UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2006
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-12255
YRC WORLDWIDE INC.
(Exact name of registrant as specified in its charter)
| Delaware | 48-0948788 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 10990 Roe Avenue, Overland Park, Kansas | 66211 | |
| (Address of principal executive offices) | (Zip Code) | |
(913) 696-6100
(Registrant’s telephone number, including area code)
No Changes
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class |
Outstanding at October 31, 2006 | |
| Common Stock, $1 Par Value Per Share | 57,120,386 shares |
2
PART I - FINANCIAL INFORMATION
YRC Worldwide Inc. and Subsidiaries
(Amounts in thousands except per share data)
| September 30, 2006 |
December 31, 2005 |
|||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 69,964 | $ | 82,361 | ||||
| Accounts receivable, net |
1,331,416 | 1,164,383 | ||||||
| Prepaid expenses and other |
192,205 | 230,888 | ||||||
| Total current assets |
1,593,585 | 1,477,632 | ||||||
| Property and Equipment: |
||||||||
| Cost |
3,842,815 | 3,607,415 | ||||||
| Less – accumulated depreciation |
1,544,929 | 1,401,623 | ||||||
| Net property and equipment |
2,297,886 | 2,205,792 | ||||||
| Goodwill |
1,347,239 | 1,230,781 | ||||||
| Intangibles, net |
697,706 | 713,677 | ||||||
| Other assets |
96,870 | 106,307 | ||||||
| Total assets |
$ | 6,033,286 | $ | 5,734,189 | ||||
| Liabilities and Shareholders’ Equity |
||||||||
| Current Liabilities: |
||||||||
| Accounts payable |
$ | 381,331 | $ | 393,934 | ||||
| Wages, vacations and employees’ benefits |
540,747 | 522,882 | ||||||
| Other current and accrued liabilities |
410,603 | 372,988 | ||||||
| Asset-backed securitization (“ABS”) borrowings |
425,000 | 374,970 | ||||||
| Total current liabilities |
1,757,681 | 1,664,774 | ||||||
| Noncurrent Liabilities: |
||||||||
| Long-term debt, less current portion |
1,062,204 | 1,113,085 | ||||||
| Deferred income taxes, net |
455,890 | 387,220 | ||||||
| Claims and other liabilities |
585,261 | 632,622 | ||||||
| Commitments and contingencies |
||||||||
| Shareholders’ Equity: |
||||||||
| Common stock, $1 par value per share |
60,797 | 60,450 | ||||||
| Preferred stock, $1 par value per share |
— | — | ||||||
| Capital surplus |
1,175,568 | 1,154,654 | ||||||
| Retained earnings |
1,068,787 | 838,614 | ||||||
| Accumulated other comprehensive loss |
(23,285 | ) | (27,610 | ) | ||||
| Treasury stock, at cost (3,679 and 3,158 shares) |
(109,617 | ) | (89,620 | ) | ||||
| Total shareholders’ equity |
2,172,250 | 1,936,488 | ||||||
| Total liabilities and shareholders’ equity |
$ | 6,033,286 | $ | 5,734,189 | ||||
The accompanying notes are an integral part of these statements.
3
STATEMENTS OF CONSOLIDATED OPERATIONS
YRC Worldwide Inc. and Subsidiaries
For the Three and Nine Months Ended September 30
(Amounts in thousands except per share data)
(Unaudited)
| Three Months | Nine Months | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| Operating Revenue |
$ | 2,571,087 | $ | 2,491,650 | $ | 7,511,027 | $ | 6,258,457 | ||||||||
| Operating Expenses: |
||||||||||||||||
| Salaries, wages and employees’ benefits |
1,478,622 | 1,450,548 | 4,340,435 | 3,721,462 | ||||||||||||
| Operating expenses and supplies |
459,738 | 412,949 | 1,378,087 | 1,002,998 | ||||||||||||
| Purchased transportation |
277,848 | 274,568 | 811,752 | 686,552 | ||||||||||||
| Depreciation and amortization |
64,118 | 75,800 | 212,280 | 180,848 | ||||||||||||
| Other operating expenses |
105,288 | 110,147 | 317,754 | 274,272 | ||||||||||||
| Losses (gains) on property disposals, net |
2,427 | 1,638 | 83 | (346 | ) | |||||||||||
| Loss on sale of subsidiary, reorganization and acquisition charges |
5,455 | 9,213 | 12,936 | 10,077 | ||||||||||||
| Total operating expenses |
2,393,496 | 2,334,863 | 7,073,327 | 5,875,863 | ||||||||||||
| Operating Income |
177,591 | 156,787 | 437,700 | 382,594 | ||||||||||||
| Nonoperating (Income) Expenses: |
||||||||||||||||
| Interest expense |
23,025 | 19,949 | 66,684 | 42,753 | ||||||||||||
| Other |
(677 | ) | (943 | ) | (2,036 | ) | (1,488 | ) | ||||||||
| Nonoperating expenses, net |
22,348 | 19,006 | 64,648 | 41,265 | ||||||||||||
| Income Before Income Taxes |
155,243 | 137,781 | 373,052 | 341,329 | ||||||||||||
| Income tax provision |
59,458 | 52,496 | 142,879 | 130,046 | ||||||||||||
| Net Income |
$ | 95,785 | $ | 85,285 | $ | 230,173 | $ | 211,283 | ||||||||
| Average Common Shares Outstanding – Basic |
57,464 | 57,994 | 57,434 | 53,177 | ||||||||||||
| Average Common Shares Outstanding – Diluted |
58,396 | 60,194 | 58,718 | 56,018 | ||||||||||||
| Basic Earnings Per Share |
$ | 1.67 | $ | 1.47 | $ | 4.01 | $ | 3.97 | ||||||||
| Diluted Earnings Per Share |
$ | 1.64 | $ | 1.42 | $ | 3.92 | $ | 3.77 | ||||||||
The accompanying notes are an integral part of these statements.
4
STATEMENTS OF CONSOLIDATED CASH FLOWS
YRC Worldwide Inc. and Subsidiaries
For the Nine Months Ended September 30
(Amounts in thousands)
(Unaudited)
| 2006 | 2005 | |||||||
| Operating Activities: |
||||||||
| Net income |
$ | 230,173 | $ | 211,283 | ||||
| Noncash items included in net income: |
||||||||
| Depreciation and amortization |
212,280 | 180,848 | ||||||
| Losses (gains) on property disposals, net |
83 | (346 | ) | |||||
| Loss on sale of Meridian IQ China |
2,843 | — | ||||||
| Deferred income tax (benefit) provision, net |
(367 | ) | 9,373 | |||||
| Changes in assets and liabilities, net: |
||||||||
| Accounts receivable |
(162,940 | ) | (139,053 | ) | ||||
| Accounts payable |
(25,873 | ) | (43,990 | ) | ||||
| Other working capital items |
(6,607 | ) | (20,351 | ) | ||||
| Claims and other |
39,246 | 51,062 | ||||||
| Other, net |
10,213 | 7,510 | ||||||
| Net cash provided by operating activities |
299,051 | 256,336 | ||||||
| Investing Activities: |
||||||||
| Acquisition of property and equipment |
(319,743 | ) | (231,644 | ) | ||||
| Proceeds from disposal of property and equipment |
35,070 | 18,366 | ||||||
| Acquisition of companies, net of cash acquired |
(14,842 | ) | (754,120 | ) | ||||
| Investment in joint venture |
— | (46,043 | ) | |||||
| Other |
(2,548 | ) | 2,075 | |||||
| Net cash used in investing activities |
(302,063 | ) | (1,011,366 | ) | ||||
| Financing Activities: |
||||||||
| ABS borrowings, net |
50,030 | 456,000 | ||||||
| Issuance (repayment) of long-term debt, net |
(43,712 | ) | 249,978 | |||||
| Debt issuance costs |
— | (4,256 | ) | |||||
| Proceeds from exercise of stock options |
4,294 | 4,293 | ||||||
| Treasury stock repurchase |
(19,997 | ) | — | |||||
| Net cash (used in) provided by financing activities |
(9,385 | ) | 706,015 | |||||
| Net Decrease In Cash and Cash Equivalents |
(12,397 | ) | (49,015 | ) | ||||
| Cash and Cash Equivalents, Beginning of Period |
82,361 | 106,489 | ||||||
| Cash and Cash Equivalents, End of Period |
$ | 69,964 | $ | 57,474 | ||||
The accompanying notes are an integral part of these statements.
5
STATEMENT OF CONSOLIDATED SHAREHOLDERS’ EQUITY
YRC Worldwide Inc. and Subsidiaries
For the Nine Months Ended September 30
(Amounts in thousands except per share data)
(Unaudited)
| 2006 | ||||
| Common Stock |
||||
| Beginning balance |
$ | 60,450 | ||
| Stock option exercises |
141 | |||
| Employer contribution to 401(k) plan |
142 | |||
| Issuance of equity awards, net |
64 | |||
| Ending balance |
$ | 60,797 | ||
| Capital Surplus |
||||
| Beginning balance |
$ | 1,154,654 | ||
| Stock option exercises |
4,164 | |||
| Employer contribution to 401(k) plan |
5,845 | |||
| Share-based compensation |
9,921 | |||
| Other, net |
984 | |||
| Ending balance |
$ | 1,175,568 | ||
| Retained Earnings |
||||
| Beginning balance |
$ | 838,614 | ||
| Net income |
230,173 | |||
| Ending balance |
$ | 1,068,787 | ||
| Accumulated Other Comprehensive Loss |
||||
| Beginning balance |
$ | (27,610 | ) | |
| Foreign currency translation adjustment, net of tax |
4,325 | |||
| Ending balance |
$ | (23,285 | ) | |
| Treasury Stock, At Cost |
||||
| Beginning balance |
$ | (89,620 | ) | |
| Treasury stock repurchase |
(19,997 | ) | ||
| Ending balance |
$ | (109,617 | ) | |
| Total Shareholders’ Equity |
$ | 2,172,250 | ||
The accompanying notes are an integral part of these statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YRC Worldwide Inc. and Subsidiaries
(Unaudited)
| 1. | Description of Business |
YRC Worldwide Inc. (also referred to as “YRC Worldwide”, “the Company”, “we” or “our”), one of the largest transportation service providers in the world, is a holding company that through wholly owned operating subsidiaries offers its customers a wide range of transportation services. The Company adopted the name YRC Worldwide in January 2006 to reflect the fact that its services have expanded to encompass logistics as well as global, national and regional transportation. The YRC Worldwide portfolio of brands provides one of the most comprehensive packages of services for the shipment of industrial, commercial and retail goods domestically and internationally. The brands operate independently in the marketplace, providing customers with a differentiated and valued choice of services and providers. Our operating subsidiaries, which are also our reportable segments, include the following:
| • | Yellow Transportation, Inc. (“Yellow Transportation”) 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 centralized management and customer facing organizations. Approximately 43% of Yellow Transportation shipments are completed in two days or less. |
| • | Roadway Express, Inc. (“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 regionalized management and customer facing organizations. Approximately 32% of Roadway shipments are completed in two days or less. Roadway owns 100% of Reimer Express Lines Ltd. (“Reimer”), located in Canada, that specializes in shipments into, across and out of Canada. |
| • | YRC Regional Transportation, Inc. (“Regional Transportation”) is a holding company for our transportation service providers focused on business opportunities in the regional and next-day delivery markets. Regional Transportation is comprised of New Penn Motor Express, Inc. (“New Penn”), USF Holland Inc., USF Reddaway Inc. and USF Bestway Inc., which provide regional, next-day ground services through a network of facilities located across the United States (“U.S.”); Quebec, Canada; Mexico and Puerto Rico. USF Glen Moore Inc., a provider of truckload services throughout the U.S., is also a subsidiary of Regional Transportation. Approximately 67% of Regional Transportation LTL shipments are delivered in one day or less. |
| • | Meridian IQ is a global logistics management company that plans and coordinates the movement of goods worldwide to provide customers a single source for logistics management solutions. Meridian IQ delivers a wide range of global logistics management services, with the ability to provide customers improved return-on-investment results through flexible, fast and easy-to-implement logistics services and technology management solutions. |
| 2. | Principles of Consolidation and Accounting Policies |
The accompanying consolidated financial statements include the accounts of YRC Worldwide and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in non-majority owned affiliates, where the entity is either not a variable interest entity or YRC Worldwide is not the primary beneficiary, are accounted for on the equity method. Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. Actual results could differ from those estimates. We have prepared the consolidated financial statements, without audit by 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 in our Annual Report on Form 10-K for the year ended December 31, 2005.
