1
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 March 31, 1998
--------------
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
-------
YELLOW CORPORATION
------------------
(Exact name of registrant as specified in its charter)
Delaware 48-0948788
- --------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10990 Roe Avenue, P.O. Box 7563, Overland Park, Kansas 66207
------------------------------------------------------ ----------
(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 15, 1998
----- -----------------------------
Common Stock, $1 Par Value 27,385,910 shares
2
YELLOW CORPORATION
INDEX
Item Page
- ---- ----
PART I
------
1. Financial Statements
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 3
Statements of Consolidated Operations -
Three Months Ended March 31, 1998 and 1997 4
Statements of Consolidated Cash Flows -
Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II
-------
6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries
(Amounts in thousands except share data)
(Unaudited)
March 31, December 31,
1998 1997
---------- ------------
ASSETS
CURRENT ASSETS:
Cash $ 48,873 $ 19,793
Accounts receivable 311,578 349,999
Prepaid expenses and other 61,148 88,969
---------- ----------
Total current assets 421,599 458,761
---------- ----------
PROPERTY AND EQUIPMENT:
Cost 1,970,043 1,980,324
Less - Accumulated depreciation 1,205,131 1,194,015
---------- ----------
Net property and equipment 764,912 786,309
---------- ----------
OTHER ASSETS 24,179 25,742
---------- ----------
$1,210,690 $1,270,812
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and checks outstanding $ 120,664 $ 166,453
Wages and employees' benefits 164,759 164,982
Other current liabilities 152,230 146,775
Current maturities of long-term debt 2,183 2,625
---------- ----------
Total current liabilities 439,836 480,835
---------- ----------
OTHER LIABILITIES:
Long-term debt 162,272 163,080
Deferred income taxes 27,851 30,341
Claims, insurance and other 150,624 150,705
---------- ----------
Total other liabilities 340,747 344,126
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value 29,313 29,289
Capital surplus 14,315 13,868
Retained earnings 429,088 429,700
Treasury stock (42,609) (27,006)
---------- ----------
Total shareholders' equity 430,107 445,851
---------- ----------
$1,210,690 $1,270,812
========== ==========
The accompanying notes are an integral part of these statements.
3
4
STATEMENTS OF CONSOLIDATED OPERATIONS
Yellow Corporation and Subsidiaries
For the Three Months Ended March 31
(Amounts in thousands except per share data)
(Unaudited)
1998 1997
-------- --------
OPERATING REVENUE $796,450 $785,144
-------- --------
OPERATING EXPENSES:
Salaries, wages and benefits 527,728 515,048
Operating expenses and supplies 134,186 132,670
Operating taxes and licenses 28,117 29,200
Claims and insurance 19,978 17,327
Depreciation 29,450 30,213
Purchased transportation 59,480 46,014
Property and equipment gains, net (4,852) (500)
-------- --------
Total operating expenses 794,087 769,972
-------- --------
INCOME FROM OPERATIONS 2,363 15,172
-------- --------
NONOPERATING (INCOME) EXPENSES:
Interest expense 3,099 3,903
Other, net 379 (249)
-------- --------
Nonoperating expenses, net 3,478 3,654
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (1,115) 11,518
INCOME TAX PROVISION (BENEFIT) (468) 5,017
-------- --------
NET INCOME (LOSS) $ (647) $ 6,501
======== ========
AVERAGE COMMON SHARES OUTSTANDING 27,904 28,112
======== ========
BASIC EARNINGS (LOSS) PER SHARE $ (.02) $ .23
======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ (.02) $ .23
======== ========
The accompanying notes are an integral part of these statements.
4
5
STATEMENTS OF CONSOLIDATED CASH FLOWS
Yellow Corporation and Subsidiaries
For the Three Months Ended March 31
(Amounts in thousands)
(Unaudited)
1998 1997
--------- --------
OPERATING ACTIVITIES:
Net cash from operating activities $ 49,775 $ 25,136
--------- --------
INVESTING ACTIVITIES:
Acquisition of property and equipment (13,773) (7,856)
Proceeds from disposal of property and equipment 10,254 5,118
--------- --------
Net cash used in investing activities (3,519) (2,738)
--------- --------
FINANCING ACTIVITIES:
Purchase of treasury stock (16,196) -
Proceeds from issuance of stock options, net 362 -
Repayment of long-term debt (1,342) (9,824)
Commercial paper, net - 1,787
--------- --------
Net cash used in financing activities (17,176) (8,037)
--------- --------
NET INCREASE IN CASH 29,080 14,361
CASH, BEGINNING OF PERIOD 19,793 24,800
--------- --------
CASH, END OF PERIOD $ 48,873 $ 39,161
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
- -----------------------------------
Income taxes (received) paid, net $ (9,030) $ 1,030
========= ========
Interest paid $ 363 $ 2,247
========= ========
The accompanying notes are an integral part of these statements.
