF Corporation
Condensed Consolidated Statements of Operations
Unaudited (Dollars in Thousands, Except Share and Per Share Amounts)
Quarter Ended |
||||||||
April 2, 2005 |
April 3, 2004 |
|||||||
Revenue: |
||||||||
LTL Trucking |
$ | 507,494 | $ | 519,697 | ||||
TL Trucking |
31,142 | 34,274 | ||||||
Logistics |
63,905 | 66,437 | ||||||
Intercompany eliminations |
(4,564 | ) | (3,641 | ) | ||||
597,977 | 616,767 | |||||||
Operating expenses: |
||||||||
LTL Trucking |
494,413 | 495,659 | ||||||
TL Trucking |
30,012 | 33,462 | ||||||
Logistics |
69,533 | 64,807 | ||||||
Corporate and Other |
12,152 | 9,392 | ||||||
Intercompany eliminations |
(4,564 | ) | (3,641 | ) | ||||
Total operating expenses |
601,546 | 599,679 | ||||||
Income/(loss) from operations |
(3,569 | ) | 17,088 | |||||
Non-operating income/(expense): |
||||||||
Interest expense |
(5,291 | ) | (5,209 | ) | ||||
Interest income |
746 | 571 | ||||||
Other, net |
(351 | ) | (390 | ) | ||||
Net non-operating expense |
(4,896 | ) | (5,028 | ) | ||||
Income/(loss) before income taxes |
(8,465 | ) | 12,060 | |||||
Income tax expense/(benefit) |
2,674 | (4,944 | ) | |||||
Net income/(loss) |
$ | (5,791 | ) | $ | 7,116 | |||
Net income/(loss) per sharebasic |
(0.20 | ) | 0.26 | |||||
Net income/(loss) per sharediluted |
(0.20 | ) | 0.26 | |||||
Average shares outstandingbasic |
28,369,107 | 27,556,632 | ||||||
Average shares outstandingdiluted |
28,369,107 | 27,802,815 |
See accompanying Notes to Condensed Consolidated Financial Statements.
21
USF Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited (Dollars in Thousands)
Quarter Ended |
||||||||
April 2, 2005 |
April 3, 2004 |
|||||||
Cash flows from operating activities: |
||||||||
Net income/(loss) |
$ | (5,791 | ) | $ | 7,116 | |||
Adjustments to reconcile net income/(loss) to net cash provided by operating activities: |
||||||||
Depreciation of property and equipment |
25,111 | 26,225 | ||||||
Amortization of intangible assets |
32 | 992 | ||||||
Deferred taxes |
2,823 | (6,442 | ) | |||||
Gains on sale of property and equipment |
(3,280 | ) | (789 | ) | ||||
Loss on sale of USF Processors |
7,080 | | ||||||
Decrease in other items affecting cash from operating activities |
(7,097 | ) | (14,941 | ) | ||||
Net cash provided by operating activities |
18,878 | 12,161 | ||||||
Cash flows from investing activities: |
||||||||
Mexico loan |
| (500 | ) | |||||
Capital expenditures |
(37,053 | ) | (21,445 | ) | ||||
Proceeds from sale of property and equipment |
8,724 | 2,197 | ||||||
Proceeds from sale of USF Processors |
4,500 | | ||||||
Net cash used in investing activities |
(23,829 | ) | (19,748 | ) | ||||
Cash flows from financing activities: |
||||||||
Dividends paid |
(2,628 | ) | (2,562 | ) | ||||
Employee and director stock transactions |
8,427 | 6,703 | ||||||
Proceeds from the re-issuance of treasury stock |
49 | | ||||||
Net change in short-term bank debt |
| 1 | ||||||
Payments on long-term bank debt |
(16 | ) | (16 | ) | ||||
Net cash provided by financing activities |
5,832 | 4,126 | ||||||
Net increase/(decrease) in cash |
881 | (3,461 | ) | |||||
Cash at beginning of period |
150,798 | 121,659 | ||||||
Cash at end of period |
$ | 151,679 | $ | 118,198 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 77 | $ | 49 | ||||
Income taxes |
1,831 | 669 |
See accompanying Notes to Condensed Consolidated Financial Statements.
22
USF Corporation
Condensed Consolidated Statements of Changes in Stockholders Equity
Unaudited (Dollars in Thousands)
Quarter Ended |
||||||||
April 2, 2005 |
April 3, 2004 |
|||||||
Stockholders equity balance as of December 31, 2004 and 2003, respectively |
$ | 702,978 | $ | 664,789 | ||||
Net income/(loss) |
(5,791 | ) | 7,116 | |||||
Foreign currency translation adjustments |
(87 | ) | 238 | |||||
Comprehensive income/(loss) |
(5,878 | ) | 7,354 | |||||
Employee and director stock transactions |
8,427 | 6,703 | ||||||
Treasury stock transactions |
49 | | ||||||
Dividends declared |
(2,661 | ) | (2,584 | ) | ||||
Stockholders equity balance as of April 2, 2005 and April 3, 2004, respectively |
$ | 702,915 | $ | 676,262 |
See accompanying Notes to Condensed Consolidated Financial Statements.
23
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)
1. Summary of Significant Accounting Policies
Basis of Presentation
These interim financial statements of USF Corporation have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Quarterly Reports on Form 10-Q and Rule 10-01 of Regulation S-X, and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2004. Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein.
