2 0 0 1 A N N U A L R E P O R T
M A K I N G
G L O B A L
C O M M E R C E
W O R K
[YELLOW CORPORATION LOGO]
2001
ANNUAL
REPORT
2: Yellow Companies
4: Chairman's Letter
10: Connecting People
14: Connecting Places
18: Connecting Information
22: Management's Discussion and Analysis
30: Financial Summary
32: Consolidated Financial Statements and Notes
49: Report of Independent Public Accountants
50: Supplementary Information
51: Officers
52: Directors
[YELLOW CORPORATION LOGO]
MAKING GLOBAL COMMERCE WORK
- BY CONNECTING PEOPLE, PLACES, AND INFORMATION -
The
Yellow family of companies encompasses
thousands of transportation professionals, with diverse job
functions, but a common purpose. - That purpose is to make global
commerce work by connecting people, places, and information.
Our core purpose highlights our evolution from a less-than-truckload
trucking company to a best-in-class global transportation services provider.
- - Our business isn't just about people and places. It also is about information.
That's what allows us to manage our sophisticated transportation network, and
provide our customers unprecedented service, value and reliability. - Our
core purpose defines who we are and what we do. It inspires our people
to be passionate about our business, and helps them
understand how they contribute to our global economy.
It defines our past, present and future.
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YELLOW COMPANIES
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[YELLOW TRANSPORTATION LOGO]
SERVICES
Exact Express(TM)
Definite Delivery(TM)
Standard Ground(TM)
Regional Advantage(TM)
Volume Advantage(TM)
Yellow Global(TM)
NAFTA Cross Border
Specialized Delivery
Chemical
Exhibit
Return Goods
Employees: 19,200
Headquarters: Overland Park, KS
YELLOW TRANSPORTATION provides international, national, and regional
transportation services for industrial, commercial and retail goods and
materials. With a fleet of 8,000 tractors and 35,000 trailers, Yellow
Transportation delivered 12.2 million shipments in 2001 through a network
consisting of 360 service facilities.
[MERIDIAN IQ LOGO]
SERVICES
Transportation and Technology Management
Consulting
International Forwarding
Domestic Forwarding
Truckload Brokerage
Employees: 115
Headquarters: Overland Park, KS
MERIDIAN IQ is a non-asset based company using web-native solutions to offer
customers a single source for their global shipment management and execution
needs. Meridian IQ was formed by combining existing non-asset businesses at
Yellow Transportation and Transportation.com.
2
[YELLOW TECHNOLOGIES LOGO]
SERVICES
Systems Development
Infrastructure
Technical Support
Network Support
Employees: 325
Headquarters: Overland Park, KS
YELLOW TECHNOLOGIES provides innovative information solutions and technology
services that create a competitive advantage for Yellow businesses.
[SCS TRANSPORTATION, INC LOGO]
SCS Transportation is a holding company for the corporation, consisting of Saia
and Jevic.
[SAIA LOGO]
SERVICES
Guaranteed Select(TM)
Truckload
Mexico
Puerto Rico
Canada
Employees: 5,100
Headquarters: Duluth, GA
SAIA specializes in overnight and second-day less-than-truckload service in 21
states extending from southern Virginia west to California and northwest into
Oregon and Washington. Using a network of 110 terminals, 2,300 tractors and
7,700 trailers, Saia handled 4.2 million shipments in 2001.
[JEVIC LOGO]
SERVICES
100% GUARANTEED Service(TM)
Heat Fleet(TM)
Partial Truckload
Chemical
Expedited
Employees: 2,400
Headquarters: Delanco, NJ
JEVIC provides local, regional, inter-regional and national services. Jevic
serves the continental United States and Canada with regional facilities in the
Midwest, South, Southeast and Northeast. Jevic operated 1,300 tractors and 2,700
trailers and delivered 1 million shipments in 2001.
3
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"BECAUSE WE ARE A SERVICE [ZOLLARS PHOTO]
COMPANY, OUR PEOPLE ARE THE
BUSINESS. THEY PROVIDE OUR
CUSTOMERS THE POSITIVE
EXPERIENCES THAT KEEP THEM
COMING BACK TO YELLOW."
William D. Zollars
Chairman of the Board,
President and Chief Executive Officer
Yellow Corporation
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C H A I R M A N ' S L E T T E R
Dear Shareholder,
After 2000, the most successful year in our history, 2001 proved to be an
extremely challenging year for Yellow and our industry. We met that challenge
successfully with solid financial performance, our highest service quality ever,
and a 23 percent increase in shareholder value.
Of course, the real story of 2001 was the economy. We began to see signs of an
economic downturn late in 2000, and we expected business levels to soften in
2001. But the economic downturn moved into recession, and continued to
deteriorate in each successive quarter. In spite of that, we remained
profitable, and generated positive cash flow through aggressive cost management,
improved yield, mix management, and growth in our high-margin, value-added
services. This performance was a direct result of the professionalism and
dedication of our people.
4
The experience and insight gained will serve us very well in 2002 and beyond.
Despite the economic challenges we faced, investment in technology remained a
top priority. For the third consecutive year, Yellow was named to the
prestigious CIO-100. The award, by CIO Magazine, recognizes companies that use
technology to gain operational and strategic advantage. We also were named to
the InformationWeek 500, based on our technology-related accomplishments.
MyYellow.com(TM), our world-class web site, continued to add powerful
applications that enable customers to conduct their transportation business
online. We passed a milestone in 2001 when the number of registered MyYellow
users surpassed 60,000. Unlike many companies, our commitment to technology
remains strong even in a weak economy. This commitment has given us an edge in
the marketplace, and the opportunity to capture even greater rewards from our
technology investment. We also made significant progress in managing our
portfolio to improve shareholder value:
- - We changed the name of Yellow Freight System, our largest subsidiary, to
Yellow Transportation.
- - We created SCS Transportation, Inc. to serve as a holding company for Saia
and Jevic.
- - We launched Meridian IQ, a new transportation management solutions company.
Let's look at each operating subsidiary in more detail.
"Yellow Transportation continues to be a leader in service quality, reliability
and safety - which represent the most important indicators of future success."
YELLOW TRANSPORTATION
Our brand identity saw a subtle but important evolution this past year. Early in
our history, we
5
were named Yellow Transit, a regional provider. We evolved into Yellow Freight
System in 1963, reflecting our status as a transportation services provider with
national coverage.
In each case, we changed the part of the name that helps describe what we do,
while retaining the part of the name that has become our brand. Our new name -
Yellow Transportation - is consistent with that approach, because it better
defines the comprehensive nature of our service portfolio, while leveraging the
brand equity established since the company was formed in 1924. Yellow
Transportation continues to be a leader in service quality, reliability and
safety - which represent the most important indicators of future success. The
promise of that brand still is delivered by our people, who focus on exceeding
customer expectations through our "Yes We Can" attitude.
We also made significant progress on a major network re-engineering effort that
improved our competitive position versus regional providers in the two- and
three-day service markets. The network enhancements enabled us to reduce transit
times and improve service quality for our industry-leading Standard Ground(TM)
national service, and led to the introduction of Standard Ground Regional
Advantage(TM) service. Thanks to this re-engineering, the average time a
shipment is in our system continued to decline while, at the same time, service
reliability improved.
Exact Express(TM), our guaranteed, expedited, time-definite service, has grown
every year since its introduction in 1998. Exact Express revenue grew 6 percent
in 2001, while most competitors in the expedited services market reported
declines in volume. We made significant system upgrades, resulting in a faster
and more convenient process to arrange expedited shipments. These enhancements
are in keeping with our commitment to continuously improve and grow value-added
segments of our business.
6
We also continue to reap the benefits of our ISO certification. We were the
first transportation services provider to receive ISO 9001 certification of our
operating system company wide. Certification is granted by the International
Organization for Standardization, an independent accrediting body that is
considered the world's foremost authority on quality. More and more, customers
are requiring ISO certification of their transportation services providers as a
condition of doing business.
SCS TRANSPORTATION
In March of 2001, we completed the integration of our western subsidiaries into
Saia, our largest regional company. These transitions have proven
"Saia did a great job and had the strongest financial performance for the year
of all our operating companies."
difficult for many companies. However, this integration was virtually seamless
to customers, due primarily to effective planning in the areas of technology,
operations and customer communication. As a result, Saia improved service in
terms of on-time performance and reduced transit times.
Saia did a great job and had the strongest financial performance for the year of
all our operating companies. Operating income was up about 50 percent in a
dismal economy.
Jevic faced a difficult year in 2001, with the economy and stronger competition
having an impact on earnings. However, despite these factors, Jevic improved
service performance, while also aggressively managing variable costs. Because of
these efforts, Jevic is well positioned to improve performance as the economy
rebounds.
7
Also, as part of our strategy to separate the regional companies, we formed a
new holding company for Jevic and Saia. The new company is SCS Transportation,
Inc. SCS stands for supply chain solutions, recognizing the roles these
companies play in helping customers meet their distribution challenges. Both
Jevic and Saia will continue to do business under their well-established brand
names.
Assuming favorable market conditions, we expect to spin off SCS Transportation
to shareholders in 2002.
MERIDIAN IQ
Over the last few years, we have continued to expand our non-asset
transportation services, including unique technology and capabilities at
Transportation.com and Yellow Transportation. As part of our effort to better
meet our customers' needs, we have taken the next logical step by combining this
technology and these capabilities into a single business - Meridian IQ. This
alignment allows us to offer our customers one source for their global shipment
management and execution needs.
The services offered by Meridian IQ include domestic and international
forwarding, and multi-modal brokerage - growing businesses within the Yellow
family of companies. In addition, Meridian IQ will offer a unique new service
called Transportation Solutions Management. This service consists of three core
capabilities - web-native technology, transportation consulting, and network
management - providing our customers a portfolio of capabilities that are
flexible, fast, and easy to implement.
One of the most important elements of our non-asset strategy is its
complementary relationship with Yellow Transportation. Meridian IQ provides
services to existing Yellow Transportation customers, while using the Yellow
Transportation
8
network to deliver many of those services. In turn, Meridian IQ will bring new
business opportunities to Yellow Transportation. We expect Meridian IQ to become
a substantial part of the Yellow portfolio in the next few years, with our
national longhaul network providing a unique competitive advantage.
THE FUTURE
The theme of this annual report is our core purpose - Making global commerce
work by connecting people, places, and information. On these pages, you will see
examples of how our people bring those words to life. Because we are a service
company, our people are the business. They provide our customers the positive
experiences that keep them coming back to the family of Yellow Companies for
solutions to their transportation needs.
Our forecast for 2002 calls for a return to a more normal growth rate in the
second half of the year. We are well positioned, and even a modest improvement
in the economy will make us a stronger and much more profitable company.
Finally, it is important that we continue to differentiate our company in the
marketplace by demonstrating to our customers that we provide superior value.
Going forward, our job will be to concentrate on the fundamentals of providing
service that is on-time and defect-free. We believe that the best thing we can
do to ensure our success is to not just meet customer expectations but exceed
them each and every day - one customer at a time.
/s/ WILLIAM D. ZOLLARS
William D. Zollars
Chairman of the Board,
President and Chief Executive Officer
Yellow Corporation
9
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CONNECTING PEOPLE
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We are in a service business. So, when customers take the time to let us know
they were impressed with our service, it is music to our ears. - It's great to
know we made a positive connection. Successful service providers have a knack
for connecting with customers. And, through our high-quality service, we also
connect our customers with their customers. Making those connections, and
building strong relationships, is a cornerstone of our success. - Every day, our
customer service representatives connect with customers by answering questions,
providing information, and helping them arrange for pick-ups and deliveries. Our
account executives connect with customers by providing a portfolio of
transportation solutions. Our professional drivers, many of whom are on a
first-name basis with their customers, connect by being flexible, dependable,
and responsive to their needs. - These are just a few examples of the thousands
of people in the Yellow family of companies who contribute to our reputation as
a world-class company.
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Did you know...
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[PHOTO OF THE 2001 CIO 100 AWARD]
Our people helped Yellow continue to receive recognition from independent,
unbiased sources for our technological expertise. In August, we were named to
the CIO-100 for the third consecutive year, along with best-in-class
organizations like Intel(R) and IBM(R). We also were named the top
transportation services provider in the InformationWeek 500. In addition, the
number of registered customers using our web site to transact business grew to
more than 60,000.
