1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 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.) 10777 Barkley, P.O. Box 7563, Overland Park, Kansas 66207 --------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (913) 967-4300 -------------- (Registrant's telephone number, including area code) No Changes - -------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 30, 1996 ----- ----------------------------- Common Stock, $1 Par Value 28,105,797 shares
2 YELLOW CORPORATION INDEX Item Page ---- PART I 1. Financial Statements Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 3 Statements of Consolidated Income - Three Months Ended March 31, 1996 and 1995 4 Statements of Consolidated Cash Flows - Three Months Ended March 31, 1996 and 1995 5 Notes to Consolidated Financial Statements 6 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II 4.Submission of Matters to a Vote of Security Holders 8 5.Other Information 9 6.Exhibits and Reports on Form 8-K 9 Signatures 10 2
3 PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS ----------------------------- CONSOLIDATED BALANCE SHEETS Yellow Corporation and Subsidiaries March 31, 1996 and December 31, 1995 (Amounts in thousands except share data) (Unaudited) <TABLE> <CAPTION> March 31 December 31 1996 1995 ------------ ----------- <S> <C> <C> ASSETS CURRENT ASSETS: Cash $ 15,725 $ 25,861 Short-term investments - 5,414 Accounts receivable 331,484 323,814 Refundable income taxes 49,351 49,529 Prepaid expenses and other 63,832 80,392 ---------- ---------- Total current assets 460,392 485,010 ---------- ---------- PROPERTY AND EQUIPMENT: Cost 1,984,937 1,989,389 Less - Accumulated depreciation 1,091,910 1,067,541 ---------- ---------- Net property and equipment 893,027 921,848 ---------- ---------- OTHER ASSETS 26,699 28,039 ---------- ---------- $1,380,118 $1,434,897 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Unsecured bank credit lines $ 25,000 $ 9,000 Accounts payable and checks outstanding 102,077 154,653 Wages and employees' benefits 144,647 134,178 Other current liabilities 143,955 142,040 Current maturities of long-term debt 2,911 2,925 ---------- ----------- Total current liabilities 418,590 442,796 ---------- ----------- OTHER LIABILITIES: Long-term debt 327,442 341,648 Deferred income taxes 54,227 56,032 Claims, insurance and other 171,500 171,744 ---------- ----------- Total other liabilities 553,169 569,424 ---------- ----------- SHAREHOLDERS' EQUITY: Common stock, $1 par value 28,858 28,858 Capital surplus 6,678 6,678 Retained earnings 390,443 404,761 Treasury stock (17,620) (17,620) ---------- ----------- Total shareholders' equity 408,359 422,677 ---------- ----------- $1,380,118 $1,434,897 ========== =========== </TABLE> The accompanying notes are an integral part of these statements. 3
4 STATEMENTS OF CONSOLIDATED INCOME Yellow Corporation and Subsidiaries For the Three Months Ended March 31, 1996 and 1995 (Amounts in thousands except per share data) (Unaudited) <TABLE> <CAPTION> 1996 1995 ---------- --------- <S> <C> <C> OPERATING REVENUE $ 741,678 $ 764,998 ---------- --------- OPERATING EXPENSES: Salaries, wages and benefits 500,280 502,097 Operating expenses and supplies 118,280 115,838 Operating taxes and licenses 29,617 28,959 Claims and insurance 17,351 20,414 Communications and utilities 11,325 11,469 Depreciation 33,502 34,106 Purchased transportation 39,474 43,514 ---------- --------- Total operating expenses 749,829 756,397 ---------- --------- INCOME (LOSS) FROM OPERATIONS (8,151) 8,601 ---------- --------- NONOPERATING (INCOME) EXPENSES: Interest expense 6,852 5,057 Other, net 823 (2,282) ---------- --------- Nonoperating expenses, net 7,675 2,775 ---------- --------- INCOME (LOSS) BEFORE INCOME TAXES (15,826) 5,826 INCOME TAX PROVISION (BENEFIT) (1,575) 2,628 ---------- --------- NET INCOME (LOSS) $ (14,251) $ 3,198 ========== ========= AVERAGE COMMON SHARES OUTSTANDING 28,106 28,106 ========== ========= EARNINGS (LOSS) PER SHARE $ (.51) $ .11 ========== ========= </TABLE> The accompanying notes are an integral part of these statements. 4
5 STATEMENTS OF CONSOLIDATED CASH FLOWS Yellow Corporation and Subsidiaries For the Three Months Ended March 31, 1996 and 1995 (Amounts in thousands) (Unaudited) <TABLE> <CAPTION> 1996 1995 --------- --------- <S> <C> <C> OPERATING ACTIVITIES: Net cash from (used in) operating activities $ (10,174) $ 6,019 --------- --------- INVESTING ACTIVITIES: Acquisition of property and equipment (9,520) (54,006) Proceeds from disposal of property and equipment 2,419 7,019 Purchases of short-term investments (1,684) (2,959) Proceeds from maturities of short-term investments 7,098 3,026 --------- --------- Net cash used in investing activities (1,687) (46,920) --------- --------- FINANCING ACTIVITIES: Proceeds from unsecured bank credit lines, net 16,000 10,000 Commercial paper borrowings, net (13,644) 38,852 Repayment of long-term debt (631) (662) Cash dividends paid to shareholders - (6,605) --------- --------- Net cash from financing activities 1,725 41,585 --------- --------- NET INCREASE (DECREASE) IN CASH (10,136) 684 CASH, BEGINNING OF PERIOD 25,861 17,613 --------- --------- CASH, END OF PERIOD $ 15,725 $ 18,297 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $ 977 $ 3,647 ========= ========= Interest paid $ 3,293 $ 2,173 ========= ========= </TABLE> The accompanying notes are an integral part of these statements. 5