In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to fairly present our consolidated financial position as of April 2, 2005 and the consolidated results of our operations and our consolidated cash flows for the quarters ended April 2, 2005 and April 3, 2004. Operating results for the quarter ended April 2, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.
We report on a calendar year basis. Our quarters consist of thirteen weeks that end on a Saturday either before or after the end of March, June and September.
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (R) a revision of SFAS No. 123 Accounting for Stock - Based Compensation. This statement supersedes APB Opinion No. 25 and provides guidance on the accounting for transactions in which an entity obtains employee services for share-based payments. This statement does not change the guidance for share-based transaction with non-employees nor employee stock ownership plans originally provided by SFAS No. 123. This statement requires, effective for interim periods beginning January 1, 2006, that share-based payments made to employees are recognized as compensation expense in an amount equal to the fair value of the share-based payments, typically over any related vesting period. We plan to adopt the modified prospective method as proposed in SFAS No. 123(R) in our 2006 first quarter. The modified prospective method proposes the recording of compensation expense based on grant date fair value for all awards granted, modified or settled after the date of initial adoption and for the unvested portion of previously issued awards that remain outstanding as of the date of adoption. We are currently evaluating the impact that adoption of SFAS No. 123(R) will have on our 2006 financial statements.
2. Stock Based Compensation
SFAS No. 123, Accounting for Stock Based Compensation, establishes a fair value based method of accounting for stock options. We have elected to continue using the intrinsic value method prescribed under Accounting Principals Board (APB) Opinion No. 25 as permitted by SFAS No. 123. For all stock options that have been granted, the exercise prices of the stock options were equal to the market prices of the underlying stock on the grant dates, therefore no compensation expense was recognized. If we had elected to recognize compensation expense based on the fair value of the options at grant date, as prescribed by SFAS No. 123, our net income and earnings per share would have been reduced to the pro forma amounts indicated in the table below:
Quarter Ended |
||||||||
April 2, 2005 |
April 3, 2004 |
|||||||
Net income/(loss)as reported |
$ | (5,791 | ) | $ | 7,116 | |||
Less: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
(660 | ) | (878 | ) | ||||
Net income/(loss)pro forma |
(6,451 | ) | 6,238 | |||||
Basic earnings/(loss) per shareas reported |
(0.20 | ) | 0.26 | |||||
Basic earnings per sharepro forma |
(0.23 | ) | 0.23 | |||||
Diluted earnings/(loss) per shareas reported |
(0.20 | ) | 0.26 | |||||
Diluted earnings per sharepro forma |
(0.23 | ) | 0.22 |
24
3. Restructuring and Impairment Charges
In the 2004 second quarter we shut down USF Red Star, our former Northeast carrier. Subsequent to the closure of USF Red Star, we announced plans to expand USF Hollands operations into the Northeast. As a result of USF Hollands expansion and following the guidance of SFAS No. 144, Accounting for the Impairment of Long-Lived Assets, the results of USF Red Star are reported in continuing operations in the LTL Trucking Revenue and Operating Expenses lines in our financial statements.
USF Red Star shutdown costs and operating losses included in our 2005 first quarter net operating loss are presented below:
Quarter-to-Date April 2, 2005 |
Quarter-to-Date April 2, 2004 |
|||||||
Shutdown costs: |
||||||||
Employee severance |
$ | (136 | ) | $ | | |||
Write-off of assets and change in allowance for uncollectible accounts |
(250 | ) | | |||||
Operating leases and property taxes |
81 | | ||||||
Contractual obligations to employees of the International Brotherhood of Teamsters |
4,485 | | ||||||
MEPPA payments |
2,756 | | ||||||
6,936 | | |||||||
Operating (income)/losses: |
||||||||
Prior to shutdown |
| (2,234 | ) | |||||
After shutdown |
(2,042 | ) | | |||||
(2,042 | ) | (2,234 | ) | |||||
Total shutdown costs and operating losses |
$ | 4,894 | $ | (2,234 | ) | |||
The above shutdown costs of $6,936 were offset by $2,042 in operating income, including $2,818 in gains on the sale of properties, and $776 in expenses for salaries and benefits for our employees assisting in the wind-down of operations, legal fees, and other miscellaneous expenses. Due to the shutdown of USF Red Star, we are subject to withdrawal liability for up to 11 multi-employer pension plans. Of the $6,936 in shutdown costs, $4,485 relates to contractual obligations due International Brotherhood of Teamsters employees as a result of the shutdown of USF Red Star, and $2,756 relates to Multi-Employer Pension Plan Amendment Act of 1980 (MEPPA) payments. In addition, MEPPA payments of $35 were made from an accrual established in the prior year. Refer to Note 8 for more information.
The following is a summary of the accruals recorded on the balance sheet for lease obligations and severance costs related to the shutdown of USF Red Star:
Lease Obligations |
Severance Costs |
MEPPA |
Total |
|||||||||||||
Balance at December 31, 2004 |
$ | 315 | $ | 1,114 | $ | 2,083 | $ | 3,512 | ||||||||
Charges |
81 | (136 | ) | (55 | ) | |||||||||||
Payments |
(159 | ) | (290 | ) | (35 | ) | (484 | ) | ||||||||
Balance at April 2, 2005 |
$ | 237 | $ | 688 | $ | 2,048 | $ | 2,973 | ||||||||
4. Earnings Per Share
Basic earnings per share are calculated on net income divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share are calculated by dividing net income by the weighted-average number of common shares outstanding plus the shares that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares for the period. Unexercised stock options are the only reconciling items between our basic and diluted earnings per share.
