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 June 30, 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.) 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) 10777 Barkley, P.O. Box 7563, Overland Park, Kansas 66207 ---------------------------------------------------------- (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 July 31, 1996 -------------------------- ---------------------------- Common Stock, $1 Par Value 28,105,797 shares
2 YELLOW CORPORATION INDEX Item Page PART I 1. Financial Statements Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 3 Statements of Consolidated Income - Three Months and Six Months Ended June 30, 1996 and 1995 4 Statements of Consolidated Cash Flows - Six Months Ended June 30, 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 5. Other Information 9 6. Exhibits and Reports on Form 8-K 10 Signatures 10 2
3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS Yellow Corporation and Subsidiaries June 30, 1996 and December 31, 1995 (Amounts in thousands except share data) (Unaudited) <TABLE> <CAPTION> June 30 December 31 1996 1995 ---------- ---------- <S> <C> <C> ASSETS CURRENT ASSETS: Cash $ 16,925 $ 25,861 Short-term investments - 5,414 Accounts receivable 327,806 323,814 Refundable income taxes - 49,529 Prepaid expenses and other 38,005 80,392 ---------- ---------- Total current assets 382,736 485,010 ---------- ---------- PROPERTY AND EQUIPMENT: Cost 1,995,537 1,989,389 Less - Accumulated depreciation 1,112,890 1,067,541 ---------- ---------- Net property and equipment 882,647 921,848 ---------- ---------- OTHER ASSETS 26,554 28,039 ---------- ---------- $1,291,937 $1,434,897 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Unsecured bank credit lines $ 10,000 $ 9,000 Accounts payable and checks outstanding 100,854 154,653 Wages and employees' benefits 142,277 134,178 Other current liabilities 137,562 142,040 Current maturities of long-term debt 3,245 2,925 ---------- ---------- Total current liabilities 393,938 442,796 ---------- ---------- OTHER LIABILITIES: Long-term debt 266,235 341,648 Deferred income taxes 45,885 56,032 Claims, insurance and other 175,264 171,744 ---------- ---------- Total other liabilities 487,384 569,424 ---------- ---------- SHAREHOLDERS' EQUITY: Common stock, $1 par value 28,858 28,858 Capital surplus 6,678 6,678 Retained earnings 392,699 404,761 Treasury stock (17,620) (17,620) ---------- ---------- Total shareholders' equity 410,615 422,677 ---------- ---------- $1,291,937 $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 Quarter and Six Months Ended June 30, 1996 and 1995 (Amounts in thousands except per share data) (Unaudited) <TABLE> <CAPTION> Second Quarter Six Months ------------------- ----------------------- 1996 1995 1996 1995 -------- -------- ---------- ---------- <S> <C> <C> <C> <C> OPERATING REVENUE $759,285 $773,825 $1,500,963 $1,538,823 -------- -------- ---------- ---------- OPERATING EXPENSES: Salaries, wages and benefits 506,291 514,564 1,006,571 1,016,661 Operating expenses and supplies 119,293 117,900 237,573 233,738 Operating taxes and licenses 28,083 28,307 57,700 57,266 Claims and insurance 16,945 16,808 34,296 37,222 Communications and utilities 10,961 10,540 22,286 22,009 Depreciation 32,635 33,773 66,137 67,879 Purchased transportation 36,663 46,067 76,137 89,581 -------- -------- ---------- ---------- Total operating expenses 750,871 767,959 1,500,700 1,524,356 -------- -------- ---------- ---------- INCOME FROM OPERATIONS 8,414 5,866 263 14,467 -------- -------- ---------- ---------- NONOPERATING (INCOME) EXPENSES: Interest expense 5,203 5,720 12,055 10,777 Other, net (1,219) (1,408) (396) (3,690) -------- -------- ---------- ---------- Nonoperating expenses, net 3,984 4,312 11,659 7,087 -------- -------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES 4,430 1,554 (11,396) 7,380 INCOME TAX PROVISION 2,411 515 836 3,143 -------- -------- ---------- ---------- NET INCOME (LOSS) $ 2,019 $ 1,039 $ (12,232) $ 4,237 ======== ======== ========== ========== AVERAGE COMMON SHARES OUTSTANDING 28,106 28,106 28,106 28,106 ======== ======== ========== ========== EARNINGS (LOSS) PER SHARE $ .07 $ .04 $ (.44) $ .15 ======== ======== ========== ========== </TABLE> The accompanying notes are an integral part of these statements. 4
5 STATEMENTS OF CONSOLIDATED CASH FLOWS Yellow Corporation and Subsidiaries For the Six Months Ended June 30, 1996 and 1995 (Amounts in thousands) (Unaudited) <TABLE> <CAPTION> 1996 1995 -------- --------- <S> <C> <C> OPERATING ACTIVITIES: Net cash from operating activities $ 87,976 $ 7,043 --------- --------- INVESTING ACTIVITIES: Acquisition of property and equipment (32,053) (104,054) Proceeds from disposal of property and equipment 3,930 12,858 Purchases of short-term investments (1,684) (5,335) Proceeds from maturities of short-term investments 7,098 5,248 -------- --------- Net cash used in investing activities (22,709) (91,283) --------- --------- FINANCING ACTIVITIES: Proceeds from unsecured bank credit lines, net 1,000 - Commercial paper borrowings, net (62,426) 70,537 Proceeds from issuance of long-term debt - 37,000 Repayment of long-term debt (12,777) (16,700) Cash dividends paid to shareholders - (13,210) Reduction of Stock Sharing Plan debt guarantee - (4,961) Shares allocated by Stock Sharing Plan - 4,961 Other, net - (1) -------- --------- Net cash (used in) from financing activities (74,203) 77,626 -------- --------- NET DECREASE IN CASH (8,936) (6,614) CASH, BEGINNING OF PERIOD 25,861 17,613 -------- --------- CASH, END OF PERIOD $ 16,925 $ 10,999 ======== ========= SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes (received) paid, net $(42,063) $ 5,789 ======== ========= Interest paid $ 11,982 $ 9,507 ======== ========= </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 June 30, 1996 Compared to December 31, 1995 Working capital decreased $53.4 million during the first six months of 1996, resulting in a $11.2 million deficit working capital position at June 30, 1996 compared to a $42.2 million positive position at December 31, 1995. The decrease in working capital was mostly the result of a $45.2 million federal tax refund received in April which was used to pay down debt. The company can operate with a deficit working capital position because of rapid turnover of accounts receivable, effective cash management and ready access to funding provided by commercial paper, medium-term notes and flexible banking agreements. 