EXHIBIT 99.6
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Roadway Next Day Corporation and Subsidiary
A wholly owned subsidiary of Roadway LLC
The period December 12, 2003 to December 31, 2003;
with Report of Independent Auditors
1
Report of Independent Auditors
To the Board of Directors of Yellow Roadway Corporation:
We have audited the accompanying consolidated balance sheet of Roadway Next Day
Corporation and Subsidiary as of December 31, 2003, and the related consolidated
statements of operations, cash flows, parent company investment, and
comprehensive income for the period December 12, 2003 through December 31, 2003.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Roadway Next Day
Corporation and Subsidiary as of December 31, 2003, and the results of their
operations and their cash flows for the period December 12 through December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
- ----------------------
Kansas City, Missouri
February 20, 2004
2
CONSOLIDATED BALANCE SHEET
Roadway Next Day Corporation and Subsidiary
A wholly owned subsidiary of Roadway LLC
As of December 31, 2003
(in thousands)
- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 25,328
Accounts receivable, less allowance of $412 19,877
Fuel and operating supplies 1,555
Deferred income taxes, net 3,674
Prepaid expenses 1,601
-------------
Total current assets 52,035
-------------
PROPERTY AND EQUIPMENT
Land 15,363
Structures 33,757
Revenue equipment 17,243
Technology equipment and software 1,653
Other 6,466
-------------
74,482
Less - accumulated depreciation (521)
-------------
Net property and equipment 73,961
Goodwill 122,332
Intangibles 89,291
Other assets 3,094
-------------
Total assets $ 340,713
=============
LIABILITIES AND PARENT COMPANY INVESTMENT
CURRENT LIABILITIES
Checks outstanding in excess of bank balances $ 6,223
Accounts payable 2,682
Advances payable to parent 4,568
Wages, vacations and employees' benefits 12,102
Claims and insurance accruals 4,370
Other current and accrued liabilities 5,180
-------------
Total current liabilities 35,125
-------------
OTHER LIABILITIES
Note payable to affiliate 150,000
Deferred income taxes, net 38,999
Claims and other liabilities 13,868
Commitments and contingencies
PARENT COMPANY INVESTMENT
Capital surplus 103,259
Retained earnings (538)
-------------
Total parent company investment 102,721
-------------
Total liabilities and parent company investment $ 340,713
=============
The notes to consolidated financial statements are an integral part of these
statements.
3
STATEMENT OF CONSOLIDATED OPERATIONS
Roadway Next Day Corporation and Subsidiary
A wholly owned subsidiary of Roadway LLC
For the period December 12 to December 31, 2003
(in thousands)
- --------------
OPERATING REVENUE $ 9,770
-----------
OPERATING EXPENSES:
Salaries, wages and employees' benefits 7,529
Operating expenses and supplies 1,061
Operating taxes and licenses 341
Claims and insurance 176
Depreciation and amortization 745
Purchased transportation 136
Losses on property disposals, net 3
-----------
Total operating expenses 9,991
-----------
Operating loss (221)
-----------
NONOPERATING EXPENSES:
Related party interest expense 687
Other 70
-----------
Nonoperating expenses, net 757
-----------
LOSS BEFORE INCOME TAXES (978)
INCOME TAX BENEFIT (440)
-----------
NET LOSS $ (538)
===========
The notes to consolidated financial statements are an integral part of these
statements.
4
STATEMENT OF CONSOLIDATED CASH FLOWS
Roadway Next Day Corporation and Subsidiary
A wholly owned subsidiary of Roadway LLC
For the period December 12 to December 31, 2003
(in thousands)
- --------------
OPERATING ACTIVITIES:
Net loss $ (538)
Noncash items included in net loss:
Depreciation and amortization 745
Losses on property disposals, net 3
Changes in assets and liabilities, net:
Accounts receivable 1,076
Accounts payable 2,929
Other working capital items (2,986)
Claims and other 262
Other 155
----------
Net cash from operating activities 1,646
----------
INVESTING ACTIVITIES:
Acquisition of property and equipment (554)
Proceeds from disposal of property and equipment 20
----------
Net cash used in investing activities (534)
----------
FINANCING ACTIVITIES:
Advances payable to parent, net -
----------
Net cash provided by financing activities -
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,112
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,216
----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 25,328
----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes received, net $ -
Interest paid -
==========
The notes to consolidated financial statements are an integral part of these
statements.