5
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
1. The accompanying consolidated financial statements include the accounts
of Yellow Corporation and its wholly-owned subsidiaries (the company) and
have been prepared by the company, without audit by independent public
accountants, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all normal recurring
adjustments necessary for a fair statement of the results of operations
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 such rules and
regulations. Accordingly, the accompanying consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in the company's 1997 Annual Report to Shareholders.
2. The company provides freight transportation services primarily to the
less-than-truckload (LTL) market in North America through its
subsidiaries, Yellow Freight System, Inc. (Yellow Freight), Saia Motor
Freight Line, Inc. (Saia), Preston Trucking Company, Inc. (Preston
Trucking) and WestEx, Inc. (WestEx). Yellow Services, Inc. (Yellow
Services), is a subsidiary that provides information technology and other
services to the company and its subsidiaries. Yellow Freight comprises
approximately 76 percent of total revenue while Preston Trucking comprises
approximately 14 percent and Saia comprises approximately 9 percent.
3. Effective January 1, 1998, the company adopted Statement of Position
98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use (the SOP). The statement requires capitalization of
certain costs associated with developing or obtaining internal-use
software, once the capitalization criteria of the SOP have been met.
Capitalizable costs include external direct costs of materials and
services consumed in developing or obtaining the software, payroll and
payroll-related costs for employees directly associated with the project,
and interest. Prior to adoption of the standard the company had
capitalized only the external direct costs associated with internal-use
software. In the 1998 first quarter, the company capitalized $1 million
of primarily payroll and payroll-related costs incurred since January 1,
1998 on eligible projects.
4. The company adopted FASB Statement No. 130, Reporting Comprehensive
Income, in first quarter 1998. This statement establishes standards for
the reporting and display of comprehensive income and its components in
the financial statements. The company's comprehensive income includes net
income and foreign currency translation adjustments. Comprehensive loss
was $681 in the 1998 first quarter and comprehensive income was $6,598 in
the 1997 first quarter.
6
7
5. The company adopted FASB Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, in first quarter 1998. This statement
requires the company report financial and descriptive information about its
reportable operating segments, on a basis consistent with that used
internally for evaluating segment performance and allocating resources to
segments.
Under the standard, consistent with the business segments disclosure in the
company's 1997 Annual Report to Shareholders, the company has three
reportable segments, strategic business units that offer different products
and services. The national segment is comprised primarily of the
operations of Yellow Freight, a carrier that provides comprehensive
national LTL service as well as international service to Mexico, Canada
and, via alliances, Europe, the Asia/Pacific region, South America and
Central America. The Southeast regional segment consists of the operations
of Saia, a regional LTL carrier that provides overnight and second-day
service in eleven southeastern states and Puerto Rico. The Northeast
regional segment is principally comprised of the operations of Preston
Trucking, a regional LTL carrier providing overnight and two-day delivery
in 22 Northeastern and upper Midwestern states, Puerto Rico, Ontario and
Quebec. The segments are managed separately because each requires
different operating, technology and marketing strategies. The company
evaluates performance primarily on operating income and, secondarily, on
net income, adjusted for tax-affected nonoperating expenses and gains and
losses.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the company's 1997 Annual
Report to Shareholders. The company also charges a tradename fee to Yellow
Freight (1% of revenue) for use of the company's trademark. Interest and
intersegment transactions are recorded at current market rates. Income
taxes are allocated in accordance with a tax sharing agreement in
proportion to each segment's contribution to the parent's consolidated tax
status.
6. The company remains on plan to complete the system modifications and systems
replacements required in order to process transactions in the year 2000.
Such efforts are anticipated to be largely complete by the end of 1998.