The following table presents information necessary to calculate basic and diluted earnings per share:
Quarter Ended | ||||
April 2, 2005 |
April 3, 2004 | |||
Weighted-average shares outstandingbasic |
28,369,107 | 27,556,632 | ||
Common stock equivalents |
| 246,183 | ||
Weighted-average shares and equivalentsdiluted |
28,369,107 | 27,802,815 | ||
Anti-dilutive unexercised stock options excluded from calculations |
452,864 | 364,834 | ||
25
5. Debt
Our debt includes $100,000 of unsecured guaranteed notes due May 1, 2009 and $150,000 of unsecured guaranteed notes due April 15, 2010.
Our guaranteed notes are fully and unconditionally guaranteed, on a joint and several basis, and on an unsecured senior basis, by substantially all of our direct and indirect domestic subsidiaries (the Subsidiary Guarantors). All of the assets are owned by the Subsidiary Guarantors and substantially all of our operations are conducted by the Subsidiary Guarantors. Accordingly, the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, liabilities, earnings and equity shown in our consolidated financial statements. There are no material restrictions on our ability to obtain funds from our subsidiaries by dividend or loan. We, therefore, are not required to present separate financial statements of our Subsidiary Guarantors, and other disclosures relating to them.
We have a $200,000 credit facility with a group of banks that will expire in October 2005. This facility is for working capital, general corporate funding needs, and up to $125,000 for letters of credit to support our self-insurance program. As of April 2, 2005 we had no borrowings drawn under the facility and $117,442 in issued letters of credit. In addition to our committed credit facility, we maintained a $10,000 uncommitted line of credit that had no outstanding borrowings at April 2, 2005.
On December 28, 2004, we and certain of our subsidiaries completed arrangements for a $100,000 3-year trade receivables securitization facility with ABN AMRO, Inc. As part of this arrangement, we formed a special-purpose, bankruptcy-remote subsidiary (USF Finance Company LLC) with two classes of stock: Class A shares, which have 100% of the voting rights but no beneficial interests, are held exclusively by an external independent entity; and Class B shares, which have no voting rights but have 100% of the beneficial interests, are held exclusively by USF Corporation. The sole purpose of USF Finance Company LLC is to buy receivables from certain subsidiaries of ours and sell undivided interests in accounts receivable to certain commercial paper conduits of ABN AMRO Inc. and to USF Assurance Company Ltd (100% owned subsidiary of USF Corporation). The assets of USF Finance Company LLC are not available to pay our claims. USF Finance Company LLC had $196,149 of net accounts receivable at April 2, 2005. There were no securitized borrowings outstanding at April 2, 2005.
6. Goodwill and Other Intangible Assets
The changes in carrying amounts of goodwill by segment for the quarter-to-date period ended April 2, 2005 were as follows:
LTL |
TL |
Logistics |
Total |
|||||||||||
Balance as of December 31, 2004 |
$ | 57,273 | $ | 10,878 | $ | 32,662 | $ | 100,813 | ||||||
Disposition from the sale of USF Processors |
| | (1,262 | ) | (1,262 | ) | ||||||||
Balance as of April 2, 2005 |
$ | 57,273 | $ | 10,878 | $ | 31,400 | $ | 99,551 | ||||||
Intangible assets subject to amortization consist of the following:
As of April 2, 2005 |
As of December 31, 2004 |
|||||||||||||||
Average Life (Yrs) |
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
||||||||||||
Amortized intangible assets: |
||||||||||||||||
Customer lists |
5 | $ | 270 | $ | (193 | ) | $ | 270 | $ | (171 | ) | |||||
Non-competes |
5 | 191 | (83 | ) | 191 | (73 | ) | |||||||||
Total |
$ | 461 | $ | (276 | ) | $ | 461 | $ | (244 | ) | ||||||
Aggregate amortization expense for the quarters ended April 2, 2005, and April 3, 2004 was $32 and $992, respectively. The 2004 first quarter included $959 in amortization expense for USF Red Star.