5
STATEMENT OF PARENT COMPANY INVESTMENT
Roadway Next Day Corporation and Subsidiary
A wholly owned subsidiary of Roadway LLC
For the period December 12 to December 31, 2003
(in thousands)
- --------------
Balance at December 12, 2003 (allocated purchase price) $ 103,259
Net loss (538)
------------
Balance at December 31, 2003 $ 102,721
============
The notes to consolidated financial statements are an integral part of these
statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roadway Next Day Corporation and Subsidiary
A wholly owned subsidiary of Roadway LLC
DESCRIPTION OF BUSINESS
Roadway Next Day Corporation (also referred to as "Roadway Next Day," "the
Company," "we" or "our") is a non-operating holding company focused on business
opportunities in regional and next-day lanes. Roadway Next Day Corporation owns
100 percent of New Penn Motor Express, Inc. ("New Penn"), which provides
superior quality regional, next-day ground services through a network of
facilities located in the Northeastern United States, Quebec, Canada and Puerto
Rico.
In accordance with Rule 3-16 of Regulation S-X and due to Roadway Next Day and
New Penn pledging their stock for debt purposes, we are presenting these
consolidated financial statements of Roadway Next Day Corporation. We are not
presenting the separate financial statements of New Penn because:
- The separate financial statements of New Penn are
substantially identical to those of Roadway Next Day
Consolidated;
- The separate financial statements of the parent Roadway Next
Day, when excluding New Penn, are not material to an investor,
and;
- The Company would provide separate financial statements of New
Penn should Roadway Next Day commence its own operations or
acquire additional subsidiaries.
On December 11, 2003, Yellow Corporation completed the acquisition of Roadway
Corporation. The combined company was renamed Yellow Roadway Corporation.
Roadway Corporation was merged with and into Roadway LLC, a newly formed limited
liability company and a wholly owned subsidiary of Yellow Roadway. Consideration
for the acquisition included $494 million in cash and 18.0 million shares of
Yellow Roadway common stock. Roadway LLC principal subsidiaries include Roadway
Express and Roadway Next Day Corporation.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 141,
Business Combinations ("Statement No. 141"), the acquisition was accounted for
under purchase accounting. As a result, our Statements of Consolidated
Operations and Statements of Consolidated Cash Flows include our results from
the date of acquisition through December 31, 2003. Our Consolidated Balance
Sheet as of December 31, 2003 includes our tangible and intangible assets and
liabilities after valuing them at their fair values. In addition Roadway Next
Day adopted the significant accounting policies of Yellow Roadway Corporation
and utilized are not comparable third party appraisers to revalue significant
assets and liabilities to fair market value, therefore these financial
statements are not comparable to prior periods.
PRINCIPLES OF CONSOLIDATION AND SUMMARY OF ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Roadway Next Day Corporation and its wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Management makes estimates and assumptions that affect the amounts reported in
the financial statements and notes. Actual results could differ from those
estimates.
Accounting policies refer to specific accounting principles and the methods of
applying those principles to fairly present our financial position and results
of operations in accordance with generally accepted accounting principles. The
policies discussed below include those that management has determined to be the
most appropriate in preparing our financial statements and are not discussed in
a separate note.
7
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits and highly liquid investments
purchased with maturities of three months or less.
CONCENTRATION OF CREDIT RISKS
We sell services and extend 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. We
monitor our exposure for credit losses and maintain allowances for anticipated
losses.
REVENUE RECOGNITION
For shipments in transit, Roadway Next Day records revenue based on the
percentage of service completed as of the period end and accrues delivery costs
as incurred. In addition, Roadway Next Day recognizes revenue on a gross basis
since the Company is the primary obligor even when the Company uses other
transportation service providers who act on their behalf, because the Company is
responsible to the customer for complete and proper shipment, including the risk
of physical loss or damage of the goods and cargo claims issues. In addition,
Roadway Next Day retains all credit risk. Management believes this policy most
accurately reflects revenue as earned.
FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable, accounts
payable and short-term borrowings approximates their fair value due to the
short-term nature of these instruments.
CLAIMS AND INSURANCE ACCRUALS
Claims and insurance accruals, both current and long-term, reflect the estimated
cost of claims for workers' compensation, cargo loss and damage, and property
damage and liability that insurance does not cover. We include these costs in
claims and insurance expense except for workers' compensation, which is included
in salaries, wages, and employees' benefits.
We base reserves for workers' compensation and property damage and liability
claims primarily upon actuarial analyses prepared by independent actuaries.
