EX-99.2 4 c82809a1exv99w2.txt CERTAIN PRO FORMA FINANCIAL STATEMENTS . . . EXHIBIT 99.2 UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET AT SEPTEMBER 30, 2003
Historical Pro Forma -------------------------- ------------------------------ Roadway (at September 13, Yellow 2003) Adjustments Combined ----------- ------------- ----------- ----------- (in thousands) ASSETS Current assets: Cash and cash equivalents $ 226,514 $ 132,894 $ (494,146)(1) $ 8,823 150,000 (2) 175,000 (3) 21,500 (4) (100,000)(5) (54,462)(6) (2,250)(6) (30,365)(7) (15,862)(8) Accounts receivable, net 372,761 241,975 25,000 (9) 739,736 100,000 (5) Prepaid expenses and other 30,856 48,125 (27,704)(10) 51,277 ----------- ----------- ----------- ----------- Total current assets 630,131 422,994 (253,289) 799,836 ----------- ----------- ----------- ----------- Property and equipment, at cost 1,717,322 1,509,280 333,000 (11) 2,541,666 (1,017,936)(12) Less: accumulated depreciation (1,137,938) (1,017,936) 1,017,936 (12) (1,137,938) ----------- ----------- ----------- ----------- Net property and equipment 579,384 491,344 333,000 1,403,728 ----------- ----------- ----------- ----------- Goodwill 20,603 285,874 587,020 (1) 607,623 (285,874)(13) Deferred income taxes -- 37,015 (37,015)(10) -- Other assets 45,105 46,186 461,300 (1) 559,863 28,292 (6) (4,890)(6) (7,430)(7) (8,700)(14) ----------- ----------- ----------- ----------- TOTAL ASSETS $ 1,275,223 $ 1,283,413 $ 812,414 $ 3,371,050 =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 96,753 $ 187,924 $ (73,409)(15) $ 211,268 Wages, vacations, and employees' benefits 166,448 125,863 292,311 Other current and accrued liabilities 127,723 52,510 (27,704)(10) 231,280 (3,379)(10) 73,409 (15) (2,250)(6) 9,107 (16) 1,864 (17) ABS borrowings 50,000 -- 21,500 (4) 71,500 Current maturities of long-term debt 5,008 6,441 (6,441)(7) 5,008 ----------- ----------- ----------- ----------- Total current liabilities 445,932 372,738 (7,303) 811,367 ----------- ----------- ----------- ----------- Long-term liabilities: Long-term debt, less current portion 263,963 248,924 150,000 (2) 838,128 175,000 (3) (23,924)(7) 24,165 (18) Claims and other liabilities 76,200 61,191 59,961 (16) 197,352 Accrued pension and postretirement health care 58,308 146,582 82,933 (19) 287,823 Deferred income taxes 27,285 10,393 211,301 (10) 248,979 ----------- ----------- ----------- ----------- Total long-term liabilities 425,756 467,090 679,436 1,572,282 ----------- ----------- ----------- ----------- Total shareholders' equity 403,535 443,585 585,310 (1) 987,401 (443,585)(20) (1,444)(21) ----------- ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,275,223 $ 1,283,413 $ 812,414 $ 3,371,050 =========== =========== =========== ===========
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002
Historical Pro Forma -------------------------- ------------------------------ Yellow Roadway Adjustments Combined ----------- ----------- ----------- ----------- (in thousands, except per share data) Revenue $ 2,624,148 $ 3,010,776 $ 3,000 (9) $ 5,637,924 ----------- ----------- ----------- ----------- Operating expenses: Salaries, wages and employees' benefits 1,717,382 1,934,482 2,331 (25) 3,654,195 Operating expenses and supplies 385,522 479,415 (2,154)(15) 862,783 Operating taxes and licenses 75,737 76,662 152,399 Claims and insurance 57,197 63,621 777 (25) 121,595 Depreciation and amortization 79,334 75,786 2,154 (15) 170,584 510 (22) 12,800 (23) Purchased transportation 253,677 289,612 543,289 (Gains) losses on property disposals, net 425 (650) (225) Spin-off and reorganization charges 8,010 -- 8,010 ----------- ----------- ----------- ----------- Total operating expenses 2,577,284 2,918,928 16,418 5,512,630 ----------- ----------- ----------- ----------- Operating income 46,864 91,848 (13,418) 125,294 ----------- ----------- ----------- ----------- Interest expense 7,211 23,268 3,249 (15) 52,437 18,709 (25) ABS facility charges 2,576 3,688 (6,264)(25) -- Other, net (509) 2,855 (3,249)(15) (903) ----------- ----------- ----------- ----------- Nonoperating expenses, net 9,278 29,811 12,445 51,534 ----------- ----------- ----------- ----------- Income from continuing operations before income taxes 37,586 62,037 (25,863) 73,760 Income tax provision 13,613 26,895 (10,345)(26) 30,163 ----------- ----------- ----------- ----------- Income from continuing operations $ 23,973 $ 35,142 $ (15,518) $ 43,597 =========== =========== =========== =========== Earnings per share from continuing operations: Basic $ 0.86 $ 1.90 $ 0.95 Diluted 0.84 1.85 0.94 Average common shares outstanding: Basic 28,004 18,507 46,042 Diluted 28,371 18,999 46,409
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
