EXHIBIT 99.5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Roadway Next Day Corporation
The period January 1 to December 11, 2003; Year ended December 31, 2002;
One-Month Period ended December 31, 2001 (Successor Periods) and Eleven-Month
Period ended November 30, 2001 (Predecessor Periods) with Reports of Independent
Auditors
Report of Independent Auditors
To the Board of Directors and Shareholder
Roadway Next Day Corporation
We have audited the accompanying consolidated balance sheets of Roadway Next Day
Corporation formerly Arnold Industries, Inc. as of December 11, 2003, December
31, 2002, and the related statements of consolidated operations, shareholders'
equity, parent company investment and cash flows for the period January 1, 2003
to December 11, 2003, the year ended December 31, 2002, the one-month period
ended December 31, 2001, and the eleven-month period ended November 30, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Roadway
Next Day Corporation as of December 11, 2003, and December 31, 2002, and the
consolidated results of its operations and its cash flows for the period January
1, 2003 to December 11, 2003, the year ended December 31, 2002, the one-month
period ended December 31, 2001 and the eleven-month period ended November 30,
2001, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Akron, Ohio
January 22, 2004
1
Roadway Next Day Corporation
Consolidated Balance Sheets
DECEMBER 11, DECEMBER 31,
2003 2002
------------ ------------
(IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents $ 22,211 $ 12,988
Marketable securities 4 4
Accounts receivable, net 19,681 24,785
Prepaid expenses and supplies 2,917 2,530
Assets of discontinued operations - 87,431
Deferred income taxes 3,796 4,088
----------- -----------
Total current assets 48,609 131,826
Carrier operating property, at cost 102,846 100,854
Less allowance for depreciation 19,889 10,240
----------- -----------
Net carrier operating property 82,957 90,614
Goodwill, net 269,093 269,093
Other long-term assets 6,466 22,511
----------- -----------
Total assets $ 407,125 $ 514,044
=========== ===========
LIABILITIES, AND PARENT COMPANY INVESTMENT
Current liabilities:
Accounts payable $ 12,961 $ 14,209
Income taxes payable 6,822 -
Salaries and wages 8,489 8,522
Freight and casualty claims payable 3,392 4,209
Liabilities of discontinued operations - 32,407
Current portion of long-term debt - 33,703
----------- -----------
Total current liabilities 31,664 93,050
Long-term liabilities:
Casualty claims and other 9,331 6,539
Deferred income taxes 6,894 10,666
Accrued pension benefits 2,026 1,917
Long-term debt 150,000 273,513
----------- -----------
Total long-term liabilities 168,251 292,635
Parent company investment 207,210 128,359
----------- -----------
Total liabilities, and parent company investment $ 407,125 $ 514,044
=========== ===========
See accompanying notes.
2
Roadway Next Day Corporation
Statements of Consolidated Operations
PREDECESSOR
SUCCESSOR COMPANY COMPANY
---------------------------------------------- -------------
JANUARY 1 YEAR ONE MONTH ELEVEN MONTHS
TO ENDED ENDED ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 31, NOVEMBER 30,
2003 2002 2001 2001
------------ ------------ ------------ -------------
(IN THOUSANDS)
Revenue $ 206,708 $ 213,194 $ 14,124 $ 410,942
Operating expenses:
Salaries, wages and benefits 139,143 142,899 9,860 202,939
Operating supplies and expenses 26,609 24,361 1,602 68,929
Purchased transportation 2,095 1,997 117 48,421
Operating taxes and licenses 5,889 6,139 405 9,886
Insurance and claims 2,855 4,334 224 10,219
Provision for depreciation 9,789 9,277 1,007 30,489
Loss (gain) on sale of property (39) 4 (26) (195)
Compensation and other expense related
to the Yellow acquisition 3,341 - - -
------------ ------------ ------------ -------------
Total operating expenses 189,682 189,011 13,189 370,688
------------ ------------ ------------ -------------
Operating income from continuing
operations 17,026 24,183 935 40,254
Other income (expense)
Interest expense - (22,325) (2,018) (216)
Other, net (5,298) (3,390) 120 (6,806)
------------ ------------ ------------ -------------
(5,298) (25,715) (1,898) (7,022)
------------ ------------ ------------ -------------
Income (loss) from continuing operations
before income taxes 11,728 (1,532) (963) 33,232
Provision (benefit) for income taxes 4,961 (593) (524) 10,861
------------ ------------ ------------ -------------
Income (loss) from continuing operations 6,767 (939) (439) 22,371
(Loss) income from discontinued operations (155) 3,782 174 -
------------ ------------ ------------ -------------
Net income (loss) $ 6,612 $ 2,843 $ (265) $ 22,371
============ ============ ============ =============
See accompanying notes.