These reserves are discounted to present value using a risk-free rate at the
date of occurrence. The risk-free rate is the U.S. Treasury rate for maturities
that match the expected payout of such claims. The process of determining
reserve requirements utilizes historical trends and involves an evaluation of
accident frequency and severity, claims management, changes in health care
costs, and certain future administrative costs. The effect of future inflation
for costs is implicitly considered in the actuarial analyses. Adjustments to
previously established reserves are included in operating results. At December
31, 2003, estimated future payments related to these claims aggregated $14.2
million. The present value of these estimated future payments was $12.6 million
at December 31, 2003.
8
PROPERTY AND EQUIPMENT
Roadway Next Day carries property and equipment at cost less accumulated
depreciation. The values assigned to property and equipment at the date of
acquisition were principally determined by independent, third party appraisal.
We compute depreciation using the straight-line method based on the following
service lives:
Years
-----
Structures 10 - 40
Revenue equipment 5 - 14
Technology equipment and software 3 - 5
Other 3 - 10
======
We charge maintenance and repairs to expense as incurred, and capitalize
replacements and improvements when these costs extend the useful life of the
asset.
Our investment in technology equipment and software consists primarily of
advanced customer service and freight management equipment and related software.
We capitalize certain costs associated with developing or obtaining internal-use
software. Capitalizable costs include external direct costs of materials and
services utilized in developing or obtaining the software, payroll, and
payroll-related costs for employees directly associated with the project. For
the period ended December 31, 2003, the amounts capitalized were immaterial to
the Company's financial statements.
For the period December 12 through December 31, 2003, depreciation expense was
$0.5 million.
IMPAIRMENT OF LONG-LIVED ASSETS
If facts and circumstances indicate that the carrying value of identifiable
amortizable intangibles and property, plant and equipment may be impaired, we
would perform an evaluation of recoverability in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. If an evaluation
were required, we would compare the estimated future undiscounted cash flows
associated with the asset to the asset's carrying amount to determine if a
write-down is required.
ACQUISITION
In accordance with Statement No. 141, Yellow Roadway allocates the purchase
price of its acquisitions to the tangible and intangible assets and liabilities
of the acquired entity based on their fair values. Yellow Roadway records the
excess purchase price over the fair values as goodwill. The fair value assigned
to intangible assets acquired is based on valuations prepared by independent
third party appraisal firms using estimates and assumptions provided by
management. In accordance with SFAS No. 142, Goodwill and Other Intangible
Assets ("Statement No. 142"), goodwill and intangible assets with indefinite
useful lives are not amortized but are reviewed at least annually for
impairment. An impairment loss would be recognized to the extent that the
carrying amount exceeds the assets' fair value. Intangible assets with
estimatable useful lives are amortized on a straight-line basis over their
respective useful lives.
ROADWAY CORPORATION
On December 11, 2003, Yellow Corporation completed the acquisition of Roadway
Corporation and all of its outstanding stock in approximately a half cash, half
stock transaction. As part of the transaction, Yellow Corporation changed its
name to Yellow Roadway Corporation. In addition, Roadway Corporation became
Roadway LLC ("Roadway") and a wholly owned subsidiary of Yellow Roadway.
9
Principal operating subsidiaries of Roadway include Roadway Express and New
Penn. Roadway Express is a leading transporter of industrial, commercial and
retail goods in the two- to five-day regional and long-haul markets. New Penn is
a next-day, ground, less-than-truckload, carrier of general commodities. The
acquisition now provides Yellow Roadway with the increased scale, strong
financial base and market reach that are necessary to increase shareholder value
and enhance customer service. It also has the potential to accelerate the Yellow
Roadway strategy of offering a broader range of services for
business-to-business transportation decision makers.
Consideration for the acquisition included $494 million in cash and 18.0 million
shares of Yellow Roadway common stock, based on an exchange ratio of 1.752 and
an average price per share of $31.51, for a total purchase price of $1.1
billion. The purchase price also included approximately $19 million for
investment banking, legal and accounting fees that Yellow Roadway incurred to
consummate the acquisition, resulting in total cash consideration of $513
million. In addition, by virtue of the merger, Roadway LLC assumed $225.0
million of principal senior notes with a fair value of $248.9 million. The cash
portion of the purchase price was funded primarily through a term loan of $175
million under a new credit facility, a private placement of $250 million of 5.0
percent contingent convertible senior notes due 2023 and a private placement of
$150 million of 3.375 percent contingent convertible senior notes due 2023. The
18.0 million common shares Yellow Roadway issued were valued based on the simple
average of the daily opening and closing trade prices for the period December 9
through December 15, 2003, which represents two days prior and after the date
the price was fixed under the terms of the merger agreement.
