Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


FORM 10-Q

 


(Mark One)

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

For the quarterly period ended June 30, 2007

OR

 

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

For the transition period from              to             

Commission file number 0-12255

 


YRC Worldwide Inc.

(Exact name of registrant as specified in its charter)

 


 

Delaware   48-0948788

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

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

(913) 696-6100

(Registrant's telephone number, including area code)

No Changes

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

 


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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

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

 

Class

  

Outstanding at July 31, 2007

Common Stock, $1 Par Value Per Share

   57,668,645 shares

 



Table of Contents

INDEX

 

Item

       Page
PART I – FINANCIAL INFORMATION

1.

 

Financial Statements

  
 

Consolidated Balance Sheets - June 30, 2007 and December 31, 2006

   3
 

Statements of Consolidated Operations - Three and Six Months Ended June 30, 2007 and 2006

   4
 

Statements of Consolidated Cash Flows - Six Months Ended June 30, 2007 and 2006

   5
 

Statement of Consolidated Shareholders’ Equity - Six Months Ended June 30, 2007

   6
 

Notes to Consolidated Financial Statements

   7

2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

   29

3.

 

Quantitative and Qualitative Disclosures About Market Risk

   39

4.

 

Controls and Procedures

   40
  PART II – OTHER INFORMATION   

1.

 

Legal Proceedings

   41

4.

 

Submission of Matters to a Vote of Security Holders

   41

6.

 

Exhibits

   42
 

Signatures

   43

 

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Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

YRC Worldwide Inc. and Subsidiaries

(Amounts in thousands except per share data)

 

     June 30,
2007
   

December 31,

2006

 
     (Unaudited)        

Assets

    

Current Assets:

    

Cash and cash equivalents

   $ 56,675     $ 76,391  

Accounts receivable, net

     1,214,541       1,190,818  

Prepaid expenses and other

     294,129       323,882  
                

Total current assets

     1,565,345       1,591,091  
                

Property and Equipment:

    

Cost

     3,988,391       3,841,657  

Less – accumulated depreciation

     1,614,005       1,571,811  
                

Net property and equipment

     2,374,386       2,269,846  
                

Goodwill

     1,325,318       1,326,583  

Intangibles, net

     684,172       691,417  

Other assets

     68,144       73,300  
                

Total assets

   $ 6,017,365     $ 5,952,237  
                

Liabilities and Shareholders’ Equity

    

Current Liabilities:

    

Accounts payable

   $ 406,999     $ 397,586  

Wages, vacations and employees’ benefits

     442,123       413,759  

Other current and accrued liabilities

     386,019       324,124  

Asset backed securitization borrowings

     250,000       225,000  

Current maturities of long-term debt

     150,000       —    
                

Total current liabilities

     1,635,141       1, 360,469  
                

Other Liabilities:

    

Long-term debt, less current portion

     903,702       1,058,496  

Deferred income taxes, net

     611,882       609,193  

Pension and postretirement

     238,107       349,723  

Claims and other liabilities

     351,655       381,807  

Commitments and contingencies

    

Shareholders’ Equity:

    

Common stock, $1 par value per share

     61,231       60,876  

Preferred stock, $1 par value per share

     —         —    

Capital surplus

     1,201,723       1,180,578  

Retained earnings

     1,166,146       1,115,246  

Accumulated other comprehensive loss

     (42,605 )     (54,534 )

Treasury stock, at cost (3,679 shares)

     (109,617 )     (109,617 )
                

Total shareholders’ equity

     2,276,878       2,192,549  
                

Total liabilities and shareholders’ equity

   $ 6,017,365     $ 5,952,237  
                

The accompanying notes are an integral part of these statements.

 

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Table of Contents

STATEMENTS OF CONSOLIDATED OPERATIONS

YRC Worldwide Inc. and Subsidiaries

For the Three and Six Months Ended June 30

(Amounts in thousands except per share data)

(Unaudited)

 

     Three Months     Six Months  
     2007     2006     2007    2006  

Operating Revenue

   $ 2,486,505     $ 2,565,779     $ 4,814,847    $ 4,939,940  
                               

Operating Expenses:

         

Salaries, wages and employees’ benefits

     1,464,840       1,459,881       2,886,365      2,861,813  

Operating expenses and supplies

     469,644       468,422       911,572      918,349  

Purchased transportation

     273,184       280,618       524,952      533,904  

Depreciation and amortization

     60,345       74,722       119,336      148,162  

Other operating expenses

     113,464       105,600       229,788      212,466  

(Gains) losses on property disposals, net

     (2,788 )     (3,226 )     161      (2,344 )

Reorganization and settlements

     (606 )     7,481       13,851      7,481  
                               

Total operating expenses

     2,378,083       2,393,498       4,686,025      4,679,831  
                               

Operating Income

     108,422       172,281       128,822      260,109  
                               

Nonoperating (Income) Expenses:

         

Interest expense

     21,766       23,111       41,804      43,659  

Other

     2,012       (563 )     278      (1,359 )
                               

Nonoperating expenses, net

     23,778       22,548       42,082      42,300  
                               

Income Before Income Taxes

     84,644       149,733       86,740      217,809  

Income tax provision

     29,277       57,481       30,094      83,421  
                               

Net Income

   $ 55,367     $ 92,252     $ 56,646    $ 134,388  
                               

Average Common Shares Outstanding – Basic

     57,514       57,464       57,426      57,419  

Average Common Shares Outstanding – Diluted

     58,511       58,422       58,546      58,801  

Basic Earnings Per Share

   $ 0.96     $ 1.61     $ 0.99    $ 2.34  

Diluted Earnings Per Share

   $ 0.95     $ 1.58     $ 0.97    $ 2.29  

The accompanying notes are an integral part of these statements.

 

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Table of Contents

STATEMENTS OF CONSOLIDATED CASH FLOWS

YRC Worldwide Inc. and Subsidiaries

For the Six Months Ended June 30

(Amounts in thousands)

(Unaudited)

 

     2007     2006  

Operating Activities:

    

Net income

   $ 56,646     $ 134,388  

Noncash items included in net income:

    

Depreciation and amortization

     119,336       148,162  

(Gains) losses on property disposals, net

     161       (2,344 )

Deferred income tax benefit

     (842 )     (228 )

Other noncash items

     4,725       2,915  

Changes in assets and liabilities, net:

    

Accounts receivable

     (32,794 )     (89,195 )

Accounts payable

     8,418       (38,879 )

Other operating assets

     19,774       27,479  

Other operating liabilities

     (12,521 )     (24,375 )
                

Net cash provided by operating activities

     162,903       157,923  
                

Investing Activities:

    

Acquisition of property and equipment

     (241,860 )     (250,162 )

Proceeds from disposal of property and equipment

     27,939       24,045  

Acquisition of companies

     —         (14,842 )

Other

     (103 )     (2,548 )
                

Net cash used in investing activities

     (214,024 )     (243,507 )
                

Financing Activities:

    

Asset backed securitization borrowings, net

     25,000       74,530  

Borrowing of long-term debt, net

     —         10,000  

Proceeds from exercise of stock options

     6,405       2,296  
                

Net cash provided by financing activities

     31,405       86,826  
                

Net Increase (Decrease) In Cash and Cash Equivalents

     (19,716 )     1,242  

Cash and Cash Equivalents, Beginning of Period

     76,391       82,361  
                

Cash and Cash Equivalents, End of Period

   $ 56,675     $ 83,603  
                

The accompanying notes are an integral part of these statements.

