UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- ---------------------- Commission file number 0-12255 ------- YELLOW CORPORATION ------------------ (Exact name of registrant as specified in its charter) Delaware 48-0948788 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10990 Roe Avenue, P.O. Box 7563, Overland Park, Kansas 66207 ------------------------------------------------------ --------- (Address of principal executive offices) (Zip Code) (913) 696-6100 -------------- (Registrant's telephone number, including area code) No Changes ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 31, 2002 ----- ------------------------------- Common Stock, $1 Par Value Per Share 29,381,181 shares
YELLOW CORPORATION INDEX <Table> <Caption> Item Page - ---- ---- <S> <C> PART I 1. Financial Statements Consolidated Balance Sheets - September 30, 2002 and December 31, 2001 3 Statements of Consolidated Operations - Three and Nine Months Ended September 30, 2002 and 2001 4 Statements of Consolidated Cash Flows - Nine Months Ended September 30, 2002 and 2001 5 Notes to Consolidated Financial Statements 6 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 3. Quantitative and Qualitative Disclosures About Market Risk 22 4. Controls and Procedures 24 PART II 1. Legal Proceedings 25 2. Changes in Securities and Use of Proceeds 25 3. Defaults Upon Senior Securities 25 4. Submission of Matters to a Vote of Security Holders 25 5. Other Information 25 6. Exhibits and Reports on Form 8-K 25 Signatures 28 Certifications 29 </Table> 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS Yellow Corporation and Subsidiaries (Amounts in thousands except per share data) (Unaudited) <Table> <Caption> September 30, December 31, 2002 2001 ------------ ------------ <S> <C> <C> ASSETS CURRENT ASSETS: Cash $ 16,198 $ 19,214 Accounts receivable 294,889 124,880 Prepaid expenses and other 28,254 75,858 Current assets of discontinued operations -- 92,458 ------------ ------------ Total current assets 339,341 312,410 ------------ ------------ PROPERTY AND EQUIPMENT: Cost 1,665,986 1,656,298 Less - Accumulated depreciation 1,108,027 1,096,766 ------------ ------------ Net property and equipment 557,959 559,532 ------------ ------------ Goodwill and other assets 34,914 15,345 Noncurrent assets of discontinued operations -- 398,490 ------------ ------------ Total assets $ 932,214 $ 1,285,777 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and checks outstanding $ 83,670 $ 97,528 Wages and employees' benefits 129,064 103,990 Other current liabilities 105,225 96,740 Current maturities of long-term debt 52 6,281 Current liabilities of discontinued operations -- 64,669 ------------ ------------ Total current liabilities 318,011 369,208 ------------ ------------ OTHER LIABILITIES: Long-term debt 84,300 213,745 Deferred income taxes 36,129 33,868 Claims, insurance and other 125,815 110,326 Noncurrent liabilities of discontinued operations -- 67,641 ------------ ------------ Total other liabilities 246,244 425,580 ------------ ------------ SHAREHOLDERS' EQUITY: Common stock, $1 par value per share 31,464 31,028 Capital surplus 72,701 41,689 Retained earnings 311,279 537,496 Unamortized restricted stock awards (1,175) -- Accumulated other comprehensive income (loss) (5,008) (6,252) Treasury stock (41,302) (112,972) ------------ ------------ Total shareholders' equity 367,959 490,989 ------------ ------------ Total liabilities and shareholders' equity $ 932,214 $ 1,285,777 ============ ============ </Table> The accompanying notes are an integral part of these statements. 3
STATEMENTS OF CONSOLIDATED OPERATIONS Yellow Corporation and Subsidiaries For the Three and Nine Months Ended September 30, 2002 and 2001 (Amounts in thousands except per share data) (Unaudited) <Table> <Caption> Three Months Nine Months -------------------------- -------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> OPERATING REVENUE $ 682,473 $ 639,462 $ 1,907,336 $ 1,904,599 ----------- ----------- ----------- ----------- OPERATING EXPENSES: Salaries, wages and benefits 444,659 417,999 1,264,680 1,243,225 Operating expenses and supplies 97,808 101,698 271,629 309,090 Operating taxes and licenses 18,849 18,849 55,950 57,522 Claims and insurance 14,881 14,203 45,103 42,056 Depreciation and amortization 20,517 18,905 58,928 57,756 Purchased transportation 66,559 55,726 181,276 157,616 Unusual items 5,718 (734) 7,421 1,009 ----------- ----------- ----------- ----------- Total operating expenses 668,991 626,646 1,884,987 1,868,274 ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 13,482 12,816 22,349 36,325 ----------- ----------- ----------- ----------- NONOPERATING (INCOME) EXPENSES: Interest expense 1,306 2,320 5,053 6,157 ABS facility charges 756 1,782 2,225 6,855 Loss on equity method investment -- 1,344 -- 5,741 Other, net (54) (580) (256) (1,340) ----------- ----------- ----------- ----------- Nonoperating expenses, net 2,008 4,866 7,022 17,413 ----------- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 11,474 7,950 15,327 18,912 INCOME TAX PROVISION 4,177 2,802 5,549 7,395 ----------- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS 7,297 5,148 9,778 11,517 Income (loss) from discontinued operations, net (48,578) 1,330 (117,875) 2,363 ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ (41,281) $ 6,478 $ (108,097) $ 13,880 =========== =========== =========== =========== AVERAGE SHARES OUTSTANDING-BASIC 29,175 24,497 27,525 24,234 =========== =========== =========== =========== AVERAGE SHARES OUTSTANDING-DILUTED 29,523 24,854 27,882 24,533 =========== =========== =========== =========== BASIC EARNINGS (LOSS) PER SHARE: Income from continuing operations $ 0.25 $ 0.21 $ 0.35 $ 0.47 Income (loss) from discontinued operations (1.66) 0.05 (4.28) 0.10 ----------- ----------- ----------- ----------- Net income (loss) $ (1.41) $ 0.26 $ (3.93) $ 0.57 ----------- ----------- ----------- ----------- DILUTED EARNINGS (LOSS) PER SHARE: Income from continuing operations $ 0.25 $ 0.21 $ 0.35 $ 0.47 Income (loss) from discontinued operations (1.65) 0.05 (4.23) 0.10 ----------- ----------- ----------- ----------- Net income (loss) $ (1.40) $ 0.26 $ (3.88) $ 0.57 ----------- ----------- ----------- ----------- </Table> The accompanying notes are an integral part of these statements. 4
