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 September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _______________________ Commission file number 0-12255 YELLOW CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 48-0948788 - ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10990 Roe Avenue, P.O. Box 7563, Overland Park, Kansas 66207 - ------------------------------------------------------ --------- (Address of principal executive offices) (Zip Code) (913) 696-6100 ---------------------------------------------------- (Registrant's telephone number, including area code) No Changes - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 29, 1999 ----- ------------------------------- Common Stock, $1 Par Value 24,879,149 shares
2 YELLOW CORPORATION INDEX <TABLE> <CAPTION> Item Page - ---- ---- PART I <S> <C> 1. Financial Statements Consolidated Balance Sheets - September 30, 1999 and December 31, 1998 3 Statements of Consolidated Operations - Quarter and Nine Months Ended September 30, 1999 and 1998 4 Statements of Consolidated Cash Flows - Nine Months Ended September 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II 6. Exhibits and Reports on Form 8-K 19 Signatures 20 </TABLE> 2
3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS Yellow Corporation and Subsidiaries (Amounts in thousands except share data) (Unaudited) <TABLE> <CAPTION> September 30, December 31, 1999 1998 ------------- ------------ <S> <C> <C> ASSETS CURRENT ASSETS: Cash $ 22,440 $ 25,522 Accounts receivable, net 261,312 272,436 Prepaid expenses and other 33,532 76,657 ----------- ----------- Total current assets 317,284 374,615 ----------- ----------- PROPERTY AND EQUIPMENT: Cost 2,094,912 1,897,029 Less - Accumulated depreciation 1,227,225 1,194,227 ----------- ----------- Net property and equipment 867,687 702,802 ----------- ----------- GOODWILL AND OTHER ASSETS 107,871 28,268 ----------- ----------- $ 1,292,842 $ 1,105,685 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and checks outstanding $ 115,637 $ 147,644 Wages and employees' benefits 168,818 119,347 Other current liabilities 168,140 149,127 Current maturities of long-term debt 1,791 77 ----------- ----------- Total current liabilities 454,386 416,195 ----------- ----------- OTHER LIABILITIES: Long-term debt 274,973 156,988 Deferred income taxes 38,695 18,433 Claims, insurance and other 133,299 142,817 ----------- ----------- Total other liabilities 446,967 318,238 ----------- ----------- SHAREHOLDERS' EQUITY: Common stock, $1 par value 29,405 29,356 Capital surplus 15,621 14,948 Retained earnings 436,906 403,262 Accumulated other comprehensive income (2,468) (3,163) Treasury stock (87,975) (73,151) ----------- ----------- Total shareholders' equity 391,489 371,252 ----------- ----------- $ 1,292,842 $ 1,105,685 =========== =========== </TABLE> The accompanying notes are an integral part of these statements. 3
4 STATEMENTS OF CONSOLIDATED OPERATIONS Yellow Corporation and Subsidiaries For the Quarter and Nine Months Ended September 30, 1999 and 1998 (Amounts in thousands except per share data) (Unaudited) <TABLE> <CAPTION> Third Quarter Nine Months ------------------------- ------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> OPERATING REVENUE $ 860,983 $ 744,873 $ 2,344,537 $ 2,164,752 ----------- ----------- ----------- ----------- OPERATING EXPENSES: Salaries, wages and benefits 541,427 468,103 1,500,088 1,385,356 Operating expenses and supplies 126,456 111,574 354,394 332,930 Operating taxes and licenses 26,375 23,346 72,901 70,986 Claims and insurance 19,111 22,622 52,606 54,680 Depreciation and amortization 29,683 25,767 79,241 79,018 Purchased transportation 84,039 67,021 215,384 181,249 ----------- ----------- ----------- ----------- Total operating expenses 827,091 718,433 2,274,614 2,104,219 ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 33,892 26,440 69,923 60,533 ----------- ----------- ----------- ----------- NONOPERATING (INCOME) EXPENSES: Interest expense 4,544 2,714 10,295 8,844 Other, net 1,662 276 1,629 677 ----------- ----------- ----------- ----------- Nonoperating expenses, net 6,206 2,990 11,924 9,521 ----------- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 27,686 23,450 57,999 51,012 INCOME TAX PROVISION 11,775 9,905 24,355 21,425 ----------- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS 15,911 13,545 33,644 29,587 Loss from discontinued operations -- -- -- (66,746) ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ 15,911 $ 13,545 $ 33,644 $ (37,159) =========== =========== =========== =========== AVERAGE SHARES OUTSTANDING-BASIC 24,866 26,041 25,042 27,050 =========== =========== =========== =========== AVERAGE SHARES OUTSTANDING-DILUTED 25,009 26,151 25,211 27,290 =========== =========== =========== =========== BASIC EARNINGS (LOSS) PER SHARE: Income from continuing operations $ .64 $ .52 $ 1.34 $ 1.09 Loss from discontinued operations -- -- -- (2.46) ----------- ----------- ----------- ----------- Net income (loss) $ .64 $ .52 $ 1.34 $ (1.37) =========== =========== =========== =========== DILUTED EARNINGS (LOSS) PER SHARE: Income from continuing operations $ .64 $ .52 $ 1.33 $ 1.08 Loss from discontinued operations -- -- -- (2.44) ----------- ----------- ----------- ----------- Net income (loss) $ .64 $ .52 $ 1.33 $ (1.36) =========== =========== =========== =========== </TABLE> The accompanying notes are an integral part of these statements. 4