7
Property and Equipment
Property and equipment are recorded at cost. In the third quarter of 2006, the Company revised the estimated useful lives and salvage values of certain classes of property and equipment to more appropriately reflect how the assets are expected to be used over time. During the three months ended September 30, 2006, the Company increased revenue equipment lives to seven to twenty years from three to fourteen years and modified certain salvage values. If the Company had not changed the estimated useful lives and salvage values of such property and equipment, additional depreciation expense of approximately $12.3 million would have been recorded during the three and nine months ended September 30, 2006. Accordingly, the changes in estimates resulted in an increase in income from continuing operations of approximately $12.3 million (a $7.6 million increase in net income) for the three and nine months ended September 30, 2006. The change in estimate also increased diluted earnings per share by $0.13 for the three and nine months ended September 30, 2006.
Reclassifications
Certain amounts within the prior year have been reclassified to conform with the current year presentation.
| 3. | Acquisitions and Dispositions |
In accordance with SFAS No. 141, Business Combinations (“SFAS No. 141”), we allocate the purchase price of our acquisitions to the tangible and intangible assets and liabilities of the acquired entity based on their fair values. We record 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 (“SFAS 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 definite useful lives are amortized on a straight-line basis over their respective useful lives.
The results of the entities acquired as discussed below have been included in our financial statements since the respective date of acquisition.
USF Corporation
On May 24, 2005, YRC Worldwide completed the acquisition of USF Corporation (“USF”), headquartered in Chicago, IL, through the merger (the “Merger”) of a wholly owned subsidiary of YRC Worldwide with and into USF, resulting in USF becoming a wholly owned subsidiary of YRC Worldwide. The allocation of the purchase price to the assets and liabilities acquired was finalized during the three months ended June 30, 2006 including all related tax accounts.
The final purchase price allocation was as follows (in millions):
| Current assets, net of cash acquired of $106.9 million |
$ | 349.5 | ||
| Property and equipment |
751.1 | |||
| Goodwill |
695.5 | |||
| Intangible assets |
253.0 | |||
| Other assets |
19.1 | |||
| Current liabilities |
(410.0 | ) | ||
| Long-term debt ($250 million principal) |
(272.2 | ) | ||
| Other liabilities |
(194.8 | ) | ||
| Net assets acquired |
$ | 1,191.2 | ||
As a part of the USF acquisition, we adopted a restructuring plan to change some of USF’s operations. As part of this plan, we accrued $45.6 million of restructuring costs in 2005 and accrued an additional $8.4 million during the six months ended June 30, 2006 for contract termination costs as well as other closure activities. We have recognized these costs as a liability assumed as of the acquisition date, resulting in additional goodwill. All of these restructuring items were effectuated within one year of the acquisition in accordance with purchase accounting requirements. During the nine months ended September 30, 2006, we paid $6.9 million of restructuring costs resulting in a $9.2 million accrued liability at September 30, 2006.
8
The following unaudited pro forma data summarizes the results of operations as if the USF acquisition had occurred as of January 1, 2005 for the nine months ended September 30, 2005:
| (in millions except per share data) |
Nine Months | ||
| Revenue |
$ | 7,216.7 | |
| Net income |
192.1 | ||
| Diluted earnings per share |
$ | 3.16 | |
The pro forma data gives effect to actual operating results prior to the acquisition and adjustments to interest expense and amortization expense, net of tax. Included in the pro forma results for the nine months ended September 30, 2005 is approximately $18.3 million ($11.0 million net of tax) of acquisition charges that USF incurred that are considered unusual. The unaudited pro forma financial information is not intended to represent or be indicative of the consolidated results of operations of YRC Worldwide that would have been reported had the acquisition been completed as of the date presented, and should not be taken as representative of the future consolidated results of operations of YRC Worldwide.
GPS Asia
In March 2005, Meridian IQ exercised and closed its option to purchase GPS Logistics Group Ltd., the Asian freight forwarding operations of GPS Logistics, LLC, and in turn, made a payment of $5.7 million ($3.2 million net of cash acquired). Under the terms of the original purchase agreement, this payment was subject to subsequent upward and downward adjustments based on the financial performance of the Asia business through March 2007. Additional earn-out payments could have been required based on the financial performance of the Asia business during the period March 2007 to March 2009. In January 2006, Meridian IQ paid an additional $11.1 million and issued a promissory note in the amount of $10.8 million representing a buyout of these earn-out arrangements and potential purchase price adjustments. These amounts were allocated to goodwill in the consolidated balance sheet. The pro forma effect of this acquisition is not material to our results of operations.
Other
In May 2006, Meridian IQ paid an additional $2.5 million to the former owners of GPS Logistics (EU) Limited, which represented an earn-out payment related to its February 2004 acquisition of the UK based freight forwarding business. This amount has been allocated to goodwill in the accompanying financial statements. A final earn-out payment could be required based on the twelve month results ending February 28, 2008.
In June 2006, Meridian IQ acquired a company in Chile and formed a company in Colombia, in each case to support contractual customer activities. The collective purchase price and formation costs are not significant, and the pro forma effects of this activity are not material to our results of operations.
In September 2006, Meridian IQ sold Meridian IQ China Co., Ltd., (“MIQ China”) a 100% owned subsidiary that conducted a freight forwarding business in mainland China, to JHJ International Transportation Co., Ltd., an entity in which the Company owns a 50% equity interest. The proceeds, in the form of a promissory note, were approximately $4.0 million and resulted in a loss on disposition of approximately $2.8 million.
| 4. | 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 SFAS No. 142, we review goodwill at least annually for impairment based on a fair value approach.
9
The following table shows the amount of goodwill attributable to our operating segments with goodwill balances and changes therein:
| (in millions) |
Roadway | Regional Transportation |
Meridian IQ | Total | |||||||||||
| Balances at December 31, 2005 |
$ | 539.9 | $ | 526.0 | $ | 164.9 | $ | 1,230.8 | |||||||
| Goodwill resulting from acquisitions |
(0.3 | ) | 118.0 | 3.8 | 121.5 | ||||||||||
| Disposition of Meridian IQ China |
— | — | (6.4 | ) | (6.4 | ) | |||||||||
| Changes in foreign currency exchange rates |
0.7 | — | 0.6 | 1.3 | |||||||||||
| Balances at September 30, 2006 |
$ | 540.3 | $ | 644.0 | $ | 162.9 | $ | 1,347.2 | |||||||
During the six months ended June 30, 2006, we finalized the purchase price allocation for the USF acquisition. As a part of this process, additional amounts were recognized as goodwill including approximately $55.1 million related to deferred taxes, $8.4 million of restructuring charges and $4.3 million related to the USF Red Star multi-employer pension plan withdrawal liabilities (See Certain Commitments, Contingencies and Uncertainties footnote). Additionally, the allocation of goodwill between USF Logistics and the remaining USF companies was finalized resulting in a $28.2 million reclassification from USF Logistics (a part of the Meridian IQ segment) to the remaining USF companies (a part of the Regional Transportation segment). Changes to Meridian IQ goodwill during the nine months ended September 30, 2006 included $21.9 million of GPS Asia and $2.5 million GPS Logistics (EU) Limited contractual payments. The changes also included $4.0 million related to deferred taxes on USF Logistics purchase accounting items. These changes were offset by the $28.2 million reallocation of goodwill related to the USF acquisition and $6.4 million related to the disposition of Meridian IQ China.
| 5. | Debt and Financing |
Total debt consisted of the following:
| (in millions) |
September 30, 2006 |
December 31, 2005 |
||||||
| ABS borrowings, secured by accounts receivable |
$ | 425.0 | $ | 375.0 | ||||
| Floating rate notes |
150.0 | 150.0 | ||||||
| USF senior notes |
265.9 | 269.4 | ||||||
| Roadway senior notes |
235.5 | 239.2 | ||||||
| Contingent convertible senior notes |
400.0 | 400.0 | ||||||
| Revolving credit facility |
1.3 | 45.0 | ||||||
| Other |
9.5 | 9.5 | ||||||
| Total debt |
$ | 1,487.2 | $ | 1,488.1 | ||||
| ABS borrowings |
(425.0 | ) | (375.0 | ) | ||||
| Long-term debt |
$ | 1,062.2 | $ | 1,113.1 | ||||
| 6. | Stock-Based Compensation |
We have a long-term incentive and equity award plan, which is shareholder approved, that authorized the issuance of up to a total of 3.43 million shares and provides for awards to be made in cash and performance share units at the discretion of the Board of Directors. Though not widely used, this plan also provides for the award of options. Prior to January 1, 2006, we accounted for this plan under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB No. 123, Accounting for Stock-Based Compensation. No stock-based employee compensation cost relative to options was recognized in the Statements of Operations for the years ended December 31, 2005 or 2004, as all options granted under our plan had an exercise price equal to the market value of the underlying common stock on the date of grant. During the years ended December 31, 2005 and 2004, we recognized expense for performance share units (“nonvested shares”) over the respective vesting period and performance period, if applicable, based on the grant date fair value. Effective January 1, 2006, we adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective-transition method. Under that transition method, in addition to the compensation costs related to nonvested shares, compensation cost recognized in the first nine months of 2006 also includes: (a) compensation cost for all share-based payments (i.e. options) granted prior to, but not yet vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, if any, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Results for prior periods have not been restated.