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 decreased by $74.1 million during the first six months of 1996, reflecting the $23.0 million cash dividend from Canadian operations in March and the $45.2 million federal tax refund in April. Net capital expenditures for the first six months of 1996 were $28.1 million, substantially less than the $66.1 million of depreciation expense during the period. It is anticipated that the remaining net capital spending for 1996 will be approximately $36 million. Effective August 2, 1996, Yellow Freight entered into a purchase agreement with a major bank which allows Yellow Freight to sell an interest of up to $150 million in a defined pool of accounts receivables. The agreement first involves the sale of the receivables to a special purpose corporation, Yellow Receivables Corporation, whose assets will be available to satisfy its obligations prior to any distribution to Yellow Freight. The proceeds of this facility, when used, will be available for general corporate purposes and will supplement the company's other existing borrowing sources. RESULTS OF OPERATIONS Comparison of Three Months Ended June 30, 1996 and 1995 Yellow Corporation reported net income for the quarter of $2.0 million, or $.07 per share, compared to net income of $1.0 million, or $.04 per share, in the second quarter of 1995. Second quarter 1996 operating revenue was $759.3 million, an increase over the same period last year when revenue on a comparable basis was $755.0 million. Total revenue for the second quarter of 1995 was $773.8 million, including $18.8 million from subsidiaries that have been realigned or sold. Yellow Freight recorded operating revenue of $580.6 million in the second quarter of 1996 compared to $595.3 million in the second quarter of 1995, a decrease of 2.5%. This decrease was caused mainly by a 4.3% decline in total tonnage, partially offset by a 2.3% increase in revenue per ton. The number of shipments handled was essentially the same as the second quarter of last year. Yellow Freight with an operating ratio of 98.5, recorded operating income of $8.9 million in the second quarter of 1996 compared to operating income of $8.0 million, or an operating ratio of 98.7 during the second quarter of 1995. While revenue per ton was up 2.3%, cost per ton increased only 1.5% for the second quarter compared to the same period last year. This performance reflects firming yields, and cost reduction initiatives including productivity improvements offset by a 3.8% Teamster wage and benefit hike, April 1. The quarter also saw an optimization of the company's transit time improvement program. This resulted in reduced costs while maintaining faster service in important business lanes. Preston Trucking recorded operating revenue of $105.3 million in the second quarter of 1996 compared to $104.8 million in the second quarter of 1995, an increase of .5%. The quarter saw modest improvement in pricing compared to the prior year quarter, offset by a small decrease in total tonnage. The number of shipments handled was essentially the same as the second quarter of last year. 7
8 RESULTS OF OPERATIONS (continued) Preston Trucking improved its performance from the weather-impacted first quarter, recording an operating loss of $1.9 million compared to a second quarter 1995 operating loss of $1.3 million. The new management team at Preston is aggressively pursuing new revenue streams in addition to employing yield improvement and cost control programs designed to return the carrier to profitability. Positive signs of the programs were evident in June. Saia continued its positive contribution to the corporate bottom line with a 94.6 operating ratio. Operating income of $3.6 million on revenue of $65.5 million for the second quarter 1996 compares to operating income of $2.7 million on revenue of $51.3 million in the second quarter 1995. LTL tonnage was up 28.3% this quarter compared to the same time period last year, reflecting a similar percentage increase in the number of shipments handled. WestEx continues to perform according to plan, with rapidly increasing revenue from its California expansion. Increased density and improved margins are planned for 1997. Comparison of Six Months Ended June 30, 1996 and 1995 For the first half of 1996, operating revenue was $1.50 billion, equal to $1.50 billion in the first half of 1995 on a comparable basis. Total revenue for the first half of 1995 was $1.54 billion, including $35.8 million from subsidiaries that have been realigned or sold. The net loss for the first six months of 1996 was $12.2 million, or $.44 per share, compared to net income of $4.2 million, or $.15 per share, for the same period last year. A non-recurring income tax charge and severe winter storms negatively impacted the company's first half 1996 performance