EXHIBIT 99.2
CONSOLIDATED FINANCIAL STATEMENTS
Roadway Express, Inc. and Subsidiaries
A wholly owned subsidiary of Yellow Roadway Corporation
Consolidated Balance Sheets as of March 31, 2004 and
December 31, 2003; Statements of Consolidated Operations and Cash Flows
for the three months ended March 31, 2004 and
twelve weeks ended March 29, 2003.
CONSOLIDATED BALANCE SHEETS
Roadway Express, Inc. and Subsidiaries
A wholly owned subsidiary of Yellow Roadway Corporation
(Amounts in thousands)
(Unaudited)
March 31, December 31,
2004 2003
----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 6,507 $ 24,552
Accounts receivable, net 332,110 349,016
Prepaid expenses and other 44,648 27,317
----------- ------------
Total current assets 383,265 400,885
----------- ------------
Property and Equipment:
Cost 764,124 750,264
Less - accumulated depreciation 17,358 2,763
----------- ------------
Net property and equipment 746,766 747,501
----------- ------------
Goodwill 477,971 474,513
Intangibles, net 369,123 371,081
Other assets 11,940 8,441
----------- ------------
TOTAL ASSETS $ 1,989,065 $ 2,002,421
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 92,593 $ 108,425
Advances payable to parent and affiliates 62,884 115,202
Wages, vacations and employees' benefits 196,206 173,298
Other current and accrued liabilities 134,338 110,566
----------- ------------
Total current liabilities 486,021 507,491
----------- ------------
Other Liabilities:
Note payable to affiliate 500,000 500,000
Deferred income taxes, net 184,521 186,280
Accrued pension and postretirement 216,424 208,785
Claims and other liabilities 109,549 110,173
----------- ------------
Total other liabilities 1,010,494 1,005,238
----------- ------------
Parent Company Investment:
Capital surplus 496,296 496,044
Retained earnings (3,089) (5,454)
Accumulated other comprehensive loss (657) (898)
----------- ------------
Total parent company investment 492,550 489,692
----------- ------------
TOTAL LIABILITIES AND PARENT COMPANY INVESTMENT $ 1,989,065 $ 2,002,421
=========== ============
The accompanying notes are an integral part of these statements.
2
STATEMENTS OF CONSOLIDATED OPERATIONS
Roadway Express, Inc. and Subsidiaries
A wholly owned subsidiary of Yellow Roadway Corporation
(Amounts in thousands)
(Unaudited)
Three | Twelve
Months Ended | Weeks Ended
March 31, | March 29,
2004 | 2003
------------ | ------------
|
OPERATING REVENUE $ 717,138 | $ 705,244
------------ | ------------
OPERATING EXPENSES: |
|
Salaries, wages and employees' benefits 453,976 | 439,438
Operating expenses and supplies 120,682 | 125,826
Operating taxes and licenses 17,916 | 18,379
Claims and insurance 12,822 | 13,895
Depreciation and amortization 16,078 | 14,924
Purchased transportation 80,634 | 74,242
Losses (gains) on property disposals, net (7) | 802
------------ | ------------
Total operating expenses 702,101 | 687,506
------------ | ------------
OPERATING INCOME 15,037 | 17,738
------------ | ------------
|
NONOPERATING (INCOME) EXPENSES: |
Interest expense 10,390 | 799
Other (96) | (227)
------------ | ------------
Nonoperating expenses, net 10,294 | 572
------------ | ------------
|
INCOME BEFORE INCOME TAXES 4,743 | 17,166
Income tax provision 2,126 | 6,891
------------ | ------------
NET INCOME $ 2,617 | $ 10,275
============ ============
The accompanying notes are an integral part of these statements. Refer to Note 2
for the difference in accounting policies between the periods presented.