Historical Pro Forma ----------------------------- ---------------------------------- Roadway (for the three quarters ended September Yellow 13, 2003) Adjustments Combined ------------- ------------- ------------- ------------- (in thousands, except per share data) Revenue $ 2,165,251 $ 2,247,192 $ 6,900 (9) $ 4,419,343 ------------- ------------- ------------- ------------- Operating expenses: Salaries, wages and employees' benefits 1,386,061 1,420,832 2,284 (25) 2,810,191 1,014 (15) Operating expenses and supplies 320,341 382,846 (453)(15) 702,734 Operating taxes and licenses 59,510 57,069 116,579 Claims and insurance 39,972 44,774 780 (25) 85,864 338 (15) Depreciation and amortization 62,206 50,827 453 (15) 123,446 360 (22) 9,600 (23) Purchased transportation 213,971 227,755 441,726 (Gains) losses on property disposals, net 422 (4,227) (3,805) Acquisition, spin-off and reorganization charges 864 24,337 (24,337)(24) 864 ------------- ------------- ------------- ------------- Total operating expenses 2,083,347 2,204,213 (9,961) 4,277,599 ------------- ------------- ------------- ------------- Operating income 81,904 42,979 16,861 141,744 ------------- ------------- ------------- ------------- Interest expense 11,796 14,616 1,822 (15) 42,690 14,456 (25) ABS facility charges -- 2,539 (2,539)(25) -- Other, net 1,978 1,962 (3,174)(15) 766 ------------- ------------- ------------- ------------- Nonoperating expenses, net 13,774 19,117 10,565 43,456 ------------- ------------- ------------- ------------- Income from continuing operations before income taxes 68,130 23,862 6,296 98,288 Income tax provision 26,775 12,790 2,518(26) 42,083 ------------- ------------- ------------- ------------- Income from continuing operations $ 41,355 $ 11,072 $ 3,778 $ 56,205 ============= ============= ============= ============= Earnings per share from continuing operations: Basic $ 1.40 $ 0.58 $ 1.18 Diluted 1.39 0.58 1.17 Average common shares outstanding: Basic 29,578 19,018 47,616 Diluted 29,832 19,038 47,870
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS (1) These pro forma adjustments reflect the valuations of Roadway's tangible and intangible assets and liabilities as well as conforming accounting policies recorded as of December 11, 2003 in conjunction with the acquisition. The allocation of the purchase price is preliminary and subject to adjustment, however, we do not expect material changes. These unaudited condensed combined pro forma financial statements are not necessarily indicative of the operating results or financial position that would have occurred had the acquisition been consummated at the dates indicated, nor necessarily indicative of future operating results. The purchase price for the Roadway acquisition was calculated as follows (in thousands, except per share data): Merger consideration of approximately $1,079.5 million, or $48 per Roadway share (based on an exchange ratio of 1.752 and an average price per share of $31.51 for Yellow common stock, in a half cash, half stock transaction). Cash $ 494,146 Common stock (18.0 million Yellow shares) 585,310 --------------- Total merger consideration 1,079,456 Acquisition costs 17,765 --------------- Total purchase price 1,097,221 Net tangible assets acquired at fair value 48,901* --------------- Costs in excess of net tangible assets of the acquired company 1,048,320** Fair value of identifiable intangible assets 461,300 --------------- Goodwill $ 587,020 ===============
---------- * Net tangible assets acquired at fair value is comprised of the following (in thousands): Roadway historical net tangible assets at September 13, 2003 $ 157,711 Purchase accounting adjustments, as described in the following notes: Merger-related expenses incurred by Roadway (11,045) Change of control costs for key Roadway executives (15,862) Planned severance for Roadway employees (1,864) Write-off of certain deferred financing costs (7,430) Conform revenue recognition policy 25,000 Adjust property and equipment to fair value 333,000 Adjust certain investments and notes receivable to fair value (8,700) Adjust senior notes to fair value (24,165) Conform workers' compensation and property damage policies (69,068) Adjustment to pension and postretirement health care liabilities (82,933) Current and deferred income taxes associated with purchase accounting adjustments (245,743) ------------ Total purchase accounting adjustments (108,810) ------------ Net tangible assets acquired at fair value $ 48,901 ============