26
Estimated amortization expense for each of the years ending December 31 is as follows:
Year |
|||
2005 |
$ | 128 | |
2006 |
89 | ||
Total |
$ | 217 | |
7. Segment Reporting
Quarter Ended |
||||||||
April 2, 2005 |
April 3, 2004 |
|||||||
Revenue |
||||||||
LTL Trucking |
$ | 507,494 | $ | 519,697 | ||||
TL Trucking |
31,142 | 34,274 | ||||||
Logistics |
63,905 | 66,437 | ||||||
Intercompany eliminations |
(4,564 | ) | (3,641 | ) | ||||
Total Revenue from Continuing Operations |
$ | 597,977 | $ | 616,767 | ||||
Income From Operations |
||||||||
LTL Trucking |
$ | 13,081 | $ | 24,038 | ||||
TL Trucking |
1,130 | 812 | ||||||
Logistics |
(5,628 | ) | 1,630 | |||||
Corporate and Other |
(12,152 | ) | (9,392 | ) | ||||
Income/(loss) from operations |
(3,569 | ) | 17,088 | |||||
Net non-operating expense |
(4,896 | ) | (5,028 | ) | ||||
Income/(loss) before income taxes |
$ | (8,465 | ) | $ | 12,060 | |||
8. Contingencies
We contribute to several union sponsored multi-employer pension plans. These plans are not administered by us, and contributions are determined in accordance with provisions of negotiated labor contracts. The Multi-Employer Pension Plan Amendments Act of 1980 established a continuing liability to such union sponsored plans for an allocated share of each plans unfunded vested benefits upon substantial or total withdrawal by us or upon termination of the pension plans. We believe any withdrawal liability could be material. No withdrawal or termination has occurred or is contemplated other than the potential liability for USF Red Star discussed below.
Due to the shutdown of USF Red Star, it is probable that we will be subject to withdrawal payments for up to 11 multi-employer pension plans. We continue to gather information to determine the extent of such withdrawal liability from each of the plans. We accrued $2,083 in 2004 related to two of these plans, and made payments of $35 in the 2005 first quarter from the accrual. Given the lack of current information, complexity of the calculations and the expected mitigation relative to the USF Holland expansion, the final withdrawal liability, which may be material to our financial position, cannot currently be estimated for the remaining 9 plans, and therefore we have not accrued any costs related to these 9 plans. We believe the process to determine withdrawal liability will likely take at least several months, but it could extend to a year or more for the following reasons: the time it will take to obtain information from the pension plans and analyze such information; substantial negotiations with these pension plans over withdrawal liability; and any potential arbitration of the issues, other legal proceedings, and the unknown mitigating effect of the USF Holland expansion. In the 2005 first quarter, we expensed MEPPA related payments of $2,756. While we cannot estimate the ultimate liability, these payments were required to be made to certain of these plans under MEPPA. However, we are entitled to review and contest liability assessments provided by various funds as well as determine the mitigating effect of USF Hollands expansion into certain of the geographic areas previously covered by USF Red Star.
On November 19, 2004, the Teamsters National Freight Industry Negotiating Committee (TNFINC) filed a complaint against USF Corporation, USF Red Star Inc. and USF Holland Inc. in the United States District Court for the Eastern District of Pennsylvania. On January 13, 2005, service of process was effectuated on all three USF defendants. TNFINC alleges certain violations of the National Labor Relations Act and asks for damages. Additionally, TNFINC filed a class action suit on behalf of the employees of USF Red Star alleging violations of the federal Worker Adjustment and Retraining Notification Act (WARN) similar to other WARN actions mentioned below.
Including the TNFINC WARN action mentioned above, USF Corporation and/or USF Red Star, Inc. are currently named in five class action lawsuits alleging violations of the federal WARN Act. Three WARN class actions are pending in the United States District
27
Court for the Eastern District of Pennsylvania and one each is pending in the United States District Court for the District of Connecticut and the United States District Court for the Western District of New York. The WARN action in the Western District of New York was filed in late January 2005 by former mechanics of USF Red Stars Buffalo, New York terminal.
On September 30, 2004 USF Red Star filed a motion to transfer and consolidate the three original WARN actions with the Multidistrict Litigation Judicial Panel (MDL Panel) requesting that all three cases be consolidated and transferred to the United States District Court for Northern District of New York where USF Red Stars former headquarters are located in Auburn, New York. On February 16, 2005, the MDL Panel transferred three of the five WARN cases to the United States District Court for the Eastern District of Pennsylvania.
On December 23, 2003, Idealease Services, Inc. (Idealease) filed a complaint against USF Logistics, in the Circuit Court of Cook County in Chicago, Illinois. Idealease is asking the court to require USF Logistics to specifically perform an alleged contractual obligation to buy back from Idealease a fleet of vehicles it claims is valued at approximately $14,500 or to pay Idealease that amount. Idealease also contends that Logistics is liable for $557 in lease payments and that certain riders to a lease agreement are invalid due to a lack of consideration. USF Logistics denies the material allegations in the Idealease complaint and plans to vigorously contest the lawsuit in court.
On January 14, 2005, USF Corporation was served with a complaint which was filed by Guaranteed Overnight Delivery, Inc. (G.O.D.) on December 29, 2004 in the Superior Court of New Jersey, Bergen County. In the complaint, G.O.D. alleges that USF Corporation owes G.O.D. $1,324 for services performed by G.O.D. for USF Corporation pursuant to an interline agreement. On January 26, 2005, USF Corporation filed an answer to the Complaint denying all allegations. In addition, USF Corporation asserted numerous affirmative defenses (including, but not limited to, failure to sue proper parties, failure to state a claim, offset, and lack of jurisdiction) and filed a Notice of Removal of the case to the United States District Court for the District of New Jersey. USF Corporation believes that the debt alleged by G.O.D. is overstated, and that the entire amount owed to G.O.D. is offset by amounts owed by G.O.D. to USF Corporation.