 

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Table of Contents

STATEMENT OF CONSOLIDATED SHAREHOLDERS’ EQUITY

YRC Worldwide Inc. and Subsidiaries

For the Six Months Ended June 30

(Amounts in thousands)

(Unaudited)

 

     2007  

Common Stock

  

Beginning balance

   $ 60,876  

Exercise of stock options

     216  

Employer contribution to 401(k) plan

     121  

Issuance of equity awards, net

     18  
        

Ending balance

   $ 61,231  
        

Capital Surplus

  

Beginning balance

   $ 1,180,578  

Exercise of stock options, including tax benefits

     6,189  

Employer contribution to 401(k) plan

     5,140  

Share-based compensation

     7,203  

Other, net

     2,613  
        

Ending balance

   $ 1,201,723  
        

Retained Earnings

  

Beginning balance

   $ 1,115,246  

Cumulative effect—adoption of FIN 48, “Accounting for Uncertainty in Income Taxes”

     (5,746 )

Net income

     56,646  
        

Ending balance

   $ 1,166,146  
        

Accumulated Other Comprehensive Loss

  

Beginning balance

   $ (54,534 )

Amortization of pension costs

     2,814  

Foreign currency translation adjustment

     9,115  
        

Ending balance

   $ (42,605 )
        

Treasury Stock, At Cost

  

Beginning and ending balance

   $ (109,617 )
        

Total Shareholders’ Equity

   $ 2,276,878  
        

The accompanying notes are an integral part of these statements.

 

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YRC Worldwide Inc. and Subsidiaries

(Unaudited)

 

1. Description of Business

YRC Worldwide Inc. (also referred to as “YRC Worldwide”, “the Company”, “we” or “our”), one of the largest transportation service providers in the world, is a holding company that through wholly owned operating subsidiaries offers its customers a wide range of transportation services. These services include global, national and regional transportation as well as logistics. The YRC Worldwide portfolio of brands provides a comprehensive suite of services for the shipment of industrial, commercial and retail goods domestically and internationally. Our reportable segments, which are comprised of our various operating subsidiaries, include the following:

 

   

YRC National Transportation (“National Transportation”) is a holding company for our transportation service providers focused on business opportunities in regional, national and international services. National Transportation is comprised of Yellow Transportation and Roadway. These companies each provide for the movement of industrial, commercial and retail goods, primarily through regionalized and centralized management and customer facing organizations. National Transportation also includes Reimer Express Lines, located in Canada, that specializes in shipments into, across and out of Canada. Approximately 38% of National Transportation shipments are completed in two days or less. In addition to the United States and Canada, National Transportation also serves parts of Mexico and Puerto Rico.

 

   

YRC Regional Transportation (“Regional Transportation”) is a holding company for our transportation service providers focused on business opportunities in the regional and next-day delivery markets. Regional Transportation is comprised of New Penn Motor Express, USF Holland and USF Reddaway. These companies each provide regional, next-day ground services in their respective regions through a network of facilities located across the United States; Quebec, Canada; Mexico and Puerto Rico. USF Glen Moore, a provider of truckload services throughout the United States, is also a subsidiary of Regional Transportation. Approximately 90% of Regional Transportation less-than-truckload (“LTL”) shipments are completed in two days or less. In 2006, Regional Transportation also included USF Bestway. In February 2007, the majority of USF Bestway’s operations were consolidated into USF Reddaway.

 

   

YRC Logistics (“Logistics”, formerly Meridian IQ) includes the family of companies that plan and coordinate the movement of goods worldwide to provide customers a single source for logistics management solutions. Logistics delivers a wide range of global logistics management services, with the ability to provide customers improved return-on-investment results through flexible, fast and easy-to-implement logistics services and technology management solutions.

At June 30, 2007, approximately 70% of our labor force is subject to various collective bargaining agreements, which predominantly expire in 2008.

 

2. Principles of Consolidation

The accompanying consolidated financial statements include the accounts of YRC Worldwide and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in non-majority owned affiliates where the entity is either not a variable interest entity or YRC Worldwide is not the primary beneficiary are accounted for on the equity method. Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. Actual results could differ from those estimates. We have prepared the consolidated financial statements, without audit by an independent registered public accounting firm, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, all normal recurring adjustments except as otherwise noted, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods included in these financial statements herein have been made. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements pursuant to SEC rules and regulations. Accordingly, the accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2006.

 

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Property and Equipment

Property and equipment are recorded at cost. In the third quarter of 2006, the Company revised the estimated useful lives and salvage values of certain classes of property and equipment to more appropriately reflect how the Company expects to use the assets over time. Effective July 1, 2006, the Company increased revenue equipment lives to ten to twenty years from three to fourteen years and modified certain salvage values. If the Company had not changed the estimated useful lives and salvage values of this property and equipment, additional depreciation expense of approximately $13.6 million and $27.1 million would have been recorded during the three and six months ended June 30, 2007, respectively. Accordingly, the changes in estimates resulted in an increase in income from continuing operations of approximately $13.6 million and $27.1 million (an $8.9 million and $17.7 million increase in net income) for the three and six months ended June 30, 2007, respectively. The change in estimate also increased diluted earnings per share by $0.15 and $0.30 for the three and six months ended June 30, 2007, respectively.

 

3. Restructuring and Reorganization

In June 2007, Logistics announced the closure of its Montgomery, Alabama flow-through and warehousing facility. Related to this action, we incurred certain restructuring charges of $0.4 million.

In January 2007, we announced the consolidation of USF Reddaway and USF Bestway, two subsidiaries within our Regional Transportation segment. As part of the consolidation, effective February 12, 2007, we no longer market the USF Bestway brand. We incurred certain restructuring and other closure related charges in conjunction with this organizational change consisting primarily of employee separation and contract termination costs.

In addition, in January 2007 we announced further organizational changes that brought the management of Yellow Transportation and Roadway under one organization established as YRC National Transportation. We incurred employee separation charges in the first quarter of 2007 related to these changes.

As a part of our 2005 acquisition of USF Corporation, we closed an operating subsidiary (USF Dugan) and consolidated certain administrative functions and locations. We incurred restructuring and other closure related charges related to these actions. During 2007, we have continued to make payments under these obligations.

We reassess the reserve requirements under the above restructuring efforts at the end of each reporting period. A rollforward of the restructuring accrual is set forth below:

 

(in millions)

  

Employee

Separation

    Contract
Termination
and Other
Costs
    Total  

Balance at December 31, 2006

   $ 1.0     $ 6.5     $ 7.5  

Restructuring charges

     8.4       1.1       9.5  

Adjustments (a)

     (0.5 )     (3.2 )     (3.7 )

Payments

     (2.5 )     (1.6 )     (4.1 )
                        

Balance at June 30, 2007

   $ 6.4     $ 2.8     $ 9.2  
                        

(a) Amounts credited to goodwill in accordance with purchase accounting requirements.