3
Roadway Next Day Corporation
Statements of Consolidated Shareholders' Equity
and Parent Company Investment
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
TOTAL STOCK CAPITAL EARNINGS STOCK
---------- --------- -------------- ---------- ---------
(IN THOUSANDS)
PREDECESSOR COMPANY
Balance -- January 1, 2001 $ 276,158 $ 29,942 $ 2,017 $ 284,862 $ (40,663)
Net income 22,371 - 22,371 -
Distribution of treasury stock due to
exercise of stock options - - 1,667 - (1,667)
Cash dividends paid (10,902) - - (10,902) -
Sales of treasury stock 2,084 - - - 2,084
---------- --------- -------------- ---------- ---------
Balance -- November 30, 2001 $ 289,711 $ 29,942 $ 3,684 $ 296,331 $ (40,246)
========== ========= ============== ========== =========
SUCCESSOR COMPANY
Acquisition of Arnold Industries Inc. by
Roadway Corporation $ 453,831
Push down of Roadway Corporation long-term
debt (325,000)
Push down of Roadway Corporation long-term
debt related costs 10,826
Net loss (265)
Transfer to parent (12,526)
----------
Parent company investment
December 31, 2001 $ 126,866
YEAR ENDED DECEMBER 31, 2002
Net income 2,843
Cash transfer to parent -- continuing
operations (49,086)
Cash transfer to parent -- discontinued
operations (18,000)
Additional parent company investment 65,736
----------
Parent company investment December 31, 2002 $ 128,359
JANUARY 1 TO DECEMBER 11, 2003
Net income 6,612
Cash transfer to parent -- continuing
operations (13,200)
Non-cash transfer to parent (150,000)
Sale of ATS (55,162)
Additional parent company investment 290,601
----------
Parent company investment December 11, 2003 $ 207,210
==========
See accompanying notes.
4
Roadway Next Day Corporation
Statements of Consolidated Cash Flows
SUCCESSOR COMPANY PREDECESSOR COMPANY
-------------------------------------------------- -------------------
JANUARY 1 YEAR ONE MONTH ELEVEN MONTHS
TO ENDED ENDED ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 31, NOVEMBER 30,
2003 2002 2001 2001
------------ ----------------- -------------- -------------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 6,612 $ 2,843 $ (265) $ 22,371
Less: (loss) income from discontinued
operations (155) 3,782 174 -
------------ ----------------- -------------- -------------------
Income (loss) from continuing operations 6,767 (939) (439) 22,371
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization 16,184 11,431 1,007 30,489
Loss (gain) on sale of carrier
operating property (39) 5 (26) (195)
Changes in assets and liabilities:
Accounts receivable (933) (2,069) 11,098 (5,569)
Other assets 2,313 8,399 (1,771) 1,100
Accounts payable and accrued items 1,216 28,140 (9,253) 6,012
Long-term liabilities (953) 5,400 (65) (2,180)
------------ ----------------- -------------- -------------------
Net cash provided by operating activities 24,555 50,367 551 52,028
CASH FLOWS FROM INVESTING ACTIVITIES
Sales (purchases) of marketable
securities, net - 7,854 1,410 (3,146)
Business acquisition, net of cash
acquired - - - -
Purchases of carrier operating property (3,135) (7,294) (1,455) (27,593)
Sales of carrier operating property 1,041 407 - -
------------ ----------------- -------------- -------------------
Net cash provided by (used in) investing
activities (2,094) 967 (45) (30,739)
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt proceeds (repayments) - - - (2,184)
Dividends paid - - - (10,902)
Treasury stock activity, net - - - 2,084
Transfer to parent (13,200) (49,086) (12,526) -
------------ ----------------- -------------- -------------------
Net cash used in financing activities (13,200) (49,086) (12,526) (11,002)
------------ ----------------- -------------- -------------------
Increase (decrease) in cash and cash
equivalents from continuing operations 9,261 2,248 (12,020) 10,287
(Decrease) increase in cash and cash
equivalents from discontinued
operations (38) (10,872) 2,286 -
------------ ----------------- -------------- -------------------
Cash and cash equivalents at beginning
of period 12,988 21,612 31,346 31,213
------------ ----------------- -------------- -------------------
Cash and cash equivalents at end of
period $ 22,211 $ 12,988 $ 21,612 $ 41,500
============ ================= ============== ===================
See accompanying notes.