10
` [PHOTO OF DRIVER, DISPATCHER & ACCOUNT EXECUTIVE]
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From left, FRANK SPELL, driver, SHARON RYAN, dispatcher, and TOM KERCE, account
executive, Charleston, SC
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"I want to express our appreciation for the service we get from your people here
in Charleston, South Carolina. All of our experiences have been nothing but
positive. Sharon Ryan is on top of every situation, and seems to have a solution
for any problem. Frank Spell is courteous and always on time. In two years, he
has never been late and has really become a part of our company's team. Tom
Kerce is by far the most professional person I have met in 14 years in
transportation. Here and nationwide you are doing an excellent job. Thank you."
Jason Pagliaro, Paint Paddle Products, Charleston, SC
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CONNECTING PEOPLE
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[PHOTO OF SAIA TRUCK]
"I have dealt with a lot of sales representatives...but I can honestly say the
person I can count on, when I need help...is Vivian. If I have any question,
Vivian comes through every time. She tells me about new services, and offers me
ways to save my company time and money. Because of her, I believe Saia stands
for Service, Attitude, Ingenuity and Achievement. Thank you for having a
wonderful member of your team in the New Orleans area." BRIAN STOCK, ICI PAINTS,
METAIRIE, LA
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VIVIAN TWILBECK, Saia business development executive, New Orleans, LA
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[TWILBECK PHOTO]
12
[SIMON PHOTO]
RAY SIMON, St. Cloud, MN, was the Grand Champion in the 2001 National Truck
Driving Championships. He's the only three-time winner in the history of the
competition, and he entered only three times.
[CUDMORE PHOTO]
GERALD CUDMORE, Watertown, SD, was the three-axle national champion in 2001.
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Yellow has two national truck driving champions in RAY SIMON and GERALD CUDMORE
(inset).
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"We're exceedingly proud of our professional drivers, represented by Ray and
Gerald, who have proven they are among the very best drivers in the
transportation-services industry. Their performance provides an example of
excellence and leadership to their colleagues, our customers, and the general
public." William D. Zollars, Chairman, President and CEO, Yellow Corporation
* Photos this page courtesy of Transport Topics, 2001
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CONNECTING PLACES
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There's no getting around it. If you produce a product, you need a reliable,
efficient, and dependable way to move it from place to place - from where it is
manufactured or stored to locations where it can be sold. - And more often than
not, savvy shippers rely on Yellow to handle that crucial piece of their
supply-chain puzzle - Every day, our people, our equipment, and our
transportation partners, connect places in nearly every corner of the world. We
make it happen through the use of state-of-the-art technology combined with
professional people, and a strong commitment to customer service. Because of
those efforts, our customers have peace of mind their shipments will arrive
safely, on-time, and damage-free. - Whether we are providing an expedited
shipment across an international border, tracking a shipment as it proceeds to
its destination cross country, or providing a charitable shipment for a
humanitarian organization, we take our responsibility seriously. Coast-to-coast,
city-to-city, country-to-country, or somewhere in between, these are the
connections between places on which customers have come to rely.
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Did you know...
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[EXACT EXPRESS LOGO]
One of the ways we connect places is with Exact Express(TM), our expedited,
time-definite, guaranteed service. We made a number of system improvements to
make it faster and easier for customers to arrange for Exact Express
shipments-and it showed. Exact Express revenue grew by 6 percent in 2001, a year
in which many expeditors saw their business decline.
14
[NIELSEN PHOTO]
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MIKE NIELSEN, center manager, Des Moines Customer Service Center
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[MORSCH PHOTO]
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DR. GARY MORSCH, president, Heart to Heart International, visiting the Isabella
Geriatric Center in New York.
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"Only an e-mail away! That's how easy it has been for Heart to Heart
International to receive transportation support from Yellow Corporation. Every
time we have a transportation need in the United States, we just send an e-mail
to Mike Nielsen. He promptly and professionally has arranged every request. Our
products, such as over-the-counter medicines and personal hygiene products, are
desperately needed by social service agencies across the country. Yellow and
Heart to Heart together are helping these agencies do what they do best, and
that is helping people in need. Yellow is doing its part as a corporate citizen
and we send our sincere thanks." Dr. Gary Morsch, President, Heart to Heart
International
15
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CONNECTING PLACES
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[PHOTO OF JEVIC TRUCK]
"We had a situation recently that showed us what a remarkable company Jevic
really is. One of our customers absolutely had to have a shipment the next day.
Jevic made sure delivery was on time...and the shipment tracked across country.
Jevic is superb. I want to thank everyone involved. Jevic more than justified my
trust in their care, speed, and incredible service."
PATRICIA GEIGER, CEO, ARTEMIS INDUSTRIES, AKRON, OH
16
"I wanted to take a minute to congratulate one of your Yellow Transportation
employees for her excellent customer service. I recently had a problem getting a
very time-sensitive shipment out of Guadalajara, Mexico. Kathy Brumer Was
instrumental in getting the shipment delivered...in record time." Ginger Baker,
President, Tuesday Welders Metalworks, Dale, TX
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KATHY BRUMER, customer service representative,
Des Moines Customer Service Center
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[BRUMER PHOTO]
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CONNECTING INFORMATION
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[THOMPSON PHOTO]
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REBECCA THOMPSON
help desk analyst
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When people think of Yellow, the images that most often come to mind are
tractors and trailers - tools of the trade for providing world-class
transportation services. - True, goods could not be delivered without trucks,
and people to load and drive them. A less visible, but critical component of our
success, is our ability to collect and manage information. - Simply put, global
commerce cannot function without a modern, efficient transportation system that
connects information in a way that benefits the enterprises that ship and
receive goods. Companies adept at connecting information on behalf of their
customers have a decided edge in the marketplace. That is how we help our
customers schedule shipments, manage inventories, and optimize their supply
chains. - Our status as a world-class transportation services provider hinges on
our ability to satisfy our customers, operate our network at optimum efficiency,
and connect information to drive internal processes. - Through the blend of our
technologies, our equipment, and our employees, we provide our customers
unprecedented accuracy, convenience and timeliness. We provide a world-class web
site that is attracting more users every day, many of whom use our site to
manage every phase of their transportation experience. - Yellow has made a
strong commitment to technology as a key strategy in enhancing profitability and
shareholder value. Our technological expertise, and ability to connect
information in a meaningful way, makes us stronger today and prepares us for the
future.
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"I wanted to express my appreciation for the YellowLive(TM) feature on your web
site. I had a couple of simple questions to resolve and tried your application
with much success. It is taking me longer to type this e-mail than it did to
conduct my entire inquiry. Thanks for doing a great job." Beth Davis, Charlotte,
NC
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JENNY WEIR, customer service representative, communicates with a customer via
YellowLive Chat
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[WEIR PHOTO]
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CONNECTING INFORMATION
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[PHOTO OF MYYELLOW WEBSITE PAGE]
"I discovered MyYellow while browsing through the Yellow web site. I have
watched it develop into a web site that absolutely helps my day go more
smoothly, and consequently, makes my job a little easier. If it were up to me,
all our business would move through Yellow and MyYellow." Laura J. Levine,
Mitsubishi Chemical America, Chesapeake, VA
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"I recently read that the Yellow web site was chosen as the best in the
transportation industry. I wanted to let you know that the only reason I use
Yellow as often as i do is because of the features/services I get with MyYellow.
No other company comes close. keep up the good work." Kelly Tennant, Central
Products, Indianapolis, IN
Pictured below: back, from left, John Randle, Amber Deer, Roy Moore, Ernest
Anthony, Todd Williams; front, Jayshri Saha and Luevina Huskey
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YELLOW TECHNOLOGIES people help develop high-tech solutions that set us apart in
the marketplace
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[PHOTO OF YELLOW TECHNOLOGIES EMPLOYEES]
21
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
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SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accounting policies that generally have the
most significant impact on the financial position or the results of operations
include: claims and insurance accruals, depreciation and capitalization of
assets, and goodwill. These accounting policies, and others, are described in
further detail in the Notes to Consolidated Financial Statements.
2001 VS. 2000
Operating revenue for Yellow Corporation (the company) totaled $3.3 billion
in 2001, down 8.7 percent from 2000 revenue of $3.6 billion. Operating income
for the year was $57.4 million (including unusual item charges of $12.1
million), down from $152.5 million in 2000 (including unusual item benefits of
$12.2 million). The unusual item charges in 2001 consisted of integration and
reorganization costs and property gains and losses. The unusual item benefits in
2000 consisted of property gains partially offset by integration costs. Net
income and income from continuing operations in 2001 was $15.3 million, or $.62
per share (all iper sharei references are diluted), compared to income from
continuing operations of $69.3 million in 2000, or $2.79 per share. The company
recorded a $1.3 million after-tax charge in 2000 for discontinued operations or
($.05) per share to settle pending liabilities associated with the 1999
bankruptcy of Preston Trucking Company (Preston Trucking). Including this
charge, net income for 2000 was $68.0 million, or $2.74 per share.
Yellow Freight System, Inc. was renamed Yellow Transportation, Inc. (Yellow
Transportation) in January 2002. Yellow Transportation revenue for 2001 was $2.5
billion, down 10.3 percent from $2.8 billion in 2000. Operating income for 2001
was $55.9 million (including reorganization costs of $2.8 million) down from
$141.8 million in 2000 (including unusual item benefits of $13.5 million). The
unusual item benefits in 2000 primarily related to a $20.7 million pretax gain
on the sale of real estate property in New York and a $6.5 million pretax loss
on an obsolete computer aided dispatch/mobile data terminal technology
application. The 2001 operating ratio (operating expenses divided by net
revenue) was 97.8 compared to 94.9 in 2000.
The revenue decline at Yellow Transportation was primarily a result of 13.5
percent lower shipment volume due to the weak economy, partially offset by a 2.9
percent improvement in revenue per hundred weight. A general rate increase
averaging 4.9 percent went into effect August 1, 2001 on approximately half of
the revenue base not covered by contracts. This increase, partially offset by
discounting and a decreasing fuel surcharge, was the primary factor for the
improved revenue per hundred weight.
Yellow Transportation completed implementation of a new high-speed network
started in 2000. Standard Ground Regional Advantage service makes Yellow
competitive with regional carriers in two- and three-day service lanes. The new
network has created operational efficiencies and the service has generated
positive feedback from customers. This portion of the business is performing
better than other segments of the business and attention will be focused on
leveraging these networks in 2002.
Effective cost management and lower business volumes allowed Yellow
Transportation to reduce operating expenses by approximately 75 percent of the
decrease in revenue for 2001. Lower business volumes and an aggressive,
proactive program of staff reductions in both the labor and management ranks
resulted in 7.0 percent lower salaries, wages and benefits expense, more than
off-setting contractual pay rate and benefit cost increases. Further savings
were achieved by curtailing discretionary spending and modifying operating
procedures to improve load average and increase direct loading.
The financial and operational statistics of Saia Motor Freight Line, Inc.
(Saia) have been restated to reflect the merger of WestEx and Action Express
into Saia, which was effective March 2, 2001. Saia revenue for 2001 was $485
million, up .7 percent from $482 million in 2000. Saia had operating income of
$11.4 million in 2001 (including integration costs of $6.7 million), compared to
$11.9 million in 2000 (including western regional companies' operating loss of
$4.7 million). The operating ratio at Saia was 96.3 in 2001 (excluding
integration costs) compared to 97.5 in 2000.
Saia increased revenue primarily due to improved pricing (revenue per hundred
weight was up 7.5 percent over last year), mostly offset by decreased tonnage
(total tonnage was down 6.4 percent over last year) as a result of weak economic
conditions. Yield benefited from a 5.9 percent general rate increase on August
1, 2001 for non-contract customers and a continued shift to higher yielding
less-than-truckload (LTL) business.
Operating expenses at Saia before integration costs
22
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decreased slightly from last year as a result of effective cost management,
improved productivity and lower business volume. Salaries, wages and benefits
expense decreased 1.4 percent from last year primarily due to workforce
reductions as a result of the integration and lower business volumes in 2001.
Improvements in productivity offset higher workers' compensation and health care
costs as well as pay increases. Reductions in fuel cost and vehicle maintenance
costs were mostly offset by higher purchased transportation costs to reduce
empty miles.