In addition to the above restructuring charges of $9.5 million, we incurred reorganization and other closure related charges of $1.4 million and $7.8 million during the three and six months ended June 30, 2007, respectively. These charges are included in the “Reorganization and settlements” caption in the consolidated statements of operations and consist primarily of the following through June 30, 2007:

 

(in millions)

   Three
Months
   Six
Months

Acceleration of stock-based compensation related to certain terminated executives

   $ —      $ 2.3

Write off of signage and other assets resulting from the YRC Logistics name change

     1.4      1.4

Other USF Bestway closure related charges

     —        4.1
             

Total

   $ 1.4    $ 7.8
             

 

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4. Debt and Financing

Total debt consisted of the following:

 

(in millions)

   June 30, 2007     December 31, 2006  

ABS borrowings, secured by accounts receivable

   $ 250.0     $ 225.0  

Floating rate notes

     150.0       150.0  

USF senior notes

     262.3       264.7  

Roadway senior notes

     231.9       234.3  

Contingent convertible senior notes

     400.0       400.0  

Other

     9.5       9.5  
                

Total debt

   $ 1,303.7     $ 1,283.5  

ABS borrowings

     (250.0 )     (225.0 )

Current maturities

     (150.0 )     —    
                

Long-term debt

   $ 903.7     $ 1,058.5  
                

 

5. Employee Benefits

Components of Net Periodic Pension and Other Postretirement Cost

The following table sets forth the components of our company-sponsored pension and other postretirement costs for the three and six months ended June 30:

 

     Three Months     Six Months  

(in millions)

   2007     2006     2007     2006  

Service cost

   $ 9.8     $ 11.1     $ 19.6     $ 22.0  

Interest cost

     16.3       15.9       32.7       31.6  

Expected return on plan assets

     (17.3 )     (14.8 )     (34.9 )     (29.6 )

Amortization of prior service cost

     0.3       0.4       0.6       0.8  

Amortization of net loss

     2.0       3.0       4.0       5.5  
                                

Net periodic pension cost

     11.1       15.6       22.0       30.3  

Settlement cost

     —         0.6       1.4       0.6  

Special termination benefit cost

     —         —         1.5       —    
                                

Total periodic pension cost

   $ 11.1     $ 16.2     $ 24.9     $ 30.9  
                                

The settlement and special termination benefit costs of $2.9 million presented above are included in “Reorganization and settlements” in our consolidated statement of operations for the six months ended June 30, 2007.

The following table sets forth the components of our other postretirement costs for the three and six months ended June 30:

 

     Three Months     Six Months  

(in millions)

   2007     2006     2007     2006  

Service cost

   $ 0.1     $ 0.1     $ 0.2     $ 0.3  

Interest cost

     0.5       0.5       1.0       1.0  

Amortization of prior service cost

     0.1       0.1       0.2       0.1  

Amortization of net (gain)

     (0.1 )     (0.1 )     (0.2 )     (0.2 )
                                

Other postretirement cost

   $ 0.6     $ 0.6     $ 1.2     $ 1.2  
                                

 

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6. Income Taxes

Uncertain Tax Positions

We adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007. As a result of the implementation of FIN 48, we recognized a $7.1 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction of $5.7 million to the January 1, 2007 balance of retained earnings and an increase of $1.4 million to goodwill resulting from prior acquisitions. Additionally, we reclassified a $53 million credit from “Prepaid Expenses and Other” to “Other Current and Accrued Liabilities” effective January 1, 2007. We have elected to treat interest and penalties on uncertain tax positions as interest expense and other operating expenses, respectively, rather than continue the pre-FIN 48 treatment as components of the income tax provision.

The total amounts of unrecognized tax benefits and accrued interest as of the date of adoption were $78.3 million and $2.1 million, respectively. Both are classified on our consolidated balance sheet within “Other Current and Accrued Liabilities”. The balance of unrecognized tax benefits as of the date of adoption has been adjusted by $3.6 million during the three months ended June 30, 2007, to reflect the reclass of deferred tax assets associated with certain indirect federal benefits. We accrued $1.6 million of interest on uncertain tax positions during the six months ended June 30, 2007. We have accrued no penalties relative to uncertain tax positions.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of the date of adoption was $5 million.

Tax years that remain subject to examination for our major tax jurisdictions as of the date of adoption and at June 30, 2007:

 

          Pre-acquisition tax years
     YRC Worldwide    USF Corporation (a)    Roadway (b)

Statute remains open

   2003-2006    2000-2005    2001-03

Tax years currently under examination/exam completed

   2003-2005    2000-2005    2001-03

Tax years not examined

   2006    None    None

(a) Years ending on or before May 24, 2005.
(b) Years ending on or before December 11, 2003.

Reasonably possible changes in the next 12 months in the amount of unrecognized tax benefits relate to the following tax positions:

The United States Internal Revenue Service (“IRS”) has begun an audit of the Company’s 2005 tax return and has proposed an adjustment relative to the deduction claimed for contributions to union pension plans. We are protesting the adjustment. The additional tax that could result from the adjustment is approximately $51 million. Pursuant to the provisions of FIN 48, we have posted no tax benefit for this deduction. This audit could be resolved by June 30, 2008.

The IRS has audited certain pre-acquisition tax returns for a consolidated group acquired in 2005 and disallowed a 2002 loss related to the disposition of the stock of a member of that group. The Company believes the loss is fully deductible and has protested the IRS adjustment. The additional tax that could result should the loss ultimately be totally denied is approximately $50 million. This audit could be resolved by June 30, 2008. Any tax liability resulting from the audit would affect only goodwill recognized in the allocation of the purchase price of the acquired subsidiary.

There have been no significant changes in the status of uncertain tax positions during the six months ended June 30, 2007.

Effective Tax Rate

The Company’s accounting policy is to report income tax expense for interim reporting periods using an estimated annual effective income tax rate. However, the effects of significant discrete events are not considered in the estimated annual effective tax rate. The tax effects of these events are recognized in the interim period in which the events occur.

For the three months ended June 30, 2007, the Company recorded income tax expense of $29.3 million, resulting in an effective rate of 34.6% compared to 38.4% for the three months ended June 30, 2006.

 

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For the six months ended June 30, 2007, the Company recorded income tax expense of $30.1 million resulting in an effective rate of 34.7% compared to 38.3% for the six months ended June 30, 2006. During the three months ended June 30, 2007, the Company recorded an income tax benefit of $1.9 million for a propane fuel tax credit related to 2006. Additionally, the second quarter 2007 effective tax rate is favorably impacted by a projected $7.6 million benefit related to a propane fuel credit for 2007.

 

7. Earnings Per Share

Dilutive securities, consisting of options to purchase our common stock or rights to receive common stock in the future, included in the calculation of diluted weighted average common shares were 700,000 and 650,000 for the three and six months ended June 30, 2007, respectively, and 573,000 and 584,000 for the three and six months ended June 30, 2006, respectively. In addition, dilutive securities related to our net share settle contingent convertible notes were 297,000 and 470,000 for the three and six months ended June 30, 2007, respectively, and 385,000 and 798,000 for the three and six months ended June 30, 2006, respectively.