** Allocation of the purchase price among the tangible and intangible assets is preliminary and subject to change. Any such change may also impact results of operations. (2) Reflects gross proceeds of our offering of 3.375% contingent convertible senior notes due 2023. (3) Reflects gross proceeds of $175.0 million of secured term loan borrowings related to the acquisition. (4) Reflects additional borrowings under Yellow's asset backed securitization (ABS) facility. (5) Reflects the elimination of Roadway's ABS facility. As Roadway's ABS facility received sales treatment for financial reporting purposes and was therefore not reflected on its balance sheets, elimination of that facility effectively brought accounts receivable back onto the balance sheet. (6) Represents costs associated with completing the acquisition of Roadway, our offering of 3.375% contingent convertible senior notes due 2023, our offering of 5.0% contingent convertible senior notes due 2023 and other bank financing transactions related to the Roadway acquisition, as follows (in thousands):
COSTS INCURRED AS OF SEPTEMBER 30, 2003 ESTIMATED ESTIMATED (SEPTEMBER 13, REMAINING TOTAL 2003 FOR COSTS TO COSTS ROADWAY) BE INCURRED -------------- ------------ ---------------- Direct transaction costs, including investment banking, legal, accounting and other fees: Yellow $ 11,560 $ 4,890 $ 6,670 Roadway 13,115 2,070 11,045 Deferred debt issuance costs 36,372 8,080 28,292 Bridge financing costs 4,500 2,250** 2,250 Debt prepayment penalties 2,300 2,300 -- Director, officer and fiduciary insurance premium costs 6,205* -- 6,205 -------------- ------------ ---------------- Total $ 74,052 $ 19,590 $ 54,462 ============== ============ ================
---------- * This item represents the cost to provide director, officer and fiduciary liability insurance coverage for Roadway directors, officers and employees for periods prior to the date of the acquisition. In accordance with the merger agreement, this coverage will be provided for six years after the effective date of the acquisition. ** As of September 30, 2003, this amount had been accrued but not paid. (7) Reflects the payoff of certain existing indebtedness in conjunction with the bank financing transactions and the write-off of deferred financing costs. (8) Represents change of control payments for key Roadway executives. (9) Represents the adjustment necessary to conform Roadway's revenue recognition policy to the policy used by Yellow. (10) Represents the impact on currently payable and deferred income taxes of the pro forma adjustments presented. (11) Represents the net adjustment to Roadway's property and equipment to their estimated fair values. (12) Represents the elimination of Roadway's historical accumulated depreciation. (13) Represents the elimination of the historical goodwill of Roadway. (14) Represents the write down of certain Roadway investments and notes receivable to their estimated fair values. (15) Reflects certain balance sheet and statement of operations reclassifications made to conform Roadway's presentation to the presentation used by Yellow. (16) Represents the adjustment necessary to conform Roadway's workers' compensation and property damage accrual policies to the policies used by Yellow. (17) Represents the accrual for planned severance for Roadway employees. (18) Represents an increase in the fair value of Roadway's senior notes based on current market prices. (19) Represents the adjustment necessary to eliminate previously unrecognized gains or losses, prior service cost, and transition assets or obligations related to Roadway's defined benefit pension and postretirement health care benefit plans for employees not covered by collective bargaining agreements. (20) Represents the elimination of Roadway's historical shareholders' equity balances. (21) Represents the after-tax impact of bridge financing costs associated with completing the bank financing transactions. (22) Adjustment to record additional depreciation expense on the new basis of Roadway's property and equipment. (23) Adjustment to record amortization expense on identifiable intangible assets. (24) Adjustment to eliminate the expense related to the vesting of restricted stock awards, other compensation and transaction fees associated with the acquisition of Roadway by Yellow that were recognized on Roadway's historical Statement of Consolidated Income for the thirty-six weeks ended September 13, 2003. (25) Adjustment to record additional interest expense, letter of credit fees and amortization of deferred financing costs on borrowings related to our offering of 3.375% contingent convertible senior notes due 2023, our offering of 5.0% contingent convertible senior notes due 2023 and other bank financing transactions related to the acquisition. The estimated weighted average annual interest rate of the completed and contemplated debt structure is 5.5%. A 1/8th% change in the variable interest rates associated with these borrowings would have a $0.3 million effect on annual interest expense. A $10.0 million change in the amount of borrowings necessary to finance the acquisition would have a $0.4 million effect on annual interest expense. (26) Adjustment to record the income tax impact of the pro forma adjustments at an effective income tax rate of 40.0%.