During the 1998 first quarter, the company expensed $1.8 million of
modification costs compared with $1.6 million expensed in the first quarter
of 1997
7. As further described in the footnotes to the 1997 consolidated financial
statements, Yellow Freight recorded a special charge of $46.1 million, or
$28.3 million after taxes in the fourth quarter of 1996. The major
components of the charge and subsequent activity are as summarized below
(amounts in millions):
Quarter Ended March 31, 1998
-------------------------------------
December Favorable Paid or Ending
31, 1997 Revisions Utilized Balance
-------- --------- -------- -------
Write down nonoperating
real estate $5.2 $.7 $2.2 $2.3
Severance and organization
design .2 - .2 -
---- --- ---- ----
Total $5.4 $.7 $2.4 $2.3
==== === ==== ====
7
8
Cumulative Through
March 31, 1998
Pre-tax -----------------------------
1996 Favorable Paid or Ending
Charge Revisions Utilized Balance
------- --------- -------- -------
Write down nonoperating
real estate $16.5 $1.7 $12.5 $2.3
Write off computer software 8.4 - 8.4 -
Early retirement program 13.7 - 13.7 -
Company car program reduction 3.6 - 3.6 -
Severance and organization
design 3.9 - 3.9 -
----- ---- ----- ----
Total $46.1 $1.7 $42.1 $2.3
===== ==== ===== ====
Marketing efforts continue on nonoperating real estate. During the first
quarter of 1998, nonoperating property written down in the charge to $2.8
million was sold for $3.5 million utilizing portions of the write down.
Revisions to estimates during the first quarter of 1998 were reflected in
operating income.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
March 31, 1998 Compared to March 31, 1997
Working capital increased slightly during the first three months of 1998,
resulting in a $18.3 million working capital deficit position at March 31, 1998
compared to a $22.1 million deficit position at December 31, 1997. The
improvement in working capital was primarily the result of decreased accounts
receivable and prepaid expenses partially offset by reductions in accounts
payable and checks outstanding. The accounts receivable decrease of $38.4
million is comprised of a $36.0 million decrease due to the reduction in
accounts receivable subject to Yellow Freight's asset-backed securitization
agreement and a $2.4 million reduction due to other changes. The company can
operate with a deficit working capital position because of rapid turnover of
accounts receivable, effective cash management and ready access to funding.
Total debt during the first three months of 1998 decreased $1.2 million. Net
capital expenditures for the first three months of 1998 were $3.5 million.
Subject to ongoing review, total net capital spending for 1998 are expected to
total approximately $164 million.
During the quarter the company purchased 755,000 additional treasury shares and
completed the $25 million share repurchase program approved by the Board of
Directors in December 1997.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, and 1997
8
9
The net loss for the quarter was $647 thousand, or a loss of $.02 per share,
versus 1997 net income of $6.5 million, or $.23 per share. Operating revenue
in the first quarter was $796.5 million, a 1.4 percent increase over 1997 first
quarter revenue of $785.1 million. Operating income for Yellow Corporation was
$2.4 million, compared with $15.2 million in the 1997 first quarter.
Negotiations on a new National Master Freight Agreement (NMFA) with the
Teamsters had a significant impact on first quarter business for the
corporation's largest subsidiary, Yellow Freight System. Freight was diverted
to nonunion competitors in the first quarter due to customer fear that failure
to negotiate a settlement by March 31, 1998, could lead to a strike and disrupt
their product deliveries. A tentative settlement was announced Feb. 8, and
ratified by 70 percent of rank and file members, according to Teamster figures
released April 8.
During the first quarter, Yellow Freight reported operating income of $7.4
million. Operating income during the 1997 first quarter was $15.4 million.
Yellow Freight revenue for the 1998 first quarter was $597.7 million, versus
$598.8 million a year earlier. The Yellow Freight operating ratio was 98.8,
compared with 97.4 in the 1997 first quarter.
Saia continued its trend of solid growth, posting first quarter revenue of
$80.3 million, up 10.8 percent from $72.4 million in the 1997 first quarter.
Operating income for Saia was $4.2 million, compared with $3.6 million in the
1997 period. Saia's operating ratio was 94.7, versus 95.0 in the 1997 first
quarter. Saia is an Atlanta-based regional carrier serving the southeastern
U.S., and continues to grow at double-digit rates.
Preston Trucking reported first quarter revenue of $103.7 million, up 0.2
percent from $103.5 million in the 1997 first quarter. Preston Trucking
reported a first quarter operating loss of $6.5 million, an increase from its
1997 first quarter operating loss of $2.9 million.