The impact of certain other options were excluded from the calculation of diluted earnings per share because average exercise prices were greater than the average market price of common shares. In addition, the computation of the assumed conversion of the convertible senior notes includes inputs of the year-to-date average stock price relative to the stated conversion price. If this relationship is such that the year-to-date average stock price is less then the stated conversion price, the computed shares would be antidilutive under the treasury stock method. Data regarding antidilutive securities for the three and six months ended June 30 is summarized below:

 

     Three Months    Six Months

(in thousands except per share data)

   2007    2006    2007    2006

Weighted average exercise price per share

   $ 43.46    $ 43.46    $ 43.46    $ —  

Antidilutive weighted average option shares outstanding

     23      23      23      —  

Antidilutive convertible senior note conversion shares

     472      420      371      179
                           

 

8. Business Segments

We report financial and descriptive information about our reportable operating segments on a basis consistent with that used internally for evaluating segment performance and allocating resources to segments. We evaluate performance primarily on adjusted operating income and return on capital.

We have three reportable segments, which are strategic business units that offer complementary transportation services to their customers. National Transportation includes carriers that provide comprehensive regional, national and international transportation services. Regional Transportation is comprised of carriers that focus primarily on business opportunities in the regional and next-day delivery markets. Logistics, previously referred to as our Meridian IQ segment, provides domestic and international freight forwarding, warehousing, cross-dock services, multi-modal brokerage services and transportation management services.

Information relative to USF Red Star and USF Dugan, previously included in Regional Transportation, has been included in the Corporate segment in 2007 as these entities are no longer operating.

Prior to 2007, we reported four operating segments. In January 2007, we consolidated the management structure of Yellow Transportation and Roadway to form YRC National Transportation. As a result, these two previously separate segments have been combined in 2007. Amounts presented for 2006 have been restated to reflect this change.

The accounting policies of the segments are the same as those described in the Summary of Accounting Policies note in our Annual Report on Form 10-K for the year ended December 31, 2006. We charge management fees and other corporate services to our segments based on the direct benefits received or as a percentage of revenue. Corporate and other operating losses represent residual operating expenses of the holding company, including compensation and benefits and professional services for all periods presented. Corporate identifiable assets primarily refer to cash, cash equivalents and deferred debt issuance costs. Intersegment revenue relates to transportation services between our segments.

 

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The following table summarizes our operations by business segment:

 

(in millions)

  

National

Transportation

   

Regional

Transportation

    Logistics    Corporate/
Eliminations
    Consolidated  

As of June 30, 2007

           

Identifiable assets

   $ 3,351.5     $ 2,227.9     $ 449.3    $ (11.3 )   $ 6,017.4  

As of December 31, 2006

           

Identifiable assets

     3,269.1       2,179.2       413.5      90.4       5,952.2  

Three months ended June 30, 2007

           

External revenue

     1,702.5       628.5       155.5      —         2,486.5  

Intersegment revenue

     1.0       —         2.7      (3.7 )     —    

Operating income

     92.8       14.8       1.5      (0.7 )     108.4  

Adjustments to operating income(a)

     (5.1 )     1.8       2.6      (2.7 )     (3.4 )

Adjusted operating income(b)

     87.7       16.6       4.1      (3.4 )     105.0  

Three months ended June 30, 2006

           

External revenue

     1,759.5       654.1       152.2      —         2,565.8  

Intersegment revenue

     1.0       —         1.4      (2.4 )     —    

Operating income

     124.2       53.6       2.7      (8.2 )     172.3  

Adjustments to operating income(a)

     1.7       (0.3 )     1.5      1.3       4.2  

Adjusted operating income (b)

     125.9       53.3       4.2      (6.9 )     176.5  

Six months ended June 30, 2007

           

External revenue

     3,309.9       1,204.4       300.5      —         4,814.8  

Intersegment revenue

     2.0       —         7.4      (9.4 )     —    

Operating income

     125.9       9.8       0.4      (7.3 )     128.8  

Adjustments to operating income(a)

     1.7       8.3       2.7      1.3       14.0  

Adjusted operating income(b)

     127.6       18.1       3.1      (6.0 )     142.8  

Six months ended June 30, 2006

           

External revenue

     3,402.0       1,246.1       291.8      —         4,939.9  

Intersegment revenue

     2.4       —         1.6      (4.0 )     —    

Operating income

     193.4       75.0       5.2      (13.5 )     260.1  

Adjustments to operating income(a)

     1.6       (0.3 )     1.5      2.3       5.1  

Adjusted operating income (b)

     195.0       74.7       6.7      (11.2 )     265.2  

(a) Management excludes these items when evaluating operating income and segment performance to better evaluate the results of our core operations. The 2007 adjustments relate to reorganization charges, gains and charges for settlements of obligations and losses (gains) on property disposals. The 2006 adjustments relate to reorganization charges and losses (gains) on property disposals.
(b) This measurement is used for internal management purposes and should not be construed as a better measurement than operating income as defined by generally accepted accounting principles.

 

9. Comprehensive Income

Comprehensive income for the three and six months ended June 30 follows:

 

     Three Months    Six Months

(in millions)

   2007    2006    2007    2006

Net income

   $ 55.4    $ 92.3    $ 56.6    $ 134.4

Other comprehensive income, net of tax:

           

Amortization of pension costs

     1.4      —        2.8      —  

Changes in foreign currency translation adjustments

     8.5      2.2      9.1      4.5
                           

Other comprehensive income

     9.9      2.2      11.9      4.5
                           

Comprehensive income

   $ 65.3    $ 94.5    $ 68.5    $ 138.9
                           

 

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10. Commitments and Contingencies

Grupo Almex

On May 18, 2007, the Company settled the arbitration proceedings initiated against the Company by Gustavo Gonzalez Garcia and various members of his family (the “Gonzalez Family”) and Autolineas Mexicanas, S.A. de C.V., Servicios Gerenciales del Norte, S.A. de C.V. and Logistica ALM, S.A. de C.V. (collectively, “Grupo Almex”). Pursuant to the settlement, the Company has agreed to pay the Gonzalez Family and Grupo Almex $2.0 million and forgive approximately $9.3 million of debt that Soflex, S. de R.L. de C.V. (“Soflex”) owed to the Company pursuant to a series of notes. The Gonzalez Family wholly owns Soflex. The notes from Soflex were previously written off as uncollectible debt in 2005 as part of the Company’s acquisition consideration for USF Corporation. The Company previously accrued $0.6 million of the $2.0 million settlement. The remaining $1.4 million was expensed in the second quarter of 2007 and is included in “Reorganization and settlements” in the accompanying consolidated statement of operations.

USF Red Star

In June 2007, we reached a settlement agreement with one of the multi-employer pension plans that claimed a withdrawal liability from USF Red Star, a discontinued operation we assumed responsibility for as part of the acquisition of USF Corporation. As a part of the settlement, we agreed to pay $26.4 million to be released from the obligation. This amount was paid in July 2007 and was classified as a short-term liability at June 30, 2007. As we had previously accrued $31.3 million for this obligation, a resulting gain on settlement of $4.9 million was recorded during the second quarter of 2007 and is included in “Reorganization and settlements” in the accompanying consolidated statement of operations.