5
Roadway Next Day Corporation
Notes to Consolidated Financial Statements
December 11, 2003
1. BASIS OF PRESENTATION
On November 30, 2001, Roadway Corporation (Roadway) acquired Arnold Industries,
Inc. (Arnold), subsequently named Roadway Next Day Corporation (the Company),
for cash consideration of $559,839,000, including direct acquisition costs.
Included in the acquired assets of Arnold was $50,763,000 in cash, which was
used to partially finance the acquisition. Also on November 30, 2001, concurrent
with the acquisition of Arnold, the Company sold Arnold's logistics business
(ARLO) to members of the ARLO management team for $105,010,000 in cash. The net
acquisition consideration of $427,160,000, which included $23,094,000 in income
taxes paid by the Company primarily as a result of the sale of ARLO, was
financed with borrowings under a new credit facility, proceeds from an accounts
receivable securitization, the issuance of $225,000,000 in senior notes, and
available cash.
The Company operates in the motor carrier industry, principally in the eastern
United States, and provides next-day LTL and TL services. The Company's trucking
activities are conducted by its subsidiaries, New Penn Motor Express, Inc. (New
Penn) and Arnold Transportation Services, Inc. (ATS). New Penn is a leading
regional next-day ground LTL carrier operating primarily in New England and the
Middle Atlantic States. ATS operates as an inter-regional irregular route and
dedicated TL carrier, conducting operations east of the Mississippi and in the
southwestern United States.
The acquisition of the Company was accounted for as a purchase business
combination and, accordingly, the assets acquired and liabilities assumed were
recorded at their estimated fair values on the acquisition date. The excess of
the purchase price paid over the fair value of the net assets acquired, totaling
approximately $269,093,000, was recorded as goodwill.
6
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
1. BASIS OF PRESENTATION (CONTINUED)
The financial statements for the periods subsequent to November 30, 2001 have
been presented on the Company's new basis of accounting ("Successor Company" or
"Successor Periods"), while the results of operations for the eleven-month
period ended November 30, 2001 reflects the historical results of the
predecessor company ("Predecessor Company" or "Predecessor Periods").
In accordance with Rule 3-16 of Regulation S-X, we are presenting these
consolidated financial statements of Roadway Next Day Corporation. We are not
presenting the separate financial statements of New Penn Motor Express because:
- Roadway Next Day is a non-operating holding company;
- The separate financial statements of New Penn Motor Express are
substantially identical to those of Roadway Next Day Consolidated;
- The separate financial statements of the parent Roadway Next Day are
not material to an investor, and;
- The Company would provide separate financial statements of New Penn
Motor Express should Roadway Next Day commence its own operations or
acquire additional subsidiaries.
7
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
1. BASIS OF PRESENTATION (CONTINUED)
On December 26, 2002, Roadway and the Company entered into an agreement to sell
ATS to a management group led by the unit's president and a private equity firm,
for $55,430,000. The ATS business segment did not fit Roadway's strategic focus
of being a LTL carrier. The transaction was completed on January 23, 2003, and
resulted in a gain of $150,000 net of tax.
The Company has reported the operations of ATS as a discontinued operation in
the accompanying financial statements and, unless otherwise stated, the notes to
the financial statements for all successor periods presented exclude the amounts
related to this discontinued operation.
As a result of the sale of ATS, the Company now operates in one business
segment, New Penn, which provides next-day ground LTL freight services,
primarily in New England and the Middle Atlantic States.