As a result of adopting Statement 123(R) on January 1, 2006, our income before income taxes is $0.4 million and $1.1 million lower for the three and nine months ended September 30, 2006, respectively, and net income is $0.2 million and $0.7 million lower for the three and nine months ended September 30, 2006, respectively, than if we had continued to account for share-based compensation under Opinion 25. The impact of the adoption of Statement 123(R) on basic and diluted earnings per share for the nine months ended September 30, 2006 is $0.01 per share.
10
The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provision of Statement 123 to options granted under our long-term incentive and equity award plan. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes-Merton option-pricing formula and amortized to expense over the options’ vesting periods.
| (in millions except per share data) |
Three Months Ended September 30, 2005 |
Nine Months Ended September 30, 2005 | ||||
| Net income – as reported |
$ | 85.3 | $ | 211.3 | ||
| Add: Stock-based employee compensation expense included in reported net income, net of related tax effects |
— | — | ||||
| Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
0.2 | 0.7 | ||||
| Pro forma net income |
$ | 85.1 | $ | 210.6 | ||
| Basic earnings per share: |
||||||
| Net income – as reported |
$ | 1.47 | $ | 3.97 | ||
| Net income – pro forma |
1.47 | 3.96 | ||||
| Diluted earnings per share: |
||||||
| Net income – as reported |
$ | 1.42 | $ | 3.77 | ||
| Net income – pro forma |
1.41 | 3.76 | ||||
During the nine months ended September 30, 2006 and 2005, we did not grant any option awards. Traditionally, the fair value of each option is estimated on the date of grant using the Black-Scholes-Merton pricing model. Expected volatilities are based on implied volatilities from historical volatility of our stock. We use historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
A summary of option activity under the Plan as of September 30, 2006, and changes during the nine months then ended is presented in the following table:
| Shares (in thousands) |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (years) |
Aggregate Intrinsic Value (in thousands) | ||||||||
| Outstanding at December 31, 2005 |
647 | $ | 24.87 | ||||||||
| Granted |
— | — | |||||||||
| Exercised |
(141 | ) | 25.34 | ||||||||
| Forfeited / expired |
(9 | ) | 28.47 | ||||||||
| Outstanding at September 30, 2006 |
497 | 24.65 | 5.05 | $ | 6,301 | ||||||
| Exercisable at September 30, 2006 |
314 | 21.07 | 4.32 | $ | 5,009 | ||||||
The total intrinsic value of options exercised during the nine months ended September 30, 2006 was $2.5 million.
11
A summary of the status of our nonvested shares as of September 30, 2006, and changes during the nine months then ended, is presented in the following table:
| Shares (in thousands) |
Weighted Average Grant-Date Fair Value | |||||
| Nonvested at December 31, 2005 |
756 | $ | 47.50 | |||
| Granted |
350 | 47.15 | ||||
| Vested |
(106 | ) | 47.47 | |||
| Forfeited |
(6 | ) | 47.69 | |||
| Nonvested at September 30, 2006 |
994 | $ | 47.38 | |||
As of September 30, 2006, there was $23.2 million of unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.2 years. The fair value of nonvested shares is determined based on the opening trading price of our shares on the grant date. The fair value of shares vested during the nine months ended September 30, 2006 was $5.0 million.
| 7. | Employee Benefits |
Components of Net Periodic Pension and Other Postretirement Cost
The following table sets forth the components of our pension costs for the three and nine months ended September 30:
| Three Months | Nine Months | |||||||||||||||
| (in millions) |
2006 | 2005 | 2006 | 2005 | ||||||||||||
| Service cost |
$ | 11.1 | $ | 10.8 | $ | 33.7 | $ | 32.1 | ||||||||
| Interest cost |
15.9 | 15.2 | 47.5 | 45.2 | ||||||||||||
| Expected return on plan assets |
(14.8 | ) | (14.0 | ) | (44.4 | ) | (41.8 | ) | ||||||||
| Amortization of prior service cost |
0.4 | 0.3 | 1.2 | 1.1 | ||||||||||||
| Amortization of net actuarial loss |
3.0 | 2.7 | 8.5 | 8.0 | ||||||||||||
| Net periodic pension cost |
$ | 15.6 | $ | 15.0 | $ | 46.5 | $ | 44.6 | ||||||||
| The following table sets forth the components of our other postretirement costs for the three and nine months ended September 30: | ||||||||||||||||
| Three Months | Nine Months | |||||||||||||||
| (in millions) |
2006 | 2005 | 2006 | 2005 | ||||||||||||
| Service cost |
$ | 0.1 | $ | — | $ | 0.4 | $ | 0.6 | ||||||||
| Interest cost |
0.5 | 0.2 | 1.4 | 1.8 | ||||||||||||
| Amortization of prior service cost |
0.1 | — | 0.2 | 0.2 | ||||||||||||
| Amortization of net actuarial gain |
(0.1 | ) | — | (0.2 | ) | (0.2 | ) | |||||||||
| Other postretirement cost |
$ | 0.6 | $ | 0.2 | $ | 1.8 | $ | 2.4 | ||||||||
Employer Contributions
We expect to contribute approximately $72.8 million to our company-sponsored pension plans in 2006 which includes $3.8 million related to other postretirement costs. During the nine months ended September 30, 2006, our contributions to the pension plans have been $71.7 million.
| 8. | Earnings Per Share |
Dilutive securities, consisting of options to purchase our common stock, included in the calculation of diluted weighted average common shares were 755,000 and 684,000 for the three and nine months ended September 30, 2006, and 600,000 and 667,000 for the three and nine months ended September 30, 2005. In addition, dilutive securities related to our net share settle contingent convertible notes were 177,000 and 600,000 for the three and nine months ended September 30, 2006, and 1,600,000 and 2,174,000 for the three and nine months ended September 30, 2005.
| 9. | Business Segments |
We report financial and descriptive information about our reportable operating segments on a basis consistent with that used internally for evaluating segment performance and allocating resources to segments. We manage the segments separately because each requires different operating, marketing and technology strategies. We evaluate performance primarily on adjusted operating income and return on capital.
12
We have four reportable segments, which are strategic business units that offer complementary transportation services to their customers. Yellow Transportation and Roadway are carriers that provide comprehensive regional, national and international transportation services. Regional Transportation is comprised of carriers that focus primarily on business opportunities in the regional and next-day delivery markets. Meridian IQ, our logistics segment, provides domestic and international freight forwarding, warehousing and cross-dock services, multi-modal brokerage services, and transportation management services.
Information relative to USF Red Star and USF Dugan, previously included in Regional Transportation, has been included in the Corporate segment in 2006 as these entities are no longer operating.
The accounting policies of the segments are the same as those described in the Summary of Accounting Policies note in our Annual Report on Form 10-K for the year ended December 31, 2005. We charge management fees and other corporate services to our segments based on the direct benefits received or as a percentage of revenue. Corporate and other operating losses represent operating expenses of the holding company, including compensation and benefits and professional services for all periods presented. Corporate identifiable assets primarily refer to cash, cash equivalents and deferred debt issuance costs. Intersegment revenue relates to transportation services between our segments.