 

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11. Guarantees of the Contingent Convertible Senior Notes and Senior Floating Rate Notes

In August 2003, YRC Worldwide issued 5.0% contingent convertible senior notes due 2023. In November 2003, we issued 3.375% contingent convertible senior notes (the August and November issuances, collectively, may also be known as the “contingent convertible senior notes”) due 2023. In December 2004, we completed exchange offers pursuant to which holders of the contingent convertible senior notes could exchange their notes for an equal amount of new net share settled contingent convertible senior notes. Substantially all notes were exchanged as part of the exchange offers. In May 2005, we completed the private placement of $150 million in aggregate principle amount of senior floating rate notes due 2008. In connection with the net share settled contingent convertible senior notes and the floating rate notes, the following 100% owned subsidiaries of YRC Worldwide have issued guarantees in favor of the holders of the net share settled contingent convertible senior notes and floating rate notes: Yellow Transportation, Inc., Mission Supply Company, Yellow Relocation Services, Inc., YRC Worldwide Technologies, Inc., YRC Logistics, Inc. (formerly Meridian IQ Inc.), YRC Logistics Global, LLC (formerly MIQ LLC), Globe.com Lines, Inc., Roadway LLC, Roadway Next Day Corporation, Roadway Express, Inc., USF Holland and Regional Transportation. Each of the guarantees is full and unconditional and joint and several.

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

The following represents condensed consolidating financial information as of June 30, 2007 and December 31, 2006 with respect to the financial position and for the three and six months ended June 30, 2007 and 2006 for results of operations and for the six months ended June 30, 2007 and 2006 for the statements of cash flows of YRC Worldwide and its subsidiaries. The Parent column presents the financial information of YRC Worldwide, the primary obligor of the contingent convertible senior notes and the floating rate notes. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the net share settled contingent convertible senior notes and the floating rate notes. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and Yellow Roadway Receivables Funding Corporation, the special-purpose entity that is associated with our asset backed securitization (“ABS”) agreement.

Condensed Consolidating Balance Sheets

 

June 30, 2007

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 15     $ 23     $ 19     $ —       $ 57  

Intercompany advances receivable

     —         (78 )     78       —         —    

Accounts receivable, net

     4       (12 )     1,239       (16 )     1,215  

Prepaid expenses and other

     3       102       189       —         294  
                                        

Total current assets

     22       35       1,525       (16 )     1,566  

Property and equipment

     —         3,401       587       —         3,988  

Less – accumulated depreciation

     —         (1,495 )     (119 )     —         (1,614 )
                                        

Net property and equipment

     —         1,906       468       —         2,374  

Investment in subsidiaries

     3,863       458       (31 )     (4,290 )     —    

Receivable from affiliate

     (658 )     635       23       —         —    

Goodwill and other assets

     262       1,856       309       (350 )     2,077  
                                        

Total assets

   $ 3,489     $ 4,890     $ 2,294     $ (4,656 )   $ 6,017  
                                        

Intercompany advances payable

   $ 402     $ (527 )   $ 334     $ (209 )   $ —    

Accounts payable

     31       306       77       (7 )     407  

Wages, vacations and employees’ benefits

     25       369       48       —         442  

Other current and accrued liabilities

     71       132       186       (3 )     386  

Asset backed securitization borrowings

     —         —         250       —         250  

Current maturities of long-term debt

     150       —         —         —         150  
                                        

Total current liabilities

     679       280       895       (219 )     1,635  

Payable to affiliate

     (125 )     52       223       (150 )     —    

Long-term debt, less current portion

     400       504       —         —         904  

Deferred income taxes, net

     19       431       162       —         612  

Pension and postretirement

     238       —         —         —         238  

Claims and other liabilities

     106       4       242       —         352  

Commitments and contingencies

          

Shareholders’ equity

     2,172       3,619       772       (4,287 )     2,276  
                                        

Total liabilities and shareholders’ equity

   $ 3,489     $ 4,890     $ 2,294     $ (4,656 )   $ 6,017  
                                        

 

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December 31, 2006

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 20     $ 21     $ 35     $ —       $ 76  

Intercompany advances receivable

     —         (68 )     68       —         —    

Accounts receivable, net

     5       11       1,193       (18 )     1,191  

Prepaid expenses and other

     22       193       109       —         324  
                                        

Total current assets

     47       157       1,405       (18 )     1,591  

Property and equipment

     1       3,258       583       —         3,842  

Less – accumulated depreciation

     (1 )     (1,461 )     (110 )     —         (1,572 )
                                        

Net property and equipment

     —         1,797       473       —         2,270  

Investment in subsidiaries

     3,372       254       5       (3,631 )     —    

Receivable from affiliate

     (563 )     426       137       —         —    

Goodwill and other assets

     262       1,869       310       (350 )     2,091  
                                        

Total assets

   $ 3,118     $ 4,503     $ 2,330     $ (3,999 )   $ 5,952  
                                        

Intercompany advances payable

   $ 402     $ (548 )   $ 355     $ (209 )   $ —    

Accounts payable

     15       321       71       (9 )     398  

Wages, vacations and employees’ benefits

     15       338       61       —         414  

Other current and accrued liabilities

     18       135       171       —         324  

Asset backed securitization borrowings

     —         —         225       —         225  
                                        

Total current liabilities

     450       246       883       (218 )     1,361  

Payable to affiliate

     (101 )     28       223       (150 )     —    

Long-term debt, less current portion

     550       508       —         —         1,058  

Deferred income taxes, net

     18       430       161       —         609  

Pension and postretirement

     350       —         —         —         350  

Claims and other liabilities

     12       38       332       —         382  

Commitments and contingencies

          

Shareholders’ equity

     1,839       3,253       731       (3,631 )     2,192  
                                        

Total liabilities and shareholders’ equity

   $ 3,118     $ 4,503     $ 2,330     $ (3,999 )   $ 5,952  
                                        
Condensed Consolidating Statements of Operations  

For the three months ended June 30, 2007

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ 11     $ 2,100     $ 466     $ (91 )   $ 2,486  
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     9       1,199       257       —         1,465  

Operating expenses and supplies

     8       419       127       (84 )     470  

Purchased transportation

     —         209       67       (3 )     273  

Depreciation and amortization

     —         46       14       —         60  

Other operating expenses

     —         94       20       —         114  

(Gains) losses on property disposals, net

     —         (5 )     2       —         (3 )

Reorganization and settlements

     1       1       (3 )     —         (1 )
                                        

Total operating expenses

     18       1,963       484       (87 )     2,378  
                                        

Operating income (loss)

     (7 )     137       (18 )     (4 )     108  
                                        

Nonoperating (income) expenses:

          

Interest expense

     8       9       5       —         22  

Other, net

     3       58       (60 )     1       2  
                                        

Nonoperating (income) expenses, net

     11       67       (55 )     1       24  
                                        

Income (loss) before income taxes

     (18 )     70       37       (5 )     84  

Income tax provision (benefit)

     (5 )     23       13       (2 )     29  
                                        

Net income (loss)

   $ (13 )   $ 47     $ 24     $ (3 )   $ 55  
                                        

 

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For the three months ended June 30, 2006

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ 12     $ 2,173     $ 482     $ (101 )   $ 2,566  
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     12       1,235       227       (14 )     1,460  