The following table presents revenue and income from the discontinued operation
for the period January 1, 2003 to January 23, 2003, and the year ended December
31, 2002:
JANUARY 1 TO YEAR ENDED
JANUARY 23, DECEMBER 31,
2003 2002
------------- -------------
(IN THOUSANDS)
Revenue $ 9,267 $ 171,133
Pre-tax income from discontinued operations $ (263) $ 6,251
Income tax expense (108) 2,469
------------- -------------
Income from discontinued operations $ (155) $ 3,782
============= =============
8
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
1. BASIS OF PRESENTATION (CONTINUED)
Assets and liabilities of the discontinued operation were as follows:
JANUARY 23, DECEMBER 31,
2003 2002
------------ ------------
(IN THOUSANDS)
Assets:
Current assets $ 23,811 $ 22,025
Net carrier operating property 63,494 64,065
Other assets 1,339 1,341
------------ ------------
Total assets $ 88,644 $ 87,431
============ ============
Liabilities:
Current liabilities $ 9,811 $ 8,104
Long-term liabilities 24,304 24,303
------------ ------------
Total liabilities $ 34,115 $ 32,407
============ ============
On July 8, 2003, Roadway Corporation announced that a definitive agreement had
been signed under which Yellow Corporation would acquire Roadway Corporation. On
December 11, 2003, the transaction was completed for approximately $1.1 billion,
based on a fixed exchange ratio of 1.752 Yellow shares per Roadway share, in a
half-cash, half-stock transaction.
2. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the amounts and operations of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
9
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Depreciation of carrier operating property is computed by the straight-line
method based on the useful lives of the assets. The useful life of structures
ranges from 15-31 years and equipment from 3-10 years.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, consisting primarily
of cash equivalents, marketable securities, accounts receivable, accounts
payable, investments in limited partnerships, and long-term borrowings,
approximates the fair value of these instruments at December 11, 2003 and
December 31, 2002.
Effective January 1, 2001, the Company adopted the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended.
The Company does not use derivative financial instruments; therefore, the
adoption of this Statement had no effect on its financial position or results of
operations.
CONCENTRATIONS OF CREDIT RISK
The Company sells services and extends credit based on an evaluation of the
customer's financial condition, without requiring collateral. Exposure to losses
on receivables is principally dependent on each customer's financial condition.
The Company monitors its exposure for credit losses and maintains allowances for
anticipated losses.
10
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
At December 11, 2003 and December 31, 2002, the Company's marketable securities
consist principally of U.S. Government securities, municipal bonds, and equity
securities, and have been classified as "available for sale" in accordance with
the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Realized gains and losses on the sale of securities are
recognized using the specific identification method and are included in other
income in the statements of consolidated income. Interest and dividends are
included in investment income.
The fair value of the Company's marketable equity securities traded on a
national securities exchange is determined by the last reported sales price on
the last business day of the year. U.S. Government securities are valued based
on quoted market prices using yields currently available on comparable
securities of issuers with similar credit ratings.
GOODWILL
Goodwill represents costs in excess of net assets of acquired businesses, which
for the predecessor periods, was amortized using the straight-line method
primarily over a period of 40 years.
In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the purchase
method for all business combinations initiated after June 30, 2001. SFAS No. 141
also clarifies the criteria for recognition of intangible assets separately from
goodwill. Under SFAS No. 142, separable intangible assets that are not deemed to
have an indefinite life will continue to be amortized over their useful lives.
SFAS No. 142 also eliminates the amortization of goodwill and indefinite-lived
intangible assets for assets acquired after June 30, 2001, and all other
goodwill on January 1, 2002.
As of December 31, 2002, the Company had net unamortized goodwill of
$269,093,000 recorded in connection with the acquisition by Roadway on November
30, 2001. Amortization of previously existing goodwill resulting from the
Company's earlier acquisitions was ended effective January 1, 2002. Goodwill
amortization was $0 in 2003, $0 in 2002, and $221,000 in the 2001 predecessor
period. The Company's goodwill amortization was not deductible for tax purposes
in the predecessor periods.