Prior to the acquisition, Roadway had agreements in place with key management
personnel that would require Roadway to pay specific amounts to those
individuals upon a change in control of the entity. On December 11, 2003, in
conjunction with the closing of the transaction, Roadway paid $15.9 million to
the individuals covered by the agreement that would not be joining the new
Yellow Roadway organization. This amount was expensed in the pre-acquisition
financial statements of Roadway Corporation. The remaining amount covered under
the agreement of $10.6 million was placed in a trust account for possible
payment to the three individuals that remain Roadway employees. If any of these
individuals are terminated within two years and the applicable conditions of
their respective agreements are met, they would receive the agreed to payments,
and Roadway LLC would recognize an expense for those payments at the time of the
triggering event. If termination does not occur within two years, the funds will
be released from restriction and reclassified from a long-term asset to cash on
the Roadway LLC Consolidated Balance Sheet.
Based on an independent valuation prepared using estimates and assumptions
provided by management, Yellow Roadway allocated approximately $103.3 million of
the total purchase price of approximately $1.1 billion to Roadway Next Day as
follows:
(in thousands)
- --------------
Cash and cash equivalents $ 24,216
Accounts receivable 20,218
Other current assets 6,780
Property, plant and equipment 73,966
Other long-term assets 3,244
Intangible assets 89,500
Goodwill 122,332
Accounts payable (34,368)
Note payable to affiliate (150,000)
Deferred income taxes, net (38,994)
Other long-term liabilities (13,635)
-----------
Total purchase price $ 103,259
===========
As the Roadway acquisition occurred in December 2003, the allocation of the
purchase price included in the December 31, 2003 Consolidated Balance Sheet is
preliminary and subject to refinement. Although Yellow Roadway does not expect
any subsequent changes to have a material impact on its results of operations or
amounts allocated to goodwill, such changes could result in material adjustments
to
10
the preliminary purchase allocation. The most significant pending items include
the following: finalization of independent asset valuation for the Roadway
tangible and intangible assets including associated remaining lives; completion
of all direct costs associated with the acquisition; updating Roadway personnel
information used to calculate the pension benefit obligation; determination of
the fair value of tax-related contingencies; calculation of an estimate for
certain contractual obligations; and numerous other refinements. Yellow Roadway
expects substantially all of the above refinements will be completed by the end
of second quarter 2004.
Intangible Assets
Of the $89.5 million allocated to intangible assets, $25.6 million was assigned
to the New Penn trade name which is not subject to amortization. Of the
remaining value, $62.9 million and $1.0 million were assigned to customer
relationships and software related assets, respectively. Roadway assigned the
customer relationships and software assets a weighted average life of 15 years
and 3 years, respectively.
Goodwill
In considering the acquisition of Roadway, Yellow Corporation based its proposed
purchase price on the increased value that the combined Yellow Roadway
organization could provide to its investors, customers and employees. This value
can be attributed to the increased scale and ability to compete in a highly
competitive domestic and global transportation marketplace, the reputation and
recognition of the distinct brands, and the service capabilities and
technologies of both companies. Roadway Next Day recorded $122.3 million in
goodwill as part of the acquisition. Of the goodwill recorded, the amount that
may be deductible for tax purposes is not material to the results of operations
of Roadway Next Day.
GOODWILL AND INTANGIBLES
Goodwill is recognized for the excess of the purchase price over the fair value
of tangible and identifiable intangible net assets of businesses acquired. In
accordance with Statement No. 142, we do not amortize goodwill and review
goodwill at least annually for impairment based on a fair value approach. The
entire $122.3 million of goodwill has been allocated to our only operating
subsidiary, New Penn.
The components of amortizable intangible assets are as follows:
December 31, 2003
-----------------
Weighted Gross
Average Carrying Accumulated
(in thousands) Life (years) Amount Amortization
- -------------- ------------ ------ ------------
Customer related 15 $ 62,900 $ 192
Technology based 3 1,000 17
-- ---------- --------
Intangible assets $ 63,900 $ 209
========== ========
Total marketing related intangible assets with indefinite lives were $25.6
million for the period ended December 31, 2003. These intangible assets are not
subject to amortization.