6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Yellow Corporation and Subsidiaries 1. The accompanying consolidated financial statements include the accounts of Yellow Corporation and its wholly-owned subsidiaries (the company) and have been prepared by the company, without audit by independent public accountants, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the results of operations for the interim periods included herein have been made. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements pursuant to such rules and regulations. Accordingly, the accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements included in the company's 1995 Annual Report to Shareholders. 2. The company provides freight transportation services primarily to the less-than-truckload (LTL) market in North America through its subsidiaries, Yellow Freight System, Inc. (Yellow Freight), Preston Trucking Company, Inc. (Preston Trucking), Saia Motor Freight Line, Inc. (Saia) and WestEx, Inc. (WestEx). Yellow Technology Services, Inc. (Yellow Technology) supports the company's subsidiaries - primarily Yellow Freight - with information technology. Yellow Freight, the company's principal subsidiary, comprises approximately 77% of total revenue while Preston Trucking comprises approximately 14% and Saia comprises approximately 8%. 3. Effective January 1, 1996, the company adopted the Financial Accounting Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption did not have a material impact on the financial condition or results of operations of the company. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION March 31, 1996 Compared to December 31, 1995 Working capital remained relatively constant during the first three months of 1996, resulting in a $41.8 million positive working capital position at March 31, 1996 compared to $42.2 million at December 31, 1995. Accounts receivable growth was moderate during the period as increased revenue levels at the end of the respective periods of comparison were mostly offset by improvement in days sales outstanding, primarily at Yellow Freight. 6
7 FINANCIAL CONDITION (continued) Total debt remained essentially unchanged during the first three months of 1996, showing a $1.8 million increase compared to December 31, 1995 levels. Bank credit line borrowings were used during the period to replace a portion of the commercial paper borrowings. Working capital and capital spending needs were funded by a cash dividend from Canadian operations of $23.0 million. In April, the company received a federal tax refund of $45 million which was used to pay down debt and improve the balance sheet. Net capital expenditures for the first three months of 1996 were $7.1 million. It is anticipated that the remaining net capital spending for 1996 will be approximately $57 million. RESULTS OF OPERATIONS Comparison of Three Months Ended March 31, 1996 and 1995 Yellow Corporation reported a net loss for the quarter of $14.3 million, or $.51 per share, including a non-recurring charge to the income tax provision of $6.7 million, or $.24 per share. This compares to net income of $3.2 million, or $.11 per share, in the first quarter of 1995. First quarter 1996 operating revenue was $741.7 million, down 3.0%, from the $765.0 million recorded during the same period last year. The loss, excluding the tax charge, was $7.6 million, or $.27 per share, and was in line with Wall Street expectations. The tax charge resulted from a cash dividend from Canadian operations of $23.0 million, which was used to pay down debt. Yellow Freight recorded operating revenue of $576.1 million in the first quarter of 1996 compared to $592.0 million in the first quarter of 1995, a decrease of 2.7%. This decrease was caused mainly by a 1.6% decline in the number of shipments handled and a 3.5% reduction in LTL tonnage. Pricing levels in the first quarter of 1996 were relatively static compared to the first quarter of 1995 as a result of price discounting in 1995 that more than offset the January 1996 rate increases. Yellow Freight had an operating loss of $2.3 million in the first quarter of 1996 compared to operating income of $9.1 million in the first quarter of 1995. Yellow Freight's operating ratio of 100.4 reflects increases in fixed costs, primarily the April 1, 1995 contract wage and benefit increases of 3.2%, as well as costs associated with the series of severe winter storms experienced in the first quarter of 1996. Higher costs also resulted from a decrease in the system load average attributable to a transit time improvement program implemented in the third quarter of 1995. Yellow Freight cost and pricing improvement initiatives proceeded according to plan resulting in some margin improvement. However, first quarter benefits were more than offset by the weather-related costs. Additional cost improvement at Yellow Freight is expected throughout the year even though contract wage and benefit increases of 3.8% went into effect April 1, 1996. Preston Trucking recorded operating revenue of $98.4 million in the first quarter of 1996 compared to $103.4 million in the first quarter of 1995, a decrease of 4.8%. Decreases in the number of shipments handled 7