STATEMENTS OF CONSOLIDATED CASH FLOWS Yellow Corporation and Subsidiaries For the Nine Months Ended September 30, 2002 and 2001 (Amounts in thousands) (Unaudited) <Table> <Caption> 2002 2001 --------- --------- <S> <C> <C> OPERATING ACTIVITIES: Net income (loss) $(108,097) $ 13,880 Noncash items included in net income (loss): Depreciation and amortization 58,928 57,756 Loss (income) from discontinued operations 117,875 (2,363) Loss on equity method investment -- 5,741 Deferred income tax provision (benefit) (3,186) 4,229 Losses from property disposals, net 1,257 1,021 Changes in assets and liabilities, net: Accounts receivable (73,060) (7,209) Accounts receivable securitizations, net (82,000) 8,500 Accounts payable and checks outstanding (25,777) (41,051) Other working capital items 85,093 (21,840) Claims, insurance and other 15,357 1,303 Other, net 1,978 (48) Net change in operating activities of discontinued operations 17,250 44,776 --------- --------- Net cash from operating activities 5,618 64,695 --------- --------- INVESTING ACTIVITIES: Acquisition of property and equipment (59,338) (78,753) Proceeds from disposal of property and equipment 1,789 4,124 Acquisition of subsidiaries (18,712) (14,300) Other -- (6,378) Net capital expenditures of discontinued operations (24,372) (14,060) --------- --------- Net cash used in investing activities (100,633) (109,367) --------- --------- FINANCING ACTIVITIES: Increase (decrease) in long-term debt (119,533) 28,703 Dividend from subsidiary upon spin-off 110,790 -- Proceeds from stock options and other, net 6,950 13,983 Proceeds from issuance of common stock 93,792 -- --------- --------- Net cash provided by financing activities 91,999 42,686 --------- --------- NET DECREASE IN CASH (3,016) (1,986) CASH, BEGINNING OF PERIOD 19,214 20,877 --------- --------- CASH, END OF PERIOD $ 16,198 $ 18,891 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid, net $ 6,629 $ 4,812 ========= ========= Interest paid $ 9,107 $ 10,987 ========= ========= </Table> The accompanying notes are an integral part of these statements. 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Yellow Corporation and Subsidiaries (unaudited) 1. The accompanying consolidated financial statements include the accounts of Yellow Corporation and its wholly owned subsidiaries (the company or Yellow). The company has prepared the consolidated financial statements, without audit by independent public accountants, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, all normal recurring adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods included herein have been made. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements pursuant to SEC rules and regulations. Accordingly, the accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements included in the company's Annual Report on Form 10-K for the year ended December 31, 2001. 2. Yellow Corporation is a holding company with wholly owned operating subsidiaries. Its largest subsidiary, Yellow Transportation, offers a full range of national, regional and international services for the movement of industrial, commercial and retail goods. Meridian IQ is a non-asset based company using Web-native technology to provide customers a single source for transportation management solutions and global shipment management. Yellow Technologies is a captive resource providing innovative technology solutions and services exclusively for Yellow Corporation companies. On September 30, 2002, the company completed the 100 percent distribution (the spin-off) of all of its shares of SCS Transportation, Inc. (SCST) to Yellow shareholders of record on September 3, 2002. SCST provides regional overnight and second-day less-than-truckload (LTL) and selected truckload (TL) transportation services through two subsidiaries, Saia Motor Freight Line, Inc. (Saia) and Jevic Transportation, Inc. (Jevic). Shares were distributed on the basis of one share of SCST common stock for every two shares of Yellow common stock. As a result of the spin-off, the company's financial statements have been reclassified to reflect SCST as discontinued operations for all periods presented (see Note 3). 6
3. As required under Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the company evaluated the carrying value of SCST against the fair value, as determined by the market capitalization of SCST at the spin-off date. The following table presents the net assets (carrying value) of SCST compared to the fair value as determined by the market capitalization (in thousands): <Table> <Caption> September 30, 2002 ------------ <S> <C> Cash $ 2,383 Accounts receivable 99,233 Other current assets 18,158 Net property, plant and equipment 296,685 Other assets 17,925 Accounts payable and accrued expenses (67,175) Long-term debt (127,100) Other liabilities (69,342) ------------ Total net assets (carrying value) 170,767 Fair value at spin-off (118,120) ------------ Non-cash loss on disposal of SCST $ 52,647 ============ </Table> The company's retained earnings on the Consolidated Balance Sheet was impacted by the spin-off at September 30, 2002, as illustrated below (in thousands): <Table> <Caption> Retained Earnings -------- <S> <C> <C> Balance, December 31, 2001 $ 537,496 Income from continuing operations - nine months ending 9/30/02 9,778 Discontinued operations: Income from continuing operations - nine months ending 9/30/02 9,947 Loss on disposal of SCST (52,647) Cumulative effect of change in accounting for goodwill (75,175) --------- Loss from discontinued operations (117,875) Distribution of SCST at fair value (118,120) --------- Balance, September 30, 2002 $ 311,279 ========= </Table> 7
Summarized results of operations relating to SCST (as reported in discontinued operations) are as follows (amounts in thousands, except per share data): <Table> <Caption> Three Months Ended September 30 Nine Months Ended September 30 ------------------------------- ------------------------------ 2002 2001 2002 2001 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Operating revenue $ 201,155 $ 195,152 $ 581,181 $ 586,764 Operating expenses 192,498 188,731 559,751 573,774 ------------ ------------ ------------ ------------ Income from operations 8,657 6,421 21,430 12,990 Nonoperating expenses, net 1,635 2,074 4,735 6,386 ------------ ------------ ------------ ------------ Income before income taxes 7,022 4,347 16,695 6,604 Provision for income taxes 2,953 3,017 6,748 4,241 ------------ ------------ ------------ ------------ Income from continuing operations 4,069 1,330 9,947 2,363 Loss on disposal of SCST (52,647) -- (52,647) -- Cumulative effect of change in accounting for goodwill -- -- (75,175) -- ------------ ------------ ------------ ------------ Income (loss) from discontinued operations $ (48,578) $ 1,330 $ (117,875) $ 2,363 ============ ============ ============ ============ Discontinued operations basic earnings (loss) per share: Income from continuing operations $ 0.14 $ 0.05 $ 0.36 $ 0.10 Loss on disposal of SCST (1.80) -- (1.91) -- Cumulative effect of change in accounting for goodwill -- -- (2.73) -- ------------ ------------ ------------ ------------ Income (loss) from discontinued operations $ (1.66) $ 0.05 $ (4.28) $ 0.10 ============ ============ ============ ============ Discontinued operations diluted earnings (loss) per share: Income from continuing operations $ 0.13 $ 0.05 $ 0.36 $ 0.10 Loss on disposal of SCST (1.78) -- (1.89) -- Cumulative effect of change in accounting for goodwill -- -- (2.70) -- ------------ ------------ ------------ ------------ Income (loss) from discontinued operations $ (1.65) $ 0.05 $ (4.23) $ 0.10 ============ ============ ============ ============ </Table> Management fees and other corporate services previously allocated to SCST were not charged to discontinued operations, as the expenses will continue to be incurred by the company. Interest expense was allocated to discontinued operations based on the overall effective borrowing rate of Yellow applied to the debt reduction realized by Yellow from the spin-off. Interest expense included in discontinued operations was $1.6 million and $2.0 million for the three months ended September 30, 2002 and 2001, respectively, and $4.6 million and $6.3 million for the nine months ended September 30, 2002 and 2001, respectively. 8
4. In the third quarter of 2001, the company completed its acquisition of the 35 percent ownership in Meridian IQ (formerly Transportation.com) that the company did not previously own, from its venture capital partners. The cash purchase price of approximately $14.3 million was allocated to goodwill of $10.6 million, tax benefit receivable of $4.0 million and miscellaneous assets and liabilities of $(0.3) million. The results of Meridian IQ have been consolidated in the company's financial statements since September 2001. Prior to the acquisition date, the company accounted for its ownership interest under the equity method of accounting due to substantive participating rights of the minority investors. Losses on the company's investment were recorded in non-operating expenses until the acquisition date. In July 2002, Meridian IQ announced that it had acquired selected assets, consisting primarily of customer contracts, of Clicklogistics, Inc. (Clicklogistics) for nominal cash consideration and the assumption of certain obligations. Clicklogistics provides non-asset transportation and logistics management services. In August 2002, Meridian IQ completed the acquisition of MegaSys, Inc. (MegaSys), a Greenwood, Indiana based provider of non-asset transportation and logistics management services, for approximately $17 million. As part of the acquisition, the company negotiated an earnout arrangement, which provides for contingent consideration to be paid by Yellow upon MegaSys reaching certain levels of cash flow results through December 31, 2005. The company believes the acquisition supports its strategy to grow its non-asset-based business. MegaSys offers carrier procurement, routing and scheduling, audit and payment, and other shipment management capabilities. 5. Unusual items included in the consolidated results of operations are detailed in the following table (in thousands): <Table> <Caption> Three Months Ended September 30 Nine Months Ended September 30 ------------------------------- ------------------------------ 2002 2001 2002 2001 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Property (gains)/losses $ 352 $ (734) $ 1,258 $ 1,009 Spin-off fees 5,275 -- 6,179 -- Other 91 -- (16) -- ------------ ------------ ------------ ------------ Total unusual charges $ 5,718 $ (734) $ 7,421 $ 1,009 </Table> 6. The company reports financial and descriptive information about its reportable operating segments on a basis consistent with that used internally for evaluating segment operating performance and allocating resources to segments. 9
The company has two reportable segments, which are strategic business units that offer different, but complementary, transportation services to its customers. Yellow Transportation is a unionized carrier that provides comprehensive national, regional and international transportation services. Meridian IQ provides domestic and international freight forwarding, multi-modal brokerage and transportation management services. The segments are managed separately because each requires different operating and technology strategies. The company evaluates performance primarily on income from operations and return on capital. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the company's Annual Report on Form 10-K for the year ended December 31, 2001. Management fees and other corporate services are charged to segments based on direct benefit received or allocated based on revenues. The following table summarizes the company's operations by business segment (in thousands): <Table> <Caption> Yellow Corporate Transportation Meridian IQ and Other Consolidated -------------- ----------- --------- ------------ <S> <C> <C> <C> <C> As of September 30, 2002 Identifiable assets $ 856,507 $ 59,424 $ 16,283 $ 932,214 As of December 31, 2001 Identifiable assets $ 757,484 $ 17,641 $ 19,704 $ 794,829 (1) Three months ended September 30, 2002 Operating revenue $ 662,163 $ 21,522 $ (1,212) $ 682,473 Income from operations 22,990 27 (9,535) 13,482 Three months ended September 30, 2001 Operating revenue $ 636,527 $ 3,212 $ (277) $ 639,462 Income from operations 17,362 (1,632) (2,914) 12,816 Nine months ended September 30, 2002 Operating revenue $1,855,021 $ 55,866 $ (3,551) $1,907,336 Income from operations 40,176 (1,944) (15,883) 22,349 Nine months ended September 30, 2001 Operating revenue $1,901,460 $ 4,110 $ (971) $1,904,599 Income from operations 45,318 (2,651) (6,342) 36,325 </Table> (1) The December 31, 2001 total assets per the Consolidated Balance Sheets include $490,948 of assets related to discontinued operations not represented above. 10
The three months and nine months ended September 30, 2001 segment data presented for Meridian IQ represents the results of operations of other non-asset based services. As previously discussed in Note 4, Transportation.com was accounted for under the equity method of accounting during the first eight months of 2001. Accordingly, nonoperating expenses include losses from Transportation.com of $1.3 million in the third quarter of 2001 and $5.7 million in the first nine months of 2001. If Transportation.com had been consolidated for all of 2001, Meridian IQ revenue would have been $7.9 million and $22.3 million and operating losses would have been $3.2 million and $11.9 million for the three months ended September 30, 2001 and nine months ended September 30, 2001, respectively. 