On January 26, 2005, USF Bestway, Inc., USF Dugan, Inc., USF Holland, Inc., USF Reddaway, Inc. and USF Red Star, Inc. (USF Carriers) filed a Complaint against G.O.D. in the United States District Court for the District of New Jersey. In the Complaint the USF Carriers allege that G.O.D. owes the USF Carriers $890 for services performed by the USF Carriers for G.O.D. as well as additional undetermined amounts for damage claims sustained in connection with services performed by G.O.D. for the USF Carriers. At no point prior to receipt of the complaint was USF Corporation aware that G.O.D.s claim allegedly amounted to $1,324. USF Carriers intend to vigorously defend against G.O.D.s claim and pursue the counterclaim.
We are involved in other litigation arising in the ordinary course of business, primarily involving claims for bodily injury, property damage, and workers compensation. We believe the ultimate recovery or liability, if any, resulting from such litigation, individually or in total, would not materially adversely affect our financial condition or results of operations.
The following reflects the accruals estimated for the ultimate cost of self-insured claims incurred, but not paid, for bodily injury, property damage, cargo loss and damage, and workers compensation.
As of April 2, 2005 |
As of December 31, 2004 | |||||
Current |
$ | 53,689 | $ | 53,647 | ||
Long-term |
93,236 | 94,034 | ||||
Total |
$ | 146,925 | $ | 147,681 | ||
We believe the outcome of these matters is not expected to have any material adverse effect on our consolidated financial position or results of our operations, and have been adequately provided for in our financial statements.
We use underground storage tanks at certain terminal facilities and maintain a comprehensive policy of testing, upgrading, replacing or eliminating these tanks to protect the environment and comply with various Federal and state laws. We take prompt remedial action whenever any contamination is detected. When we can reasonably estimate liabilities associated with environmental matters, we record the necessary accrual. As of April 2, 2005 there were no material liabilities recorded.
28
9. Divestiture
During the 2005 first quarter, we sold 100% of the stock of USF Processors Inc. for $4,500 in cash to Carolina Logistic Services Inc. Following the guidance of SFAS No. 144, Accounting for the Impairment of Long-Lived Assets, the results of USF Processors are reported in continuing operations in the Logistics Revenue and Operating Expenses lines in our financial statements. We recorded a loss on sale of $7,080 from the sale of USF Processors. In addition, USF Processors had operating losses of $711 in the 2005 first quarter prior to its sale.
10. Proposed Merger
On February 27, 2005, USF Corporation (USF) and Yellow Roadway Corporation (Yellow Roadway) entered into a merger agreement pursuant to which Yellow Roadway will acquire USF. On May 1, 2005, USF and Yellow Roadway amended their merger agreement. At the effective time of the merger, a subsidiary of Yellow Roadway will be merged with and into USF, and USF will become a wholly owned subsidiary of Yellow Roadway. Each share of USF common stock (other than shares owned directly or indirectly by USF or Yellow Roadway or by dissenting stockholders of USF) will be cancelled and converted into the right to receive 0.31584 shares of Yellow Roadway common stock and $29.25 in cash. The transaction will be taxable to shareholders of USF.
Stockholders of USF must vote to adopt the amended merger agreement before the merger can be consummated. USF has presently scheduled a special meeting of its stockholders on May 23, 2005 to vote on a proposal to adopt the amended merger agreement. The merger does not require a vote or approval by the stockholders of Yellow Roadway. USF and Yellow Roadway received notice of the termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, on April 14, 2005. Under the terms of the amended merger agreement, regulatory approval is no longer a condition to closing the transaction.
29
Exhibit 99.2
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL DATA
The following unaudited condensed combined pro forma financial statements and explanatory notes have been prepared to give effect to (1) the merger (the merger) of Yankee II LLC, a newly formed wholly owned subsidiary of Yellow Roadway Corporation (Yellow Roadway) with and into USF Corporation (USF), with USF as the surviving entity and (2) the related financing transactions. As a result of the merger, USF became a wholly owned subsidiary of Yellow Roadway. The transaction is being accounted for as a purchase business combination.
Upon the effectiveness of the merger, each share of USF stock (except those shares owned directly or indirectly by USF or Yellow Roadway) was converted into the right to receive 0.31584 shares of Yellow Roadway common stock and $29.25 in cash.
In accordance with Article 11 of Regulation S-X under the Securities Act of 1933, an unaudited condensed combined pro forma balance sheet as of March 31, 2005 and an unaudited condensed combined pro forma statement of operations for the three months ended March 31, 2005 and for the year ended December 31, 2004 have been prepared to reflect the merger (treated as an acquisition of USF) and the consummation of the related financing transactions. The following unaudited condensed combined pro forma financial statements have been prepared based upon historical financial statements of Yellow Roadway and USF. The unaudited condensed combined pro forma financial statements reflect certain balance sheet and statement of operations reclassifications made to conform USFs presentations to those of Yellow Roadway. The unaudited condensed combined pro forma financial statements should be read in conjunction with:
| Yellow Roadways historical audited consolidated financial statements for the year ended December 31, 2004, and its unaudited condensed consolidated financial statements as of March 31, 2005 and for the three months ended March 31, 2005; and |
| USFs historical audited consolidated financial statements for the year ended December 31, 2004 and its unaudited condensed consolidated financial statements as of April 2, 2005 and for the quarter ended April 2, 2005. |
The unaudited condensed combined pro forma balance sheet was prepared by combining Yellow Roadways historical unaudited consolidated balance sheet as of March 31, 2005 and USFs historical unaudited consolidated balance sheet as of April 2, 2005, adjusted to reflect the merger and the consummation of the related financing transactions as if each had occurred on March 31, 2005.