Preston Trucking's results were dominated by two factors. The first was a
one-time cost incurred mostly in the first quarter pertaining to a change of
operations implemented in December 1997. Second, Preston, like other union
carriers that bargain independently, is subject to freight diversion pending
completion of union negotiations.
WestEx, Yellow's regional carrier serving California, Colorado and much of the
southwestern U.S., reported revenue of $14.5 million for the 1998 first
quarter, up 39.0 percent from $10.4 million in the year-earlier quarter.
Interest expense fell between years as a result of reduced debt levels. The
effective tax rate was 42.0 percent in the 1998 quarter and 43.6 percent in the
1997 quarter.
9
10
Statements contained herein that are not purely historical are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements regarding the company's expectations, hopes,
beliefs and intentions on strategies regarding the future. It is important to
note that the company's actual future results could differ materially from
those projected in such forward-looking statements because of a number of
factors, including but not limited to inflation, union contract negotiations,
inclement weather, competitor pricing activity and a downturn in general
economic activity.
10
11
Yellow Freight System, Inc.
Financial Information
For the Three Months Ended March 31, 1998 and 1997
(Amounts in thousands)
First Quarter
------------------
1998 1997 %
-------- -------- ------
Operating revenue 597,718 598,827 (.2)
Operating income 7,406 15,445
Operating ratio 98.8 97.4
Total assets at March 31 908,237 884,593
First Quarter
First Quarter Amount/Workday
------------------ ----------------
1998 1997 % 1998 1997 %
-------- -------- ------ ------- ------- ------
Workdays (63) (63)
Financial statement LTL 543,173 545,147 (.4) 8,621.8 8,653.1 (.4)
revenue TL 51,846 55,066 (5.8) 823.0 874.1 (5.8)
Other 2,699 (1,386) NM 42.8 (22.0) NM
Total 597,718 598,827 (.2) 9,487.6 9,505.2 (.2)
Revenue excluding LTL 543,173 545,147 (.4) 8,621.8 8,653.1 (.4)
revenue recognition TL 51,846 55,066 (5.8) 823.0 874.1 (5.8)
adjustment Other 493 839 (41.2) 7.8 13.3 (41.2)
Total 595,512 601,052 (.9) 9,452.6 9,540.5 (.9)
Tonnage LTL 1,641 1,677 (2.2) 26.04 26.62 (2.2)
TL 367 402 (8.8) 5.83 6.38 (8.8)
Total 2,008 2,079 (3.4) 31.87 33.00 (3.4)
Shipments LTL 3,354 3,372 (.5) 53.24 53.52 (.5)
TL 50 53 (7.2) .79 .84 (7.2)
Total 3,404 3,425 (.6) 54.03 54.36 (.6)
Revenue/cwt. LTL 16.55 16.25 1.8
TL 7.07 6.84 3.2
Total 14.82 14.43 2.7
Revenue/shipment LTL 161.93 161.69 .1
TL 1,047.24 1,031.83 1.5
Total 174.81 175.25 (.3)
11
12
Preston Trucking Company, Inc.
Financial Information
For the Three Months Ended March 31, 1998 and 1997
(Amounts in thousands)
First Quarter
----------------
1998 1997 %
------- ------- ------
Operating revenue 103,683 103,488 .2
Operating loss (6,500) (2,891)
Operating ratio 106.3 102.8
Total assets at March 31 163,772 156,404
First Quarter
First Quarter Amount/Workday
---------------- ----------------
1998 1997 % 1998 1997 %
------- ------- ------ ------- ------- ------
Workdays (63) (62)
Financial statement LTL 93,208 91,465 1.9 1,479.5 1,475.2 .3
revenue TL 10,801 11,080 (2.5) 171.4 178.7 (4.1)
Other (326) 943 NM (5.2) 15.2 NM
Total 103,683 103,488 .2 1,645.7 1,669.1 (1.4)
Revenue excluding LTL 93,208 91,465 1.9 1,479.5 1,475.2 .3
revenue recognition TL 10,801 11,080 (2.5) 171.4 178.7 (4.1)
adjustment Other 213 1,354 (84.3) 3.4 21.8 (84.4)
Total 104,222 103,899 .3 1,654.3 1,675.7 (1.3)
Tonnage LTL 439 439 (.1) 6.96 7.08 (1.7)
TL 118 122 (3.8) 1.87 1.97 (5.3)
Total 557 561 (.9) 8.83 9.05 (2.5)
Shipments LTL 850 832 2.1 13.49 13.42 .5
TL 16 17 (2.6) .26 .27 (4.2)
Total 866 849 2.1 13.75 13.69 .4
Revenue/cwt. LTL 10.62 10.41 2.0
TL 4.60 4.53 1.3
Total 9.35 9.13 2.4
Revenue/shipment LTL 109.68 109.94 (.2)
TL 661.66 660.98 .1
Total 120.09 120.83 (.6)
Note: Total assets and other revenue include 151 Tire in 1997 and exclude it
in 1998.