7. The difference between average common shares outstanding used in the computation of basic earnings per share and fully diluted earnings per share is attributable to outstanding common stock options and restricted stock awards. The outstanding stock options of Yellow were adjusted to reflect the impact of the spin-off. For employees who continued employment with Yellow the option remained an option for Yellow common stock with the number of shares covered by the option and related exercise price adjusted to preserve the financial value. For employees who worked for SCST after the spin-off, the Yellow options were cancelled and SCST options were issued to purchase SCST common stock with the number of shares of SCST common stock and exercise price set to preserve the financial value. Yellow options expire ten years from the initial issue date and vest ratably over the original four-year vesting period. At September 30, 2002, options on 1,741,899 shares were outstanding at a weighted average exercise price of $17.37 per share and options on 1,120,894 shares were exercisable at a weighted average exercise price of $17.76 per share. The weighted average remaining contract life on outstanding options at September 30, 2002 was 6.4 years. 8. The company's comprehensive income includes net income, changes in the fair value of an interest rate swap and foreign currency translation adjustments. Comprehensive income (loss) for the three months ended September 30, 2002 and 2001 was $(41.7) million and $4.6 million, respectively. Comprehensive income (loss) for the nine months ended September 30, 2002 and 2001 was $(106.9) million and $10.3 million, respectively. 11
9. On June 30, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (Statement No. 142), that was 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. As a result of the spin-off, results of operations for SCST, including prior year goodwill amortization, are reported under discontinued operations. Meridian IQ had not amortized goodwill in accordance with provisions of Statement No. 142. Therefore, income from continuing operations does not include goodwill amortization for any period presented. At December 31, 2001 the company had $100.6 million of goodwill on its Consolidated Balance Sheet, consisting primarily of $75.2 million remaining from the acquisition of Jevic included in noncurrent assets of discontinued operations. In valuing the goodwill of Jevic the company used an estimate of that business unit's discounted cash flows in measuring whether goodwill was recoverable. Based on this estimate, the company determined that 100 percent of the Jevic goodwill was impaired due to lower business volumes, compounded by a weak economy, and an increasingly competitive business environment. As a result, the company recorded a non-cash charge of $75.2 million in the first quarter 2002, which was reflected as a cumulative effect of a change in accounting principle. Due to the spin-off, the non-cash charge was reclassified to discontinued operations on the Statement of Consolidated Operations. For a detail of discontinued operations, refer to Note 3. The carrying amount of goodwill and related changes are (in thousands): <Table> <Caption> December 31, 2001 Impairment Adjustment Spin-off/ Acquisitions September 30, 2002 ----------------- --------------------- ---------------------- ------------------ <S> <C> <C> <C> <C> SCST $ 89,971 $ (75,175) $ (14,796) $ -- Meridian IQ 10,600 -- 9,891 20,491 --------- --------- --------- --------- $ 100,571 $ (75,175) $ (4,905) $ 20,491 </Table> In connection with adopting Statement No. 142, the company also reassessed the useful lives and the classification of its identifiable intangible assets and determined that they continue to be appropriate. The components of amortized intangible assets follow (in thousands): 12
<Table> <Caption> September 30, 2002 December 31, 2001 ------------------------ ------------------------ Average Gross Gross Life Carrying Accumulated Carrying Accumulated (years) Amount Amortization Amount Amortization ------- -------- ------------ -------- ------------ <S> <C> <C> <C> <C> <C> Customer related 11 $5,622 $ 171 $ 317 $ 34 Marketing related 6 1,550(1) 8 1,963 812 Technology based 5 1,061 74 231 19 ------ ----- ------ ----- $8,233 $ 253 $2,511 $865 </Table> (1) Includes approximately $0.9 million of trade name fees with an indefinite life. The gross carrying amount of intangibles at December 31, 2001 included approximately $2 million of SCST assets and the related accumulated amortization of $.8 million. SCST intangibles and accumulated amortization are not reflected in the September 30, 2002 balances. Identifiable intangibles of approximately $7.7 million are reflected in the September 30, 2002 balances as a result of the Meridian IQ acquisitions in the third quarter of 2002. Amortization expense for intangible assets, as reflected in income from continuing operations, for the three months ended September 30, 2002 was $121,206, for the nine months ended September 30, 2002 was $200,717, and is estimated to be $482,425 for the full year 2002. Estimated amortization expense for the next five fiscal years follows (in thousands): <Table> <Caption> Estimated Amortization Expense ------------ <S> <C> 2003 $ 972 2004 942 2005 859 2006 750 2007 606 </Table> 10. The company incurs rental expenses under noncancelable lease agreements for its buildings and operating equipment. Rental expense is charged to operating expenses and supplies on the Statements of Consolidated Operations. The following table represents the actual rental expense, as reflected in income from continuing operations, incurred during each period presented (in thousands): <Table> <Caption> Three Months Ended Nine Months Ended September 30 September 30 2002 2001 2002 2001 ------- ------- ------- ------ <S> <C> <C> <C> <C> Rental expense $ 8,559 $8,980 $25,514 $28,033 </Table> 13
11. 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. The company's unionized subsidiary, Yellow Transportation, has no intention of taking any action that would subject the company to present obligations under the legislation. 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. 