The following table summarizes our operations by business segment:
| (in millions) |
Yellow Transportation |
Roadway | Regional Transportation(c) |
Meridian IQ(d) | Corporate/ Eliminations |
Consolidated | |||||||||||||||
| As of September 30, 2006 |
|||||||||||||||||||||
| Identifiable assets |
$ | 1,113.1 | $ | 2,181.0 | $ | 2,267.3 | $ | 395.2 | $ | 76.7 | $ | 6,033.3 | |||||||||
| As of December 31, 2005 |
|||||||||||||||||||||
| Identifiable assets |
1,065.1 | 2,075.0 | 1,993.7 | 385.0 | 215.4 | 5,734.2 | |||||||||||||||
| Three months ended September 30, 2006 |
|||||||||||||||||||||
| External revenue |
897.5 | 897.2 | 624.7 | 151.7 | — | 2,571.1 | |||||||||||||||
| Intersegment revenue |
1.3 | 3.0 | — | 2.0 | (6.3 | ) | — | ||||||||||||||
| Operating income (loss) |
68.7 | 59.5 | 48.1 | 0.8 | 0.5 | 177.6 | |||||||||||||||
| Adjustments to operating income(a) |
0.3 | 1.7 | 0.1 | 5.5 | 0.3 | 7.9 | |||||||||||||||
| Adjusted operating income (loss)(b) |
69.0 | 61.2 | 48.2 | 6.3 | 0.8 | 185.5 | |||||||||||||||
| Three months ended September 30, 2005 |
|||||||||||||||||||||
| External revenue |
891.2 | 857.3 | 601.8 | 141.4 | — | 2,491.7 | |||||||||||||||
| Intersegment revenue |
1.3 | 1.1 | 4.8 | 0.5 | (7.7 | ) | — | ||||||||||||||
| Operating income (loss) |
73.5 | 58.2 | 27.8 | 6.3 | (9.0 | ) | 156.8 | ||||||||||||||
| Adjustments to operating income(a) |
(0.4 | ) | 1.9 | 5.0 | — | 4.3 | 10.8 | ||||||||||||||
| Adjusted operating income (loss)(b) |
73.1 | 60.1 | 32.8 | 6.3 | (4.7 | ) | 167.6 | ||||||||||||||
| Nine months ended September 30, 2006 |
|||||||||||||||||||||
| External revenue |
2,621.2 | 2,575.3 | 1,870.9 | 443.6 | — | 7,511.0 | |||||||||||||||
| Intersegment revenue |
3.9 | 7.0 | — | 3.6 | (14.5 | ) | — | ||||||||||||||
| Operating income (loss) |
166.6 | 155.0 | 123.0 | 6.0 | (12.9 | ) | 437.7 | ||||||||||||||
| Adjustments to operating income(a) |
2.0 | 1.6 | (0.1 | ) | 7.0 | 2.5 | 13.0 | ||||||||||||||
| Adjusted operating income (loss)(b) |
168.6 | 156.6 | 122.9 | 13.0 | (10.4 | ) | 450.7 | ||||||||||||||
| Nine months ended September 30, 2005 |
|||||||||||||||||||||
| External revenue |
2,532.0 | 2,453.4 | 980.7 | 292.4 | — | 6,258.5 | |||||||||||||||
| Intersegment revenue |
2.8 | 2.6 | 5.8 | 1.6 | (12.8 | ) | — | ||||||||||||||
| Operating income (loss) |
190.8 | 146.5 | 55.7 | 10.9 | (21.3 | ) | 382.6 | ||||||||||||||
| Adjustments to operating income(a) |
(2.9 | ) | 2.4 | 5.4 | — | 4.8 | 9.7 | ||||||||||||||
| Adjusted operating income (loss)(b) |
187.9 | 148.9 | 61.1 | 10.9 | (16.5 | ) | 392.3 | ||||||||||||||
| (a) | Management excludes these items when evaluating operating income and segment performance to better evaluate the results of our core operations. The 2006 adjustments relate to reorganization expenses, loss on disposition of subsidiary and losses (gains) on property disposals. The 2005 adjustments relate to acquisition charges and losses (gains) on property disposals. |
| (b) | This measurement is used for internal management purposes and should not be construed as a better measurement than operating income as defined by generally accepted accounting principles. |
| (c) | The segment information for Regional Transportation for the nine months ended September 30, 2005 includes USF operating companies results since May 24, 2005, the date of acquisition. |
| (d) | The segment information for Meridian IQ for the nine months ended September 30, 2005 includes USF Logistics results since May 24, 2005, the date of acquisition. |
13
| 10. | Comprehensive Income |
Our comprehensive income for the periods presented includes net income and foreign currency translation adjustments. Comprehensive income for the three and nine months ended September 30 was as follows:
| Three Months | Nine Months | ||||||||||||
| (in millions) |
2006 | 2005 | 2006 | 2005 | |||||||||
| Net income |
$ | 95.8 | $ | 85.3 | $ | 230.2 | $ | 211.3 | |||||
| Other comprehensive income (loss), net of tax: |
|||||||||||||
| Changes in foreign currency translation adjustments |
(0.2 | ) | 3.6 | 4.3 | 1.9 | ||||||||
| Comprehensive income |
$ | 95.6 | $ | 88.9 | $ | 234.5 | $ | 213.2 | |||||
| 11. | Stock Repurchase Program |
In April 2006, our Board of Directors approved a stock repurchase program that authorized the Company to repurchase up to $100 million of its common stock. Through September 30, 2006, the Company has purchased 521,100 shares under this program at a weighted-average cost of $38.34 per share for a total cost of $20 million. The Company plans to continue making open-market purchases of its stock on an opportunistic basis.
| 12. | Certain Commitments, Contingencies and Uncertainties |
USF Red Star Inc.
In 2004 USF Red Star Inc. (“USF Red Star”), a USF subsidiary that operated in the Northeastern U.S, was shut down. Due to the shutdown, USF, now our wholly owned subsidiary is subject to withdrawal liability under the Multi-Employer Pension Plan Amendment Act of 1980 (as amended, “MEPPA”) to six multi-employer pension plans. Based on information that USF has received from these plans, YRC Worldwide estimates that USF Red Star could be liable for up to approximately $79 million. However, YRC Worldwide also estimates that approximately $13 million of this liability could be abated because of contributions that Yellow Transportation, Roadway, New Penn and USF Holland made to one of these six plans. Thus, at the purchase date we reserved approximately $6 million, representing the present value, for these liabilities. We have recognized these liabilities as an obligation assumed on the acquisition date of USF, resulting in additional goodwill. We have been making payments to several of these funds while any final determination of the amount of liability is made. As of September 30, 2006, we have approximately $52.3 million accrued for this obligation. USF is entitled to review and contest liability assessments that various funds provided as well as determine whether additional abatement might be available as a result of other YRC Worldwide business units who make contributions to these plans. The final withdrawal liability may be adjusted when further information is available as we negotiate with the pension plans to agree on the correct calculation of withdrawal liability amounts and as sufficient information becomes available to determine the available abatement of the liability under MEPPA, including any necessary arbitration or litigation with the affected pension plans. The timing of any funding of USF Red Star’s withdrawal liabilities to any particular fund will depend upon agreement with the fund on the ultimate amount of the liability, the conclusion of any arbitration or litigation to settle any disputes and the determination at the end of a plan year of whether abatement is applicable. MEPPA provides that certain interim payments may be required until these events occur. MEPPA also provides that any ultimate withdrawal liability payments may be made in a lump sum or over a period of time.
Grupo Almex
In 2003, USF Corporation (“USF”), and its wholly owned subsidiary, USF Mexico Inc. (“USF Mexico”), entered into a series of contractual agreements with Gustavo Gonzalez Garcia and various members of his family (the “Gonzalez Family”) and Autolineas Mexicanas, S.A. de C.V., Servicios Gerenciales del Norte, S.A. de C.V., Sonax, S.A. de C.V. and Logistica ALM, S.A. de C.V. (collectively, “Grupo Almex”). Various members of the Gonzalez Family own the entities comprising Grupo Almex. Pursuant to an agreement, the Gonzalez Family organized a newly created company called Soflex, S. de R.L. de C.V. (“Soflex”), which they wholly owned. USF Mexico entered into a secured credit agreement with Soflex to lend up to $9.95 million to Soflex. USF Mexico lent approximately $9.3 million to Soflex under the agreement. Soflex and its subsidiaries used some of the loan proceeds to acquire certain of Grupo Almex’s assets. Certain of the Grupo Almex companies and certain of Soflex’s subsidiaries guaranteed the secured credit facility.
Soflex has defaulted on its payment of the principal of, and interest on, the loans that USF Mexico made to Soflex.
14
As part of the security for the credit agreement, the Gonzalez Family, Soflex, and one of Soflex’s subsidiaries (the “Settlors”) established a trust for the benefit of USF Mexico. The Settlors agreed to transfer to the trust title to their equity interests in Soflex and Soflex’s subsidiaries and title to real property of one of Soflex’s subsidiaries. A second trust was also created under which the Gonzalez Family transferred title to their Grupo Almex stock to the trust for USF Mexico’s benefit. Pledge agreements were entered granting security interests in these assets to USF Mexico. A lien on substantially all of the assets of Soflex and certain of the assets of Grupo Almex also secures the loans under the credit agreement.
In 2005, YRC Worldwide Inc. (together with its subsidiaries, the “Company”) acquired USF through a merger of USF with and into a wholly owned subsidiary of the Company. The successor to USF in that merger is Regional Transportation.
Grupo Almex and the Gonzalez Family have attempted to invoke the contractual arbitration provision in one of the agreements pertaining to the loans. They have asserted various claims against the Company, including breach of contract and alleged fiduciary duties, breach of loan commitment and breach of a non-competition provision. Grupo Almex and the Gonzalez Family are seeking damages and relief for the alleged loss of the value of their business, damages for breach of contract, excuse from repayment of the loans under the credit agreement, release of all liens on Grupo Almex’s assets, termination of the parties’ business relationship and attorney’s fees.
The Company believes that Soflex has defaulted on its obligations to repay its debt and denies the basis of the claims of the Gonzalez Family and Grupo Almex for contractual or fiduciary breaches.
The agreements among the various parties are governed by Mexican law. Various parties are subject to mandatory, binding arbitrations in Dallas, Texas under contractual arbitration clauses in the agreements, which require the use of UNCITRAL arbitration rules.
The Company intends to vigorously defend the allegations that the Gonzalez Family and Grupo Almex have asserted. The Company has challenged the right to include various parties in the arbitration and has filed for separate arbitration under another agreement between certain parties. USF Mexico has initiated collection of Soflex’s defaulted loans and intends to vigorously pursue its remedies under the secured credit agreement and related agreements.
Other
USF Bestway’s collective bargaining agreement with the International Brotherhood of Teamsters (the “IBT”) initially expired on December 31, 2005. In July 2006, the Company and the IBT ratified a new five-year agreement.
| 13. | Recent Accounting Pronouncements |
In July, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires recognition in the financial statements of the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for the 2007 fiscal year with the cumulative effect of the change in accounting principle recorded as an adjustment to opening balance of retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on the consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, (“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of SFAS 157 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
The FASB also issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R),” (“SFAS 158”) in September 2006. This Statement requires recognition of the funded status of a benefit plan in the statement of financial position. The Statement also requires recognition in other comprehensive income certain gains and losses that arise during the period but are deferred under pension accounting rules, as well as modifies the timing of reporting and adds certain disclosures. SFAS 158 provides recognition and disclosure elements to be effective as of the end of the fiscal year after December 15, 2006 and measurement elements to be effective for fiscal years ending after December 15, 2008. The Company is currently evaluating the impact of adopting SFAS 158 on the consolidated financial statements but believes the impact will be material. Using the December 31, 2005 actuarial information, the impact to shareholders equity would be a reduction in excess of $100
15
million. During 2006, we have continued to assess the assumptions used in the actuarial valuation process. It is likely we will modify certain assumptions as a part of the 2006 year end balance sheet measurement process which could further increase the impact of the adoption of the new pronouncement. However, the Company believes the accounting change will not adversely impact our various financing facilities.
16
| 14. | Guarantees of the Contingent Convertible Senior Notes and Senior Floating Rate Notes |
In August 2003, YRC Worldwide issued 5.0% contingent convertible senior notes due 2023. In November 2003, we issued 3.375% contingent convertible senior notes (the August and November issuances, collectively, may also be known as the “contingent convertible senior notes”) due 2023. In December 2004, we completed exchange offers pursuant to which holders of the contingent convertible senior notes could exchange their notes for an equal amount of new net share settled contingent convertible senior notes. Substantially all notes were exchanged as part of the exchange offers. In May 2005, we completed the private placement of $150 million in aggregate principal amount of senior floating rate notes due 2008. In connection with the net share settled contingent convertible senior notes and the floating rate notes, the following 100% owned subsidiaries of YRC Worldwide have issued guarantees in favor of the holders of the net share settled contingent convertible senior notes and the floating rate notes: Yellow Transportation, Mission Supply Company, Yellow Relocation Services, Inc., YRC Worldwide Technologies, Inc., Meridian IQ, Inc., MIQ LLC, Globe.com Lines, Inc., Roadway LLC, Roadway Next Day Corporation, Roadway Express, Inc., USF Holland and Regional Transportation (formerly known as USF Corporation). Each of the guarantees is full and unconditional and joint and several.