12
13
Saia Motor Freight Line, Inc.
Financial Information
For the Three Months Ended March 31, 1998 and 1997
(Amounts in thousands)
First Quarter
----------------
1998 1997 %
------- ------- -----
Operating revenue 80,271 72,420 10.8
Operating income 4,224 3,595
Operating ratio 94.7 95.0
Total assets at March 31 185,422 162,293
First Quarter
First Quarter Amount/Workday
---------------- -----------------------
1998 1997 % 1998 1997 %
------- ------- ----- ------- ------- -----
Workdays (63) (63)
Financial statement LTL 72,425 64,523 12.2 1,149.6 1,024.2 12.2
revenue TL 7,846 7,897 (.6) 124.5 125.3 (.6)
Total 80,271 72,420 10.8 1,274.1 1,149.5 10.8
Revenue excluding LTL 72,724 64,583 12.6 1,154.3 1,025.1 12.6
revenue recognition TL 7,878 7,904 (.3) 125.0 125.5 (.3)
adjustment Total 80,602 72,487 11.2 1,279.3 1,150.6 11.2
Tonnage LTL 410 376 9.1 6.51 5.97 9.1
TL 132 128 3.1 2.10 2.03 3.1
Total 542 504 7.6 8.61 8.00 7.6
Shipments LTL 780 719 8.5 12.38 11.41 8.5
TL 14 14 1.6 .22 .22 1.6
Total 794 733 8.4 12.60 11.63 8.4
Revenue/cwt. LTL 8.86 8.59 3.2
TL 2.98 3.08 (3.3)
Total 7.44 7.19 3.4
Revenue/shipment LTL 93.27 89.85 3.8
TL 565.99 577.14 (1.9)
Total 101.51 98.89 2.7
Note: Prior year statistics restated for consistency.
13
14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual Meeting of Stockholders on April 16, 1998
(b) The following directors were elected with the indicated number of votes
set forth below.
For Withheld
---------- --------
Klaus E. Agthe 24,527,578 571,345
Cassandra C. Carr 24,791,821 307,102
Howard M. Dean 24,462,552 636,371
David H. Hughes 24,785,887 313,036
Ronald T. LeMay 24,783,032 305,891
John C. McKelvey 24,790,686 308,237
A. Maurice Myers 24,780,394 318,529
William L. Trubeck 24,793,788 305,135
Carl W. Vogt 24,793,743 305,180
(c) Adoption of the 1997 Stock Option Plan was voted on and approved at the
meeting by the following vote. For: 16,790,971, Against: 8,242,186,
Abstention: 67,048.
(d) The appointment of Arthur Andersen LLP as independent public accountants
of the company for 1998 was voted on and approved at the meeting by the
following vote. For: 24,981,279, Against: 87,558, Abstention: 31,567.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
On February 24, 1998, the company announced that shippers' concerns
over the possibility of a strike, prior to the recent tentative labor
settlement, had adversely affected January and February business
levels at Yellow Freight System. As a result, Yellow Corporation
expected to report operating results below expectations for the
quarter ending March 31, 1998.
14
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YELLOW CORPORATION
--------------------------------
Registrant
Date: May 1, 1998 /s/ A. Maurice Myers
------------------- --------------------------------
A. Maurice Myers
Chairman of the Board of
Directors, President & Chief
Executive Officer
Date: May 1, 1998 /s/ H. A. Trucksess, III
------------------- --------------------------------
H. A. Trucksess, III
Senior Vice President - Finance/
Chief Financial Officer &
Treasurer
15
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
48,873
0
311,578
0
0
421,599
1,970,043
1,205,131
1,210,690
439,836
162,272
0
0
29,313
400,794
1,210,690
0
796,450
0
794,087
0
0
3,099
(1,115)
(468)
(647)
0
0
0
(647)
(.02)
(.02)