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the company's Consolidated Financial Statements and the Notes to the Consolidated Financial Statements. MD&A and certain statements in the Notes to Consolidated Financial Statements include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, (each a "Forward-Looking Statement"). The words "believe," "intends," "expected," "will" and similar expressions, and the negative of those expressions, are intended to identify Forward-Looking Statements. It is important to note that the company's actual future results could differ materially from those projected in Forward-Looking Statements because of a number of factors, including (without limitation), labor relations, inclement weather, price and availability of fuel, competitor pricing activity, expense volatility, changes in and customer acceptance of new technology and a downturn in general or regional economic activity. FINANCIAL CONDITION September 30, 2002 Compared to December 31, 2001 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 provide 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. The company believes that these facilities provide adequate capacity to fund current working capital and capital expenditure requirements. It is not unusual for the company to have a deficit working capital position. The company can operate with a deficit working capital position due to rapid turnover of accounts receivable, effective cash management and ready access to funding. The ABS facility enables the company to borrow money from the asset-backed commercial paper market at attractive rates. Financing under the ABS facility is provided in two primary steps. The first step is the sale of receivables, with limited recourse, by Yellow Transportation to a special purpose entity, Yellow Receivables Corporation (YRC). YRC is a wholly owned subsidiary of Yellow Transportation designed to protect the assets for bankruptcy purposes. At this stage, all receivables are still reported on the Consolidated Balance Sheets of Yellow Corporation. The second step is the sale of an undivided interest in the receivables by YRC to a conduit provided by a large financial institution. The 15
conduit serves as an intermediary between YRC and commercial paper investors, and funds the purchase of receivables from YRC through the sale of asset-backed commercial paper. When YRC sells receivables to the conduit, the receivables, and the corresponding debt, are no longer reflected on the Consolidated Balance Sheets of Yellow Corporation. Activity under the ABS facility impacts the accounting presentation of current assets and net cash from operating activities. As of September 30, 2002, current assets were $339.3 million, which were reduced by the sale of $59.5 million in receivables by YRC to the financial conduit. As of December 31, 2001, current assets were $312.4 million, which were reduced by the sale of $141.5 million in receivables by YRC to the financial conduit. The $82.0 million difference between $59.5 million and $141.5 million in receivables sold is reflected in the Operating Activities section of the Statements of Consolidated Cash Flows as Accounts receivable securitizations, net. Activity under the ABS facility also impacts the accounting presentation of total debt. The following tables present total indebtedness of the company, including balance sheet and off-balance sheet obligations, and other commercial commitments as of September 30, 2002 (in millions): <Table> <Caption> CONTRACTUAL CASH OBLIGATIONS PAYMENTS DUE BY FISCAL YEAR 2002(1) 2003 2004 2005 2006 Thereafter Total ------ ------ ------ ------ ------ ---------- ------ <S> <C> <C> <C> <C> <C> <C> <C> Balance sheet obligations: Long-term debt $ 0.1 $ 24.3 $ 26.0 $ 16.4 $ 7.0 $ 10.5 $ 84.3 Off-balance sheet obligations: ABS facility -- 59.5(2) -- -- -- -- 59.5 Operating leases 7.5 22.8 14.6 10.1 2.9 6.2 64.1 ------ ------ ------ ------ ------ ------ ------ Total contractual obligations $ 7.6 $106.6 $ 40.6 $ 26.5 $ 9.9 $ 16.7 $207.9 ====== ====== ====== ====== ====== ====== ====== </Table> (1) Cash obligations for the remainder of 2002. (2) The ABS facility renews annually in April; however, the company views this revolving facility as long-term debt, since available capacity exists under the bank credit agreement to refinance the ABS obligations in the unlikely event it is necessary to do so. Although the company has no assurance it will be able to renew the facility, it believes other sources of funding are readily available. The preceding table is consistent with the manner in which the company communicates its financial position, including measures such as debt-to-capitalization, with investors, creditors and rating agencies. <Table> <Caption> OTHER COMMERCIAL COMMITMENTS AMOUNT OF COMMITMENT EXPIRATION BY FISCAL YEAR 2002 2003 2004 2005 2006 Thereafter Total ------ ------ ------ ------ ------ ---------- ------ <S> <C> <C> <C> <C> <C> <C> <C> Available line of credit $ -- $ -- $124.1(1) $ -- $ -- $ -- $124.1 Letters of credit 6.4 159.5 -- -- -- -- 165.9 Surety bonds -- 48.6 -- -- -- -- 48.6 ------ ------ ------ ------ ------ ------- ------ Total commercial commitments $ 6.4 $208.1 $124.1 $ -- $ -- $ -- $338.6 ====== ====== ====== ====== ====== ======= ====== </Table> (1) The line of credit renews in April 2004. Although the company has no assurance it will be able to renew the facility, renewal is completed well in advance of the expiration and the company believes other sources of funding are readily available. 16
At September 30, 2002, the company had $10 million in outstanding borrowings against the $300 million bank credit agreement, which expires in April 2004. This facility is also the source of letters of credit used to provide collateral for the self-insurance programs of the company, primarily in the areas of workers' compensation and auto liability. Letter of credit requirements increased significantly during 2002. Insurance providers increased collateral requirements in response to the events of September 11, 2001 and the bankruptcies of several large companies. In addition, the availability of surety bonds, an alternative form of insurance collateral, has decreased due to the same factors. The company intends to refinance under the bank credit facility all other debt maturing within one year, ($11.3 million at September 30, 2002 and $22.0 million at December 31, 2001), and has classified these amounts as long-term debt on the balance sheet. The $85.1 million of other working capital items on the Statement of Consolidated Cash Flows for the nine months ended September 30, 2002 primarily relates to pension and other employee benefits. Included in the change of other working capital is approximately $40 million due to the amortization of a prefunded benefit contribution for the company's employees covered by collective bargaining agreements, $16.2 million related to timing of wages and vacation payments, and $11.3 million due to timing of pension payments (accrued but not paid). Additionally, workers' compensation reserves increased by $7.3 million for the nine months. Net capital expenditures for property and equipment, excluding discontinued operations, during the first nine months of 2002 were $57.5 million, compared to $74.6 million during the first nine months of 2001. The decrease in capital expenditures is due primarily to timing of revenue equipment purchases in 2002 compared to 2001, and higher spending in 2001 for a large terminal facility at Yellow Transportation. Full year 2002 revenue equipment spending is expected to be near 2001 levels, and total net capital expenditures are expected to be approximately $90 million. In April 2002 the company completed the equity offering of 3.4 million shares and a fifteen- percent over-allotment of .5 million shares at a price of $25.50 per share. The company received $93.8 million of net proceeds from the offering. The net proceeds were used to repay debt and will provide capacity for investments in the company's growth strategy. In July 2002, Meridian IQ announced that it had acquired selected assets, consisting primarily of customer contracts, of Clicklogistics for nominal cash consideration and the assumption of certain obligations. Clicklogistics provides non-asset transportation and logistics management services. 17