11
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
The Company completed the required transitional goodwill impairment test under
SFAS No. 142 effective June 15, 2003 which did not indicate any impairment. As a
result of finalizing the purchase price allocation during the fourth quarter of
2002, goodwill reflected in the ATS segment preliminary purchase price
allocation was reallocated to the New Penn segment. Accordingly, all goodwill
resulting from the acquisition by Roadway has been recorded in the New Penn
business segment at December 11, 2003. The Company updated its goodwill
impairment test at December 31, 2002 due to the reallocation of goodwill
previously recorded in the ATS business segment. The performance of the updated
impairment test did not indicate any impairment of goodwill.
CASUALTY CLAIMS PAYABLE
Casualty claims payable accruals represent management's estimates of claims for
property damage and public liability and workers' compensation. The Company
manages casualty claims with assistance of a third party administrator (TPA),
along with oversight by a major risk management provider. The Company is
self-insured for these claims with retention generally limited to $3,000,000.
The Company and its TPA closely monitor the liability balances by using actual
adjuster evaluations of each claim. Expenses resulting from workers'
compensation claims are included in salaries, wages, and benefits in the
accompanying statements of consolidated income.
REVENUE RECOGNITION
For the Predecessor periods, revenues are allocated between reporting periods
based on relative transit time in each reporting period with related operating
expenses recognized as incurred. In the Successor periods, revenues are
recognized as earned on the date of freight delivery to the consignee. Related
operating expenses are recognized as incurred.
STOCK-BASED COMPENSATION
In the Predecessor periods, the Company accounted for stock-based compensation
in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees. The Company does not have any stock-based
compensation plans in the Successor periods.
12
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses during the period, the
reported amounts of assets and liabilities, and disclosure of contingent assets
and liabilities at the date of the financial statements. Actual results could
differ from these estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the carrying value of
intangibles and long-lived assets or other assets may be impaired, an evaluation
of recoverability would be performed. If an evaluation were required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down is
required. No impairment charge was required for any period presented.
INVESTMENTS IN LIMITED PARTNERSHIPS
The Company's investments in low-income housing limited partnerships reflect
their cash investment plus the present value of required future contributions
net of amortization of any excess of cost over the estimated residual value.
INCOME TAXES
The Company is included in a consolidated tax-filing group with Roadway for
federal income tax purposes. The Successor Period federal and state income tax
provision and related obligation is calculated on a separate return basis as if
the Company was a separate taxpayer. The Company files tax returns and pays
taxes due on a stand-alone basis for state income tax purposes in jurisdictions
where such filings are required.
13
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
In accordance with SFAS No. 109, Accounting for Income Taxes, deferred income
taxes are accounted for by the liability method, wherein deferred tax assets or
liabilities are calculated on the differences between the bases of assets and
liabilities for financial statement purposes versus tax purposes (temporary
differences) using enacted tax rates in effect for the year in which the
differences are expected to reverse. Tax expense in the consolidated statements
of income is equal to the sum of taxes currently payable plus an amount
necessary to adjust deferred tax assets and liabilities to an amount equal to
period-end temporary differences at prevailing tax rates.
RECLASSIFICATIONS
Certain amounts in the 2002 financial statements have been reclassified to
conform to the 2003 financial statement presentation.
3. MARKETABLE SECURITIES
At December 31, 2003 and 2002, the Company's available-for-sale securities
consist primarily of municipal bonds and fixed income equity securities. Due to
the nature of the instruments, their carrying values and fair market values are
equal and no unrealized gains and losses exist at the balance sheet dates. The
net realized gains and losses on sales of marketable securities recorded were
not significant for all periods presented.
14
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
4. CARRIER OPERATING PROPERTY
Carrier operating properties consist of the following:
DECEMBER 11, DECEMBER 31,
2003 2002
------------ ------------
(in thousands)
Land $ 14,258 $ 16,830
Structures 35,723 33,465
Revenue equipment 33,039 33,147
Other operating property 14,487 11,529
Construction in progress 5,339 5,883
------------ ------------
Carrier operating property, at cost 102,846 100,854
Less allowance for depreciation 19,889 10,240
------------ ------------
Net carrier operating property $ 82,957 $ 90,614
============ ============
5. FINANCING ARRANGEMENTS
Long-term obligations consist of the following:
DECEMBER 11, DECEMBER 31,
2003 2002
------------ ------------
(in thousands)
Payable to Roadway Corporation $ 150,000 $ 307,216
Less current portion - (33,703)
------------ ------------
Long-term payable to Roadway Corporation $ 150,000 $ 273,513
============ ============
Amounts payable to Roadway represents a long-term note payable to Roadway
Corporation at December 11, 2003, and long-term debt pushed down to the Company
in connection with the acquisition of Arnold at December 31, 2002. On December
10, 2003, Roadway Next Day executed a $150 million ten-year 8.25% Promissory
Note to Roadway Corporation. Interest is due and payable quarterly, and the
principal is due at maturity.