The unaudited condensed combined pro forma statement of operations was prepared using the historical consolidated statement of operations for both Yellow Roadway and USF assuming the merger and related financing transactions had each occurred on January 1, 2004. The unaudited condensed combined pro forma statement operations for the year ended December 31, 2004 was prepared by combining the historical audited consolidated statement of operations of Yellow Roadway and the historical audited consolidated statement of income of USF for the year ended December 31, 2004. The unaudited condensed combined pro forma statement of operations for the three months ended March 31, 2005 was prepared by combining the historical unaudited consolidated statement of operations of Yellow Roadway for the three months ended March 31, 2005 and the historical unaudited consolidated statement of income of USF for the quarter ended April 2, 2005. The unaudited condensed combined pro forma statements of operations give effect to the costs associated with financing the merger, including interest expense and amortization of deferred financing costs associated with our financing transactions, and the impact of other purchase accounting adjustments.
The unaudited condensed combined pro forma financial statements are prepared for illustrative purposes only, and do not purport to represent, and are not necessarily indicative of, the operating results or financial
position that would have occurred if the merger transaction described above had been consummated at the beginning of the period or the date indicated, nor are they necessarily indicative of any future operating results or financial position. The unaudited condensed combined pro forma financial statements do not include any adjustments related to any restructuring charges, profit improvements, potential cost savings or one-time charges which may result from the merger or the result of final valuations of tangible and intangible assets and liabilities.
The process of valuing USFs tangible and intangible assets and liabilities as well as evaluating accounting policies for conformity, including accounting policies related to claims and insurance accruals, is still in the preliminary stages. Material revisions to our current estimates could be necessary as the valuation process and accounting policy review are finalized. We have begun to finalize the process of determining the fair value at the date of acquisition of the tangible and intangible assets and liabilities of USF. As a result of this process, we anticipate that a portion of the amount classified as goodwill in the unaudited condensed combined pro forma financial statements, which in accordance with Statement of Financial Accounting Standards No. 142 will not be amortized, will be reclassified to the tangible and identified intangible assets and liabilities acquired, based on their estimated fair values at the date of acquisition. These tangible and identified intangible assets will be depreciated and amortized over their estimated useful lives. As a result, the actual amount of depreciation and amortization expense may be materially different from that presented in the unaudited condensed combined pro forma statement of operations and the effects cannot be quantified at this time.
2
Unaudited Condensed Combined Pro Forma Balance Sheet
At March 31, 2005
Historical |
Pro Forma |
||||||||||||||||||
Yellow Roadway |
USF |
Adjustments |
Combined |
||||||||||||||||
(in thousands) | |||||||||||||||||||
ASSETS |
|||||||||||||||||||
Current assets: |
|||||||||||||||||||
Cash and cash equivalents |
$ | 101,385 | $ | 151,679 | $ | (835,399 | ) | (1 | ) | $ | 37,665 | ||||||||
555,000 | (2 | ) | |||||||||||||||||
150,000 | (3 | ) | |||||||||||||||||
(85,000 | ) | (4 | ) | ||||||||||||||||
Accounts receivable, net |
814,202 | 317,355 | 1,131,557 | ||||||||||||||||
Prepaid expense and other |
93,600 | 35,491 | (1,053 | ) | (5 | ) | 128,038 | ||||||||||||
Deferred income taxes |
72,814 | 35,450 | 108,264 | ||||||||||||||||
Total current assets |
1,082,001 | 539,975 | (216,452 | ) | 1,405,524 | ||||||||||||||
Property and equipment, at cost |
2,671,736 | 1,462,611 | 19,000 | (6 | ) | 3,468,225 | |||||||||||||
(685,122 | ) | (7 | ) | ||||||||||||||||
Less: accumulated depreciation |
(1,256,731 | ) | (685,122 | ) | 685,122 | (7 | ) | (1,256,731 | ) | ||||||||||
Net property and equipment |
1,415,005 | 777,489 | 19,000 | 2,211,494 | |||||||||||||||
Goodwill |
634,364 | 99,551 | (99,551 | ) | (8 | ) | 1,405,955 | ||||||||||||
771,591 | (1 | ) | |||||||||||||||||
Intangibles |
464,975 | 185 | (185 | ) | (8 | ) | 464,975 | ||||||||||||
Other assets |
49,629 | 33,803 | (2,629 | ) | (5 | ) | 84,503 | ||||||||||||
3,700 | (4 | ) | |||||||||||||||||
Total Assets |
$ | 3,645,974 | $ | 1,451,003 | $ | 475,474 | $ | 5,572,451 | |||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
|||||||||||||||||||
Current liabilities: |
|||||||||||||||||||
Accounts payable |
$ | 257,774 | $ | 79,774 | $ | $ | 337,548 | ||||||||||||