The summarized consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantors and issuer because management does not believe that separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of YRC Worldwide or any guarantor to obtain funds from its subsidiaries by dividend or loan.
The following represents summarized condensed consolidating financial information as of September 30, 2006 and December 31, 2005 with respect to the financial position, for the three and nine months ended September 30, 2006 and 2005 for results of operations and for the nine months ended September 30, 2006 and 2005 for the cash flows of YRC Worldwide and its subsidiaries. The Parent column presents the financial information of YRC Worldwide, the primary obligor of the contingent convertible senior notes and the floating rate notes. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the net share settled contingent convertible senior notes and the floating rate notes. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws, Yellow Roadway Receivables Funding Corporation, Yellow Receivables Corporation and Roadway Funding, Inc., the special-purpose entities that are or were associated with our ABS agreements.
Condensed Consolidating Balance Sheets
| September 30, 2006 (in millions) |
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
| Cash and cash equivalents |
$ | 23 | $ | 24 | $ | 23 | $ | — | $ | 70 | ||||||||||
| Intercompany advances receivable |
— | (83 | ) | 83 | — | — | ||||||||||||||
| Accounts receivable, net |
7 | (5 | ) | 1,353 | (24 | ) | 1,331 | |||||||||||||
| Prepaid expenses and other |
5 | 100 | 87 | — | 192 | |||||||||||||||
| Total current assets |
35 | 36 | 1,546 | (24 | ) | 1,593 | ||||||||||||||
| Property and equipment |
1 | 3,247 | 595 | — | 3,843 | |||||||||||||||
| Less – accumulated depreciation |
(1 | ) | (1,444 | ) | (100 | ) | — | (1,545 | ) | |||||||||||
| Net property and equipment |
— | 1,803 | 495 | — | 2,298 | |||||||||||||||
| Investment in subsidiaries |
3,089 | 267 | — | (3,356 | ) | — | ||||||||||||||
| Receivable from affiliate |
(401 | ) | 479 | (78 | ) | — | — | |||||||||||||
| Goodwill, intangibles and other assets |
262 | 1,903 | 327 | (350 | ) | 2,142 | ||||||||||||||
| Total assets |
$ | 2,985 | $ | 4,488 | $ | 2,290 | $ | (3,730 | ) | $ | 6,033 | |||||||||
| Intercompany advances payable |
$ | 532 | $ | (711 | ) | $ | 388 | $ | (209 | ) | $ | — | ||||||||
| Accounts payable |
14 | 294 | 87 | (14 | ) | 381 | ||||||||||||||
| Wages, vacations and employees’ benefits |
14 | 458 | 69 | — | 541 | |||||||||||||||
| Other current and accrued liabilities |
7 | 318 | 90 | (4 | ) | 411 | ||||||||||||||
| Asset-backed securitization borrowings |
— | — | 425 | — | 425 | |||||||||||||||
| Total current liabilities |
567 | 359 | 1,059 | (227 | ) | 1,758 | ||||||||||||||
| Payable to affiliate |
(95 | ) | 23 | 222 | (150 | ) | — | |||||||||||||
| Long-term debt, less current portion |
550 | 511 | 1 | — | 1,062 | |||||||||||||||
| Deferred income taxes, net |
10 | 348 | 98 | — | 456 | |||||||||||||||
| Claims and other liabilities |
26 | 326 | 233 | — | 585 | |||||||||||||||
| Commitments and contingencies |
||||||||||||||||||||
| Shareholders’ equity |
1,927 | 2,921 | 677 | (3,353 | ) | 2,172 | ||||||||||||||
| Total liabilities and shareholders’ equity |
$ | 2,985 | $ | 4,488 | $ | 2,290 | $ | (3,730 | ) | $ | 6,033 | |||||||||
17
| December 31, 2005 (in millions) |
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
| Cash and cash equivalents |
$ | 20 | $ | 18 | $ | 44 | $ | — | $ | 82 | ||||||||||
| Intercompany advances receivable |
— | (71 | ) | 71 | — | — | ||||||||||||||
| Accounts receivable, net |
(61 | ) | 32 | 1,202 | (9 | ) | 1,164 | |||||||||||||
| Prepaid expenses and other |
7 | 135 | 90 | — | 232 | |||||||||||||||
| Total current assets |
(34 | ) | 114 | 1,407 | (9 | ) | 1,478 | |||||||||||||
| Property and equipment |
1 | 3,024 | 583 | — | 3,608 | |||||||||||||||
| Less – accumulated depreciation |
(1 | ) | (1,341 | ) | (60 | ) | — | (1,402 | ) | |||||||||||
| Net property and equipment |
— | 1,683 | 523 | — | 2,206 | |||||||||||||||
| Investment in subsidiaries |
3,037 | 7 | — | (3,044 | ) | — | ||||||||||||||
| Receivable from affiliate |
(354 | ) | 356 | (2 | ) | — | — | |||||||||||||
| Goodwill, intangibles and other assets |
265 | 1,933 | 363 | (511 | ) | 2,050 | ||||||||||||||
| Total assets |
$ | 2,914 | $ | 4,093 | $ | 2,291 | $ | (3,564 | ) | $ | 5,734 | |||||||||
| Intercompany advances payable |
$ | 405 | $ | (574 | ) | $ | 378 | $ | (209 | ) | $ | — | ||||||||
| Accounts payable |
10 | 314 | 70 | — | 394 | |||||||||||||||
| Wages, vacations and employees’ benefits |
12 | 450 | 61 | — | 523 | |||||||||||||||
| Other current and accrued liabilities |
5 | 251 | 160 | (43 | ) | 373 | ||||||||||||||
| Asset-backed securitization borrowings |
— | — | 375 | — | 375 | |||||||||||||||
| Total current liabilities |
432 | 441 | 1,044 | (252 | ) | 1,665 | ||||||||||||||
| Payable to affiliate |
(105 | ) | (209 | ) | 464 | (150 | ) | — | ||||||||||||
| Long-term debt, less current portion |
595 | 518 | — | — | 1,113 | |||||||||||||||
| Deferred income taxes, net |
4 | 242 | 141 | — | 387 | |||||||||||||||
| Claims and other liabilities |
26 | 496 | 176 | (65 | ) | 633 | ||||||||||||||
| Commitments and contingencies |
||||||||||||||||||||
| Shareholders’ equity |
1,962 | 2,605 | 466 | (3,097 | ) | 1,936 | ||||||||||||||
| Total liabilities and shareholders’ equity |
$ | 2,914 | $ | 4,093 | $ | 2,291 | $ | (3,564 | ) | $ | 5,734 | |||||||||
Condensed Consolidating Statements of Operations
| For the three months ended September 30, 2006 (in millions) |
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||
| Operating revenue |
$ | 14 | $ | 2,184 | $ | 469 | $ | (96 | ) | $ | 2,571 | |||||||
| Operating expenses: |
||||||||||||||||||
| Salaries, wages and employees’ benefits |
7 | 1,248 | 231 | (8 | ) | 1,478 | ||||||||||||
| Operating expenses and supplies |
7 | 407 | 125 | (79 | ) | 460 | ||||||||||||
| Purchased transportation |
— | 215 | 70 | (7 | ) | 278 | ||||||||||||
| Depreciation and amortization |
— | 49 | 15 | — | 64 | |||||||||||||
| Other operating expenses |
— | 90 | 16 | — | 106 | |||||||||||||
| Losses on property disposals, net |
— | 2 | — | — | 2 | |||||||||||||
| Loss on sale of subsidiary, reorganization and acquisition charges |
— | 2 | 3 | — | 5 | |||||||||||||
| Total operating expenses |
14 | 2,013 | 460 | (94 | ) | 2,393 | ||||||||||||
| Operating income (loss) |
— | 171 | 9 | (2 | ) | 178 | ||||||||||||
| Nonoperating (income) expenses: |
||||||||||||||||||
| Interest expense |
9 | 7 | 7 | — | 23 | |||||||||||||
| Other |
6 | 30 | (35 | ) | (1 | ) | — | |||||||||||
| Nonoperating (income) expenses, net |
15 | 37 | (28 | ) | (1 | ) | 23 | |||||||||||
| Income (loss) before income taxes |
(15 | ) | 134 | 37 | (1 | ) | 155 | |||||||||||
| Income tax provision (benefit) |
(4 | ) | 50 | 15 | (2 | ) | 59 | |||||||||||
| Net income (loss) |
$ | (11 | ) | $ | 84 | $ | 22 | $ | 1 | $ | 96 | |||||||
18
| For the three months ended September 30, 2005 (in millions) |
Parent | Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | ||||||||||||||
| Operating revenue |
$ | 15 | $ | 2,130 | $ | 445 | $ | (98 | ) | $ | 2,492 | ||||||||
| Operating expenses: |
|||||||||||||||||||
| Salaries, wages and employees’ benefits |
12 | 1,232 | 220 | (13 | ) | 1,451 | |||||||||||||
| Operating expenses and supplies |
9 | 392 | 86 | (74 | ) | 413 | |||||||||||||
| Purchased transportation |
— | 196 | 86 | (8 | ) | 274 | |||||||||||||
| Depreciation and amortization |
— | 57 | 19 | — | 76 | ||||||||||||||
| Other operating expenses |
— | 97 | 16 | (3 | ) | 110 | |||||||||||||
| Losses on property disposals, net |
— | 1 | 1 | — | 2 | ||||||||||||||
| Reorganization and acquisition charges |
4 | 1 | 4 | — | 9 | ||||||||||||||
| Total operating expenses |
25 | 1,976 | 432 | (98 | ) | 2,335 | |||||||||||||
| Operating income (loss) |
(10 | ) | 154 | 13 | — | 157 | |||||||||||||
| Nonoperating (income) expenses: |
|||||||||||||||||||
| Interest expense |
10 | 8 | 21 | (19 | ) | 20 | |||||||||||||
| Other |
(6 | ) | 48 | (52 | ) | 9 | (1 | ) | |||||||||||
| Nonoperating (income) expenses, net |
4 | 56 | (31 | ) | (10 | ) | 19 | ||||||||||||
| Income (loss) before income taxes |
(14 | ) | 98 | 44 | 10 | 138 | |||||||||||||