Jevic Transportation, Inc. (Jevic), had revenue of $286 million, down 6.8
percent from $307 million in 2000. Operating income was $6.0 million in 2001,
down from $14.3 million in 2000. The operating ratio at Jevic was 97.9 in 2001
compared to 95.3 in 2000.
The revenue decrease at Jevic was primarily due to 7.7 percent lower tonnage
as a result of a manufacturing recession, weakness in the truckload (TL) market
and increased competition. The tonnage decline was partially offset by improved
yield as a result of favorable LTL mix changes. Cost reduction efforts and lower
business volume allowed Jevic to reduce total operating expenses by 4.3 percent
from last year. Salaries, wages and benefits expense was down 2.1 percent from
last year as a result of lower employee levels and productivity improvements,
partially offset by higher group health insurance and other fringe cost
increases. The remaining operating expenses were reduced a similar percent as
revenue due to effective variable and discretionary cost controls as well as
lower fuel prices.
The company had a 65 percent interest in Meridian IQ, (formerly
Transportation.com), a provider of domestic and international forwarding,
multi-modal brokerage and transportation management services. In the third
quarter of 2001, the company completed its acquisition of the 35 percent
ownership in Transportation.com that it did not previously own from its venture
capital partners. From the date of acquisition through December 31, 2001, the
company incurred operating losses of $5.7 million related to Transportation.com.
Prior to the date of acquisition, the company accounted for their investment in
Transportation.com as an unconsolidated joint venture under the equity method of
accounting. Accordingly, nonoperating expenses include losses from
Transportation.com of $5.7 million in 2001, compared to $3.3 million in 2000.
Corporate and business development expenses for the company were approximately
$10.2 million in 2001 compared to $11.0 million in 2000. Nonoperating expenses
were $28.8 million in 2001 compared to $30.8 million in 2000. Interest expense
and off balance sheet financing costs were $24.5 million in 2001 compared to
$29.5 million in 2000 due to lower average debt levels and lower interest rates
and financing costs on the company's variable rate debt.
The consolidated effective tax rate was 46.3 percent in 2001 compared to 43.0
percent in 2000. The increase in effective rate is due to the impact of
nondeductible business expenses and goodwill on lower income before income
taxes. The notes to the consolidated financial statements provide an analysis of
the income tax provision and the effective tax rate.
2000 VS. 1999
Operating revenue for the company totaled $3.6 billion in 2000, an 11.2
percent increase over 1999 revenue of $3.2 billion. Operating income for the
year was $152.5 million (including unusual item benefits of $12.2 million), up
from $107.5 million in 1999 (including net property losses of $0.3 million). The
unusual item benefits in 2000 consisted of property gains partially offset by
integration costs. Income from continuing operations in 2000 was $69.3 million,
or $2.79 per share, compared to $50.9 million in 1999, or $2.02 per share. The
company recorded a $1.3 million after-tax charge in 2000 for discontinued
operations, or ($.05) per share, to settle pending liabilities associated with
the 1999 bankruptcy of Preston Trucking. Including this charge, net income for
2000 was $68.0 million, or $2.74 per share.
Yellow Transportation operating income for 2000 was $141.8 million (including
unusual item benefits of $13.5 million), up from $85.4 million in 1999. The
unusual item benefits in 2000 primarily related to a $20.7 million pretax gain
on the sale of real estate property in New York and a $6.5 million pretax loss
on an obsolete computer aided dispatch/mobile data terminal technology
application. Yellow Transportation revenue was $2.8 billion in 2000, up 6.4
percent from $2.6 billion in 1999. The 2000 operating ratio was 94.9, an
improvement of 1.8 points over the 1999 operating ratio of 96.7.
The increase in 2000 revenue was a result of yield improvement (increase in
revenue per ton) and operational efficiencies. During 2000, Yellow
Transportation began a network re-engineering process that enabled the company
to significantly increase its two and three-day
23
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
CONTINUED
- --------------------------------------------------------------------------------
regional service in the Upper Midwest, Northeastern U.S. and Eastern half of
Canada. The new Standard Ground Regional Advantage service was created from a
network re-engineering effort that began in 2000 in the Cleveland, OH and
Buffalo, NY areas. Yellow Transportation has improved shipment pickup and
delivery handling processes and added hundreds more metro-to-metro schedules
that cut delivery times by one to two days. Yellow Transportation revenue
increased as a result of a general rate increase averaging 5.9 percent that went
into effect August 1, 2000 on approximately half of the revenue base not covered
by contracts and as a result of its fuel surcharge program. Yellow
Transportation had no significant change in year over year LTL tonnage. Year
over year LTL shipments were down 1.5 percent, however, year over year LTL
revenue per ton was up 6.7 percent.
Yellow Transportation cost per ton increased approximately 5.4 percent in 2000
due to cost increases primarily in salaries, wages and benefits and fuel costs.
The salaries, wages and benefits increase over the prior year was due primarily
to higher levels of incentive compensation attributable to the company's
improved operating performance. Yellow Transportation also experienced increased
levels of health and other employee benefit related expenses. Other operating
expenses increased from the prior year primarily as a result of fuel costs. Fuel
costs, which are about six percent of revenue, increased approximately 38
percent over the prior year.
Saia had operating income of $11.9 million in 2000 compared to $17.4 million
in 1999. The year over year decline in operating income was due substantially to
the western regional companies' operating loss of $4.7 million, which were
integrated with Saia. Saia revenue grew 5.6 percent to $482 million, up from
$457 million in 1999. The operating ratio in 2000 was 97.5 compared to 96.2 in
1999. Year over year LTL tonnage increased 3.5 percent and year over year LTL
shipments increased 1.4 percent. Revenue per ton increased 3.8 percent over the
prior year. Saia initiated a 5.9 percent price increase on September 1, 2000 for
its non-contract customers. Additionally, Saia revenue increased as a result of
a fuel surcharge program.
Saia cost per ton increased 5.2 percent, primarily due to increased claims and
insurance costs (40 percent higher than 1999), fuel costs (30 percent higher
than 1999) and health care costs. In addition, due to competitive market
conditions, wage rates increased in excess of five percent. However, strong
variable expense controls and productivity gains in other areas offset increased
fuel prices, casualty claims and higher wage and benefit rates.
Jevic, which was acquired on July 9, 1999, had operating income of $14.3
million in 2000 compared to $10.1 million for the partial year of 1999. Jevic
revenue was $307 million in 2000 and $138 million for the partial year of 1999.
The operating ratio was 95.3 in 2000 compared to 92.7 for the partial year of
1999.
On a full year over year basis, Jevic revenue increased 10.4 percent, tonnage
increased 3.3 percent and shipments increased 8.5 percent. The full year
operating ratio for 1999 was 92.5. Revenue per ton increased 6.8 percent over
the prior year, however cost per ton increased approximately 10 percent.
Jevic experienced increased competition, higher fuel prices, unusually severe
northeast winter weather and a late-year economic slowdown. Because Jevic is a
hybrid LTL and TL carrier, fuel is a more significant component of operating
expense, more than ten percent in 2000. Average fuel cost increased more than 30
percent over 1999. The higher fuel costs were only partially offset by the Jevic
fuel surcharge program.
The company had a 65 percent interest in Meridian IQ, (formerly
Transportation.com), a provider of domestic and international forwarding,
multi-modal brokerage and transportation management services. In the first
half of 2000, the company recorded operating expense of approximately $3.5
million in business development expenses related to Meridian IQ. Beginning in
the second half of 2000, the company began accounting for their investment in
Meridian IQ as an unconsolidated joint venture under the equity method of
accounting. The company's proportionate share of business development expenses
of Meridian IQ for the second half of the year was approximately $3.3 million
and is reflected as nonoperating expense.
Corporate and business development expenses for the company were approximately
$11.0 million compared to $2.3 million in 1999. The increase over the prior year
includes $3.5 million in business development expenses related to Meridian IQ, a
$2.7 million charge for costs related to the Saia, WestEx and Action integration
and an increase in self-insurance retention reserves. Nonoperating expenses were
$30.8 million in 2000 compared to $18.2 million in 1999. Interest expense and
off balance sheet financing costs were $29.5 million in 2000, up from
24
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$21.4 million in 1999 due to higher average debt levels associated with the July
1999 Jevic acquisition and increased interest rates and financing costs on the
company's variable rate debt. There was no change in the company's effective tax
rate, which was 43.0 percent in both 2000 and 1999. The notes to the
consolidated financial statements provide an analysis of the income tax
provision and the effective tax rate.
1999 VS. 1998
Operating revenue for the company totaled $3.2 billion in 1999, an 11.2
percent increase over 1998 revenue of $2.9 billion. Operating income for the
year was $107.5 million, an increase of 28.9 percent over 1998 operating income
of $83.4 million. Income from continuing operations in 1999 was $50.9 million or
$2.02 per share compared to income from continuing operations of $40.1 million
or $1.49 per share in 1998.
Yellow Transportation 1999 operating income was $85.4 million, a 27.7 percent
increase over 1998 operating income of $66.9 million. Operating revenue was $2.6
billion for 1999, up 4.8 percent from $2.5 billion in 1998. The 1999 operating
ratio was 96.7 compared to 97.3 in 1998.
The increase in 1999 revenue was a net result of higher prices, mix changes
and volume increases. Yellow Transportation had year over year increases in LTL
tonnage of 2.4 percent and LTL shipments of 2.1 percent, as well as a 3.2
percent increase in LTL revenue per ton. Yellow Transportation benefited from a
general rate increase averaging 5.5 percent that went into effect on September
1, 1999 on approximately half of the revenue base not covered by contracts. A
fuel surcharge was also reactivated at mid-year 1999 in order to offset rising
diesel fuel prices. Performance in 1998 was adversely impacted by the loss of
business due to customer concerns over the possibility of a work stoppage in
connection with negotiations on a new National Master Freight Agreement with the
International Brotherhood of Teamsters. A contract was ratified on April 7,
1998.
Yellow Transportation cost per ton increased 3.2 percent in 1999 due to cost
increases in salaries wages and benefits, fuel costs and purchased
transportation that were partially offset by increased volume and decreased
maintenance related costs and depreciation expense. Salaries, wages and employee
benefits as a percentage of revenue increased due to scheduled wage and benefit
increases and higher levels of incentive compensation for Yellow Transportation
employees. Claims and insurance expense decreased slightly from the prior year,
despite the increase in shipments and an increase in total miles of 1.4 percent.
Yellow Transportation maintained the use of rail transportation at 27.3 percent
in 1999 unchanged from 1998. However, rail cost increases as well as other
purchased transportation service contributed to an overall increase in purchased
transportation expense. Diesel fuel prices rose in 1999, however a fuel-hedging
program substantially offset this cost increase.
Saia had operating income of $17.4 million in 1999 compared to $23.6 million
in 1998. Saia revenue grew 11.9 percent in 1999 to $457 million compared to $408
million in 1998. 1999 operating performance was below 1998 levels due to softer
revenue for the early part of 1999 in Texas and Gulf Coast regions with
economies tied to the petroleum industry. LTL tonnage increased 11.6 percent and
LTL revenue per ton increased 1.0 percent. However, revenue and tonnage trends
improved during the last quarter of 1999 due in part to company initiatives to
significantly improve service levels. Saia also experienced increased wage and
benefit expense resulting in an operating ratio of 96.2 in 1999 compared to 94.2
in 1998.
Saia cost per ton increased 3.6 percent due primarily to cost increases in
salaries, wages and benefits. Depreciation increased due to the addition of
revenue equipment in 1998 and 1999. Increased purchase transportation and
rentals during 1999 allowed Saia to manage temporary surges in business levels.
These increases were partially offset by favorable insurance claims expense
compared to the prior year. A fuel surcharge was also reactivated at mid-year
1999 in order to offset rising diesel fuel prices. Saia initiated a 4.5 percent
general rate increase on October 1, 1999 on its non-contract customers.
Jevic was acquired on July 9, 1999 and is operated as a separate subsidiary of
the company. Jevic reported operating income of $10.1 million and revenue of
$138 million resulting in an operating ratio of 92.7 for the partial year 1999.
Operating results for 1999 reflect only contributions since the July 9
acquisition date.
On a full year-to-year basis, Jevic revenue increased 22.6 percent in 1999 and
tonnage increased 18.7 percent. Jevic revenue per ton increased 3.1 percent in
1999 and cost per ton increased 3.2 percent. Jevic initiated a price increase of
5.7 percent on November 15, 1999.