Operating expenses and supplies

     7       416       127       (82 )     468  

Purchased transportation

     —         210       75       (4 )     281  

Depreciation and amortization

     —         60       15       —         75  

Other operating expenses

     —         91       14       —         105  

Gains on property disposals, net

     —         (2 )     (1 )     —         (3 )

Reorganization and settlements

     1       6       1       —         8  
                                        

Total operating expenses

     20       2,016       458       (100 )     2,394  
                                        

Operating income (loss)

     (8 )     157       24       (1 )     172  
                                        

Nonoperating (income) expenses:

          

Interest expense

     2       4       (11 )     28       23  

Other, net

     9       38       (18 )     (30 )     (1 )
                                        

Nonoperating (income) expenses, net

     11       42       (29 )     (2 )     22  
                                        

Income (loss) before income taxes

     (19 )     115       53       1       150  

Income tax provision (benefit)

     (5 )     43       19       1       58  
                                        

Net income (loss)

   $ (14 )   $ 72     $ 34     $ —       $ 92  
                                        

For the six months ended June 30, 2007

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ 24     $ 4,089     $ 886     $ (184 )   $ 4,815  
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     20       2,372       494       —         2,886  

Operating expenses and supplies

     15       815       252       (170 )     912  

Purchased transportation

     —         406       129       (10 )     525  

Depreciation and amortization

     —         92       27       —         119  

Other operating expenses

     —         193       37       —         230  

(Gains) losses on property disposals, net

     —         (4 )     4       —         —    

Reorganization and settlements

     4       7       3       —         14  
                                        

Total operating expenses

     39       3,881       946       (180 )     4,686  
                                        

Operating income (loss)

     (15 )     208       (60 )     (4 )     129  
                                        

Nonoperating (income) expenses:

          

Interest expense

     16       16       10       —         42  

Other, net

     14       107       (122 )     1       —    
                                        

Nonoperating (income) expenses, net

     30       123       (112 )     1       42  
                                        

Income (loss) before income taxes

     (45 )     85       52       (5 )     87  

Income tax provision (benefit)

     (13 )     28       18       (3 )     30  
                                        

Net income (loss)

   $ (32 )   $ 57     $ 34     $ (2 )   $ 57  
                                        

 

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For the six months ended June 30, 2006

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ 30     $ 4,206     $ 906     $ (202 )   $ 4,940  
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     23       2,427       433       (21 )     2,862  

Operating expenses and supplies

     19       829       240       (170 )     918  

Purchased transportation

     —         406       136       (8 )     534  

Depreciation and amortization

     —         118       30       —         148  

Other operating expenses

     —         180       32       —         212  

Gains on property disposals, net

     —         (2 )     —         —         (2 )

Reorganization and settlements

     1       6       1       —         8  
                                        

Total operating expenses

     43       3,964       872       (199 )     4,680  
                                        

Operating income (loss)

     (13 )     242       34       (3 )     260  
                                        

Nonoperating (income) expenses:

          

Interest expense

     17       15       12       —         44  

Other, net

     3       69       (70 )     (4 )     (2 )
                                        

Nonoperating (income) expenses, net

     20       84       (58 )     (4 )     42  
                                        

Income (loss) before income taxes

     (33 )     158       92       1       218  

Income tax provision (benefit)

     (8 )     59       35       (2 )     84  
                                        

Net income (loss)

   $ (25 )   $ 99     $ 57     $ 3     $ 134  
                                        

Condensed Consolidating Statements of Cash Flows

 

For the six months ended June 30, 2007

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations    Consolidated  

Operating activities:

           

Net cash provided by (used in) operating activities

   $ (75 )   $ 316     $ (78 )   $ —      $ 163  
                                       

Investing activities:

           

Acquisition of property and equipment

     —         (198 )     (44 )     —        (242 )

Proceeds from disposal of property and equipment

     —         13       15       —        28  

Other

     —         —         —         —        —    
                                       

Net cash used in investing activities

     —         (185 )     (29 )     —        (214 )
                                       

Financing activities:

           

Asset backed securitization borrowings, net

     —         —         25       —        25  

Proceeds from exercise of stock options

     7       —         —         —        7  

Intercompany advances / repayments

     63       (129 )     66       —        —    
                                       

Net cash provided by (used in)
financing activities

     70       (129 )     91       —        32  
                                       

Net increase (decrease) in cash and cash equivalents

     (5 )     2       (16 )     —        (19 )

Cash and cash equivalents, beginning of period

     20       21       35       —        76  
                                       

Cash and cash equivalents, end of period

   $ 15     $ 23     $ 19     $ —      $ 57  
                                       

 

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Table of Contents

For the six months ended June 30, 2006

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations    Consolidated  

Operating activities:

           

Net cash provided by (used in) operating activities

   $ (111 )   $ 235     $ 34     $ —      $ 158  
                                       

Investing activities:

           

Acquisition of property and equipment

     —         (220 )     (30 )     —        (250 )

Proceeds from disposal of property and equipment

     —         24       —         —        24  

Acquisition of companies

     (15 )     —         —         —        (15 )

Other

     —         4       (6 )     —        (2 )
                                       

Net cash used in investing activities

     (15 )     (192 )     (36 )     —        (243 )

Financing activities:

           

Asset backed securitization borrowings, net

     —         —         75       —        75  

Issuance of long-term debt

     10       —         —         —        10  

Proceeds from exercise of stock options

     2       —         —         —        2  

Intercompany advances / repayments

     146       (52 )     (94 )     —        —    
                                       

Net cash provided by (used in)

financing activities

     158       (52 )     (19 )     —        87  
                                       

Net increase (decrease) in cash and cash equivalents

     32       (9 )     (21 )     —        2  

Cash and cash equivalents, beginning of period

     20       18       44       —        82  
                                       

Cash and cash equivalents, end of period

   $ 52     $ 9     $ 23     $ —      $ 84  
                                       

 

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12. Guarantees of the Senior Notes Due 2008

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

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

The following represents condensed consolidating financial information of YRC Worldwide and its subsidiaries as of June 30, 2007 and December 31, 2006 with respect to the financial position, and for the three and six months ended June 30, 2007 and 2006 for results of operations and for the six months ended June 30, 2007and 2006 for cash flows. The primary obligor column presents the financial information of Roadway LLC. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the senior notes due 2008 including YRC Worldwide, the holding company. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and Yellow Roadway Receivables Funding Corporation, the special-purpose entity that is associated with our ABS agreement.