| Income tax provision (benefit) |
(4 | ) | 41 | 20 | (4 | ) | 53 | ||||||||||||
| Net income (loss) |
$ | (10 | ) | $ | 57 | $ | 24 | $ | 14 | $ | 85 | ||||||||
| For the nine months ended September 30, 2006 (in millions) |
Parent | Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | ||||||||||||||
| Operating revenue |
$ | 44 | $ | 6,390 | $ | 1,375 | $ | (298 | ) | $ | 7,511 | ||||||||
| Operating expenses: |
|||||||||||||||||||
| Salaries, wages and employees’ benefits |
30 | 3,675 | 664 | (29 | ) | 4,340 | |||||||||||||
| Operating expenses and supplies |
26 | 1,236 | 365 | (249 | ) | 1,378 | |||||||||||||
| Purchased transportation |
— | 621 | 206 | (15 | ) | 812 | |||||||||||||
| Depreciation and amortization |
— | 167 | 45 | — | 212 | ||||||||||||||
| Other operating expenses |
— | 270 | 48 | — | 318 | ||||||||||||||
| Losses on property disposals, net |
— | — | — | — | — | ||||||||||||||
| Loss on sale of subsidiary, reorganization and acquisition charges |
1 | 8 | 4 | — | 13 | ||||||||||||||
| Total operating expenses |
57 | 5,977 | 1,332 | (293 | ) | 7,073 | |||||||||||||
| Operating income (loss) |
(13 | ) | 413 | 43 | (5 | ) | 438 | ||||||||||||
| Nonoperating (income) expenses: |
|||||||||||||||||||
| Interest expense |
26 | 22 | 19 | — | 67 | ||||||||||||||
| Other |
9 | 99 | (105 | ) | (5 | ) | (2 | ) | |||||||||||
| Nonoperating (income) expenses, net |
35 | 121 | (86 | ) | (5 | ) | 65 | ||||||||||||
| Income (loss) before income taxes |
(48 | ) | 292 | 129 | — | 373 | |||||||||||||
| Income tax provision (benefit) |
(12 | ) | 109 | 50 | (4 | ) | 143 | ||||||||||||
| Net income (loss) |
$ | (36 | ) | $ | 183 | $ | 79 | $ | 4 | $ | 230 | ||||||||
19
| For the nine months ended September 30, 2005 (in millions) |
Parent | Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | |||||||||||||||
| Operating revenue |
$ | 45 | $ | 5,544 | $ | 918 | $ | (249 | ) | $ | 6,258 | |||||||||
| Operating expenses: |
||||||||||||||||||||
| Salaries, wages and employees’ benefits |
35 | 3,254 | 450 | (18 | ) | 3,721 | ||||||||||||||
| Operating expenses and supplies |
25 | 1,009 | 180 | (211 | ) | 1,003 | ||||||||||||||
| Purchased transportation |
— | 522 | 179 | (14 | ) | 687 | ||||||||||||||
| Depreciation and amortization |
— | 147 | 34 | — | 181 | |||||||||||||||
| Other operating expenses |
1 | 245 | 33 | (5 | ) | 274 | ||||||||||||||
| Losses on property disposals, net |
— | — | — | — | — | |||||||||||||||
| Reorganization and acquisition charges |
5 | 1 | 4 | — | 10 | |||||||||||||||
| Total operating expenses |
66 | 5,178 | 880 | (248 | ) | 5,876 | ||||||||||||||
| Operating income (loss) |
(21 | ) | 366 | 38 | (1 | ) | 382 | |||||||||||||
| Nonoperating (income) expenses: |
||||||||||||||||||||
| Interest expense |
24 | 19 | 45 | (45 | ) | 43 | ||||||||||||||
| Other |
(20 | ) | 113 | (129 | ) | 34 | (2 | ) | ||||||||||||
| Nonoperating (income) expenses, net |
4 | 132 | (84 | ) | (11 | ) | 41 | |||||||||||||
| Income (loss) before income taxes |
(25 | ) | 234 | 122 | 10 | 341 | ||||||||||||||
| Income tax provision (benefit) |
(4 | ) | 93 | 48 | (7 | ) | 130 | |||||||||||||
| Net income (loss) |
$ | (21 | ) | $ | 141 | $ | 74 | $ | 17 | $ | 211 | |||||||||
| Condensed Consolidating Statements of Cash Flows | ||||||||||||||||||||
| For the nine months ended September 30, 2006 (in millions) |
Parent | Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | |||||||||||||||
| Operating activities: |
||||||||||||||||||||
| Net cash provided by (used in) operating activities |
$ | (87 | ) | $ | 359 | $ | 27 | $ | — | $ | 299 | |||||||||
| Investing activities: |
||||||||||||||||||||
| Acquisition of property and equipment |
— | (271 | ) | (48 | ) | — | (319 | ) | ||||||||||||
| Proceeds from disposal of property and equipment |
— | 35 | — | — | 35 | |||||||||||||||
| Acquisition of companies, net of cash acquired |
(15 | ) | — | — | — | (15 | ) | |||||||||||||
| Other |
— | 4 | (6 | ) | — | (2 | ) | |||||||||||||
| Net cash used in investing activities |
(15 | ) | (232 | ) | (54 | ) | — | (301 | ) | |||||||||||
| Financing activities: |
||||||||||||||||||||
| ABS borrowings, net |
— | — | 50 | — | 50 | |||||||||||||||
| Issuance (repayment) of long-term debt, net |
(44 | ) | — | — | — | (44 | ) | |||||||||||||
| Proceeds from exercise of stock options |
4 | — | — | — | 4 | |||||||||||||||
| Treasury stock repurchase |
(20 | ) | — | — | — | (20 | ) | |||||||||||||
| Intercompany advances / repayments |
165 | (121 | ) | (44 | ) | — | — | |||||||||||||
| Net cash provided by (used in) financing activities |
105 | (121 | ) | 6 | — | (10 | ) | |||||||||||||
| Net increase (decrease) in cash and cash equivalents |
3 | 6 | (21 | ) | — | (12 | ) | |||||||||||||
| Cash and cash equivalents, beginning of period |
20 | 18 | 44 | — | 82 | |||||||||||||||
| Cash and cash equivalents, end of period |
$ | 23 | $ | 24 | $ | 23 | $ | — | $ | 70 | ||||||||||
20
| For the nine months ended September 30, 2005 (in millions) |
Parent | Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | |||||||||||||||
| Operating activities: |
||||||||||||||||||||
| Net cash provided by (used in) operating activities |
$ | (51 | ) | $ | 285 | $ | 18 | $ | 4 | $ | 256 | |||||||||
| Investing activities: |
||||||||||||||||||||
| Acquisition of property and equipment |
— | (185 | ) | (46 | ) | — | (231 | ) | ||||||||||||
| Proceeds from disposal of property and equipment |
— | 16 | 2 | — | 18 | |||||||||||||||
| Acquisition of companies, net of cash acquired |
(805 | ) | 45 | 6 | — | (754 | ) | |||||||||||||
| Investment in joint venture |
(46 | ) | — | — | — | (46 | ) | |||||||||||||
| Other |
— | — | 2 | — | 2 | |||||||||||||||
| Net cash used in investing activities |
(851 | ) | (124 | ) | (36 | ) | — | (1,011 | ) | |||||||||||
| Financing activities: |
||||||||||||||||||||
| ABS borrowings, net |
— | — | 456 | — | 456 | |||||||||||||||
| Issuance (repayment) of long-term debt, net |
250 | — | — | 250 | ||||||||||||||||
| Debt issuance cost |
(4 | ) | — | — | — | (4 | ) | |||||||||||||
| Proceeds from exercise of stock options |
4 | — | — | — | 4 | |||||||||||||||
| Cash dividends paid to shareholders |
— | 7 | (7 | ) | — | — | ||||||||||||||
| Intercompany advances / repayments |
581 | (166 | ) | (411 | ) | (4 | ) | — | ||||||||||||
| Net cash provided by (used in) financing activities |
831 | (159 | ) | 38 | (4 | ) | 706 | |||||||||||||
| Net increase (decrease) in cash and cash equivalents |
(71 | ) | 2 | 20 | — | (49 | ) | |||||||||||||
| Cash and cash equivalents, beginning of period |
82 | 7 | 17 | — | 106 | |||||||||||||||
| Cash and cash equivalents, end of period |
$ | 11 | $ | 9 | $ | 37 | $ | — | $ | 57 | ||||||||||
21
| 15. | Guarantees of the Senior Notes Due 2008 |
In connection with the senior notes due 2008, assumed by virtue of its merger agreement, and in addition to the primary obligor, Roadway LLC, YRC Worldwide and its following 100% owned subsidiaries have issued guarantees in favor of the holders of the senior notes due 2008: Roadway Next Day Corporation, New Penn Motor Express, Inc., Roadway Express, Inc., Roadway Reverse Logistics, Inc. and Roadway Express International, Inc. Each of the guarantees is full and unconditional and joint and several.
The summarized consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantors and issuer because management does not believe that separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of YRC Worldwide or any guarantor subsidiary to obtain funds from its subsidiaries by dividend or loan.
The following represents summarized condensed consolidating financial information of YRC Worldwide and its subsidiaries as of September 30, 2006 and December 31, 2005 with respect to the financial position, for the three and nine months ended September 30, 2006 and 2005 for results of operations, and for the nine months ended September 30, 2006 and 2005 for the cash flows. The primary obligor column presents the financial information of Roadway LLC. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the senior notes due 2008 including YRC Worldwide, the holding company. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and Yellow Roadway Receivables Funding Corporation, Yellow Receivables Corporation and Roadway Funding, Inc., the special-purpose entities that are or were associated with our ABS agreements.
