EXHIBIT 99.3
CONSOLIDATED FINANCIAL STATEMENTS
Roadway Next Day Corporation and Subsidiary
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 Next Day Corporation and Subsidiary
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 $ 6,774 $ 25,328
Accounts receivable, net 23,456 19,877
Advances receivable from parent and affiliates 11,431 -
Prepaid expenses and other 6,176 6,830
--------- ------------
Total current assets 47,837 52,035
--------- ------------
Property and Equipment:
Cost 83,809 74,482
Less - accumulated depreciation 2,266 521
--------- ------------
Net property and equipment 81,543 73,961
--------- ------------
Goodwill 116,810 122,332
Intangibles, net 88,180 89,291
Other assets 3,093 3,094
--------- ------------
TOTAL ASSETS $ 337,463 $ 340,713
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,721 $ 8,905
Advances payable to parent and affiliates - 4,568
Wages, vacations and employees' benefits 15,778 12,102
Other current and accrued liabilities 10,440 9,550
--------- ------------
Total current liabilities 29,939 35,125
--------- ------------
Other Liabilities:
Note payable to affiliate 150,000 150,000
Deferred income taxes, net 38,999 38,999
Accrued pension and postretirement 1,912 1,811
Claims and other liabilities 12,172 12,057
--------- ------------
Total other liabilities 203,083 202,867
--------- ------------
Parent Company Investment:
Capital surplus 103,259 103,259
Retained earnings 1,182 (538)
--------- ------------
Total parent company investment 104,441 102,721
--------- ------------
TOTAL LIABILITIES AND PARENT COMPANY INVESTMENT $ 337,463 $ 340,713
========= ============
The accompanying notes are an integral part of these statements.
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STATEMENTS OF CONSOLIDATED OPERATIONS
Roadway Next Day Corporation and Subsidiary
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 $ 56,104 | $ 48,826
------------ | -----------
OPERATING EXPENSES: |
Salaries, wages and employees' benefits 37,476 | 34,067
Operating expenses and supplies 7,197 | 6,639
Operating taxes and licenses 1,595 | 1,408
Claims and insurance 712 | 1,174
Depreciation and amortization 2,844 | 2,374
Purchased transportation 534 | 542
Losses (gains) on property disposals, net (5) | 9
------------ | -----------
Total operating expenses 50,353 | 46,213
------------ | -----------
OPERATING INCOME 5,751 | 2,613
------------ | -----------
|
NONOPERATING (INCOME) EXPENSES: |
Interest expense 3,153 | 6,283
Other (11) | 11
------------ | -----------
Nonoperating expenses, net 3,142 | 6,294
------------ | -----------
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 2,609 | (3,681)
Income tax provision (benefit) 889 | (1,402)
------------ | -----------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 1,720 | (2,279)
Income from discontinued operations - | 147
------------ | -----------
NET INCOME (LOSS) $ 1,720 | $ (2,132)
============ ===========
The accompanying notes are an integral part of these statements. Refer to Note 2
for the difference in accounting policies between the periods presented.
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STATEMENTS OF CONSOLIDATED CASH FLOWS
Roadway Next Day Corporation and Subsidiary
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 (loss) $ 1,720 | $ (2,132)
Noncash items included in net income (loss): |
Depreciation and amortization 2,844 | 3,336
Losses (gains) on property disposals, net (5) | 9
Changes in assets and liabilities, net: |
Accounts receivable (3,579) | (1,301)
Accounts payable (5,184) | 4,293
Other working capital items 4,787 | 36
Claims and other 216 | -
Other, net - | (114)
------------ | -----------
NET CASH FROM OPERATING ACTIVITIES 799 | 4,127
------------ | -----------
|
INVESTING ACTIVITIES: |
Acquisition of property and equipment (3,440) | (664)
Proceeds from disposal of property and equipment 86 | 164
------------ | -----------
NET CASH USED IN INVESTING ACTIVITIES (3,354) | (500)
------------ | -----------
|
FINANCING ACTIVITIES: |
Advances payable to parent and affiliates, net (15,999) | (7,300)
------------ | -----------
NET CASH USED IN FINANCING ACTIVITIES (15,999) | (7,300)
------------ | -----------
|
NET DECREASE IN CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS (18,554) | (3,673)
NET DECREASE IN CASH AND CASH EQUIVALENTS FROM DISCONTINUED OPERATIONS - | (2,400)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,328 | 12,992
------------ | -----------
|
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,774 | $ 6,919
============ ===========
The accompanying notes are an integral part of these statements. Refer to Note 2
for the difference in accounting policies between the periods presented.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roadway Next Day Corporation and Subsidiary
A wholly owned subsidiary of Yellow Roadway Corporation
(unaudited)
1. 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 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:
o The separate financial statements of New Penn are substantially
identical to those of Roadway Next Day Consolidated;
o The separate financial statements of the parent Roadway Next
Day, when excluding New Penn, are not material to an investor,
and;
o 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 ("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, Inc. and
Roadway Next Day Corporation.
2. PRINCIPLES OF CONSOLIDATION AND SUMMARY OF ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts
of Roadway Next Day 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 our consolidated
financial statements included as Exhibit 99.6 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 Next Day, 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 Next Day 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
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Statements of Consolidated Operations and Cash Flows for the twelve
weeks ended March 29, 2003 and related notes to financial statements,
please refer to our financial statements and related notes at December
11, 2003, filed as Exhibit 99.5 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
attributable to our only operating segment with balances and changes
therein:
Foreign Currency
Translation
Adjustments/
(in thousands) December 31, 2003 Reclasses March 31, 2004
-----------------------------------------------------------------
New Penn $ 122,332 $ (5,522) $ 116,810
-----------------------------------------------------------------
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; 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 15 $ 62,900 $ 1,243 $ 62,900 $ 192
Technology based 3 1,000 77 1,000 17
--------------------------- -----------------------------
Intangible assets $ 63,900 $ 1,320 $ 63,900 $ 209
=========================== =============================
Total marketing related intangible assets with indefinite lives were
$25.6 million at March 31, 2004 and at December 31, 2003. These
intangible assets are not subject to amortization.
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 for the three months ended March 31, 2004 and twelve weeks ended
March 29, 2003:
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March 31, | March 29,
(in thousands) 2004 | 2003
--------- | ---------
|
Service cost $ 11 | $ 11
Interest cost 29 | 28
--------- | ---------
Net periodic pension cost $ 40 | $ 39
========= =========
EMPLOYER CONTRIBUTIONS
In our financial statements for the year ended December 31, 2003, we
disclosed that we expect to contribute approximately $0.1 million to
our pension plans in 2004, and this expectation has not changed. As of
March 31, 2004, we have made contributions of $20 thousand dollars to
our plans.
5. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 2004, Roadway Next Day paid
$255 thousand in cash for taxes and zero for interest.
6. RENTAL EXPENSES
Roadway Next Day 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 $ 71 | $ 77
--------- ---------
7. MULTI-EMPLOYER PENSION 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.
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 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
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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.
8. RELATED PARTY TRANSACTIONS
On December 10, 2003, Roadway Next Day executed a $150 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.
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