In August 2002, Meridian IQ completed the acquisition of MegaSys, a Greenwood, Indiana based provider of non-asset transportation and logistics management services, for approximately $17 million. MegaSys offers carrier procurement, routing and scheduling, audit and payment and other shipment management capabilities. Meridian IQ employed key members of the MegaSys management team as part of the transaction. On September 30, 2002, the company successfully completed the 100 percent distribution of all of the shares of SCST to the company's shareholders of record at the close of business on September 3, 2002. Shares were distributed on the basis of one share of SCST common stock for every two shares of Yellow common stock. On September 30, 2002, as part of the spin-off agreement, SCST paid Yellow $111 million in cash and assumed debt of $16 million. Yellow used the proceeds to pay down the ABS balance and pay spin-off related fees. In October 2002, SCST paid Yellow an additional $3 million for a total dividend of $130 million. RESULTS OF OPERATIONS Comparison of Three Months Ended September 30, 2002 and 2001 Net loss for the three months ended September 30, 2002 was $41.3 million, or $1.40 per share, compared with net income of $6.5 million, or $.26 per share in the third quarter of 2001. The three months ended September 30, 2002 included income from continuing operations of $7.3 million, income from discontinued operations of $4.1 million and a non-cash charge of $52.6 million related to the spin-off of SCST. Consolidated operating revenue for the third quarter of 2002 was $682 million, up 6.7 percent from $639 million in the third quarter of 2001. Consolidated income from operations was $13.5 million, compared to $12.8 million in the prior year. The three months ended September 30, 2002 included unusual charges of approximately $5.3 million of spin-off fees. On September 3, 2002, Consolidated Freightways (CF) announced it was filing for Chapter 11 bankruptcy. CF was the third largest, national LTL carrier with 2001 annual revenues of approximately $2 billion. Yellow Transportation followed a disciplined approach regarding assumption of the former CF business. Yellow Transportation evaluated the potential business based on return on investment and available capacity. As a result of this strategic approach, Yellow Transportation has experienced revenue and incremental margin increases, while maintaining quality of service. Although the closure of CF had and will continue to have an impact on the industry, Yellow Transportation would have reported increased operating income for the third quarter 2002 compared to 2001 without the CF impact. Operating income was $23.0 million and $17.4 million for the 18
three months ended September 30, 2002 and 2001, respectively. Yellow Transportation revenue for the three months ended September 30, 2002 was $662 million, up $25.6 million or 4% from $637 million for the three months ended September 30, 2001. The operating ratio was 96.5 for the third quarter of 2002, compared with 97.3 a year earlier. Yellow Transportation third quarter 2002 LTL tonnage per day increased by 1.9 percent and the number of LTL shipments per day increased 3.3 percent compared to the third quarter of 2001. The primary reasons for the increase in volumes are increased market share from the CF closure and growth in premium services. LTL revenue per hundred weight, excluding fuel surcharge, for the third quarter of 2002 was up 3.0 percent over the third quarter of 2001. Higher workers' compensation expenses at Yellow Transportation impacted consolidated operating results. Increased costs per claim and longer duration of cases over the past several years have resulted in the ultimate cost of claims being higher than were originally anticipated. This has occurred despite the continued improvement of safety statistics at Yellow Transportation year over year. On a consolidated basis, workers' compensation costs have increased over $6.7 million, or nearly 65 percent from the third quarter of last year. The company is adding additional resources aimed at managing and moderating these claims. The National Master Freight Agreement (the agreement) covering the company's collective-bargaining associates expires on March 31, 2003. Yellow Transportation began formal labor negotiations with the International Brotherhood of Teamsters in October 2002, with a goal to renegotiate the agreement prior to its expiration. In October 2002, the Environmental Protection Agency issued new engine emission standards that apply to heavy-duty vehicles. Yellow Transportation is testing several units for fuel economy, reliability and performance standards. As Yellow Transportation uses tractors an average of seven years over the road and then converts them to city use for another seven to eight years, the emission standards are not expected to have a material impact on the company's capital expenditures or operating expenses for the remainder of 2002 and 2003. Meridian IQ was formed in January of this year, and formally launched in March, as the Yellow platform for non-asset-based transportation services. These capabilities include international and domestic freight forwarding services, multi-modal brokerage services and transportation management solutions. Meridian IQ operating revenue for the third quarter of 2002 was $21.5 million with slightly profitable income from operations, an improvement from the $.5 million operating loss in the second quarter of 2002, and consistent with company expectations for this newly formed entity. 19