Condensed Consolidating Balance Sheets

 

June 30, 2007

(in millions)

   Primary
Obligor
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ —       $ 32     $ 25     $ —       $ 57  

Intercompany advances receivable

     —         (15 )     15       —         —    

Accounts receivable, net

     —         (44 )     1,272       (13 )     1,215  

Prepaid expenses and other

     —         29       265       —         294  
                                        

Total current assets

     —         2       1,577       (13 )     1,566  

Property and equipment

     —         1,075       2,913       —         3,988  

Less – accumulated depreciation

     —         (228 )     (1,386 )     —         (1,614 )
                                        

Net property and equipment

     —         847       1,527       —         2,374  

Investment in subsidiaries

     97       3,888       201       (4,186 )     —    

Receivable from affiliate

     172       (577 )     405       —         —    

Goodwill and other assets

     651       1,255       1,021       (850 )     2,077  
                                        

Total assets

   $ 920     $ 5,415     $ 4,731     $ (5,049 )   $ 6,017  
                                        

Intercompany advances payable

   $ —       $ 69     $ 140     $ (209 )   $ —    

Accounts payable

     —         134       277       (4 )     407  

Wages, vacations and employees’ benefits

     —         182       260       —         442  

Other current and accrued liabilities

     11       114       264       (3 )     386  

Asset backed securitization borrowings

     —         —         250       —         250  

Current maturities of long-term debt

     —         150       —         —         150  
                                        

Total current liabilities

     11       649       1,191       (216 )     1,635  

Payable to affiliate

     —         524       126       (650 )     —    

Long-term debt, less current portion

     232       400       272       —         904  

Deferred income taxes, net

     (5 )     238       379       —         612  

Pension and postretirement

     —         238       —         —         238  

Claims and other liabilities

     —         108       244       —         352  

Commitments and contingencies

          

Shareholders’ equity

     682       3,258       2,519       (4,183 )     2,276  
                                        

Total liabilities and shareholders’ equity

   $ 920     $ 5,415     $ 4,731     $ (5,049 )   $ 6,017  
                                        

 

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December 31, 2006

(in millions)

   Primary
Obligor
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ —       $ 38     $ 38     $ —       $ 76  

Intercompany advances receivable

     —         (14 )     14       —         —    

Accounts receivable, net

     —         (20 )     1,222       (11 )     1,191  

Prepaid expenses and other

     (2 )     83       243       —         324  
                                        

Total current assets

     (2 )     87       1,517       (11 )     1,591  

Property and equipment

     —         1,019       2,823       —         3,842  

Less – accumulated depreciation

     —         (199 )     (1,373 )     —         (1,572 )
                                        

Net property and equipment

     —         820       1,450         2,270  

Investment in subsidiaries

     —         3,377       208       (3,585 )     —    

Receivable from affiliate

     155       (552 )     397       —         —    

Goodwill and other assets

     651       1,257       1,033       (850 )     2,091  
                                        

Total assets

   $ 804     $ 4,989     $ 4,605     $ (4,446 )   $ 5,952  
                                        

Intercompany advances payable

   $ —       $ 87     $ 122     $ (209 )   $ —    

Accounts payable

     —         114       286       (2 )     398  

Wages, vacations and employees’ benefits

     —         165       249       —         414  

Other current and accrued liabilities

     2       76       246       —         324  

Asset backed securitization borrowings

     —         —         225       —         225  
                                        

Total current liabilities

     2       442       1,128       (211 )     1,361  

Payable to affiliate

     —         549       101       (650 )     —    

Long-term debt, less current portion

     234       550       274       —         1,058  

Deferred income taxes, net

     (5 )     234       380       —         609  

Pension and postretirement

     —         350       —         —         350  

Claims and other liabilities

     —         26       356       —         382  

Commitments and contingencies

          

Shareholders’ equity

     573       2,838       2,366       (3,585 )     2,192  
                                        

Total liabilities and shareholders’ equity

   $ 804     $ 4,989     $ 4,605     $ (4,446 )   $ 5,952  
                                        

Condensed Consolidating Statements of Operations

 

For the three months ended June 30, 2007

(in millions)

   Primary
Obligor
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ —       $ 881     $ 1,706     $ (101 )   $ 2,486  
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     —         504       961       —         1,465  

Operating expenses and supplies

     —         175       389       (94 )     470  

Purchased transportation

     —         88       192       (7 )     273  

Depreciation and amortization

     —         18       42       —         60  

Other operating expenses

     —         39       75       —         114  

(Gains) losses on property disposals, net

     —         (5 )     2       —         (3 )

Reorganization and settlements

     —         1       (2 )     —         (1 )
                                        

Total operating expenses

     —         820       1,659       (101 )     2,378  
                                        

Operating income

     —         61       47       —         108  
                                        

Nonoperating (income) expenses:

          

Interest expense

     3       8       11       —         22  

Other, net

     (13 )     42       (27 )     —         2  
                                        

Nonoperating (income) expenses, net

     (10 )     50       (16 )     —         24  
                                        

Income before income taxes

     10       11       63       —         84  

Income tax provision

     4       5       22       (2 )     29  
                                        

Net income

   $ 6     $ 6     $ 41     $ 2     $ 55  
                                        

 

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For the three months ended June 30, 2006

(in millions)

   Primary
Obligor
    Guarantor
Subsidiaries
   

Non-

Guarantor
Subsidiaries

    Eliminations     Consolidated  

Operating revenue

   $ —       $ 929     $ 1,736     $ (99 )   $ 2,566  
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     —         537       937       (14 )     1,460  

Operating expenses and supplies

     —         173       372       (77 )     468  

Purchased transportation

     —         97       190       (6 )     281  

Depreciation and amortization

     —         24       51       —         75  

Other operating expenses

     —         36       69       —         105  

Gains on property disposals, net

     —         (3 )     —         —         (3 )

Reorganization and settlements

     —         3       5       —         8  
                                        

Total operating expenses

     —         867       1,624       (97 )     2,394  
                                        

Operating income

     —         62       112       (2 )     172  
                                        

Nonoperating (income) expenses:

          

Interest expense

     3       (11 )     (7 )     38       23  

Other, net

     (13 )     47       5       (40 )     (1 )
                                        

Nonoperating (income) expenses, net

     (10 )     36       (2 )     (2 )     22  
                                        

Income before income taxes

     10       26       114       —         150  

Income tax provision

     5       12       40       1       58  
                                        

Net income

   $ 5     $ 14     $ 74     $ (1 )   $ 92  
                                        

For the six months ended June 30, 2007

(in millions)

   Primary
Obligor
    Guarantor
Subsidiaries
   

Non-

Guarantor
Subsidiaries

    Eliminations     Consolidated  

Operating revenue

   $ —       $ 1,713     $ 3,294     $ (192 )   $ 4,815  
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     —         1,002       1,884       —         2,886  

Operating expenses and supplies

     —         333       756       (177 )     912  

Purchased transportation

     —         172       369       (16 )     525  

Depreciation and amortization

     —         37       82       —         119  

Other operating expenses

     —         77       153       —         230  

(Gains) losses on property disposals, net

     —         (4 )     4       —         —    

Reorganization and settlements

     —         5       9       —         14  
                                        

Total operating expenses

     —         1,622       3,257       (193 )     4,686  
                                        

Operating income

     —         91       37       1       129  
                                        

Nonoperating (income) expenses:

          

Interest expense

     7       16       19       —         42  

Other, net

     (26 )     84       (59 )     1       —    
                                        

Nonoperating (income) expenses, net

     (19 )     100       (40 )     1       42  
                                        

Income (loss) before income taxes

     19       (9 )     77       —         87  

Income tax provision

     7       —         26       (3 )     30  
                                        

Net income (loss)

   $ 12     $ (9 )   $ 51     $ 3     $ 57  
                                        

 

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For the six months ended June 30, 2006

(in millions)

   Primary
Obligor
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenue

   $ —       $ 1,778     $ 3,355     $ (193 )   $ 4,940  
                                        

Operating expenses:

          

Salaries, wages and employees’ benefits

     —         1,040       1,843       (21 )     2,862  

Operating expenses and supplies

     —         341       736       (159 )     918  

Purchased transportation

     —         179       365       (10 )     534  

Depreciation and amortization

     —         46       102       —         148  

Other operating expenses

     —         70       142       —         212  

Gains on property disposals, net

     —         (2 )     —         —         (2 )

Reorganization and settlements

     —         3       5       —         8  
                                        

Total operating expenses

     —         1,677       3,193       (190 )     4,680  
                                        

Operating income (loss)

     —         101       162       (3 )     260  
                                        

Nonoperating (income) expenses:

          

Interest expense

     7       17       20       —         44  

Other, net

     (27 )     53       (25 )     (3 )     (2 )
                                        

Nonoperating (income) expenses, net

     (20 )     70       (5 )     (3 )     42  
                                        

Income before income taxes

     20       31       167       —         218  

Income tax provision

     8       16       62       (2 )     84  
                                        

Net income

   $ 12     $ 15     $ 105     $ 2     $ 134  
                                        
Condensed Consolidating Statements of Cash Flows           

For the six months ended June 30, 2007

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating activities:

          

Net cash provided by operating activities

   $ 15     $ 61     $ 87     $ —       $ 163  
                                        

Investing activities:

          

Acquisition of property and equipment

     —         (72 )     (170 )     —         (242 )

Proceeds from disposal of property and equipment

     —         17       11       —         28  

Other

     —         —         —         —         —    
                                        

Net cash used in investing activities

     —         (55 )     (159 )     —         (214 )
                                        

Financing activities:

          

Asset backed securitization borrowings, net

     —         —         25       —         25  

Proceeds from exercise of stock options

     —         7       —         —         7  

Intercompany advances / repayments

     (15 )     (19 )     34       —         —    
                                        

Net cash provided by (used in) financing activities

     (15 )     (12 )     59       —         32  
                                        

Net decrease in cash and cash equivalents

     —         (6 )     (13 )     —         (19 )

Cash and cash equivalents, beginning of Period

     —         38       38       —         76  
                                        

Cash and cash equivalents, end of period

   $ —       $ 32     $ 25     $ —       $ 57  
                                        

 

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For the six months ended June 30, 2006

(in millions)

   Primary
Obligor
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating activities:

          

Net cash provided by operating activities

   $ 18     $ 15     $ 124     $ 1     $ 158  
                                        

Investing activities:

          

Acquisition of property and equipment

     —         (90 )     (160 )     —         (250 )

Proceeds from disposal of property and equipment

     —         7       17       —         24  

Acquisition of companies

     —         (15 )     —         —         (15 )

Other

     4       —         (6 )     —         (2 )
                                        

Net cash provided by (used in) investing activities

     4       (98 )     (149 )     —         (243 )
                                        

Financing activities:

          

Asset backed securitization borrowings, net

     —         —         75       —         75  

Issuance of long-tern debt

     —         10       —         —         10  

Proceeds from exercise of stock options

     —         2       —         —         2  

Intercompany advances / repayments

     (22 )     100       (77 )     (1 )     —    
                                        

Net cash provided by (used in) financing activities

     (22 )     112       (2 )     (1 )     87  
                                        

Net increase (decrease) in cash and cash equivalents

     —         29       (27 )     —         2  

Cash and cash equivalents, beginning of period

     —         34       48       —         82  
                                        

Cash and cash equivalents, end of period

   $ —       $ 63     $ 21     $ —       $ 84  
                                        

 

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13. Guarantees of the Senior Notes Due 2009 and 2010

In connection with the senior notes due 2009 and 2010 that YRC Worldwide assumed by virtue of its merger with USF, and in addition to the primary obligor, USF, YRC Worldwide and its following 100% owned subsidiaries have issued guarantees in favor of the holders of the senior notes due 2009 and 2010: USF Sales Corporation, USF Holland Inc., USF Bestway Inc., USF Bestway Leasing Inc., USF Reddaway Inc., USF Glen Moore Inc., YRC Logistics Services, Inc., and IMUA Handling Corporation. Each of the guarantees is full and unconditional and joint and several.

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

The following represents condensed consolidating financial information of YRC Worldwide and its subsidiaries as of June 30, 2007 and December 31, 2006 with respect to the financial position and for the three and six months ended June 30, 2007 and 2006 for results of operations and for the six months ended June 30, 2007 and 2006 for the statement of cash flows. The primary obligor column presents the financial information of Regional Transportation (formerly USF Corporation). The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the senior notes due 2009 and 2010 including YRC Worldwide, the holding company. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and Yellow Roadway Receivables Funding Corporation, the special-purpose entity that is associated with our ABS agreement.

Condensed Consolidating Balance Sheets

 

June 30, 2007

(in millions)

   Primary
Obligor
    Guarantor
Subsidiaries
   

Non-

Guarantor
Subsidiaries

    Eliminations     Consolidated  

Cash and cash equivalents

   $ —       $ 18     $ 39     $ —       $ 57  

Intercompany advances receivable, net

     —         (11 )     11       —         —    

Accounts receivable, net

     —         1       1,217       (3 )     1,215  

Prepaid expenses and other

     3       49       242       —         294  
                                        

Total current assets

     3       57       1,509       (3 )     1,566  

Property and equipment

     2       874       3,112       —         3,988  

Less – accumulated depreciation

     (1 )     (133 )     (1,480 )     —         (1,614 )
                                        

Net property and equipment

     1       741       1,632       —         2,374  

Investment in subsidiaries

     334       3,865       5       (4,204 )     —    

Receivable from affiliate

     489       (949 )     460       —         —    

Goodwill and other assets

     798       380       1,249       (350 )     2,077  
                                        

Total assets

   $ 1,625     $ 4,094     $ 4,855     $ (4,557 )   $ 6,017  
                                        

Intercompany advances payable

   $ 65     $ 114     $ 21     $ (200 )   $ —    

Accounts payable

     9       101       300       (3 )     407  

Wages, vacations and employees’ benefits

     3       115       324       —         442  

Other current and accrued liabilities

     27       76       286       (3 )     386  

Asset backed securitization borrowings

     —         —         250       —         250  

Current maturities of long-term debt

     —         150       —         —         150  
                                        

Total current liabilities

     104       556       1,181       (206 )     1,635  

Payable to affiliate

     —         (53 )     203       (150 )     —    

Long-term debt, less current portion

     262       400       242       —         904  

Deferred income taxes, net

     79       115       418       —         612  

Pension and postretirement

     —         238       —         —         238  

Claims and other liabilities

     1       106       245       —         352  

Commitments and contingencies

          

Shareholders’ equity

     1,179       2,732       2,566       (4,201 )     2,276  
                                        

Total liabilities and shareholders’ equity

   $ 1,625     $ 4,094     $ 4,855     $ (4,557 )   $ 6,017  
                                        

 

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December 31, 2006

(in millions)

   Primary
Obligor
    Guarantors    

Non-

Guarantors

    Eliminations     Consolidated  

Cash and cash equivalents

   $ —       $ 23     $ 53     $ —       $ 76  

Intercompany advances receiv