Corporate and other business development expenses
25
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
were $2.3 million in 1999 compared to $7.0 million in 1998. Nonoperating
expenses were $18.2 million in 1999 compared to $13.8 million in 1998. The
increase in nonoperating expenses is primarily the result of increased financing
costs associated with the Jevic acquisition. The effective tax rate was 43.0
percent in 1999 compared to 42.4 percent in 1998. The increase in effective rate
is attributable to increased nondeductible expenses, including goodwill
amortization associated with the Jevic acquisition.
DISCONTINUED OPERATIONS
In the second quarter 1998, the company sold Preston Trucking, its northeast
regional LTL segment to a management group of three senior officers of Preston
Trucking. In 1999, Preston Trucking filed for bankruptcy protection. In 2000,
the company recorded a $1.3 million charge net of $0.7 million tax benefit to
settle pending liabilities associated with the bankruptcy.
FINANCIAL CONDITION
The company's liquidity needs arise primarily from capital investment in new
equipment, land and structures and information technology, as well as funding
working capital requirements.
To ensure short-term and longer-term liquidity, the company maintains capacity
under a bank credit agreement and an asset backed securitization (ABS) agreement
involving Yellow Transportation accounts receivable. At December 31, 2001, the
company had borrowings of $85 million and at December 31, 2000, the company had
borrowings of $60 million against the $300 million bank credit agreement, which
expires in April 2004. This facility is also used to provide letters of credit
that reduce available borrowings under the credit agreement. At December 31,
2001, the company had approximately $85 million outstanding in surety bonds.
These bonds, issued by insurance companies, serve as collateral support
primarily for workers' compensation programs in states where the company is
self-insured. The price and availability of surety bonds fluctuates over time
with general conditions in the insurance market. A lack of availability of
surety bonds could result in the need for the company to issue additional
letters of credit. Approximately $125 million remained available under the bank
credit agreement at year-end 2001 versus $151 million available at year-end
2000.
Capacity of $18 million remained under the ABS agreement at year-end 2001
versus $23 million available at year-end 2000. Access to the ABS facility is
dependent on the company having adequate eligible receivables, as defined under
the agreement, available for sale subject to a maximum facility limit of $200
million. The agreement permits the sale of accounts receivable to a wholly owned
special purpose corporation which in turn sells an undivided interest to a third
party affiliate of a bank. The receivables are removed from the company's
balance sheet when sold and the related ABS debt is not reflected in the
company's balance sheet as the third party affiliate of the bank that holds the
debt is not consolidated in the accompanying consolidated balance sheet. Funds
raised by this method are less expensive to the company than issuing commercial
paper.
The company has investment grade credit ratings, with stable outlooks, from
both Moody's and Standard & Poor's. Management expects the company to maintain
investment grade status for the foreseeable future. However, in the unlikely
event the company was to be rated below investment grade, no ratings-driven
triggers exist that would have an immediate or material adverse impact on the
liquidity of the company.
Working capital increased from a negative $189 million at year-end 2000 to a
negative $57 million at year-end 2001. Working capital is reduced through the
Yellow Transportation ABS agreement. Including the effects of the $35 million
decrease in the ABS facility and the $63 million decrease in current
classification of debt, working capital increased $132 million year over year.
The company can operate with negative working capital because of the quick
turnover of its accounts receivable and its ready access to sources of
short-term liquidity.
Projected net capital expenditures for 2002 are $115 million, a decrease from
2001 net capital expenditures of $121 million. Net capital for both periods
pertains primarily to replacement of revenue equipment at all subsidiaries and
additional investments in information technology, land and structures. Net
capital expenditures in 2001 totaled $121 million, a decrease from $135 million
in 2000. 1999 capital expenditures include $165 million for the acquisition of
Jevic. Actual and projected net capital expenditures are summarized in the
following table (in millions):
26
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- --------------------------------------------------------------------------------
Actual
---------------------------
Projected
2002 2001 2000 1999
--------- ---------------------------
Land and structures:
Additions $ 18 $ 18 $ 21 $ 16
Sales (2) (4) (28) (6)
Revenue equipment 76 67 110 97
Technology and other 23 20 27 42
Transportation.com investment - 20 5 -
Jevic acquisition - - - 165
- ------------------------------------------------------------------------
Total $ 115 $ 121 $ 135 $ 314
- ------------------------------------------------------------------------
In the third quarter of 2001, the company completed its acquisition of the 35
percent ownership in Transportation.com that it did not own from its venture
partners. The purchase price was approximately $14.3 million.
On July 9, 1999 the company completed a cash tender offer for all of the
common stock of Jevic Transportation, Inc. at $14 share. The aggregate purchase
price of the stock, including vested stock options and transaction costs, was
approximately $160.8 million, net of anticipated tax benefits relating to the
cost of the stock options. Including the assumption of debt, the total
transaction cost was approximately $200 million.
Both acquisitions were financed under the existing $300 million credit
facility and ABS agreement.
At year-end 2001 total balance sheet debt was $220 million compared to $205
million at year-end 2000.
These facilities provide adequate capacity to fund working capital and capital
expenditures requirements.
Management believes its current financial condition and access to capital is
adequate for current operations including funding anticipated capital
expenditures and future growth opportunities.
MARKET RISK
The company is exposed to a variety of market risks, including the effects of
interest rates, fuel prices and foreign currency exchange rates. To ensure
adequate funding through seasonal business cycles and minimize overall borrowing
costs, the company utilizes a variety of both fixed rate and variable rate
financial instruments with varying maturities. At December 31, 2001,
approximately 70 percent of the debt and off balance sheet financing was at
variable rates with the balance at fixed rates. The company entered into a $50
million interest rate swap agreement in December 2000 to hedge a portion of its
variable rate debt. The company also acquired interest rate swaps on a portion
of variable rate debt assumed in the Jevic acquisition. The interest rate swaps
hedge a portion of the exposure the company has to variable interest rates. The
company has hedged approximately 24 percent of its variable rate debt. The
detail of the company's debt structure, including off balance sheet financial
instruments is more fully described on page 39 of the notes to financial
statements.
Yellow Transportation, Saia and Jevic each have implemented effective fuel
surcharge programs. These programs are well established within the industry and
customer acceptance of fuel surcharges remains high. Since the amount of fuel
surcharge is based on average national diesel fuel prices and is reset weekly,
company exposure to fuel price volatility is significantly reduced.
The revenue, operating expenses, assets and liabilities of the Canadian and
Mexican subsidiaries are denominated in foreign currencies, thereby creating
exposures to changes in exchange rates. However, the risks related to foreign
currency exchange rates are not material to the company's consolidated financial
position or results of operations and the company does not enter into any
financial instruments associated with these risks.
27
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
CONTINUED
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The following table provides information about the company's financial
instruments as of December 31, 2001 and 2000. The table presents principal cash
flows (in millions) and related weighted average interest rates by contractual
maturity dates. Medium term notes included in fixed rate debt maturing within
one year, and intended to be refinanced are classified as long-term in the
consolidated balance sheet. For interest rate swaps the table presents notional
amounts and weighted average interest rates by contractual maturity. Weighted
average variable rates are based on the LIBOR rate as of December 31, 2001.
December 31
----------------------------------------
Expected Maturity Date 2001 2000
-------------------------------------------------- ------------------ ------------------
2002 2003 2004 2005 2006 Thereafter Total Fair Value Total Fair Value
-------------------------------------------------- ------------------ ------------------
Fixed Rate Debt $ 22.4 $19.5 $16.3 $13.5 $ 8.7 $28.4 $108.8 $114.2 $117.7 $121.9
Average Interest Rate 7.34% 6.29% 6.78% 7.06% 6.79% 7.02%
Variable Rate Debt $ 6.0 $ 5.1 $85.2 $ 8.9 $ - $ 6.0 $111.2 $111.2 $ 87.7 $ 87.7
Average Interest Rate 2.36% 4.22% 3.69% 3.97% -% 6.05%
Off Balance Sheet n
Asset Backed
Securitization $141.5 $141.5 $141.5 $177.0 $177.0
Effective Financing Rate 2.13%
Interest Rate Derivatives
(Variable To Fixed):
Notional Amount $ 5.8 $50.1 $ 0.2 $ 0.2 $ 0.2 $ 4.3 $ 60.8 $ 63.8 $ 62.3 $ 62.2
Average Pay Rate (Fixed) 5.70% 6.06% 7.65% 7.65% 7.65% 7.65%
Average Receive Rate
(Variable) 3.15% 1.90% 4.03% 4.03% 4.03% 4.03%
OTHER
The company provides a "pay for performance" incentive compensation plan that
rewards employees based on financial goals of operating income and return on
capital as well as personal goals. Consolidated results include pay for
performance accruals for nonunion employees of $7.1 million, $41.5 million and
$33.1 million in 2001, 2000 and 1999 respectively.
Another component of pay for performance is the company's stock option
programs which are discussed on page 42 of notes to the consolidated financial
statements.
Yellow Corporation Board of Directors authorized share repurchase programs of
the company's outstanding common stock, with aggregate purchases of up to $10
million in 2001 and $25 million in 2000. The company purchased 1,629,300
treasury shares in 2000 and 855,500 treasury shares in 1999. No shares were
repurchased during 2001, although authorization remains to repurchase up to $10
million.
In 2001, the Financial Accounting Standards Board (FASB) issued Statement No.
142, Goodwill and Other Intangible Assets, that will be adopted by the company
on January 1, 2002. Statement No. 142 requires that at least annually, the
company assess goodwill impairment by applying a fair value based test and that
goodwill no longer be subject to amortization, resulting in an increase in
annualized operating income and net income of $3.3 million. The company
estimates the impact of this new standard could result in an impairment charge
of
28
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- --------------------------------------------------------------------------------
approximately $75 million and would be recorded as a cumulative effect of change
in accounting principle. The notes to consolidated financial statements contain
additional information regarding adoption of this statement.
Also in 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations and Statement No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets. Statement No. 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it is incurred. Statement No. 144 addresses financial accounting and
reporting for impairment or disposal of long-lived assets, superceding FASB
Statement 121 and APB Opinion No. 30. Statements No. 143 and 144 are effective
for the company as of January 1, 2003 and 2002, respectively. The company is
currently assessing, but has not yet determined, the complete impact the
adoption of these statements will have on its financial position or results of
operations.
OUTLOOK
Consistent with the views of most economists, the company expects it will be
the second half of 2002 before meaningful economic improvement materializes. The
pricing environment is expected to be competitive, yet stable, over the course
of 2002. Given the experience with successful yield and cost management
initiatives, all Yellow operating companies are well positioned for strong
improvement as the economy rebounds.
At Yellow Transportation, approximately 80 percent of the employees are
represented by the International Brotherhood of Teamsters under a 5-year
contract that expires in March 2003. Contract discussions are underway and
negotiations toward a new National Master Freight Agreement will accelerate as
2002 progresses.
The pricing and availability of most forms of insurance have been recently
impacted by the events of September 11 and by several well-publicized
bankruptcies of large companies. The company expects continued access to
appropriate insurance coverage; however, the premiums paid for this coverage are
projected to increase significantly. In 2001, insurance premiums represented
less than one-half percent of consolidated revenue. Given the size and financial
strength of the company, the additional premium expenses are not expected to
have a material adverse impact on financial position or results of operations.
SCS Transportation was formed in early 2002 as a holding company for Saia and
Jevic. The formation of this holding company represents progress toward the
strategic objective of separating the regional companies from Yellow. Assuming
favorable market conditions, the company expects to spin-off SCS Transportation
to shareholders during 2002.
FORWARD LOOKING STATEMENTS
Statements contained in, and preceding management's discussion and analysis
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, labor relations, inclement weather, price and availability
of fuel, competitor pricing activity, expense volatility, changes in and
customer acceptance of new technology, changes in equity and debt markets and a
downturn in general or regional economic activity.