3
STATEMENTS OF CONSOLIDATED CASH FLOWS
Roadway Express, Inc. and Subsidiaries
A wholly owned subsidiary of Yellow Roadway Corporation
(Amounts in thousands)
(Unaudited)
Three | Twelve
Months Ended | Weeks Ended
March 31, | March 29,
2004 | 2003
------------ | -----------
|
OPERATING ACTIVITIES: |
Net income $ 2,617 | $ 10,275
Noncash items included in net income: |
Depreciation and amortization 16,078 | 14,924
Losses (gains) on property disposals, net (7) | 802
Deferred income tax provision, net (1,759) | (4,787)
Changes in assets and liabilities, net: |
Accounts receivable 16,906 | 15,207
Accounts payable (15,832) | (12,067)
Other working capital items 29,351 | (15,689)
Claims and other 7,015 | -
Other, net (7,077) | 2,246
------------ | -----------
NET CASH FROM OPERATING ACTIVITIES 47,292 | 10,911
------------ | -----------
|
INVESTING ACTIVITIES: |
Acquisition of property and equipment (12,988) | (13,122)
Proceeds from disposal of property and equipment (31) | 598
------------ | -----------
NET CASH USED IN INVESTING ACTIVITIES (13,019) | (12,524)
------------ | -----------
|
FINANCING ACTIVITIES: |
Advances payable to parent and affiliates, net (52,318) | -
------------ | -----------
NET CASH USED IN FINANCING ACTIVITIES (52,318) | -
------------ | -----------
|
NET DECREASE IN CASH AND CASH EQUIVALENTS (18,045) | (1,613)
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,552 | 82,016
------------ | -----------
|
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,507 | $ 80,403
============ ===========
The accompanying notes are an integral part of these statements. Refer to Note 2
for the difference in accounting policies between the periods presented.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roadway Express, Inc. and Subsidiaries
A wholly owned subsidiary of Yellow Roadway Corporation
(unaudited)
1. DESCRIPTION OF BUSINESS
Roadway Express, Inc. and subsidiaries (also referred to as "Roadway
Express," "the Company," "we" or "our"), a wholly owned subsidiary of
Roadway LLC, which is wholly owned by Yellow Roadway Corporation
("Yellow Roadway"), is a leading transportation services provider that
offers a full range of regional, national and international services
for the movement of industrial, commercial and retail goods, primarily
through decentralized management and customer facing organizations.
Roadway Express owns 100 percent of Reimer Express Lines Ltd. located
in Canada that specializes in shipments into, across and out of Canada.
Roadway Express has no reportable operating segments as management
evaluates operating performance and allocates resources based on
Roadway Express consolidated results.
On December 11, 2003, Yellow Corporation completed the acquisition of
Roadway Corporation. The combined company was renamed Yellow Roadway
Corporation ("Yellow Roadway"). 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 for a total purchase price of approximately $1.1 billion.
Roadway LLC principal segments include Roadway Express and Roadway Next
Day Corporation.
2. PRINCIPLES OF CONSOLIDATION AND SUMMARY OF ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts
of Roadway Express and its wholly owned subsidiaries. We have prepared
the consolidated financial statements, without audit by independent
public accountants, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). In management's opinion, all
normal recurring adjustments necessary for a fair statement of the
financial position, results of operations and cash flows for the
interim periods included herein have been made. Certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted from these statements pursuant to SEC rules and
regulations. Accordingly, the accompanying consolidated financial
statements should be read in conjunction with the consolidated
financial statements included as Exhibit 99.4 to the Yellow Roadway
Corporation Annual Report on Form 10-K for the year ended December 31,
2003.
Prior to the acquisition of Roadway Corporation by Yellow Corporation
on December 11, 2003, Roadway Corporation and all of its wholly owned
subsidiaries, including Roadway Express, operated on thirteen four-week
accounting periods with twelve weeks in each of the first three
quarters and sixteen weeks in the fourth quarter. As part of the
acquisition, Roadway Express adopted a calendar-quarter reporting basis
as well as the significant accounting policies of Yellow Roadway
Corporation. In addition, we utilized independent third party
appraisers to revalue significant assets and liabilities to fair market
value, therefore these financial statements are not comparable to prior
periods. For accounting policies related to the Consolidated Balance
Sheets as of March 31, 2004 and December 31, 2003, and for the
Statements of Consolidated Operations and Cash Flows for the three
months ended March 31, 2004 and the related notes to financial
statements, please refer to the Yellow Roadway Corporation Annual
Report on Form 10-K for the year ended December 31, 2003. For
accounting policies related to the Statements of Consolidated
Operations and Cash Flows for the twelve weeks ended March 29, 2003 and
related notes to financial statements, please refer to the Roadway
Express financial statements and related notes at December 11, 2003,
filed as Exhibit 99.3 to the Yellow Roadway Corporation Annual Report
on Form 10-K for the year ended December 31, 2003.
3. 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. The following table shows the amount of goodwill
and changes therein:
5
Foreign Currency
Translation
Adjustments/
(in thousands) December 31, 2003 Reclasses March 31, 2004
-------------------------------------------------------------------
Goodwill $ 474,513 $ 3,458 $ 477,971
-------------------------------------------------------------------
As the acquisition of Roadway Corporation by Yellow Corporation
occurred in December 2003, the allocation of the purchase price
included in the December 31, 2003 and the March 31, 2004 Consolidated
Balance Sheets was preliminary and subject to refinement. Although we
do not expect any subsequent changes to have a material impact on our
results of operations or amounts allocated to goodwill, such changes
could result in material adjustments to the preliminary purchase
allocation. The most significant pending items include the following:
finalization of independent asset valuation for our tangible and
intangible assets including associated remaining lives; completion of
all direct costs associated with the acquisition; updating our
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
certain other refinements. As of March 31, 2004 refinements to the
purchase price allocation have not been significant. We expect
substantially all of the above refinements will be completed by the end
of second quarter 2004.