Condensed Consolidating Balance Sheets
| September 30, 2006 (in millions) |
Primary Obligor |
Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | |||||||||||||||
| Cash and cash equivalents |
$ | — | $ | 45 | $ | 25 | $ | — | $ | 70 | ||||||||||
| Intercompany advances receivable |
— | (23 | ) | 23 | — | — | ||||||||||||||
| Accounts receivable, net |
— | (16 | ) | 1,361 | (14 | ) | 1,331 | |||||||||||||
| Prepaid expenses and other |
1 | 59 | 132 | — | 192 | |||||||||||||||
| Total current assets |
1 | 65 | 1,541 | (14 | ) | 1,593 | ||||||||||||||
| Property and equipment |
— | 1,015 | 2,828 | — | 3,843 | |||||||||||||||
| Less – accumulated depreciation |
— | (185 | ) | (1,360 | ) | — | (1,545 | ) | ||||||||||||
| Net property and equipment |
— | 830 | 1,468 | — | 2,298 | |||||||||||||||
| Investment in subsidiaries |
— | 3,103 | 208 | (3,311 | ) | — | ||||||||||||||
| Receivable from affiliate |
151 | (421 | ) | 270 | — | — | ||||||||||||||
| Goodwill, intangibles and other assets |
653 | 1,264 | 1,075 | (850 | ) | 2,142 | ||||||||||||||
| Total assets |
$ | 805 | $ | 4,841 | $ | 4,562 | $ | (4,175 | ) | $ | 6,033 | |||||||||
| Intercompany advances payable |
$ | — | $ | 155 | $ | 55 | $ | (210 | ) | $ | — | |||||||||
| Accounts payable |
— | 106 | 279 | (4 | ) | 381 | ||||||||||||||
| Wages, vacations and employees’ benefits |
— | 234 | 307 | — | 541 | |||||||||||||||
| Other current and accrued liabilities |
7 | 117 | 291 | (4 | ) | 411 | ||||||||||||||
| Asset-backed securitization borrowings |
— | — | 425 | — | 425 | |||||||||||||||
| Total current liabilities |
7 | 612 | 1,357 | (218 | ) | 1,758 | ||||||||||||||
| Payable to affiliate |
— | 555 | 95 | (650 | ) | — | ||||||||||||||
| Long-term debt, less current portion |
236 | 550 | 276 | — | 1,062 | |||||||||||||||
| Deferred income taxes, net |
(7 | ) | 206 | 257 | — | 456 | ||||||||||||||
| Claims and other liabilities |
— | 212 | 373 | — | 585 | |||||||||||||||
| Commitments and contingencies |
||||||||||||||||||||
| Shareholders’ equity |
569 | 2,706 | 2,204 | (3,307 | ) | 2,172 | ||||||||||||||
| Total liabilities and shareholders’ equity |
$ | 805 | $ | 4,841 | $ | 4,562 | $ | (4,175 | ) | $ | 6,033 | |||||||||
22
| December 31, 2005 (in millions) |
Primary Obligor |
Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | |||||||||||||||
| Cash and cash equivalents |
$ | — | $ | 34 | $ | 48 | $ | — | $ | 82 | ||||||||||
| Intercompany advances receivable |
— | (22 | ) | 22 | — | — | ||||||||||||||
| Accounts receivable, net |
— | (81 | ) | 1,254 | (9 | ) | 1,164 | |||||||||||||
| Prepaid expenses and other |
1 | 56 | 175 | — | 232 | |||||||||||||||
| Total current assets |
1 | (13 | ) | 1,499 | (9 | ) | 1,478 | |||||||||||||
| Property and equipment |
— | 914 | 2,694 | — | 3,608 | |||||||||||||||
| Less – accumulated depreciation |
— | (130 | ) | (1,272 | ) | — | (1,402 | ) | ||||||||||||
| Net property and equipment |
— | 784 | 1,422 | — | 2,206 | |||||||||||||||
| Investment in subsidiaries |
— | 3,037 | 7 | (3,044 | ) | — | ||||||||||||||
| Receivable from affiliate |
126 | (305 | ) | 179 | — | — | ||||||||||||||
| Goodwill, intangibles and other assets |
656 | 1,278 | 980 | (864 | ) | 2,050 | ||||||||||||||
| Total assets |
$ | 783 | $ | 4,781 | $ | 4,087 | $ | (3,917 | ) | $ | 5,734 | |||||||||
| Intercompany advances payable |
$ | — | $ | 111 | $ | 98 | $ | (209 | ) | $ | — | |||||||||
| Accounts payable |
— | 113 | 281 | — | 394 | |||||||||||||||
| Wages, vacations and employees’ benefits |
— | 226 | 297 | — | 523 | |||||||||||||||
| Other current and accrued liabilities |
1 | 68 | 304 | — | 373 | |||||||||||||||
| Asset-backed securitization borrowings |
— | — | 375 | — | 375 | |||||||||||||||
| Total current liabilities |
1 | 518 | 1,355 | (209 | ) | 1,665 | ||||||||||||||
| Payable to affiliate |
— | 545 | 105 | (650 | ) | — | ||||||||||||||
| Long-term debt, less current portion |
239 | 595 | 279 | — | 1,113 | |||||||||||||||
| Deferred income taxes, net |
(7 | ) | 199 | 195 | — | 387 | ||||||||||||||
| Claims and other liabilities |
— | 276 | 357 | — | 633 | |||||||||||||||
| Commitments and contingencies |
||||||||||||||||||||
| Shareholder’s equity |
550 | 2,648 | 1,796 | (3,058 | ) | 1,936 | ||||||||||||||
| Total liabilities and shareholder’s equity |
$ | 783 | $ | 4,781 | $ | 4,087 | $ | (3,917 | ) | $ | 5,734 | |||||||||
Condensed Consolidating Statements of Operations
| For the three months ended September 30, 2006 (in millions) |
Primary Obligor |
Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | |||||||||||||
| Operating revenue |
$ | — | $ | 948 | $ | 1,715 | $ | (92 | ) | $ | 2,571 | |||||||
| Operating expenses: |
||||||||||||||||||
| Salaries, wages and employees’ benefits |
— | 545 | 941 | (8 | ) | 1,478 | ||||||||||||
| Operating expenses and supplies |
— | 169 | 365 | (74 | ) | 460 | ||||||||||||
| Purchased transportation |
— | 100 | 186 | (8 | ) | 278 | ||||||||||||
| Depreciation and amortization |
— | 21 | 43 | — | 64 | |||||||||||||
| Other operating expenses |
— | 38 | 68 | — | 106 | |||||||||||||
| Losses on property disposals, net |
— | 1 | 1 | — | 2 | |||||||||||||
| Loss on sale of subsidiary, reorganization and acquisition charges |
— | — | 5 | — | 5 | |||||||||||||
| Total operating expenses |
— | 874 | 1,609 | (90 | ) | 2,393 | ||||||||||||
| Operating income (loss) |
— | 74 | 106 | (2 | ) | 178 | ||||||||||||
| Nonoperating (income) expenses: |
||||||||||||||||||
| Interest expense |
3 | 9 | 11 | — | 23 | |||||||||||||
| Other |
(13 | ) | 30 | (15 | ) | (2 | ) | — | ||||||||||
| Nonoperating (income) expenses, net |
(10 | ) | 39 | (4 | ) | (2 | ) | 23 | ||||||||||
| Income before income taxes |
10 | 35 | 110 | — | 155 | |||||||||||||
| Income tax provision (benefit) |
3 | 15 | 43 | (2 | ) | 59 | ||||||||||||
| Net income |
$ | 7 | $ | 20 | $ | 67 | $ | 2 | $ | 96 | ||||||||
23
| For the three months ended September 30, 2005 (in millions) |
Parent | Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | ||||||||||||||
| Operating revenue |
$ | — | $ | 906 | $ | 1,663 | $ | (77 | ) | $ | 2,492 | ||||||||
| Operating expenses: |
|||||||||||||||||||
| Salaries, wages and employees’ benefits |
— | 531 | 920 | — | 1,451 | ||||||||||||||
| Operating expenses and supplies |
— | 168 | 319 | (74 | ) | 413 | |||||||||||||
| Purchased transportation |
— | 84 | 193 | (3 | ) | 274 | |||||||||||||
| Depreciation and amortization |
— | 21 | 55 | — | 76 | ||||||||||||||
| Other operating expenses |
— | 38 | 72 | — | 110 | ||||||||||||||
| Losses on property disposals, net |
— | 1 | 1 | — | 2 | ||||||||||||||
| Reorganization and acquisition charges |
— | 4 | 5 | — | 9 | ||||||||||||||
| Total operating expenses |
— | 847 | 1,565 | (77 | ) | 2,335 | |||||||||||||
| Operating income |
— | 59 | 98 | — | 157 | ||||||||||||||
| Nonoperating (income) expenses: |
|||||||||||||||||||
| Interest expense |
3 | 24 | 26 | (33 | ) | 20 | |||||||||||||
| Other |
(13 | ) | 8 | (19 | ) | 23 | (1 | ) | |||||||||||
| Nonoperating (income) expenses, net |
(10 | ) | 32 | 7 | (10 | ) | 19 | ||||||||||||
| Income before income taxes |
10 | 27 | 91 | 10 | 138 | ||||||||||||||
| Income tax provision |
4 | 12 | 34 | 3 | 53 | ||||||||||||||
| Net income |
$ | 6 | $ | 15 | $ | 57 | $ | 7 | $ | 85 | |||||||||
| For the nine months ended September 30, 2006 (in millions) |
Primary Obligor |
Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | |||||||||||||||
| Operating revenue |
$ | — | $ | 2,726 | $ | 5,070 | $ | (285 | ) | $ | 7,511 | |||||||||
| Operating expenses: |
||||||||||||||||||||
| Salaries, wages and employees’ benefits |
— | 1,585 | 2,784 | (29 | ) | 4,340 | ||||||||||||||
| Operating expenses and supplies |
— | 510 | 1,101 | (233 | ) | 1,378 | ||||||||||||||
| Purchased transportation |
— | 279 | 551 | (18 | ) | 812 | ||||||||||||||
| Depreciation and amortization |
— | 67 | 145 | — | 212 | |||||||||||||||
| Other operating expenses |
— | 108 | 210 | — | 318 | |||||||||||||||
| (Gains) losses on property disposals, net |
(1 | ) | 1 | — | — | |||||||||||||||
| Loss on sale of subsidiary, reorganization and acquisition charges |
— | 3 | 10 | — | 13 | |||||||||||||||
| Total operating expenses |
— | 2,551 | 4,802 | (280 | ) | 7,073 | ||||||||||||||
| Operating income (loss) |
— | 175 | 268 | (5 | ) | 438 | ||||||||||||||
| Nonoperating (income) expenses: |
||||||||||||||||||||
| Interest expense |
10 | 26 | 31 | — | 67 | |||||||||||||||
| Other |
(40 | ) | 83 | (40 | ) | (5 | ) | (2 | ) | |||||||||||
| Nonoperating (income) expenses, net |
(30 | ) | 109 | (9 | ) | (5 | ) | 65 | ||||||||||||
| Income before income taxes |
30 | 66 | 277 | — | 373 | |||||||||||||||
| Income tax provision (benefit) |
11 | 31 | 105 | (4 | ) | 143 | ||||||||||||||
| Net income |
$ | 19 | $ | 35 | $ | 172 | $ | 4 | $ | 230 | ||||||||||
24
| For the nine months ended September 30, 2005 (in millions) |
Primary Obligor |
Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | |||||||||||||||
| Operating revenue |
$ | — | $ | 2,593 | $ | 3,884 | $ | (219 | ) | $ | 6,258 | |||||||||