8 RESULTS OF OPERATIONS (continued) and LTL weight/shipment caused the lower revenue levels. Despite a January 1996 price increase, pricing levels in the first quarter of 1996 were relatively static compared to the first quarter of 1995 as a result of price discounting in 1995. Preston Trucking had an operating loss of $5.1 million in the first quarter of 1996 compared to operating income of $1.7 million in the first quarter of 1995. 1996 results include a 4.9% increase in contract wages and benefits on April 1, 1995. The relatively greater labor cost increase resulted from a wage reduction program approved in 1994 whereby employees received the contractual wage and benefit increases as well as a step-down in the wage reduction from 7.0% to 5.0%. During the first quarter of 1996, Preston employees agreed to freeze wages in lieu of the standard contract increase scheduled for April 1, 1996. Preston's operating performance also suffered extreme adverse impacts from the severe winter weather as its service area is concentrated in the Northeast and upper Midwest, yet on-time service remained superior resulting in continued market share gains. Saia recorded operating revenue of $60.7 million in the first quarter of 1996 compared to $49.2 million in the first quarter of 1995, an increase of 23.3%. This growth was caused by an increase in shipment volume of 23.0% reflecting increased tonnage of 18% compared to the first quarter 1995, due largely to expansion activities. Saia had operating income of $3.1 million in the first quarter of 1996 compared to operating income of $2.7 million in the first quarter of 1995. Saia's operating ratio was 94.9 compared to 94.6 in 1995. WestEx's expansion plan is on schedule and the business is expected to become profitable in 1997. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) Annual Meeting of Stockholders on April 25, 1996 (b) The following directors were elected with the indicated number of votes set forth below. <TABLE> <CAPTION> For Withheld ---------- --------- <S> <C> <C> Klaus E. Agthe 18,528,370 2,630,496 Howard M. Dean 18,528,507 2,630,359 George E. Powell III 20,930,241 228,625 </TABLE> The following directors did not stand for election and continued in office as a director after the Annual Meeting of Stockholders: M. Reid Armstrong, David H. Hughes, Ronald T. LeMay, John C. McKelvey, A. Maurice Myers, George E. Powell, Jr. and William L. Trubeck. (c) An amendment to the Certificate of Incorporation eliminating the classification of the Board of Directors and reducing the minimum number of directors from nine to five was voted on and approved at the meeting by the following vote. For: 17,540,113, Against: 1,200,900, Abstention: 43,268, No-vote: 2,374,585. 8
9 PART II - OTHER INFORMATION (Continued) Item 4. Submission of Matters to a Vote of Security Holders (continued) A plan to pay fifty percent of the Board and Committee retainers of non-employee directors in company stock restricted for three years was voted on and approved at the meeting by the following vote. For: 20,380,191, Against: 326,637, Abstention: 85,902, No-vote: 366,136. The appointment of Arthur Andersen LLP as independent public accountants of the company for 1996 was voted on and approved at the meeting by the following vote. For: 20,976,693, Against: 140,042, Abstention: 42,131. Item 5. Other Information On April 25, 1996, the Board of Directors designated the following individuals as executive officers of the company. A. Maurice Myers, President and Chief Executive Officer of the company, M. Reid Armstrong, President of Yellow Freight, William F. Martin, Jr., Senior Vice President - Legal/Corporate Secretary of the company and H. A. Trucksess, III, Senior Vice President - Finance/Chief Financial Officer and Treasurer. On April 25, 1996, the company announced at its Annual Shareholders meeting that George E. Powell, Jr. will retire as Chairman of the Board of Directors effective June 30 upon the attainment of the normal Board retirement age of 70. Powell will become Chairman Emeritus. A. Maurice Myers, recently appointed to the post of President and Chief Executive Officer, is appointed by the Board as Chairman effective upon Powell's retirement. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (3) - Amendment of Articles of Incorporation occasioned by declassification of the Board of Directors. (10) - Executive Officers' Agreement (27) - Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K On January 24, 1996 a Form 8-K was filed under Item 5, Other Events, which reported that the company announced on January 17, 1996, that its President and CEO, George E. Powell III, intended to resign. Powell agreed to remain until a replacement candidate is selected and will be involved in identifying his successor which is expected in the next few months. Powell will also continue his current Board term and stand for reelection when that term expires in April concurrent with the Annual Shareholders meeting. His father, George E. Powell, Jr. will remain as Chairman of the Board of Directors. On March 22, 1996 a Form 8-K was filed under Item 5, Other Events, which reported that the company announced on March 20, 1996 that A. Maurice Myers will become its new President and CEO. Myers was also appointed to the Board of Directors. 9
10 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. YELLOW CORPORATION ----------------------------- Registrant Date: May 10, 1996 /s/ A. Maurice Myers --------------------------- ----------------------------- A. Maurice Myers President and Chief Executive Officer Date: May 10, 1996 /s/ H. A. Trucksess, III --------------------------- ----------------------------- H. A. Trucksess, III Senior Vice President - Finance/ Chief Financial Officer & Treasurer 10