Wages, vacations and employees benefits |
397,026 | 93,609 | 490,635 | ||||||||||||||||
Other current and accrued liabilities |
233,453 | 114,923 | 348,376 | ||||||||||||||||
ABS borrowings |
| | 555,000 | (2 | ) | 555,000 | |||||||||||||
Current maturities of long-term debt |
404,400 | 65 | 404,465 | ||||||||||||||||
Total current liabilities |
1,292,653 | 288,371 | 555,000 | 2,136,024 | |||||||||||||||
Long-term liabilities: |
|||||||||||||||||||
Long-term debt, less current portion |
252,320 | 250,006 | 150,000 | (3 | ) | 679,448 | |||||||||||||
27,122 | (9 | ) | |||||||||||||||||
Claims and other liabilities |
221,793 | 108,524 | 330,317 | ||||||||||||||||
Accrued pension and postretirement health-care costs |
289,242 | | 289,242 | ||||||||||||||||
Deferred income taxes |
319,644 | 101,1087 | (1,858 | ) | (10 | ) | 418,973 | ||||||||||||
Total long-term liabilities |
1,082,999 | 459,717 | 175,264 | 1,717,980 | |||||||||||||||
Total shareholders equity |
1,270,322 | 702,915 | (702,915 | ) | (11 | ) | 1,718,447 | ||||||||||||
448,125 | (1 | ) | |||||||||||||||||
Total Liabilities and Shareholders Equity |
$ | 3,645,974 | $ | 1,451,003 | $ | 475,474 | $ | 5,572,451 | |||||||||||
3
Unaudited Condensed Combined Pro Forma Statement of Operations
For the Year Ended December 31, 2004
Historical |
Pro Forma | ||||||||||||||||
Yellow Roadway |
USF |
Adjustments |
Combined | ||||||||||||||
(in thousands, except per share data) | |||||||||||||||||
Revenue |
$ | 6,767,485 | $ | 2,394,579 | $ | $ | 9,162,064 | ||||||||||
Operating expenses: |
|||||||||||||||||
Salaries, wages and employees benefits |
4,172,144 | 1,457,030 | 5,629,174 | ||||||||||||||
Operating expenses and supplies |
1,011,864 | 378,287 | 1,390,151 | ||||||||||||||
Purchased transportation |
752,788 | 179,880 | 932,668 | ||||||||||||||
Other operating expenses |
469,088 | 315,637 | 547 | (12 | ) | 785,772 | |||||||||||
500 | (13 | ) | |||||||||||||||
Total operating expenses |
6,405,884 | 2,330,834 | 1,047 | 8,737,765 | |||||||||||||
Operating income |
361,601 | 63,745 | (1,047 | ) | 424,299 | ||||||||||||
Interest expense |
43,954 | 20,917 | 20,763 | (12 | ) | 85,634 | |||||||||||
Other, net |
19,984 | (1,030 | ) | 18,954 | |||||||||||||
Nonoperating expenses, net |
63,938 | 19,887 | 20,763 | 104,588 | |||||||||||||
Income from continuing operations before income taxes |
297,663 | 43,858 | (21,810 | ) | 319,711 | ||||||||||||
Income tax provision |
113,336 | 20,063 | (8,419 | ) | (14 | ) | 124,980 | ||||||||||
Income from continuing operations |
$ | 184,327 | $ | 23,795 | $ | (13,391 | ) | $ | 194,731 | ||||||||
Earnings per share from continuing operations: |
|||||||||||||||||
Basic |
$ | 3.83 | $ | 0.86 | $ | 3.41 | |||||||||||
Diluted |
3.75 | 0.85 | 3.35 | ||||||||||||||
Average common shares outstanding: |
|||||||||||||||||
Basic |
48,149 | 27,805 | 57,169 | ||||||||||||||
Diluted |
49,174 | 27,982 | 58,194 |
4
Unaudited Condensed Combined Pro Forma Statement of Operations
For the Three Months Ended March 31, 2005
Historical |
Pro Forma | ||||||||||||||||
Yellow Roadway |
USF |
Adjustments |
Combined | ||||||||||||||
(in thousands, except per share data) | |||||||||||||||||
Revenue |
$ | 1,677,961 | $ | 597,977 | $ | $ | 2,275,938 | ||||||||||
Operating expenses: |
|||||||||||||||||
Salaries, wages and employees benefits |
1,033,447 | 361,947 | 1,395,394 | ||||||||||||||
Operating expenses and supplies |
256,457 | 106,047 | 362,504 | ||||||||||||||
Purchased transportation |
183,653 | 45,879 | 229,532 | ||||||||||||||
Other operating expenses |
114,415 | 87,673 | 137 | (12 | ) | 202,350 | |||||||||||
125 | (13 | ) | |||||||||||||||
Total operating expenses |
1,587,972 | 601,546 | 262 | 2,189,780 | |||||||||||||
Operating income (loss) |
89,989 | (3,569 | ) | (262 | ) | 86,158 | |||||||||||
Interest expense |
8,615 | 4,545 | 5,065 | (12 | ) | 18,225 | |||||||||||
Other, net |
771 | 351 | 1,122 | ||||||||||||||
Nonoperating expenses, net |
9,386 | 4,896 | 5,065 | 19,347 | |||||||||||||
Income (loss) from continuing operations before income taxes |
80,603 | (8,465 | ) | (5,327 | ) | 66,811 | |||||||||||
Income tax provision (benefit) |
30,710 | (2,674 | ) | (2,056 | ) | (14 | ) | 25,980 | |||||||||
Income (loss) from continuing operations |
$ | 49,893 | $ | (5,791 | ) | $ | (3,271 | ) | $ | 40,831 | |||||||
Earnings (loss) per share from continuing operations: |
|||||||||||||||||
Basic |
$ | 1.02 | $ | (0.20 | ) | $ | 0.71 | ||||||||||
Diluted |
0.96 | (0.20 | ) | 0.67 | |||||||||||||
Average common shares outstanding: |
|||||||||||||||||
Basic |
48,797 | 28,369 | 57,817 | ||||||||||||||
Diluted |
52,193 | 28,369 | 61,213 |
5
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA
FINANCIAL STATEMENTS