| Operating expenses: |
||||||||||||||||||||
| Salaries, wages and employees’ benefits |
— | 1,563 | 2,158 | — | 3,721 | |||||||||||||||
| Operating expenses and supplies |
— | 462 | 751 | (210 | ) | 1,003 | ||||||||||||||
| Purchased transportation |
— | 245 | 450 | (8 | ) | 687 | ||||||||||||||
| Depreciation and amortization |
— | 62 | 119 | — | 181 | |||||||||||||||
| Other operating expenses |
— | 107 | 167 | — | 274 | |||||||||||||||
| Losses on property disposals, net |
— | — | — | — | — | |||||||||||||||
| Reorganization and acquisition charges |
— | 5 | 5 | — | 10 | |||||||||||||||
| Total operating expenses |
— | 2,444 | 3,650 | (218 | ) | 5,876 | ||||||||||||||
| Operating income (loss) |
— | 149 | 234 | (1 | ) | 382 | ||||||||||||||
| Nonoperating (income) expenses: |
||||||||||||||||||||
| Interest expense |
10 | 63 | 55 | (85 | ) | 43 | ||||||||||||||
| Other |
(40 | ) | 27 | (63 | ) | 74 | (2 | ) | ||||||||||||
| Nonoperating (income) expenses, net |
(30 | ) | 90 | (8 | ) | (11 | ) | 41 | ||||||||||||
| Income before income taxes |
30 | 59 | 242 | 10 | 341 | |||||||||||||||
| Income tax provision |
11 | 28 | 91 | — | 130 | |||||||||||||||
| Net income |
$ | 19 | $ | 31 | $ | 151 | $ | 10 | $ | 211 | ||||||||||
| Condensed Consolidating Statements of Cash Flows |
|
|||||||||||||||||||
| For the nine months ended September 30, 2006 (in millions) |
Parent | Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | |||||||||||||||
| Operating activities: |
||||||||||||||||||||
| Net cash provided by operating activities |
$ | 22 | $ | 33 | $ | 243 | $ | 1 | $ | 299 | ||||||||||
| Investing activities: |
||||||||||||||||||||
| Acquisition of property and equipment |
— | (112 | ) | (207 | ) | — | (319 | ) | ||||||||||||
| Proceeds from disposal of property and equipment |
— | 9 | 26 | — | 35 | |||||||||||||||
| Acquisition of companies, net of cash acquired |
— | (15 | ) | — | — | (15 | ) | |||||||||||||
| Other |
4 | — | (6 | ) | — | (2 | ) | |||||||||||||
| Net cash provided by (used in) investing activities |
4 | (118 | ) | (187 | ) | — | (301 | ) | ||||||||||||
| Financing activities: |
||||||||||||||||||||
| ABS borrowings, net |
— | — | 50 | — | 50 | |||||||||||||||
| Issuance (repayment) of long-term debt, net |
— | (44 | ) | — | — | (44 | ) | |||||||||||||
| Proceeds from exercise of stock options |
— | 4 | — | — | 4 | |||||||||||||||
| Treasury stock repurchase |
— | (20 | ) | — | — | (20 | ) | |||||||||||||
| Intercompany advances / repayments |
(26 | ) | 156 | (129 | ) | (1 | ) | — | ||||||||||||
| Net cash provided by (used in) financing activities |
(26 | ) | 96 | (79 | ) | (1 | ) | (10 | ) | |||||||||||
| Net increase (decrease) in cash and cash equivalents |
— | 11 | (23 | ) | — | (12 | ) | |||||||||||||
| Cash and cash equivalents, beginning of period |
— | 34 | 48 | — | 82 | |||||||||||||||
| Cash and cash equivalents, end of period |
$ | — | $ | 45 | $ | 25 | $ | — | $ | 70 | ||||||||||
25
| For the nine months ended September 30, 2005 (in millions) |
Parent | Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
| Operating activities: |
||||||||||||||||||||
| Net cash provided by (used in) operating activities |
$ | 42 | $ | 25 | $ | 192 | $ | (3 | ) | $ | 256 | |||||||||
| Investing activities: |
||||||||||||||||||||
| Acquisition of property and equipment |
— | (53 | ) | (178 | ) | — | (231 | ) | ||||||||||||
| Proceeds from disposal of property and equipment |
— | 5 | 13 | — | 18 | |||||||||||||||
| Acquisition of companies, net of cash acquired |
— | (806 | ) | 52 | — | (754 | ) | |||||||||||||
| Investment in joint venture |
— | (46 | ) | — | — | (46 | ) | |||||||||||||
| Other |
— | — | 2 | — | 2 | |||||||||||||||
| Net cash used in investing activities |
— | (900 | ) | (111 | ) | — | (1,011 | ) | ||||||||||||
| Financing activities: |
||||||||||||||||||||
| ABS borrowings, net |
— | — | 456 | — | 456 | |||||||||||||||
| Issuance (repayment) of long-term debt, net |
— | 250 | — | — | 250 | |||||||||||||||
| Debt issuance costs |
— | (4 | ) | — | — | (4 | ) | |||||||||||||
| Proceeds from exercise of stock options |
— | 4 | — | — | 4 | |||||||||||||||
| Cash dividends paid to shareholders |
— | 7 | (7 | ) | — | — | ||||||||||||||
| Intercompany advances / repayments |
(42 | ) | 548 | (509 | ) | 3 | — | |||||||||||||
| Net cash provided by (used in) financing activities |
(42 | ) | 805 | (60 | ) | 3 | 706 | |||||||||||||
| Net increase (decrease) in cash and cash equivalents |
— | (70 | ) | 21 | — | (49 | ) | |||||||||||||
| Cash and cash equivalents, beginning of period |
— | 89 | 17 | — | 106 | |||||||||||||||
| Cash and cash equivalents, end of period |
$ | — | $ | 19 | $ | 38 | $ | — | $ | 57 | ||||||||||
26
| 16. | Guarantees of the Senior Notes Due 2009 and 2010 |
In connection with the senior notes due 2009 and 2010 that YRC Worldwide assumed by virtue of its merger with USF, and in addition to the primary obligor, USF, YRC Worldwide and its following 100% owned subsidiaries have issued guarantees in favor of the holders of the senior notes due 2009 and 2010: USF Sales Corporation, USF Holland Inc., USF Bestway Inc., USF Bestway Leasing Inc., USF Reddaway Inc., USF Glen Moore Inc., Meridian IQ Services Inc. (formerly USF Distribution Services Inc.), and IMUA Handling Corporation. Each of the guarantees is full and unconditional and joint and several.
The summarized consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantors and issuer because management does not believe that separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of YRC Worldwide or any guarantor subsidiary to obtain funds from its subsidiaries by dividend or loan.
The following represents summarized condensed consolidating financial information of YRC Worldwide and its subsidiaries as of September 30, 2006 and December 31, 2005 with respect to the financial position, for the three and nine months ended September 30, 2006 and 2005 for results of operations, and for the nine months ended September 30, 2006 and 2005 for statement of cash flows. The primary obligor column presents the financial information of USF Corporation. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the senior notes due 2009 and 2010 including YRC Worldwide, the holding company. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and Yellow Roadway Receivables Funding Corporation, Yellow Receivables Corporation and Roadway Funding, Inc., the special-purpose entities that are or were associated with our ABS agreements.
Condensed Consolidating Balance Sheet
| September 30, 2006 (in millions) |
Primary Obligor |
Guarantor Subsidiaries |
Non- Guarantor |
Eliminations | Consolidated | |||||||||||||||
| Cash and cash equivalents |
$ | — | $ | 24 | $ | 46 | $ | — | $ | 70 | ||||||||||
| Intercompany advances receivable |
— | (11 | ) | 11 | — | — | ||||||||||||||
| Accounts receivable, net |
— | 8 | 1,327 | (4 | ) | 1,331 | ||||||||||||||
| Prepaid expenses and other |
(10 | ) | 53 | 149 | — | 192 | ||||||||||||||
| Total current assets |
(10 | ) | 74 | 1,533 | (4 | ) | 1,593 | |||||||||||||
| Property and equipment |
2 | 753 | 3,088 | — | 3,843 | |||||||||||||||
| Less – accumulated depreciation |
(1 | ) | (90 | ) | (1,454 | ) | — | (1,545 | ) | |||||||||||
| Net property and equipment |
1 | 663 | 1,634 | — | 2,298 | |||||||||||||||
| Investment in subsidiaries |
246 | 3,091 | 6 | (3,343 | ) | — | ||||||||||||||
| Receivable from affiliate |
403 | (493 | ) | 90 | — | — | ||||||||||||||
| Goodwill, intangibles and other assets |
822 | 383 | 1,287 | (350 | ) | 2,142 | ||||||||||||||
| Total assets |
$ | 1,462 | $ | 3,718 | $ | 4,550 | $ | (3,697 | ) | $ | 6,033 | |||||||||
| Intercompany advances payable |
$ | — | $ | 290 | $ | (90 | ) | $ | (200 | ) | $ | — | ||||||||
| Accounts payable |
4 | 111 | 270 | (4 | ) | 381 | ||||||||||||||
| Wages, vacations and employees’ benefits |
— | 113 | 428 | — | 541 | |||||||||||||||
| Other current and accrued liabilities |
65 | 94 | 256 | (4 | ) | 411 | ||||||||||||||
| Asset-backed securitization borrowings |
— | — | 425 | — | 425 | |||||||||||||||
| Total current liabilities |
69 | 608 | 1,289 | (208 | ) | 1,758 | ||||||||||||||
| Payable to affiliate |
— | (23 | ) | 173 | (150 | ) | — | |||||||||||||
| Long-term debt, less current portion |
266 | 550 | 246 | — | 1,062 | |||||||||||||||
| Deferred income taxes, net |
46 | 68 | 342 | — | 456 | |||||||||||||||
| Claims and other liabilities |
(2 | ) | 51 | 536 | — | 585 | ||||||||||||||
| Commitments and contingencies |
||||||||||||||||||||
| Shareholders’ equity |
1,083 | 2,464 | 1,964 | (3,339 | ) | 2,172 | ||||||||||||||
| Total liabilities and shareholders’ equity |
$ | 1,462 | $ | 3,718 | $ | 4,550 | $ | (3,697 | ) | $ | 6,033 | |||||||||
27
| December 31, 2005 (in millions) |
Primary Obligor |
Guarantors | Non- Guarantors |
Eliminations | Consolidated | |||||||||||||||
| Cash and cash equivalents |
$ | — | $ | 42 | $ | 40 | $ | — | $ | 82 | ||||||||||
| Intercompany advances receivable |
— | — | — | |||||||||||||||||