Corporate and other expenses were $9.5 million in the third quarter of 2002, compared to $2.9 million in the third quarter of 2001. The increase is due to spin-off fees of $5.3 million, higher incentive compensation accruals of $0.9 million and professional services and other of $0.4 million. Spin-off fees include bank fees and external legal and audit services. Nonoperating expenses were $2.0 million for the three months ended September 30, 2002 compared to $4.9 million for the three months ended September 30, 2001. The third quarter of 2001 included a loss on Transportation.com of $1.3 million and $2.0 million of higher financing costs, including interest expense and ABS borrowing costs due to higher interest rates and higher average borrowings outstanding. The effective tax rate was 36.4 percent in the third quarter of 2002 compared to 35.2 percent in the third quarter of 2001. Comparison of Nine Months Ended September 30, 2002 and 2001 Net income (loss) for the nine months ended September 30, 2002 was $(108.1) million, or $(3.88) per share, compared with net income of $13.9 million, or $.57 per share in the first nine months of 2001. The nine months ended September 30, 2002 included income from continuing operations of $9.8 million, income from discontinued operations of $9.9 million, a non-cash charge of $75.2 million for the impairment of goodwill associated with Jevic and a non-cash charge of $52.6 million related to the spin-off of SCST, both non-cash charges were recorded in discontinued operations. Consolidated operating revenue was $1.9 billion for the nine months ended September 30, 2002 and 2001. Consolidated income from operations was $22.3 million, compared to $36.3 million in the prior year. Yellow Transportation reported operating income of $40.2 million for the nine months ended September 30, 2002 down from $45.3 million in 2001. Although effective cost management continues to be a focus, increased workers' compensation costs of approximately $15 million for the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, have negatively impacted operating results. Yellow Transportation revenue was $1.9 billion for the nine months ended September 30, 2002 and 2001. The nine month operating ratio for 2002 was 97.8, compared with 97.6 a year earlier. Yellow Transportation year-to-date 2002 LTL tonnage per day decreased by 1.3 percent and the number of LTL shipments per day decreased 1.1 percent from the same period in 2001. LTL revenue per hundred weight, excluding fuel surcharge, was up 1.3 percent over the first nine months of 2001. 20
Meridian IQ operating revenue for the nine months ended September 30, 2002 was $55.9 million and operating losses were $1.9 million. Meridian IQ has had consistent revenue and operating income improvement and results are consistent with company expectations for this newly formed entity. Corporate and other expenses were $15.9 million in the first nine months of 2002, compared to $6.3 million in the first nine months of 2001. The increase is due to spin-off fees of $6.2 million, higher incentive compensation accruals of $2.0 million and professional services and other of $1.4 million. Spin-off fees include bank fees and external legal and audit services. Nonoperating expenses were $7.0 million for the nine months ended September 30, 2002, compared to $17.4 million for the nine months ended September 30, 2001. The first nine months of 2001 included a loss on Transportation.com of $5.7 million and $5.7 million higher financing costs, including interest expense and ABS borrowing costs, due to higher interest rates and higher average borrowings. The effective tax rate was 36.2 percent for the nine months ended September 30, 2002 and 39.1 percent for the nine months ended September 30, 2001. The decrease in tax rate is due to a variety of factors including the projected full-year profit before tax, the implementation of prudent tax planning strategies and decreased travel and entertainment expenses. 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to a variety of market risks, including the effects of interest rates, foreign currency exchange rates and fuel prices. To ensure adequate funding through seasonal business cycles and minimize overall borrowing costs, the company utilizes both fixed rate and variable rate financial instruments with varying maturities. At September 30, 2002, approximately 48 percent of the company's debt and off-balance sheet financing are at variable rates with the balance at fixed rates. The company uses an interest rate swap to hedge a portion of its exposure to variable interest rates. The company has hedged approximately 72 percent of its variable debt at September 30, 2002. The table below provides information regarding the company's interest rate risk as of September 30, 2002. For fixed-rate debt, principal cash flows are stated in millions and weighted average interest rates are by contractual maturity. The fair value of fixed-rate debt has been estimated by discounting the principal and interest payments at rates available for debt of similar terms and maturity. The fair value of variable-rate debt is estimated to approximate the carrying amounts due to the fact that the interest rates are generally set for periods of three months or less, and is excluded from the following table. For interest rate swaps, the table presents notional amounts (in millions) and contractual interest rates by instrument. Financial instruments subject to interest rate market risk as of September 30, 2002: <Table> <Caption> There- Carrying Fair 2002 2003 2004 2005 2006 After Amount Value ------ ------ ------ ------ ------ ------ -------- ----- <S> <C> <C> <C> <C> <C> <C> <C> <C> Fixed-Rate Debt $ -- $ 24.3 $ 16.0 $ 16.4 $ 7.0 $ 10.5 $ 74.2 $ 81.7 Average interest rate N/A 6.00% 6.77% 6.58% 6.71% 6.06% Interest Rate Swap Notional amount -- $ 50.0(1) -- -- -- -- $ 50.0 $ 52.7 Avg. pay rate (fixed) N/A 6.06% N/A N/A N/A N/A Avg. receive rate (variable) N/A 1.79% N/A N/A N/A N/A </Table> (1) Interest rate swap on the ABS facility. The variable rate is based on the 3-month LIBOR as of September 30, 2002. The company's revenues and operating expenses, and assets and liabilities of its Canadian and Mexican subsidiaries are denominated in foreign currencies, thereby creating exposure to fluctuations in exchange rates. The risks related to foreign currency exchange rates are not material to the company's consolidated financial position or results of operations. 22
Yellow Transportation has implemented an effective fuel surcharge program. 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. 23
Item 4. Controls and Procedures The company maintains a rigorous set of disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in its filings under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. The company's principal executive and financial officers have evaluated its disclosure controls and procedures within 90 days prior to the filing of this Quarterly Report on Form 10-Q and have determined that such disclosure controls and procedures are effective. Subsequent to the evaluation by the company's principal executive and financial officers, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 24