29
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FINANCIAL SUMMARY
Yellow Corporation and Subsidiaries
- --------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA
- --------------------------------------------------------------------------------
2001
----------
FOR THE YEAR (a), (b)
Operating revenue $3,276,651
Income from operations 57,353
Depreciation and amortization 126,143
Interest expense 16,431
Income from continuing operations 15,301
Net income (loss) including discontinued operations 15,301
Net cash from operating activities 84,853
Capital expenditures, net 121,184
AT YEAR-END
Net property and equipment 865,572
Total assets 1,285,777
Total debt (excluding off balance sheet debt) 220,026
Total debt (including off balance sheet debt) 361,526
Shareholders' equity 490,989
MEASUREMENTS
Diluted per share data:
Income from continuing operations .62
Net income (loss) .62
Shareholders' equity per share 20.14
Debt to capital ratio (excluding off balance sheet debt) 31%
Debt to capital ratio (including off balance sheet debt) 42%
Return on average shareholders' equity - continuing operations 3.2%
Return on average assets - continuing operations 1.2%
Common stock price range:
High 27.57
Low 15.50
Average number of employees 30,000
(a) In the third quarter of 2001, the company completed its acquisition of
Transportation.com. The results of operations include Transportation.com
from the acquisition date.
(b) Income from operations includes a net pretax charge of $12.1 million for
unusual items.
30
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- --------------------------------------------------------------------------------
2000 1999 1998 1997
- ---------------------------------------------------------------
(c) (d) (e)
$ 3,588,140 $ 3,226,847 $ 2,900,577 $ 2,898,414
152,529 107,506 83,396 98,677
126,883 110,310 103,856 108,225
19,491 15,303 11,685 13,546
69,302 50,915 40,077 52,740
68,018 50,915 (28,669) 52,435
227,113 250,036 154,575 119,984
134,837 313,692 95,633 79,566
888,578 866,772 702,802 692,159
1,308,477 1,325,583 1,105,685 1,270,812
205,437 276,407 157,065 165,705
382,437 411,407 200,065 183,705
459,776 409,380 371,252 445,851
2.79 2.02 1.49 1.84
2.74 2.02 (1.06) 1.83
18.65 16.37 13.90 15.77
31% 40% 30% 27%
45% 50% 35% 29%
15.9% 13.0% 9.8% 12.5%
5.3% 4.2% 3.4% 4.2%
22.13 19.63 29.88 34.13
13.81 14.38 9.69 14.13
32,900 31,200 29,700 29,000
(c) Income from operations includes a net pretax benefit of $12.2 million for
unusual items.
(d) In July 1999, the company acquired Jevic Transportation, Inc. The results
of operations include Jevic from the acquisition date.
(e) In 1998, the company sold Preston Trucking Company, Inc. All selected
financial data has been restated to disclose Preston Trucking as a
discontinued operation.
31
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CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries December 31, 2001 and 2000
- --------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA
- --------------------------------------------------------------------------------
2001 2000
-------------------------
ASSETS
CURRENT ASSETS:
Cash $ 20,694 $ 25,799
Accounts receivable, less allowances of $14,504 and $15,835 208,267 222,926
Fuel and operating supplies 14,274 15,455
Prepaid expenses 69,175 49,225
- -----------------------------------------------------------------------------------------
Total current assets 312,410 313,405
- -----------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Land 115,446 113,929
Structures 597,612 585,960
Revenue equipment 1,115,173 1,130,868
Technology equipment and software 172,614 168,446
Other 132,561 129,734
- -----------------------------------------------------------------------------------------
2,133,406 2,128,937
Less - Accumulated depreciation 1,267,834 1,240,359
- -----------------------------------------------------------------------------------------
Net property and equipment 865,572 888,578
- -----------------------------------------------------------------------------------------
Goodwill, net of amortization 101,722 94,392
Other assets 6,073 12,102
- -----------------------------------------------------------------------------------------
Total assets $1,285,777 $1,308,477
- -----------------------------------------------------------------------------------------
32
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2001 2000
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks outstanding in excess of bank balances $ 70,660 $ 64,068
Accounts payable 57,683 76,814
Wages, vacations, and employees' benefits 130,806 173,332
Deferred income taxes, net 6,511 3,013
Claims and insurance accruals 57,471 69,663
Other current and accrued liabilities 39,796 46,518
Current maturities of long-term debt 6,281 68,792
- -------------------------------------------------------------------------------------------------
Total current liabilities 369,208 502,200
- -------------------------------------------------------------------------------------------------
OTHER LIABILITIES:
Long-term debt 213,745 136,645
Deferred income taxes, net 92,817 92,413
Claims, insurance and other 119,018 117,443
- -------------------------------------------------------------------------------------------------
Total other liabilities 425,580 346,501
- -------------------------------------------------------------------------------------------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Series A $10 Preferred stock, $1 par value-authorized 750 shares - -
Preferred stock, $1 par value-authorized 4,250 shares - -
Common stock, $1 par value-authorized 120,000 shares,
issued 31,028 and 29,959 shares 31,028 29,959
Capital surplus 41,689 23,304
Retained earnings 537,496 522,195
Accumulated other comprehensive income (6,252) (2,710)
Treasury stock, at cost (6,163 shares) (112,972) (112,972)
- -------------------------------------------------------------------------------------------------
Total shareholders' equity 490,989 459,776
- -------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,285,777 $ 1,308,477
- -------------------------------------------------------------------------------------------------
The notes to consolidated financial statements are an integral part of these
balance sheets.
33
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STATEMENTS OF CONSOLIDATED OPERATIONS
Yellow Corporation and Subsidiaries for the years ended December 31
- --------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA
- --------------------------------------------------------------------------------
2001 2000 1999
---------------------------------------------
OPERATING REVENUE $ 3,276,651 $ 3,588,140 $ 3,226,847
- -------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries, wages and employees' benefits 2,074,458 2,210,505 2,041,590
Operating expenses and supplies 535,762 583,594 490,446
Operating taxes and licenses 107,156 112,329 100,602
Claims and insurance 77,250 80,619 70,227
Depreciation and amortization 126,143 126,883 110,310
Purchased transportation 286,436 333,846 305,840
Unusual items 12,093 (12,165) 326
- -------------------------------------------------------------------------------------------
Total operating expenses 3,219,298 3,435,611 3,119,341
- -------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 57,353 152,529 107,506
- -------------------------------------------------------------------------------------------
NONOPERATING (INCOME) EXPENSES:
Interest expense 16,431 19,491 15,303
Interest income (1,210) (1,140) (1,207)
Loss on equity method investment 5,741 3,329 -
Other, net 7,866 9,161 4,131
- -------------------------------------------------------------------------------------------
Nonoperating expenses, net 28,828 30,841 18,227
- -------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 28,525 121,688 89,279
INCOME TAX PROVISION 13,224 52,386 38,364
- -------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 15,301 69,302 50,915
- -------------------------------------------------------------------------------------------
Loss from discontinued operations, net - (1,284) -
- -------------------------------------------------------------------------------------------
NET INCOME $ 15,301 $ 68,018 $ 50,915
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING-BASIC 24,376 24,649 25,003
- -------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING-DILUTED 24,679 24,787 25,168
- -------------------------------------------------------------------------------------------
BASIC EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ .63 $ 2.81 $ 2.04
Loss from discontinued operations - (.05) -
- -------------------------------------------------------------------------------------------
Net income $ .63 $ 2.76 $ 2.04
- -------------------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ .62 $ 2.79 $ 2.02
Loss from discontinued operations - (.05) -
- -------------------------------------------------------------------------------------------
Net income $ .62 $ 2.74 $ 2.02
- -------------------------------------------------------------------------------------------
The notes to consolidated financial statements are an integral part of these
statements.
34
- --------------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED CASH FLOWS
Yellow Corporation and Subsidiaries for the years ended December 31
- --------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
- --------------------------------------------------------------------------------
2001 2000 1999
---------------------------------------
OPERATING ACTIVITIES:
Net income $ 15,301 $ 68,018 $ 50,915
Noncash items included in net income:
Depreciation and amortization 126,143 126,883 110,310
Loss from discontinued operations - 1,284 -
Loss on equity method investment 5,741 3,329 -
Deferred income tax provision 15,864 11,824 11,106
(Gains) losses from property disposals, net (133) (14,876) 326
Changes in assets and liabilities, net:
Accounts receivable 54,264 (5,864) (54,915)
Accounts receivable securitizations, net (35,500) 42,000 92,000
Accounts payable and checks outstanding (14,214) 10,843 (18,366)
Other working capital items (92,055) (6,530) 54,510
Claims, insurance and other (1,419) (10,649) 3,419
Other, net 10,861 851 731
- --------------------------------------------------------------------------------------------
Net cash from operating activities 84,853 227,113 250,036
- --------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Acquisition of property and equipment (113,186) (164,804) (159,275)
Proceeds from disposal of property and equipment 12,132 35,081 10,090
Acquisition of subsidiaries (14,300) - (164,507)
Other (5,830) (5,114) -
- --------------------------------------------------------------------------------------------
Net cash used in investing activities (121,184) (134,837) (313,692)
- --------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Unsecured bank credit lines, net 25,000 (40,000) 100,000
Repayment of long-term debt (10,412) (31,045) (25,564)
Proceeds from exercise of stock options 16,638 6,984 1,103
Treasury stock purchases - (24,997) (14,824)
- --------------------------------------------------------------------------------------------
Net cash from (used in) financing activities 31,226 (89,058) 60,715
- --------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (5,105) 3,218 (2,941)
CASH, BEGINNING OF YEAR 25,799 22,581 25,522
- --------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 20,694 $ 25,799 $ 22,581
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid, net $ 5,268 $ 47,813 $ 16,447
- --------------------------------------------------------------------------------------------
Interest paid $ 16,628 $ 19,761 $ 14,569
- --------------------------------------------------------------------------------------------
The notes to consolidated financial statements are an integral part of these
statements.
35
- --------------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Yellow Corporation and Subsidiaries
- --------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
- --------------------------------------------------------------------------------
Accumulated
Other
Common Capital Retained Comprehensive Treasury
Total Stock Surplus Earnings Income Stock
---------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ 371,252 $ 29,356 $ 14,948 $ 403,262 $ (3,163) $ (73,151)
Net income 50,915 - - 50,915 - -
Foreign currency translation adjustments 841 - - - 841 -
---------
Total comprehensive income 51,756
Exercise of stock options, including tax benefits 1,103 75 1,028 - - -
Treasury stock purchases (14,824) - - - - (14,824)
Other 93 6 87 - - -
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 409,380 29,437 16,063 454,177 (2,322) (87,975)
Net income 68,018 - - 68,018 - -
Foreign currency translation adjustments (388) - - - (388) -
---------
Total comprehensive income 67,630
Exercise of stock options, including tax benefits 7,646 516 7,130 - - -
Treasury stock purchases (24,997) - - - - (24,997)
Other 117 6 111 - - -
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 459,776 29,959 23,304 522,195 (2,710) (112,972)
Net income 15,301 - - 15,301 - -
Foreign currency translation adjustments (616) - - - (616) -
Changes in the fair value of interest rate swaps (2,926) - - - (2,926) -
---------
Total comprehensive income 11,759
Exercise of stock options, including tax benefits 19,349 1,063 18,286 - - -
Other 105 6 99 - - -
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 $ 490,989 $ 31,028 $ 41,689 $ 537,496 $ (6,252) $(112,972)
- -------------------------------------------------------------------------------------------------------------------------------
The notes to consolidated financial statements are an integral part of these
statements.
36
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION AND
SUMMARY OF ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Yellow Corporation and its wholly-owned subsidiaries (the company). All
significant intercompany accounts and transactions have been eliminated in
consolidation. Management makes estimates and assumptions which affect the
amounts reported in the financial statements and footnotes. Actual results could
differ from those estimates.
The company provides transportation services primarily to the
less-than-truckload (LTL) market throughout North America. Principal operating
subsidiaries are Yellow Transportation, Inc., formerly Yellow Freight System,
Inc. (Yellow Transportation), Saia Motor Freight Line, Inc. (Saia), Jevic
Transportation, Inc. (Jevic) and Meridian IQ, LLC (Meridian IQ), formerly
Transportation.com. The company integrated WestEx, Inc. and Action Express, Inc.
into Saia, effective March 2001.
In the third quarter of 2001, Yellow Corporation acquired the 35 percent
ownership in Transportation.com that it did not own from its venture capital
partners. The company began consolidating Transportation.com subsequent to the
acquisition. Prior to the acquisition date, the company accounted for its 65
percent ownership interest under the equity method of accounting in accordance
with EITF 96-16 due to substantive participating rights of the minority
investors. Losses on the company's investment were recorded in nonoperating
expenses, until the acquisition date.