15
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
5. FINANCING ARRANGEMENTS (CONTINUED)
At December 31, 2002, Roadway Corporation had in place a senior revolving credit
facility with a sublimit for letters of credit that expired November 30, 2006.
The credit facility was terminated effective December 11, 2003 upon consummation
of the Yellow transaction. The original amount of the senior revolving credit
facility was $150,000,000 with a $100,000,000 sublimit for letters of credit,
which was amended on August 6, 2002. The result of the amendment increased the
senior revolving credit facility to $215,000,000 and increased the sublimit for
letters of credit to $165,000,000. Pricing under the revolving credit facility
was at a fluctuating rate based on the alternate base rate as determined by
Credit Suisse First Boston (CSFB) or LIBOR, plus an additional margin of 0.50%
and 1.50%, respectively. In addition, there is a commitment fee of 0.40% on
undrawn amounts. As of December 31, 2002, there were no amounts outstanding
under the revolving credit facility, but availability had been reduced by
$112,162,000 as a result of the issuance of letters of credit, primarily related
to casualty claims.
The credit facility also included a $175,000,000 senior term loan, which was
drawn in full to partially fund the acquisition of Arnold. After-tax proceeds of
$75,000,000 from the sale of ARLO were used to pay down borrowings on this
facility in 2001. Pricing under the term loan is at a fluctuating rate based on
the alternate base rate as determined by CSFB or LIBOR, plus an additional
margin of 0.50% and 1.50%, respectively. Prior to the acquisition by Yellow,
Roadway Corporation paid the Senior term loan in full.
Also in connection with the acquisition of Arnold on November 30, 2001, Roadway
Corporation issued $225,000,000 of 8.25% senior notes due December 1, 2008.
Interest is due semi-annually on June 1st and December 1st.
Roadway's financial liquidity and consolidated results of operations, including
the ability to make required payments with respect to its indebtedness and other
obligations, are dependent on the financial condition and results of operations
of its subsidiaries. There are no restrictions on the ability of the Company to
transfer funds to Roadway.
The financing arrangements include covenants that require Roadway to comply with
certain financial ratios, including leverage and fixed-charge coverage ratios,
and maintenance of a minimum level of tangible net worth.
Interest paid under these arrangements amounted to $19,327,000 in 2003 and
$22,325,000 in 2002.
16
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
Consolidated income tax (benefit) expense consists of the following:
PREDECESSOR
SUCCESSOR COMPANY COMPANY
---------------------------- -------------
YEAR ONE MONTH ELEVEN MONTHS
JANUARY 1 TO ENDED ENDED ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 31, NOVEMBER 30,
2003 2002 2001 2001
------------ ------------ ------------ -------------
(IN THOUSANDS)
Currently payable:
Federal $ 6,767 $ 1,141 $ (620) $ 10,666
State 1,674 79 (136) 2,467
------------ ------------ ------------ -------------
8,441 1,220 (756) 13,133
Deferred:
Federal (3,131) (1,636) 209 (1,967)
State (349) (177) 23 (305)
------------ ------------ ------------ -------------
(3,480) (1,813) 232 (2,272)
------------ ------------ ------------ -------------
Total income tax (benefit) expense $ 4,961 $ (593) $ (524) $ 10,861
============ ============ ============ =============
The income tax resulting from the effective tax rate differs from the income tax
calculated using the federal statutory rates as set forth in the following
reconciliation:
PREDECESSOR
SUCCESSOR COMPANY COMPANY
---------------------------- -------------
YEAR ONE MONTH ELEVEN MONTHS
JANUARY 1 TO ENDED ENDED ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 31, NOVEMBER 30,
2003 2002 2001 2001
------------ ------------ ------------ -------------
Statutory federal income tax $ 4,105 $ (536) $ (337) $ 12,518
State income taxes, net of federal
income tax benefit 861 (64) (73) 1,506
Non-deductible operating costs 146 146 (5) (22)
Excise taxes 154
Acquisition costs 321
Section 280G limitations 263
Other, net (889) (139) (109) (3,141)
------------ ------------ ------------ -------------
Effective tax $ 4,961 $ (593) $ (524) $ 10,861
============ ============ ============ =============
Income tax payments amounted to $1,354,000 in 2003 and $1,788,000 in 2002.