PART II - OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities and Use of Proceeds - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1 - Bylaws, as amended on October 25, 2002. 4.1 - Bylaws, as amended on October 25, 2002 (filed above as Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002). 10.1 - Executive Severance Agreement dated as of October 25, 2002, between Yellow Corporation and Daniel J. Churay. 10.2 - Master Separation and Distribution Agreement between Yellow Corporation and SCS Transportation, Inc. 10.3 - Tax Indemnification and Allocation Agreement between Yellow Corporation and SCS Transportation, Inc. 10.4 - Amendment to Revolving Credit Agreement. 99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxyley Act of 2002. 99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxyley Act of 2002. (b) Reports on Form 8-K On July 19, 2002, a Form 8-K was filed under Item 5, Other Events, which reported that the company announced its Board of Directors had formally approved the terms of the spin-off. The Board of Directors of Yellow anticipated that the spin-off would occur during the third quarter of 2002. On August 7, 2002, a Form 8-K was filed under Item 9, Regulation FD Disclosure, William D. Zollars, Yellow Corporation's Chief Executive Officer, and Donald G. Barger, Jr., Yellow Corporation's Chief Financial Officer, had each executed a Statement Under Oath of Principal Executive Officer and Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings. On August 12, 2002, a Form 8-K was filed under Item 5, Other Events, which stated that the company received a favorable ruling from the Internal Revenue Service confirming the tax-free nature of the pending spin-off of SCST. 25
On August 26, 2002, a Form 8-K was filed under Item 5, Other Events, which announced a record date of September 3, 2002, for the spin-off of SCST. Yellow Corporation shareholders of record as of the close of business on September 3, 2002, would receive one share of SCST common stock for every two shares of Yellow common stock. On September 10, 2002, a Form 8-K was filed under Item 5, Other Events, declaring the Registration Statement on Form 10 for SCST, relating to the spin-off of Yellow's 100 percent interest in SCST, the holding company for its regional operating companies, Saia and Jevic to its shareholders, effective by the SEC. On September 11, 2002, a Form 8-K was filed under Item 5, Other Events, reporting that following the distribution, on or near October 1, 2002, of the shares of its SCST subsidiary, Yellow would continue to trade on The NASDAQ National Market under the symbol "YELL," and SCST had been approved to trade as a separate issue on The NASDAQ National Market under the symbol "SCST." Yellow further announced that "when issued" trading was expected to develop for both Yellow and SCST during the period beginning September 11, 2002 and end with the distribution date. On September 30, 2002, a Form 8-K was filed under Item 5, Other Events, announcing the completion of the 100 percent distribution of the shares of SCST to Yellow shareholders of record. SCST shares had been distributed to Yellow shareholders on the basis on one SCST share for every two Yellow shares held on the record date of September 3, 2002. On October 22, 2002, a Form 8-K was filed under Item 7, Financial Statements and Exhibits, and Item 9, Regulation FD Disclosure. The company made available the unaudited historical consolidated balance sheets as of March 31, 2001, June 30, 2001, September 30, 2001, December 31, 2001, March 31, 2002, June 30, 2002 and September 30, 2002, statements of consolidated operations and statements of consolidated cash flows for the three months ended March 31, 2001, June 30, 2001, September 30, 2001, December 31, 2001, March 31, 2002, June 30, 2002, September 30, 2002, the twelve months ended December 31, 2001, and the nine months ended September 30, 2002. These historical financial statements have been presented to reflect the operations of SCST as a discontinued operation as required by the spin-off of SCST to shareholders on September 30, 2002. 26
STATISTICAL INFORMATION Yellow Transportation, Inc. For the Three Months Ended September 30 (Amounts in thousands except per unit data) <Table> <Caption> Three Months Amount/Workday ---------------------- ---------------------- 2002 2001 % 2002 2001 % --------- --------- --------- --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> Workdays 64 63 Revenue: LTL 617,988 582,464 6.1 9,656.1 9,245.5 4.4 TL 45,399 50,237 (9.6) 709.3 797.4 (11.0) --------- --------- --------- --------- --------- Subtotal - pickup basis 663,387 632,701 4.9 10,365.4 10,042.9 3.2 Revenue recognition adjustment (1,224) 3,826 n/m (19.1) 60.7 n/m --------- --------- --------- --------- --------- Total - as reported 662,163 636,527 4.0 10,346.3 10,103.6 2.4 Tonnage - pickup basis: LTL 1,592 1,539 3.5 24.88 24.43 1.9 TL 290 327 (11.2) 4.53 5.18 (12.5) Total 1,882 1,866 0.9 29.41 29.61 (0.7) Shipments - pickup basis: LTL 3,195 3,046 4.9 49.93 48.35 3.3 TL 40 44 (9.9) 0.62 0.70 (11.3) Total 3,235 3,090 4.7 50.55 49.05 3.1 Revenue/cwt. - pickup basis: LTL 19.41 18.93 2.5 TL 7.82 7.69 1.7 Total 17.62 16.96 3.9 Revenue/cwt. - pickup basis: (excluding fuel surcharge) LTL 19.02 18.46 3.0 TL 7.70 7.54 2.1 Total 17.28 16.55 4.4 Revenue/shipment - pickup basis: LTL 193.39 191.21 1.1 TL 1,139.38 1,135.45 0.3 Total 205.04 204.73 0.2 </Table> 27
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. YELLOW CORPORATION ------------------ Registrant Date: November 14, 2002 /s/ William D. Zollars --------------------- ---------------------------- William D. Zollars Chairman of the Board of Directors, President & Chief Executive Officer Date: November 14, 2002 /s/ Donald G. Barger, Jr. --------------------- ---------------------------- Donald G. Barger, Jr. Senior Vice President & Chief Financial Officer 28
CERTIFICATION I, William D. Zollars, certify that: (1) I have reviewed this quarterly report on Form 10-Q of Yellow Corporation; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have; a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 29
(6) The registrant's other certifying officer and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ William D. Zollars ----------------- ---------------------- William D. Zollars Chairman of the Board of Directors, President & Chief Executive Officer 30
CERTIFICATION I, Donald G. Barger, Jr., certify that: (1) I have reviewed this quarterly report on Form 10-Q of Yellow Corporation; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have; a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 31
(6) The registrant's other certifying officer and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Donald G. Barger, Jr. ----------------- -------------------------- Donald G. Barger, Jr. Senior Vice President & Chief Financial Officer 32