Major accounting policies and practices used in the preparation of the
accompanying financial statements not covered in other notes to consolidated
financial statements are as follows:
- - Cash includes demand deposits and highly liquid investments purchased with
original maturities of three months or less.
- - Fuel is carried at average cost. The company has used heating oil financial
instruments to manage a portion of its exposure to fluctuating diesel prices.
Under the agreements, the company received or made payments based on the
difference between a fixed and a variable price for heating oil. These
agreements provided protection from rising fuel prices, but limited the ability
to benefit from price decreases below the purchase price of the agreements. Such
agreements were in place during 1999 and until August, 2000 when all agreements
were completed and no new agreements have been entered into subsequently. At
December 31, 1999, the company had agreements for 40.7 million gallons at a cost
averaging $.46 per gallon. Gains and losses on the agreements were recognized as
a component of fuel expense when the corresponding fuel was purchased.
- - The company utilizes interest rate swap contracts to hedge a portion of its
variable rate debt. The company acquired certain interest rate contracts in
connection with the 1999 Jevic acquisition, which hedge principally LIBOR based
floating rate debt. In December 2000, the company entered into a 3 year interest
rate swap agreement with a notional amount of $50 million under which the
company pays a fixed rate of 6.06 percent and receives a variable three month
LIBOR rate. This interest rate contract has been designated as a hedge of the
company's exposure to a portion of its off balance sheet variable rate ABS
financing. At December 31, 2001 approximately 70 percent of the company's debt
and off balance sheet financing was variable rate and the company had interest
rate contracts for fixed rates on approximately one fourth of this variable
rate debt. These interest rate contracts had notional amounts totaling $60.8
million and $62.3 million at December 31, 2001 and December 31, 2000,
respectively. The company recorded a $34 thousand loss in 2001 and no loss in
2000 in other net nonoperating expense representing the ineffectiveness of the
correlation between the hedge and the off balance sheet financing. At December
31, 2001, the company recorded $2.9 million unrealized loss on the interest rate
contracts as a decrease to accumulated other comprehensive income. The
differentials paid under the contracts designated as hedges are recognized as
adjustments to interest expense or financing costs as appropriate, and
approximated $800,000 in 2001.
- - Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based on the following
service lives:
Years
-------
Structures 10 - 40
Revenue equipment 3 - 14
Technology equipment and software 3 - 5
Other 3 - 15
- - Maintenance and repairs are charged to operations currently; replacements and
improvements are capitalized.
- - The company's investment in technology equipment and software consists
primarily of advanced customer service and freight management communications
equipment and related software.
37
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
- --------------------------------------------------------------------------------
CONTINUED
- --------------------------------------------------------------------------------
- - The company capitalizes certain costs associated with developing or obtaining
internal-use software. Capitalizable costs include external direct costs of
materials and services utilized in developing or obtaining the software, payroll
and payroll-related costs for employees directly associated with the project.
For the years ended December 31, 2001, 2000 and 1999, the company capitalized
$3.6 million, $4.5 million and $6.7 million, respectively, primarily
payroll-related costs.
- - Unusual items includes property gains or losses on disposition of property,
integration and reorganization costs. Integration charges were $6.7 million in
2001 and $2.7 million in 2000 associated with the integration of Action Express
and WestEx into Saia. Integration charges consisted of severance, costs
associated with disposition of duplicate facilities, costs of relogoing the
WestEx and Action fleet and losses on the liquidation of receivables of the
merged entities. Reorganization costs were $4.8 million in 2001 and primarily
associated with the reorganization of Yellow Transportation and
Transportation.com. These charges included employee separation costs, lease
termination and rent costs and loss on disposition of assets. Net gains (losses)
from operating property dispositions totaled $0.1 million in 2001, $14.6 million
in 2000, and ($0.3) million in 1999.
- - Claims and insurance accruals, both current and long- term, reflect the
estimated cost of claims for workers' compensation, cargo loss and damage, and
bodily injury and property damage not covered by insurance. These costs are
included in claims and insurance expense except for workers' compensation which
is included in employees' benefits expense.
Reserves for workers' compensation are primarily based upon actuarial analyses
prepared by independent actuaries and are discounted to present value using a
risk-free rate at the date of occurrence. The risk-free rate is the U.S.
Treasury rate for maturities that match the expected pay-out of workers'
compensation liabilities. The process of determining reserve requirements
utilizes historical trends and involves an evaluation of claim frequency,
severity and other factors but not certain future administrative costs. The
effect of future inflation for costs is implicitly considered in the actuarial
analyses. Adjustments to previously established reserves are included in
operating results.
At December 31, 2001 and 2000, estimated future payments for workers'
compensation claims aggregated $107.0 million and $110.5 million, respectively.
The present value of these estimated future payments was $87.4 million at
December 31, 2001, and $91.4 million at December 31, 2000.
- - Revenue is recognized on a percentage completion basis while expenses are
recognized as incurred.
- - The exercise of stock options under the company's various stock option plans
gives rise to compensation included in the taxable income of the stock recipient
and deducted by the company for federal and state income tax purposes. The
compensation results from increases in the fair value of the company's common
stock after the date of grant. The compensation is not recognized in expense in
the accompanying financial statements. The related tax benefits increase capital
surplus directly.
- - Comprehensive income for the three years ended December 31, 2001 includes
foreign currency translation adjustments and changes in the fair value of
interest rate swaps which are net of tax (benefit) expense of ($2.2) million in
2001, ($0.2) million in 2000, and $0.2 million in 1999.
- - Goodwill at December 31, 2001 and 2000, net of accumulated amortization of $13
million and $10 million respectively, is being amortized on a straight-line
basis over 20-40 years. In 2001, the company used an estimate of business unit's
undiscounted cash flows over the remaining life of the goodwill in measuring
whether goodwill was recoverable. On June 30, 2001, the Financial Accounting
Standards Board (FASB) issued Statement No. 142, Goodwill and Other Intangible
Assets, that will be adopted by the company on January 1, 2002. Statement No.
142 requires that upon adoption and at least annually thereafter, the company
assess goodwill impairment by applying a fair value based test. With the
adoption of Statement No. 142, goodwill will no longer be subject to
amortization, resulting in an increase in annualized operating income and net
income of $3.3 million. The company estimates the impact of this new statement
could result in an impairment charge of approximately $75 million and would be
recorded as a cumulative effect of change in accounting principle. The
impairment charge relates to Jevic which has been adversely impacted by the
downturn in the economy and increased and intense competition, subsequent to its
1999 acquisition by the company.
- - Certain reclassifications have been made to the prior year consolidated
financial statements to conform with current presentation.
38
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEBT AND FINANCING
At December 31, debt consisted of the following (in thousands):
2001 2000
---------------------
Unsecured credit agreement $ 85,000 $ 60,000
Unsecured medium term notes 77,250 84,250
Industrial development bonds 18,900 20,550
Subordinated debentures, average interest rate of 6.9%, installment
payments due from 2005 to 2011 16,310 16,211
Fixed rate mortgage notes, monthly principal and interest payments, final payment of $9,707
due January 2009, interest rates ranging from 7.0% to 7.7%, collateralized by Jevic
facilities (net book value of $12,398 and $13,134) 11,590 11,790
Variable rate term notes, monthly principal and interest payments, due through November 2002,
collateralized by Jevic revenue equipment (net book value of $4,962 and $6,478) 5,889 7,272
Variable rate mortgage note, monthly principal and interest payments, final payment of $4,497
due November 2005, collateralized by Jevic facilities (net book value of $8,790 and $9,108) 5,045 5,169
Capital leases and other 42 195
- -----------------------------------------------------------------------------------------------------------------------
Total debt 220,026 205,437
Current maturities 6,281 68,792
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt $213,745 $136,645
- -----------------------------------------------------------------------------------------------------------------------
The company has a $300 million unsecured credit agreement with a group of
banks which expires April 2004. At December 31, 2001 and 2000, $85 million and
$60 million in borrowings were outstanding, and letters of credit issued under
the agreement were $90 million and $89 million. Available borrowings under the
credit agreement were $125 million and $151 million at December 31, 2001 and
2000, respectively. The agreement may be used for additional short-term
borrowings and for the issuance of standby letters of credit. Interest on
borrowings is based, at the company's option, at a fixed increment over the
London interbank offered rate or the agent bank's base rate, which was 2.44
percent and 6.00 percent at December 31, 2001 and 2000, respectively. Under the
terms of the agreement, among other restrictions, the company must maintain a
minimum consolidated net worth and total debt must be no greater than a
specified ratio of earnings before interest, income taxes, depreciation and
amortization and rents, as defined. At December 31, 2001 and 2000, the company
was in compliance with all terms of this credit agreement.
The company also has an Asset Backed Securitization (ABS) agreement that
allows it to periodically transfer undivided percentage ownership interests in a
revolving pool of Yellow Transportation trade receivables to a multi-seller
conduit (conduit) administered by an independent financial institution. The
agreement has no stated maturity but has an underlying letter of credit with the
financial institution with a 364 day maturity. The company considers the ABS
facility as debt for calculations of debt capacity and credit rating purposes.
Under the terms of the agreement, the company may transfer trade receivables
to a bankruptcy-remote special purpose entity (SPE) and the conduit must
purchase from the SPE an undivided ownership interest of up to $200 million, in
those receivables. The SPE has been structured to be legally separate from the
company, but is wholly owned and consolidated by the company. The percentage
ownership interest in receivables purchased by the conduit may increase or
decrease over time, depending on the characteristics of the SPE's receivables,
including delinquency rates and debtor concentrations. The company services the
receivables transferred to the SPE and receives a servicing fee, which company
management has determined approximates market compensation for these services.
39
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
- --------------------------------------------------------------------------------
CONTINUED
- --------------------------------------------------------------------------------
Under the terms of the agreement, the conduit pays the SPE the face amount of
the undivided interest at the time of purchase. On a periodic basis, this sales
price is adjusted, resulting in payments by the SPE to the conduit of an amount
that varies based on the interest rate on certain of the conduit's liabilities
and the length of time the sold receivables remain outstanding. During 2001 and
2000, the company had gross sales of accounts receivable of $152 million and
$193 million and redemptions of $188 million and $151 million, respectively.
The company's loss on these sale of receivables to the conduit was $8.0
million in 2001, $10.1 million in 2000 and $6.1 million in 1999 and is included
in other nonoperating expense in the statement of consolidated operations. From
an economic perspective, the loss on sale of receivables represents a financing
charge.
At December 31, 2001 and 2000, the outstanding balance of SPE receivables was
$98 million and $109 million, which is net of $142 million and $177 million of
receivables sold by the SPE with undivided interests to the conduit. The
company's retained interest in the SPE's receivables is subordinate to, and
provides credit enhancement for the conduit's ownership interest in the SPE's
receivable, and is available to the conduit to pay any fees or expenses due to
the conduit, and to absorb all credit losses incurred on any of the SPE's
receivables.
The company maintains financing flexibility under the credit agreement and the
ABS agreement. Medium term notes maturing within one year of $22 million, and
intended to be refinanced, are classified as long-term. Medium term notes have
scheduled maturities through 2008 with fixed interest rates ranging from 6.0
percent to 7.9 percent.
The company has loan guarantees, mortgages and lease contracts in connection
with the issuance of industrial development bonds used to acquire, construct or
expand terminal facilities. Interest rates on some issues are variable. Rates on
these bonds and other debt currently range from 2.4 percent to 7.5 percent, with
principal payments due through 2020.
The principal maturities of long-term debt for the next five years (in
thousands) are as follows: 2002 - $6,281, 2003 - $24,627, 2004 - $123,482, 2005
- - $22,468, 2006 - $8,729, thereafter $34,439.
Based on the borrowing rates currently available to the company for debt with
similar terms and remaining maturities, the fair value of total balance sheet
debt at December 31, 2001 and 2000, was approximately $225 million and $210
million.
EMPLOYEE BENEFITS
Certain subsidiaries provide defined benefit pension plans for employees not
covered by collective bargaining agreements (approximately 15 percent of total
employees). The benefits are based on years of service and the employees' final
average earnings. The company's funding policy is to contribute the minimum
required tax deductible contribution for the year while taking into
consideration any variable Pension Benefit Guarantee Corporation premium.
Approximately 40 percent of the plans' assets consist of fixed income
securities, 50 percent are invested in U.S. equities, and 10 percent are
invested in international equities.