17
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred taxes at December 11, 2003 and
December 31, 2002 respectively, are as follows:
DECEMBER 11, DECEMBER 31
2003 2002
------------ -----------
(IN THOUSANDS)
Deferred tax assets:
Freight and casualty claims $ 3,735 $ 4,316
Accrued employee benefits 3,194 3,342
Other 1,774 311
------------ -----------
Total deferred tax assets 8,703 7,969
Deferred tax liabilities:
Depreciation 11,360 12,300
Other 441 2,247
------------ -----------
Total deferred tax liabilities 11,801 14,547
------------ -----------
Net deferred tax liabilities $ 3,098 $ 6,578
=========== ===========
7. LEASES
The Company leases certain property under noncancellable operating leases
requiring minimum future rentals aggregating approximately $1,182,000 payable as
follows: 2004 -- $439,000; 2005 -- $347,000; 2006 -- $216,000; 2007 -- $62,000;
2008 and thereafter $118,000. Rental expense for operating leases was $327,000
in 2003 and $283,000 in 2002.
18
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
8. EMPLOYEE BENEFIT PLANS
The Company charged to operations $12,201,000, $12,311,000, $972,000, and
$11,070,000, during the period January 1, 2003 to December 11, 2003, the year
ended December 31, 2002, the one-month ended December 31, 2001, and the
eleven-months ended November 30, 2001, respectively, for contributions to
multi-employer pension plans for employees subject to labor contracts. The
Company also charged to operations $12,275,000, $11,923,000, $858,000, and
$10,214,000 during the same periods for contributions to multi-employer plans
that provide health and welfare benefits to employees and certain retirees who
are or were subject to labor contracts. These amounts were determined in
accordance with provisions of industry labor contracts. Under provisions of the
Multi-employer Pension Plan Act of 1980, total or partial withdrawal from a plan
would result in an obligation to fund a portion of the plan's unfunded vested
liability.
Management has no intention of changing operations so as to subject the Company
to any material obligation.
The Company also has a trusteed profit sharing plan and two 401(k) plans for
employees meeting certain eligibility requirements. The Company contributed
approximately $448,000 $1,608,000, $140,000, and $1,575,000 to the profit
sharing plan during the period January 1, 2003 to December 11, 2003, the year
ended December 31, 2002, the one-month ended December 31, 2001, and the
eleven-months ended November 30, 2001, respectively, and $0, $0, $0, and
$448,000 to the 401(k) plan during the same periods.
The Company also provides an unfunded, supplemental defined benefit pension plan
for certain key officers and employees. The actuarially determined benefit
obligation recorded by the Company was $2,026,000 and $1,917,000 at December 11,
2003 and December 31, 2002, respectively. Net periodic benefit expense during
the period January 1, 2003 to December 11, 2003, the year ended December 31,
2002, the one-month period ended December 31, 2001, and the eleven-month period
ended November 30, 2001 amounted to $148,000, $165,000, $14,000, and $154,000,
respectively. Total benefits paid to plan participants in 2003, 2002, and 2001
were $103,000, $70,000, and $70,000, respectively. The discount rates utilized
in 2003, 2002, and 2001 were 6.25%, 6.75%, and 7.0%, respectively.
19
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
9. SEGMENT INFORMATION
The Company currently provides freight services in one business segment, New
Penn. The New Penn segment provides next day service in the Northeast region of
the United States. A second segment, ATS, provided irregular route and dedicated
truckload services throughout the eastern, midwestern, and southwestern regions
of the United States. On December 26, 2002, Roadway and the Company entered into
an agreement to sell ATS. The sale was completed on January 23, 2003. The
Company has reported the operations of ATS as a discontinued operation for all
successor periods presented. A third segment, ARLO, specialized in integrated
distribution services, order fulfillment, and contract packaging services
primarily in Pennsylvania and Texas. On November 30, 2001, concurrent with the
acquisition of Arnold, the Company sold Arnold's logistics business (ARLO) to
members of the ARLO management team.