Amortization Expense for intangible assets, as reflected in our net loss, was
$0.2 million for the period December 12 through December 31, 2003. Estimated
amortization expense for the next five years is as follows:
(in thousands) 2004 2005 2006 2007 2008
- -------------- ---- ---- ---- ---- ----
Estimated amortization expense $ 4,526 $ 4,526 $ 4,510 $ 4,193 $ 4,193
======= ======= ======= ======= =======
11
EMPLOYEE BENEFITS
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Qualified Defined Benefit Pension Plans
Roadway Next Day sponsors a qualified defined benefit pension plan for certain
employees not covered by collective bargaining agreements (approximately 60
employees). Pension benefits are specified by the Board of Directors. This plan
has no assets. Benefits are paid from corporate funds.
Employees covered by collective bargaining agreements participate in various
multi-employer pension plans to which Roadway Next Day contributes, as discussed
later in this section.
Definitions
We have defined the following terms to provide a better understanding of our
pension and other postretirement benefits:
Projected benefit obligation: The projected benefit obligation is the present
value of future benefits to employees attributed to service as of the
measurement date, including assumed salary increases.
Funded status: The funded status represents the difference between the projected
benefit obligation and the market value of the assets.
Net amount recognized: The net amount recognized represents the amount accrued
by Roadway Next Day for pension costs.
Unfunded accumulated benefit obligation: The accumulated benefit obligation is
the present value of future benefits attributed to service as of the measurement
date, assuming no future salary growth. The unfunded accumulated benefit
obligation represents the difference between the accumulated benefit obligation
and the fair market value of the assets.
Accumulated postretirement benefit obligation: The accumulated postretirement
benefit obligation is the present value of other postretirement benefits to
employees attributed to service as of the measurement date.
Funded Status
The following table sets forth the plan's funded status for the period December
12 through December 31, 2003:
(in thousands)
- --------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at December 12, 2003 $ 1,893
Service cost 2
Interest cost 6
--------
Benefit obligation at year end $ 1,901
========
FUNDED STATUS:
Funded status $ (1,901)
--------
Net amount recognized $ (1,901)
========
Benefit Plan Obligations
Amounts recognized for the benefit plan liabilities in the Consolidated Balance
Sheet at December 31, 2003 were $1.9 million. A discount rate of 6.25% was used
to determine benefit obligations at December 31, 2003.
12
Information for pension plans with an accumulated benefit obligation in excess
of plan assets at December 31, 2003:
(in thousands)
- --------------
Projected benefit obligation $ 1,901
Accumulated benefit obligation 1,901
=====
Contributions
We expect to pay approximately $0.1 million of benefits in 2004.
Pension Costs
The components of our net periodic pension cost from the date of acquisition to
December 31, 2003, were as follows:
(in thousands)
- --------------
Service cost $ 2
Interest cost 6
------
Net periodic pension cost $ 8
======
Weighted average assumptions for the period ended December 31:
Discount rate 6.75%
Expected rate of return on assets 6.75%
======
MULTI-EMPLOYER PLANS
Roadway Next Day contributes to multi-employer health, welfare and pension plans
for employees covered by collective bargaining agreements (approximately 73
percent of total employees). The amounts of these contributions are determined
by contract and established in the agreements. The health and welfare plans
provide health care and disability benefits to active employees and retirees.
The pension plans provide defined benefits to retired participants. We recognize
as net pension cost the required contribution for the period and recognize as a
liability any contributions due and unpaid. We contributed and charged to
expense the following amounts to these plans for the period from date of
acquisition through December 31, 2003:
(in thousands)
- --------------
Health and welfare $ 727
Pension 721
-------
Total $ 1,448
=======
Under current legislation regarding multi-employer pension plans, a termination,
withdrawal or partial withdrawal from any multi-employer plan in an under-funded
status would render us liable for a proportionate share of such multi-employer
plans' unfunded vested liabilities. This potential unfunded pension liability
also applies to our unionized competitors who contribute to multi-employer
plans. Based on the limited information available from plan administrators,
which we cannot independently validate, we believe that our portion of the
contingent liability in the case of a full withdrawal or termination would be
material to our financial position and results of operations. Roadway Next Day
has no current intention of taking any action that would subject us to
obligations under the legislation.