Effective January 1, 2000, the Board of Directors adopted an amendment to the
pension plan that provides for the payment of unreduced benefits, at early
retirement, for a participant whose combination of age and vested service equals
85 years or greater.
The following tables set forth the plans' funded status and components of net
pension cost (in thousands):
40
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2001 2000
--------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 309,029 $ 258,867
Service cost 14,191 11,326
Interest cost 23,427 21,733
Plan amendment 1,660 543
Actuarial loss 19,472 25,352
Benefits paid (11,744) (8,792)
- --------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 356,035 $ 309,029
- --------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 269,765 $ 257,720
Actual return on plan assets (12,864) (1,610)
Employer contributions 29,445 22,447
Benefits paid (11,744) (8,792)
- --------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 274,602 $ 269,765
- --------------------------------------------------------------------------------------------------
Funded status $ (81,433) $ (39,264)
Unrecognized transition asset (2,235) (6,120)
Unrecognized prior service cost 13,985 13,629
Unrecognized net actuarial loss 27,382 (14,594)
- --------------------------------------------------------------------------------------------------
Accrued benefit cost $ (42,301) $ (46,349)
- --------------------------------------------------------------------------------------------------
2001 2000 1999
-------------------------------------------
Net pension cost:
Service cost - benefits earned during the period $ 14,191 $ 11,326 $ 9,782
Interest cost on projected benefit obligation 23,427 21,733 17,981
Actual return on plan assets 12,864 1,610 (39,418)
Amortization of unrecognized net assets (1,080) (1,275) (1,799)
Net deferral (33,569) (22,352) 15,409
- --------------------------------------------------------------------------------------------------
Net pension cost $ 15,833 $ 11,042 $ 1,955
- --------------------------------------------------------------------------------------------------
Weighted average assumptions at December 31:
Discount rate 7.25% 7.50% 7.75%
Rate of increase in compensation levels 4.50% 4.50% 4.50%
Expected rate of return on assets 9.00% 9.00% 9.00%
41
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
- --------------------------------------------------------------------------------
CONTINUED
- --------------------------------------------------------------------------------
The company contributes to multi-employer health, welfare and pension plans
for employees covered by collective bargaining agreements (approximately 60
percent of total employees). The health and welfare plans provide health care
and disability benefits to active employees and retirees. The pension plans
provide defined benefits to retired participants. The company charged to expense
and contributed the following amounts to these plans (in thousands):
2001 2000 1999
-----------------------------------------
Health and welfare $ 150,012 $ 154,730 $ 141,884
Pension 157,148 167,772 151,964
- ------------------------------------------------------------------
Total $ 307,160 $ 322,502 $ 293,848
- ------------------------------------------------------------------
Under current legislation regarding multi-employer pension plans, a
termination, withdrawal or partial withdrawal from any multi-employer plan that
is in an under-funded status would render the company liable for a proportionate
share of such multi-employer plans' unfunded vested liabilities. This potential
unfunded pension liability also applies to the company's unionized competitors
who contribute to multi-employer plans. Based on the limited information
available from plan administrators, which the company cannot independently
validate, the company believes that its portion of the contingent liability
would be material to its financial position and results of operations. The
company's unionized subsidiary has no intention of taking any action that would
subject the company to obligations under the legislation.
The company's employees covered under collective bargaining agreements can
also participate in a contributory 401(k) plan. There are no employer
contributions to this plan.
Certain subsidiaries also sponsor defined contribution plans, primarily for
employees not covered by collective bargaining agreements. The plans principally
consist of contributory 401(k) savings plans and noncontributory profit sharing
plans. Company contributions to the 401(k) savings plans consist of both a fixed
matching percentage and a discretionary amount. The nondiscretionary company
match is equal to 25 percent of the first six percent of an eligible employees
contributions. The company's discretionary contributions for both the 401(k)
savings plan and profit sharing plans are determined annually by the Board of
Directors of each participating company. Contributions for each of the three
years in the period ended December 31, 2001, were not material to the operations
of the company.
The company and its operating subsidiaries each provide annual performance
incentive awards to nonunion employees which are based primarily on actual
operating results achieved compared to targeted operating results. Operating
results in 2001, 2000 and 1999 include performance incentive accruals for
nonunion employees of $7.1 million, $41.5 million and $33.1 million,
respectively. Performance incentive awards for a year are primarily paid in the
first quarter of the following year.
STOCK OPTIONS
The company has reserved 4.7 million shares of its common stock for issuance
to key management personnel of the company and its operating subsidiaries under
four stock option plans. The plans generally permit grants of nonqualified stock
options and grants of stock options coupled with a grant of stock appreciation
rights. The 1992 plan also permits grants of restricted stock awards.
Under the plans, the exercise price of each option equals the market price of
the company's common stock on the date of grant and the options expire ten years
from the date of grant. The options vest ratably, generally over a period of
four years.
In addition, the company has reserved 200,000 shares of its common stock for
issuance to its Board of Directors.
The company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, in accounting for its plans. No significant
compensation cost was recognized in any of the three years ended December 31,
2001. The following table presents pro forma net income and diluted earnings per
42
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
share, had compensation costs been recognized in accordance with Financial
Accounting Standards Board Statement No. 123, Accounting for Stock-Based
Compensation. The pro forma calculations, were estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions.
2001 2000 1999
-----------------------------------
Dividend yield -% -% -%
Expected volatility 36.8% 36.2% 40.4%
Risk-free interest rate 4.2% 5.9% 5.9%
Expected option life (years) 3 3 3
Fair value per option $ 6.04 $ 4.85 $ 5.42
- -------------------------------------------------------------------------------------------
(In millions except per share data)
Net income $ 15.3 $ 68.0 $ 50.9
Pro forma compensation expense, net of tax benefit 2.1 1.7 2.1
- -------------------------------------------------------------------------------------------
Pro forma net income $ 13.2 $ 66.3 $ 48.8
- -------------------------------------------------------------------------------------------
Pro forma earnings per share - diluted $ .53 $ 2.67 $ 1.94
- -------------------------------------------------------------------------------------------
At December 31, 2001, 2000 and 1999, options on approximately 1,054,000
shares, 1,421,000 shares, and 1,283,000 shares respectively were exercisable at
weighted average exercise prices of $20.62, $18.12 and $17.18, respectively. The
weighted average remaining contract life on outstanding options at December 31,
2001, 2000 and 1999 was 7.3 years, 7.9 years and 7.8 years. A summary of
activity in the company's stock option plans is presented in the following
table.
Exercise Price
--------------------------
Shares Weighted
(thousands) Average Range
--------------------------------------------
Outstanding at December 31, 1998 3,053 $ 18.10 $ 11.50 - 27.00
Granted 751 15.97 15.00 - 18.13
Exercised (75) 13.28 12.25 - 17.13
Cancelled (595) 19.71 12.25 - 27.00
- -------------------------------------------------------------------------------
Outstanding at December 31, 1999 3,134 17.44 11.50 - 27.00
Granted 1,170 16.63 14.56 - 18.75
Exercised (517) 13.54 11.50 - 18.13
Cancelled (412) 19.13 11.50 - 27.00
- -------------------------------------------------------------------------------
Outstanding at December 31, 2000 3,375 17.55 11.50 - 27.00
Granted 42 20.30 18.25 - 21.87
Exercised (1,063) 15.64 11.50 - 24.05
Cancelled (83) 18.57 12.25 - 24.05
- -------------------------------------------------------------------------------
Outstanding at December 31, 2001 2,271 $ 18.46 $ 11.50 - 27.00
- -------------------------------------------------------------------------------
43
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
- --------------------------------------------------------------------------------
CONTINUED
- --------------------------------------------------------------------------------
ACQUISITIONS
In the third quarter of 2001, the company completed its acquisition of the 35
percent ownership in Meridian IQ (formerly Transportation.com) that it did not
previously own, from its venture partners. The cash purchase price of
approximately $14.3 million was allocated primarily to goodwill ($10.3 million)
and tax benefit receivable ($4.0 million). The purchase agreements provide for
material contingent payments to be paid to the sellers in the event of a public
offering of Meridian IQ on or before August 2006. The company has no plans for a
public offering of Meridian IQ. In accordance with FASB Statement 142, no
amortization of goodwill was recorded in 2001. The results of Meridian IQ have
been consolidated in the company's financial statements from September 2001
through December 31, 2001.
The following unaudited pro forma financial information for the company gives
effect to the Meridian IQ acquisition as if it had occurred on January 1, 2000.
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated, or which may result in the future. (Pro forma financial information
is in millions, except per share data.)
For The Year Ended
December 31,
2001 2000
-----------------------
Revenue $ 3,296.5 $ 3,594.8
Net income from continuing operations $ 11.9 $ 65.6
Net income $ 11.9 $ 64.3
- -------------------------------------------------------------------
Per Share Data:
Net income from continuing operations $ .48 $ 2.64
Net income $ .48 $ 2.59
- -------------------------------------------------------------------
On July 9, 1999 the company completed a cash tender offer for all of the
common stock of Jevic Transportation, Inc. at $14 per share. The aggregate
purchase price of the stock, including vested stock options and transaction
costs was approximately $160.8 million, net of an anticipated $4.3 million tax
benefit relating to the cost of the stock options. Transaction costs relate
primarily to legal and professional fees (in millions).
Purchase Price:
Common stock purchased $ 149.9
Stock options, net of tax benefit 7.0
Transaction fees 3.9
- -------------------------------------------------------------------
Total $ 160.8
- -------------------------------------------------------------------
Including assumption of debt of approximately $45 million, the total
transaction cost was approximately $200 million. The transaction was accounted
for under purchase accounting and the excess of purchase price over fair value
of assets acquired was allocated to goodwill and was amortized over 40 years
through December 31, 2001. Accordingly, the results of operations for Jevic have
been included in the company's financial statements from July 10, 1999 through
December 31, 2001.
Both acquisitions were financed under the company's existing credit
facilities.
44
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
In July 1999, Preston Trucking Company (a former segment of the company sold
in 1998) ceased operations and commenced a liquidation of its assets under
federal bankruptcy regulations. The company recorded a charge to discontinued
operations of $1.3 million net of tax benefit of $0.7 million in 2000 to settle
pending liabilities associated with the bankruptcy. The company does not
anticipate any material change in the loss from disposition of the discontinued
operations.
INCOME TAXES
The company accounts for income taxes in accordance with the liability method.