The reportable segments are identified based on differences in products,
services, and management structure. The accounting policies of each business
segment are consistent with those described in Note 2, Accounting Policies. The
measurement basis of segment profit or loss is operating income. Business
segment assets consist primarily of customer receivables, net carrier operating
property and goodwill. No single customer represented 10% or more of the
Company's sales during any period presented.
20
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
9. SEGMENT INFORMATION (CONTINUED)
The following table presents information about reported segments for the period
ended December 11, 2003, the year ended December 31, 2002, the one-month period
ended December 31, 2001, and the eleven-month period ended November 30, 2001:
NEW
PENN ATS ARLO TOTAL
----------- ----------- ----------- -----------
(IN THOUSANDS)
2003 SUCCESSOR PERIOD:
Operating revenues $ 206,708 $ $ $ 206,708
Operating income 17,026 17,026
Total assets 406,190 406,190
Depreciation and amortization 9,107 9,107
Purchase of property and equipment 3,392 3,392
2002 SUCCESSOR PERIOD:
Operating revenues $ 213,194 $ $ $ 213,194
Operating income 24,183 24,183
Total assets 408,021 408,021
Depreciation and amortization 10,969 10,969
Purchase of property and equipment 6,853 6,853
2001 SUCCESSOR PERIOD:
Operating revenues $ 14,124 $ - $ - $ 14,124
Operating income 936 - - 936
Total assets 399,189 - - 399,189
Depreciation and amortization 967 - - 967
Purchase of property and equipment 819 - - 819
2001 PREDECESSOR PERIOD:
Operating revenues $ 199,683 $ 158,676 $ 52,583 $ 410,942
Operating income 29,797 3,864 6,256 39,917
Total assets 174,852 131,558 59,682 366,092
Depreciation and amortization 10,971 14,991 3,988 29,950
Purchase of property and equipment 16,588 4,155 6,263 27,006
21
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
9. SEGMENT INFORMATION (CONTINUED)
A reconciliation of total segment operating income to consolidated net income
before taxes for the period January 1, 2003 to December 11, 2003, the year ended
December 31, 2002, the one-month period ended December 31, 2001, and the
eleven-month period ended November 30, 2001, and for total segment assets to
consolidated assets at December 11, 2003 and December 31, 2002 are as follows:
SUCCESSOR Predecessor
COMPANY Company
----------------------------------------------- -------------
JANUARY 1 YEAR One Month Eleven Months
TO ENDED Ended Ended
DECEMBER 11, DECEMBER 31, December 31, November 30,
2003 2002 2001 2001
------------ ------------ ------------ -------------
(IN THOUSANDS)
Total segment operating income $ 17,026 $ 24,183 $ 936 $ 39,917
Unallocated corporate operating
income (loss) - - (1) 337
Interest (expense) - (22,325) (2,018) (216)
Other (expense) income, net (5,298) (3,390) 120 (6,806)
------------ ------------ ------------ -------------
Consolidated (loss) income from
continuing operations before
income taxes $ 11,728 $ (1,532) $ (963) $ 33,232
============ ============ ============ =============
Total segment assets $ 406,190 $ 408,021 $ 399,189 $ 366,092
Assets of discontinued operation - 87,431 134,936 -
Unallocated corporate assets 4,422 25,010 32,338 29,813
Elimination of intercompany
balances (3,487) (6,418) (366) (22,597)
------------ ------------ ------------ -------------
Consolidated assets $ 407,125 $ 514,044 $ 566,097 $ 373,308
============ ============ ============ =============
22
Roadway Next Day Corporation
Notes to Consolidated Financial Statements (continued)
10. COMMITMENTS AND CONTINGENCIES
Various legal proceedings arising from the normal conduct of business are
pending but, in the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the financial condition,
results of operations or cash flows of the Company.
11. RELATED PARTY TRANSACTIONS
Accounting and legal fees totaling approximately $1,070,000 in the eleven months
ended November 30, 2001 were paid or accrued to firms in which certain directors
had financial interests in Arnold prior to the acquisition.
23