causing the loss for the period. The non-recurring tax charge amounted to $6.7 million, or $.24 per share and 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 $1.16 billion in the first half of 1996 compared to $1.19 billion in the first half of 1995, a 2.6% decrease. This decrease reflects lower tonnage levels partially offset by an improvement in revenue per ton. Operating income for the first six months of 1996 was $6.6 million compared to $17.1 million in the same period last year. The operating income deterioration is entirely due to a first quarter variance caused by a series of severe winter storms, a decrease in the system load average attributable to a transit time improvement program implemented in the third quarter of 1995, flat pricing and contractually higher labor expenses. Operating revenue for Preston Trucking in the first six months of 1996 was $203.7 million, down 2.1% compared to $208.1 million in 1995. This decrease reflects lower tonnage levels partially offset by an improvement in revenue per ton. The operating loss in the first six months of 1996 was $7.1 million compared to an operating profit of $.4 million in the same period last year. 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 8
9 RESULTS OF OPERATIONS (continued) 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. Saia recorded operating revenue of $126.1 million in the first half of 1996 compared to $100.5 million in the same period of 1995, an increase of 25.5%. The increased revenue reflects a greater number of shipments handled this year compared to 1995. Operating income was $6.6 million for the first six months of 1996 compared to $5.3 million in the same period last year. For the balance of the year, Saia plans to continue to build its revenue density while controlling expenses in order to improve its operating margin. PART II - OTHER INFORMATION Item 5. Other Information On August 9, 1996 the Board of Directors announced the election of Carl W. Vogt as a Director of the company. Vogt, a senior partner in the Washington office of the law firm of Fulbright & Jaworski, L.L.P., will fill a vacant seat resulting from a retirement in June. Vogt was nominated by President Bush and confirmed by the Senate in June 1992 as Chairman of the National Transportation Safety Board (NTSB). He served until 1994. NTSB is an independent federal agency responsible for investigating major transportation accidents and recommending solutions to federal and state regulatory agencies. Prior to his confirmation as chief of that agency, Vogt was Director of Amtrak, a position that he was also nominated for by President Bush. He was confirmed for that position in 1991 and stepped down to take the reigns of the NTSB. Vogt is also a Director of the Alex Brown, Flag Investors Family of Funds, a mutual fund board and serves on a number of professional and civic boards and committees. He received his Bachelor of Arts from Williams College, in Williamstown, Massachusetts and his Juris Doctorate from the University of Texas Law School. On July 31, 1996 the company announced that Samuel A. Woodward has been named Senior Vice President - Operations and Planning for Yellow Corporation. He was also designated as an executive officer of the company. Woodward was formerly Senior Vice President and Managing Officer for SH&E, a management consulting firm located in New York. He will be responsible for profit improvements at the subsidiaries, the development of new business opportunities and overall strategic planning. Woodward's experience covers the airline, air freight and motor carrier industries. He has held senior management and Board of Director positions with several major transportation companies in the United States. On July 18, 1996 the Board of Directors of the company approved the 1996 Stock Option Plan (Exhibit 10.5), reserving 1,500,000 shares of the company's common stock for awards to key management personnel of the 9
10 PART II - OTHER INFORMATION (continued) company and its operating subsidiaries, including the company's executive officers. On July 18th, the following executive officers received stock option grants of 75,000 shares each at $12.25 per share with 25% of said options becoming exercisable on each anniversary of the date of the award: William F. Martin, Jr. Senior Vice President - Legal/ Corporate Secretary H. A. Trucksess, III Senior Vice President - Finance/ Chief Financial Officer & Treasurer Samuel A. Woodward Senior Vice President - Operations and Planning Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (10.4) - Executive Officers' Agreement (10.5) - Yellow Corporation - 1996 Stock Option Plan (27) - Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K On May 22, 1996 a Form 8-K was filed under Item 5, Other Events, which reported that the company announced on May 15, 1996 that M. Reid Armstrong, President of Yellow Freight System, Inc., the company's principal subsidiary, will retire effective June 1. Armstrong will also step down as a member of the company's Board of Directors. A national search is being conducted to fill the vacancy. In the interim, the company's President and CEO, A. Maurice Myers, will act in the capacity of President of Yellow Freight. 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: August 13, 1996 /s/ A. Maurice Myers ------------------------- -------------------------------- A. Maurice Myers Chairman of the Board of Directors, President & Chief Executive Officer Date: August 13, 1996 /s/ H. A. Trucksess, III ------------------------- -------------------------------- H. A. Trucksess, III Senior Vice President - Finance/ Chief Financial Officer & Treasurer 10