(1) | The process of valuing USFs tangible and intangible assets and liabilities as well as evaluating accounting policies for conformity, including accounting policies related to claims and insurance accruals, is still in the preliminary stages. Material revisions to our current estimates could be necessary as the valuation process and accounting policy review are finalized. These unaudited condensed combined pro forma financial statements do not purport to represent, and are not necessarily indicative of, the operating results or financial position that would have occurred had the merger and related financings been consummated at the date indicated, nor are they necessarily indicative of future operating results. |
The purchase price is estimated as follows (in thousands, except per share data):
Merger consideration of approximately $1.3 billion, based on 0.31584 shares of Yellow Roadway common stock and $29.25 in cash for each USF share. For purchase accounting purposes, the Yellow Roadway common stock component of the merger consideration was valued at $49.68 per share, which represents the simple average of the daily opening and closing trade prices for the period from April 28, 2005 through May 3, 2005, the period immediately surrounding the date of the announcement of the amended merger.
Cash |
$ | 835,399 | ||
Common stock (9.0 million Yellow Roadway shares) |
448,125 | |||
Total acquisition consideration |
1,283,524 | |||
Acquisition and change of control costs |
70,300 | |||
Total purchase price |
1,353,824 | |||
Net tangible assets acquired at fair value |
582,233 | * | ||
Costs in excess of net tangible assets of the acquired company (goodwill) |
$ | 771,591 | ** | |
* | Net tangible assets acquired at fair value is comprised of the following (in thousands): |
USF historical net tangible assets at March 31, 2005 |
$ | 603,179 | |||||
Purchase accounting adjustments, as described in the following notes: |
|||||||
Merger related expenses incurred by USF |
(11,000 | ) | |||||
Write-off of certain deferred financing costs |
(3,682 | ) | |||||
Adjust property and equipment to fair value |
19,000 | ||||||
Adjust unsecured notes to fair value |
(27,122 | ) | |||||
Current and deferred income taxes associated with purchase accounting adjustments |
1,858 | ||||||
Total purchase accounting adjustments |
(20,946 | ) | |||||
Net tangible assets acquired at fair value |
$ | 582,233 | |||||
** | Goodwill reflects the preliminary estimated adjustment for the costs in excess of net tangible assets of USF at estimated fair value. Subsequent to closing of the merger, we will be completing a study to determine the allocation of the total purchase price to the various tangible and intangible assets acquired and the liabilities assumed in order to allocate the purchase price. Management believes, on a preliminary basis, there may be intangible assets that will be assigned a fair value in the purchase price allocation. The sensitivity of the valuations regarding the above can be significant. Accordingly, as we conclude our evaluation of the assets acquired and the liabilities assumed upon closing of the acquisition, allocation of the purchase price among the tangible and intangible assets will be subject to change. Any such change also may impact results of operations. |
6
(2) | Reflects additional borrowings under our ABS Facility. |
(3) | Reflects gross proceeds of the offering of Yellow Roadways senior floating rate notes due 2008. |
(4) | Represents costs associated with completing the merger and the related financing transactions as follows (in thousands): |
Direct transaction costs, including investment banking, legal, accounting and other fees: |
||||
Yellow Roadway |
$ | 19,000 | ||
USF |
11,000 | |||
Deferred debt issuance costs |
3,700 | |||
Change of control costs |
49,900 | * | ||
Director, officer and fiduciary insurance premium costs |
1,400 | |||
Total |
$ | 85,000 | ||
* | The change of control costs represent the estimated maximum cost of various change of control provisions for key USF executives. |
(5) | Represents the write-off of USFs deferred financing costs. |
(6) | Represents the net adjustment to USFs property and equipment based on initially estimated fair values. |
(7) | Represents the elimination of USFs historical accumulated depreciation. |
(8) | Represents the elimination of historical goodwill and intangibles of USF. |
(9) | Represents an increase in the fair value of USFs bonds based on current market prices. |
(10) | Represents the impact on currently payable and deferred income taxes of the pro forma adjustments presented. |
(11) | Represents the elimination of USFs historical shareholders equity balance. |
(12) | Adjustment to record additional interest expense and amortization of deferred financing costs on borrowings related to our currently contemplated financing transactions related to the merger. The estimated weighted average annual interest rate of the currently contemplated debt structure is 3.7%. A 1/8th % change in the variable interest rates associated with the borrowings would have a $0.9 million effect on annual interest expense. |
(13) | Adjustment to record additional depreciation expense on the new basis of USFs property and equipment. |
(14) | Adjustment to record the income tax impact of the pro forma adjustments at an effective income tax rate of 38.6%. |
7