Roadway Next Day has collective bargaining agreements with their unions that
stipulate the amount of contributions we must make to union-sponsored,
multi-employer pension plans. The Internal Revenue Code and related regulations
establish minimum funding requirements for
13
these plans. If any of these plans fail to meet these requirements and the
trustees of these plans are unable to obtain waivers of the requirements from
the Internal Revenue Service ("IRS") or reduce pension benefits to a level where
the requirements are met, the IRS could impose an excise tax on all employers
participating in these plans and require contributions in excess of our
contractually agreed upon rates to correct the funding deficiency. If an excise
tax were imposed on the participating employers and additional contributions
required it could have a material adverse impact on the financial results of
Roadway Next Day.
401(k) SAVINGS PLAN
Roadway Next Day sponsors a voluntary 401(k) savings plan for employees not
covered by collective bargaining agreements. Our employees covered under
collective bargaining agreements can also participate in a voluntary 401(k)
plan. We do not make employer contributions to either of the 401(k) plans on
their behalf.
PROFIT SHARING PLAN
Roadway Next Day sponsors a contributory profit sharing plan for employees not
covered by collective bargaining agreements. There were no contributions for the
profit sharing plan for the period December 12 through December 31, 2003.
RELATED PARTY TRANSACTIONS
On December 10, 2003, Roadway Next Day executed a $150 million ten-year
Promissory Note to Roadway LLC, accruing interest at the rate of 8.25 percent.
Interest is due and payable quarterly, and the principal is due at maturity.
INCOME TAXES
Deferred income taxes are determined based upon the difference between the book
and the tax basis of our assets and liabilities. Deferred taxes are recorded at
the enacted tax rates expected to be in effect when these differences reverse.
The deferred tax liabilities (assets) were not materially different at December
12, 2003 compared to the deferred tax liabilities (assets) comprised of the
following at December 31, 2003:
(in thousands)
- --------------
Depreciation $ 7,766
Intangibles 36,635
Other 398
-----------
Gross tax liabilities $ 44,799
-----------
Claims and insurance $ (4,897)
Employee benefits (3,019)
Other (1,558)
-----------
Gross tax assets $ (9,474)
-----------
Net tax liability $ 35,325
===========
A valuation allowance for deferred tax assets was not required at December 31,
2003.
We have a tax sharing agreement with Yellow Roadway Corporation that requires us
to share in its consolidated tax burden based on our respective share of taxable
income or losses relative to Yellow Roadway Corporation's other subsidiaries. In
addition, we retain any respective tax credits related to our operations.
14
A reconciliation between income taxes at the federal statutory rate and the
consolidated effective tax rate from our net loss follows:
2003
----
Federal statutory rate 35.0%
State income taxes, net 5.8
Nondeductible business expenses (1.1)
Other, net 5.3
----
Effective tax rate 45.0%
====
The income tax benefit consisted of the following:
(in thousands) 2003
- -------------- ----
Current:
U.S federal $ (527)
State (106)
-------
Current income tax benefit $ (633)
-------
Deferred:
U.S federal $ 174
State 19
-------
Deferred income tax benefit $ 193
-------
Income tax benefit $ (440)
=======
COMMITMENTS, CONTINGENCIES, AND UNCERTAINTIES
Roadway Next Day incurs rental expenses under noncancelable lease agreements for
certain buildings and operating equipment. Rental expense is charged to
operating expense and supplies on the Statement of Consolidated Operations.
Actual rental expense, as reflected in our net loss, was $17 thousand for the
period December 12 through December 31, 2003.
We utilize certain terminals and equipment under operating leases. At December
31, 2003, we were committed under noncancelable lease agreements requiring
minimum annual rentals payable as follows:
(in thousands) 2004 2005 2006 2007 2008 Thereafter
- -------------- ---- ---- ---- ---- ---- ----------
Minimum annual rentals $ 439 $ 347 $ 216 $ 62 $ 52 $ 66
===== ===== ===== ==== ==== ====
We expect in the ordinary course of business that leases will be renewed or
replaced as they expire. Projected 2004 net capital expenditures are expected to
be $15 to $20 million, of which zero was committed at December 31, 2003.
Roadway Next Day is involved in litigation or proceedings that arise in ordinary
business activities. We insure against these risks to the extent deemed prudent
by our management, but no assurance can be given that the nature and amount of
such insurance will be sufficient to fully indemnify us against liabilities
arising out of pending and future legal proceedings. Many of these insurance
policies contain self-insured retentions in amounts we deem prudent. Based on
our current assessment of information available as of the date of these
financial statements, we believe that our financial statements include adequate
provisions for estimated costs and losses that may be incurred with regard to
the litigation and proceedings to which we are a party.
15