Deferred income taxes are determined based upon the difference between the book
and the tax basis of the company's assets and liabilities. Deferred taxes are
provided at the enacted tax rates expected to be in effect when these
differences reverse. Deferred tax liabilities (assets) are comprised of the
following at December 31 (in thousands):
2001 2000
------------------------------
Depreciation $ 140,967 $ 134,873
Prepaids 11,191 12,828
Employee benefits 33,277 40,926
Revenue 21,082 22,620
Other 1,937 1,187
- -------------------------------------------------------------------------------
Gross tax liabilities 208,454 212,434
- -------------------------------------------------------------------------------
Claims and insurance (48,174) (65,153)
Bad debts (5,287) (5,660)
Employee benefits (22,783) (21,101)
Revenue (18,346) (16,241)
Other (14,536) (8,853)
- -------------------------------------------------------------------------------
Gross tax assets (109,126) (117,008)
- -------------------------------------------------------------------------------
Net tax liability $ 99,328 $ 95,426
- -------------------------------------------------------------------------------
A reconciliation between income taxes at the federal statutory rate and the
consolidated effective tax rate from continuing operations follows:
2001 2000 1999
--------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net 0.2 4.1 3.4
Nondeductible goodwill 3.7 0.9 0.7
Nondeductible business expenses 9.9 3.1 3.2
Foreign tax rate differential (1.5) 0.5 0.7
Other, net (1.0) (0.6) -
- -------------------------------------------------------------------------------
Effective tax rate 46.3% 43.0% 43.0%
- -------------------------------------------------------------------------------
45
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
- --------------------------------------------------------------------------------
CONTINUED
- --------------------------------------------------------------------------------
The income tax provision from continuing operations consists of the following
(in thousands):
2001 2000 1999
---------------------------------------
Current:
U.S. federal $ (340) $ 34,355 $ 23,554
State (2,805) 6,358 4,158
Foreign 505 (151) (454)
- ------------------------------------------------------------------------------------
Current income tax provision (2,640) 40,562 27,258
- ------------------------------------------------------------------------------------
Deferred:
U.S. federal 13,465 9,703 9,182
State 2,810 1,445 822
Foreign (411) 676 1,102
- ------------------------------------------------------------------------------------
Deferred income tax provision 15,864 11,824 11,106
- ------------------------------------------------------------------------------------
Income tax provision $ 13,224 $ 52,386 $ 38,364
- ------------------------------------------------------------------------------------
Based on the income before income taxes:
Domestic $ 27,285 $ 122,033 $ 89,269
Foreign 1,240 (345) 10
- ------------------------------------------------------------------------------------
Income before income taxes $ 28,525 $ 121,688 $ 89,279
- ------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Continuing Operations Discontinued Operations
------------------------------------------------
Average
Incremental Earnings Loss
Shares Earnings Per Share Loss Per Share
---------------------------------------------------------------
1999
Basic 25,003 $ 50,915 $ 2.04 $ - $ -
Effect of dilutive options 165 - (.02) - -
- -------------------------------------------------------------------------------------------
Diluted 25,168 $ 50,915 $ 2.02 $ - $ -
- -------------------------------------------------------------------------------------------
2000
Basic 24,649 $ 69,302 $ 2.81 $ (1,284) $ (.05)
Effect of dilutive options 138 - (.02) - -
- -------------------------------------------------------------------------------------------
Diluted 24,787 $ 69,302 $ 2.79 $ (1,284) $ (.05)
- -------------------------------------------------------------------------------------------
2001
Basic 24,376 $ 15,301 $ .63 $ - $ -
Effect of dilutive options 303 - (.01) - -
- -------------------------------------------------------------------------------------------
Diluted 24,679 $ 15,301 $ .62 $ - $ -
- -------------------------------------------------------------------------------------------
46
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The impacts of certain options were excluded from the calculation of diluted
earnings per share because average exercise prices were greater than the average
market price of common shares. Data regarding those options is summarized below:
2001 2000 1999
----------------------------
Weighted average option shares outstanding (in thousands) 611 1,500 1,666
Weighted average exercise price $ 24.18 $ 20.79 $ 21.44
COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES
The company leases certain terminals and equipment. At December 31, 2001, the
company was committed under noncancelable lease agreements requiring minimum
annual rentals payable as follows: 2002 - $35.1 million, 2003 - $22.3 million,
2004 - $12.0 million, 2005 - $6.7 million, 2006 - $3.8 million and thereafter,
$6.6 million.
Projected 2002 net capital expenditures are $115 million, of which $24 million
was committed at December 31, 2001.
The pricing and availability of most forms of insurance, including surety
bonds, have been recently impacted by the events of September 11 and by several
well-publicized bankruptcies of large companies. The company expects continued
access to appropriate insurance coverage; however, the premiums paid for this
coverage are projected to increase significantly. In 2001, insurance premiums
represented less than one- half percent of consolidated revenue. Given the size
and financial strength of the company, the additional premium expenses are not
expected to have a material adverse impact on financial position or results of
operations.
Various claims and legal actions are pending against the company. It is the
opinion of management that these matters will have no significant impact upon
the financial position or results of operations of the company.
BUSINESS SEGMENTS
The company reports 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.
The company has four reportable segments that are strategic business units
offering different products and services. Yellow Transportation is a reportable
segment that provides comprehensive national, regional and international
transportation services. Saia, a regional LTL carrier is a reportable segment
that provides overnight and second-day service in twenty-one states and Puerto
Rico. Jevic, a reportable segment operating primarily in the Northeast, is a
hybrid LTL/TL carrier that provides overnight and second-day service. Meridian
IQ is a reportable segment that provides domestic and international forwarding,
multi-modal brokerage and transportation management services.
The segments are managed separately because each requires different operating,
technology and marketing strategies. The company evaluates performance primarily
on operating income and return on capital.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Management fees and other corporate
services are charged to segments based on direct benefit received or allocated
based on revenues.
47
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
- --------------------------------------------------------------------------------
CONTINUED
- --------------------------------------------------------------------------------
The following table summarizes the company's continuing operations by business
segment (in thousands):
Yellow Corporate
Transportation Saia Jevic Meridian IQ and Other Consolidated
-----------------------------------------------------------------------------------
2001
Operating revenue $2,492,332 $ 485,379 $ 286,203 $ 11,292 $ 1,445 $3,276,651
Income (loss) from operations 55,884 11,426 6,012 (5,738) (10,231) 57,353
Identifiable assets 757,484 275,852 231,520 17,641 3,280 1,285,777
Capital expenditures, net 80,463 13,579 6,036 822 20,284* 121,184
Depreciation and amortization 76,227 25,269 23,897 698 52 126,143
- -----------------------------------------------------------------------------------------------------------------------
2000
Operating revenue $2,777,772 $ 481,990 $ 307,019 $ 16,788 $ 4,571 $3,588,140
Income (loss) from operations 141,829 11,855 14,309 (4,507) (10,957) 152,529
Identifiable assets 722,808 296,818 257,451 - 31,400 1,308,477
Capital expenditures, net 61,791 35,025 24,008 256 13,757 134,837
Depreciation and amortization 68,780 24,674 23,622 120 9,687 126,883
- -----------------------------------------------------------------------------------------------------------------------
1999
Operating revenue $2,611,580 $ 456,635 $ 137,875 $ 16,124 $ 4,633 $3,226,847
Income (loss) from operations 85,412 17,355 10,073 (3,006) (2,328) 107,506
Identifiable assets 743,681 284,013 257,099 6,456 34,334 1,325,583
Capital expenditures, net 76,882 38,984 14,032 133 183,661** 313,692
Depreciation and amortization 67,806 22,508 10,898 123 8,975 110,310
- -----------------------------------------------------------------------------------------------------------------------
* Includes capital expenditures of $14.3 million for the acquisition of
Transportation.com.
** Includes capital expenditures of $164.5 million for the acquisition of
Jevic.
Meridian IQ includes the operations of Transportation.com as well as other
non-asset based services. The segment data for Meridian IQ includes the partial
year results of operations of Transportation.com and other non-asset based
services for the periods they were part of the company's consolidated financial
results. As previously discussed in the notes to consolidated financial
statements, from June 2000 through August 2001, Transportation.com was accounted
for under the equity method of accounting. Accordingly, nonoperating expenses
include losses from Transportation.com of $5.7 million in 2001 and $3.3 million
in 2000. Full year revenue for Meridian IQ was $31.1 million, $23.4 million and
$16.1 million in 2001, 2000 and 1999, respectively. Full year operating losses
for Meridian IQ were ($16.8) million, ($13.7) million and ($3.0) million in
2001, 2000 and 1999, respectively.
Total revenue from foreign sources totaled $26.0 million, $24.5 million and
$21.4 million, in 2001, 2000 and 1999 respectively and are largely derived from
Canada and Mexico.
48
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF YELLOW CORPORATION:
We have audited the accompanying consolidated balance sheets of Yellow
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Yellow Corporation and
Subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Kansas City, Missouri - January 25, 2002
49
- --------------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Yellow Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
(Amounts in thousands except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------------
2001
Operating revenue $ 831,978 $ 824,770 $ 834,613 $ 785,290
Income from operations 12,443 17,635 19,237 8,038
Net income 1,746 5,656 6,478 1,421
Diluted earnings per share .07 .23 .26 .06
2000
Operating revenue $ 882,086 $ 904,166 $ 918,898 $ 882,990
Income from operations 25,287 46,003 43,361 37,878
Income from continuing operations 10,477 23,511 19,553 15,761
Loss from discontinued operations - - - (1,284)
Net income 10,477 23,511 19,553 14,477
Diluted earnings (loss) per share:
From continuing operations .41 .92 .80 .66
From discontinued operations - - - (.05)
COMMON STOCK
Yellow Corporation stock is held by approximately 2,350 shareholders of
record. The company's only class of stock outstanding is common stock, traded in
over-the-counter markets. Trading activity averaged 262,000 shares per day
during the year, up from 163,000 shares per day in 2000. Prices are quoted by
the National Association of Securities Dealers Automatic Quotation National
Market System (NASDAQ-NMS) under the symbol YELL.
The high and low prices at which Yellow Corporation common stock traded for
each calendar quarter in 2001 and 2000 follow:
High Low
-----------------
2001
- --------------------------------------
First Quarter 24.69 15.63
Second Quarter 20.15 15.50
Third Quarter 27.57 16.82
Fourth Quarter 26.45 18.00
2000
- --------------------------------------
First Quarter 19.13 15.25
Second Quarter 22.13 13.81
Third Quarter 16.88 14.25
Fourth Quarter 20.38 14.13
50
- --------------------------------------------------------------------------------
OFFICERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YELLOW CORPORATION
William D. Zollars
Chairman of the Board,
President and Chief Executive Officer
William F. Martin, Jr.
Senior Vice President
Legal/Corporate Secretary
Donald G. Barger, Jr.
Senior Vice President
Chief Financial Officer
Gregory A. Reid
Senior Vice President and
Chief Marketing Officer
Stephen L. Bruffett
Vice President and Treasurer
YELLOW TRANSPORTATION, INC.
James L. Welch
President and Chief Operating Officer
YELLOW TECHNOLOGIES, INC.
Lynn M. Caddell
President
SCS TRANSPORTATION, INC.
H.A. Trucksess, III
President
SAIA MOTOR FREIGHT LINE, INC.
Richard D. O'Dell
President
JEVIC TRANSPORTATION, INC.
Paul J. Karvois
President
MERIDIAN IQ, LLC
James D. Ritchie
President
51
- --------------------------------------------------------------------------------
[PHOTO OF BOARD OF DIRECTORS]
- --------------------------------------------------------------------------------
LEFT TO RIGHT: Howard M. Dean, William D. Zollars, William L. Trubeck, John C.
McKelvey, Carl W. Vogt, Richard C. Green, Jr., Cassandra C. Carr, Dennis E.
Foster
BOARD OF DIRECTORS
WILLIAM D. ZOLLARS
Director since 1999
Chairman of the Board
President and Chief Executive
Officer of the Company
CASSANDRA C. CARR 3.
Director since 1997
Senior Executive Vice
President External Affairs,
SBC Communications, Inc.
HOWARD M. DEAN 2.
Director since 1987
Chairman, Dean Foods
Company
DENNIS E. FOSTER 1., 3.*
Director since 2000
Retired Vice Chairman,
Alltel Corporation
RICHARD C. GREEN, JR. 2.
Director since 2001
Chairman, UtiliCorp United, Inc.
JOHN C. MCKELVEY 1.*
Director since 1977
President and Chief Executive
Officer, Menninger Foundation
and Menninger Psychiatric Clinic
WILLIAM L. TRUBECK 2.*
Director since 1994
Senior Vice President
and Chief Financial Officer,
Waste Management, Inc.
CARL W. VOGT 1., 3.
Director since 1996
Of Counsel, formerly
Senior Partner
Fulbright & Jaworski LLP
WILLIAM F. MARTIN, JR.
Secretary to the Board
1. Audit Committee
2. Compensation Committee
3. Governance Committee
* Committee Chairman
YELLOW CORPORATION
P.O. Box 7563
Overland Park, KS
66207
913-696-6100
http://www.yellowcorp.com
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen, LLP
Kansas City, MO
TRANSFER AGENT AND REGISTRAR
Mellon Investor Services
P.O. Box 3315
So. Hackensack, NJ
01606
800-851-9677
http://www.melloninvestor.com
ANNUAL MEETING
April 18 at 9:30 a.m.
Yellow Corporation
10990 Roe Avenue
Overland Park, KS
66211
10-K REPORT
Please write to:
Treasurer
Yellow Corporation
or see our web site
52
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[PHOTO OF STATUE OF LIBERTY]
Following the events of September 11, this advertisement appeared nationally. We
present it here as a tribute to America's heroic response.
- --------------------------------------------------------------------------------
OUR PRIDE IN AMERICA SHINES BRIGHTER THAN EVER.
Yellow extends our heartfelt condolences to all the victims and families
affected by the attacks on America. Yellow is proud to play a small part in
helping to move America forward by continuing our mission of making global
commerce work in a safe and secure manner.
[YELLOW CORPORATION LOGO]
YES WE CAN.(SM)
(C) 2002 Yellow Corporation. All Rights Reserved.
[YELLOW CORPORATION LOGO]
P.O. Box 7563
Overland Park, KS 66207
www.yellowcorp.com
Printed in the U.S.A. #505