The components of amortizable intangible assets are as follows:
March 31, 2004 December 31, 2003
Weighted ------------------------ -------------------------
Average Gross Gross
Life Carrying Accumulated Carrying Accumulated
(in thousands) (years) Amount Amortization Amount Amortization
-------- ------------------------ --------------------------
Customer related 19 $ 48,900 $ 758 $ 48,900 $ 164
Technology based 3 15,000 1,410 15,000 256
------------------------ --------------------------
Intangible assets $ 63,900 $ 2,168 $ 63,900 $ 420
======================== ==========================
Total marketing related intangible assets with indefinite lives were
$307.4 million at March 31, 2004 and $307.6 million at December 31,
2003. These intangible assets are not subject to amortization. The
change between periods related to foreign currency translation
adjustments.
4. EMPLOYEE BENEFITS
COMPONENTS OF NET PERIODIC PENSION COST
In December 2003, the Financial Accounting Standards Board revised
Statement of Financial Accounting Standards ("SFAS") No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits
("SFAS 132R"). SFAS 132R requires the disclosure of the components of
the net periodic pension cost recognized during interim periods. The
following table sets forth the components of our net periodic pension
cost and other postretirement costs for the three months ended March
31, 2004 and twelve weeks ended March 29, 2003:
Pension Costs Other Postretirement Costs
------------------------ --------------------------
March 31, | March 29, March 31, | March 29,
(in thousands) 2004 | 2003 2004 | 2003
--------- | --------- --------- | ---------
| |
Service cost $ 5,401 | $ 4,693 $ 471 | $ 466
Interest cost 7,331 | 6,257 783 | 788
Expected return on plan assets (6,195) | (5,059) - | -
Amortization of net transition obligation - | (330) - | -
Amortization of prior service cost - | 1,298 - | (445)
Amortization of net loss 16 | 32 - | 134
--------- | --------- --------- | ---------
Net periodic pension cost $ 6,553 | $ 6,891 $ 1,254 | $ 943
========= ========= ========= =========
6
EMPLOYER CONTRIBUTIONS
In our financial statements for the year ended December 31, 2003, we
disclosed that we expect to contribute approximately $20 million to our
pension plans in 2004, and this expectation has not changed. As of
March 31, 2004, we have not made any contributions to the plans.
5. COMPREHENSIVE INCOME
Our comprehensive income for the periods presented includes net income
and foreign currency translation adjustments. Comprehensive income for
the three months ended March 31, 2004 and twelve weeks ended March 29,
2003 follows:
March 31, | March 29,
(in thousands) 2004 | 2003
--------- | ---------
|
Net income $ 2,617 | $ 10,275
Changes in foreign currency translation adjustments 241 | 2,764
--------- | ---------
Comprehensive income $ 2,858 | $ 13,039
========= =========
6. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 2004, Roadway Express paid $1.2
million in cash for taxes and $67 thousand for interest.
7. RENTAL EXPENSES
Roadway Express incurs rental expenses under noncancelable lease
agreements for certain buildings and operating equipment. Rental
expense is charged to "operating expenses and supplies" on the
Statements of Consolidated Operations. The following table represents
the actual rental expense, as reflected in operating income, incurred
for the three months ended March 31, 2004 and twelve weeks ended March
29, 2003:
March 31, | March 29,
(in thousands) 2004 | 2003
--------- | ---------
|
Rental expense $ 13,108 | $ 12,972
8. MULTI-EMPLOYER PENSION PLANS
Roadway Express contributes to multi-employer health, welfare and
pension plans for employees covered by collective bargaining agreements
(approximately 75 percent of total employees). The largest of these
plans, the Central States Southeast and Southwest Areas Pension Plan
(the "Central States Plan") provides retirement benefits to
approximately 54 percent of our total employees. The amounts of these
contributions are determined by contract and established in the
agreements. The health and welfare plans provide health care and
disability benefits to active employees and retirees. The pension plans
provide defined benefits to retired participants. We recognize as net
pension cost the required contribution for the period and recognize as
a liability any contributions due and unpaid.
Under current legislation regarding multi-employer pension plans, a
termination, withdrawal or partial withdrawal from any multi-employer
plan in an under-funded status would render us liable for a
proportionate share of 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 Express has no current intention of taking any action that
would subject us to obligations under the legislation.
7
Roadway Express has collective bargaining agreements with its unions
that stipulate the amount of contributions it must make to
union-sponsored, multi-employer pension plans. The Internal Revenue
Code and related regulations establish minimum funding requirements for
these plans. If any of these plans, including (without limitation) the
Central States Plan, 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
Express.
9. RELATED PARTY TRANSACTIONS
On December 10, 2003, Roadway Express executed a $500 million ten-year
Promissory Note to Roadway Corporation (subsequently renamed Roadway
LLC), accruing interest at the rate of 8.25 percent. Interest is due
and payable quarterly, and the principal is due at maturity. All
amounts were outstanding at March 31, 2004 and at December 31, 2003.
8