5 STATEMENTS OF CONSOLIDATED CASH FLOWS Yellow Corporation and Subsidiaries For the Nine Months Ended September 30, 1999 and 1998 (Amounts in thousands) (Unaudited) <TABLE> <CAPTION> 1999 1998 --------- --------- <S> <C> <C> OPERATING ACTIVITIES: Net cash from operating activities $ 219,006 $ 120,917 --------- --------- INVESTING ACTIVITIES: Acquisition of property and equipment (123,182) (84,306) Acquisition of Jevic, net of cash acquired (164,507) -- Proceeds from disposal of property and equipment 4,975 18,470 Net capital expenditures of discontinued operations -- 2,203 --------- --------- Net cash used in investing activities (282,714) (63,633) --------- --------- FINANCING ACTIVITIES: Treasury stock purchases (14,824) (42,115) Proceeds from stock options and other, net 632 620 Increase (decrease) in long-term debt 74,818 (3,132) --------- --------- Net cash provided by (used in) financing activities 60,626 (44,627) --------- --------- NET INCREASE (DECREASE) IN CASH (3,082) 12,657 CASH, BEGINNING OF PERIOD 25,522 17,703 --------- --------- CASH, END OF PERIOD $ 22,440 $ 30,360 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Income taxes paid (received) $ 8,922 $ (3,636) ========= ========= Interest paid $ 6,620 $ 5,384 ========= ========= </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 1998 Annual Report to Shareholders. 2. The company provides freight transportation services primarily to the less-than-truckload (LTL) market in North America through its subsidiaries, Yellow Freight System, Inc. (Yellow Freight), Saia Motor Freight Line, Inc. (Saia), WestEx, Inc. (WestEx) and Action Express, Inc. (Action). The company acquired Jevic Transportation, Inc. (Jevic) on July 9, 1999. Jevic is a hybrid LTL and TL carrier operating principally in the Northeast. The company provides global transportation solutions through YCS International, Inc. (YCS) through fully integrated ocean, land and air transportation services. Yellow Services, Inc. (Yellow Services) is a subsidiary that provides information technology and other services to the company and its subsidiaries. For the quarter ended September 30, 1999 Yellow Freight comprised approximately 78 percent of total revenue while Saia comprised approximately 10 percent and Jevic approximately 7 percent of total revenue. 3. The company reports financial and descriptive information about its reportable operating segments, on a basis consistent with that used internally for evaluating segment performance and allocating resources to segments. In connection with the Jevic acquisition, the company now has three reportable segments that are strategic business units that offer different products and services. The National segment is comprised of the operations of Yellow Freight, a carrier that provides comprehensive national LTL service as well as international service throughout North America. The Southeast regional segment consists of the operations of Saia, a regional LTL carrier that provides overnight and second-day service in twelve southeastern states and Puerto Rico. 6
7 The Northeast segment consists of the operations of Jevic, a hybrid regional heavy LTL and TL carrier that provides service primarily in the Northeastern states. The segments are managed separately because each requires different operating, technology and marketing strategies and processes. The company evaluates performance primarily on operating income and return on capital. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the company's 1998 Annual Report to Shareholders. The company also charges a trade name fee to Yellow Freight (1% of revenue) for use of the company's trademark. Interest and intersegment transactions are recorded at current market rates. Income taxes are allocated in accordance with a tax sharing agreement in proportion to each segment's contribution to the parent's consolidated tax status. The following table summarizes the company's continuing operations by business segment (in thousands): <TABLE> <CAPTION> SE NE Corporate National Regional Regional and Other Consolidated -------- -------- -------- --------- ------------ <S> <C> <C> <C> <C> <C> Y-T-D September 30, 1999 Operating revenue $1,927,015 $ 260,487 $ 63,380 $ 93,655 $2,344,537 Income from operations 58,110 12,512 4,467 (5,166) 69,923 Identifiable assets 781,689 227,645 259,730 23,778 1,292,842 Y-T-D September 30, 1998 Operating revenue $1,862,242 $ 254,703 NA $ 47,807 $2,164,752 Income from operations 47,639 17,998 NA (5,104) 60,533 Identifiable assets 780,944 207,261 NA 64,425 1,052,630 </TABLE> 4. On July 9, 1999 the company completed a cash tender offer for all of the common stock of Jevic Transportation, Inc. at $14 share. The transaction was accounted for as a purchase. The aggregate purchase price of the stock, including vested stock options and transaction costs was approximately $160.8 million, net of an anticipated $4.3 million tax benefit relating to the cost of the stock options. Transaction costs relate primarily to legal and professional fees (in millions). <TABLE> <S> <C> Purchase Price: Common Stock tendered $149.9 Stock options, net of tax benefit 7.0 Transaction fees 3.9 ------ $160.8 ------ </TABLE> The total transaction was approximately $200 million, including assumption of debt. The transaction was accounted for under purchase accounting and the excess of purchase price over fair value of assets acquired was allocated to goodwill and is being amortized over 40 years. Accordingly, the results of Jevic's operations have been included in the company's condensed financial statements for the period from July 10, 1999 through September 30, 1999. The acquisition was financed using Yellow Corporation's existing credit facilities. 7
8 The following pro forma financial information for the company gives effect to the Jevic acquisition as if it had occurred on January 1, 1998. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on the date indicated, or which may result in the future. (Pro forma financial information is in thousands except per share data.) <TABLE> <CAPTION> For the Nine Months Ended September 30 ------------------------- 1999 1998 ----------- ----------- <S> <C> <C> Revenue $ 2,483,784 $ 2,331,269 Income from continuing operations 34,972 31,044 Net income (loss) 34,972 (35,702) Diluted Per Share Data: Income from continuing operations $ 1.39 $ 1.14 Net income (loss) $ 1.39 $ (1.31) </TABLE> 5. On June 1, 1998, the company reached agreement in principle to sell Preston Trucking Company, Inc. (Preston Trucking) one of its regional LTL segments to a management group of three senior officers of Preston Trucking. The sale resulted in a noncash charge of $63.6 million net of anticipated tax benefits of approximately $28.0 million in 1998. The equity consideration received by the company for Preston's net assets was $100 and Preston retained approximately $4.0 million of industrial revenue bond debt. The disposition did not materially impact operating results and liquidity of the company. The results of Preston Trucking have been classified as discontinued operations in the consolidated financial statements. No interest charges have been allocated to discontinued operations and the company does not anticipate any material change in the loss recorded on disposal of the discontinued operations. In July 1999, Preston Trucking ceased operations and has commenced a liquidation of its assets under federal bankruptcy regulations. 6. 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. 7. The company's comprehensive income includes net income and foreign currency translation adjustments. Comprehensive income for the third quarter ended September 30, 1999 and 1998 was $16.0 million and $13.1 million, respectively. Comprehensive income (loss) for the nine months ended September 30, 1999 and 1998 was $34.3 million and $(37.8) million, respectively. 8
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION September 30, 1999 Compared to December 31, 1998 Working capital is reduced through Yellow Freight's asset backed securitization agreement (ABS). Accounts receivable at September 30, 1999 and December 31, 1998 are net of $152 million and $43 million of receivables sold under the ABS agreement, resulting in a $109 million reduction in working capital during the period. Including the effects of the ABS transactions, working capital decreased $95.5 million during the first nine months of 1999, resulting in a working capital deficit of $137.1 million at September 30, 1999 compared to a $41.6 million working capital deficit at December 31, 1998. Increases in accounts receivable excluding the effects of ABS transactions were largely offset by increases in accrued salaries wages and benefits, decreases in prepaid expenses and increases in accounts payable and checks outstanding. 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. On July 9, 1999 the company completed a cash tender offer for all of the common stock of Jevic Transportation, Inc. The aggregate purchase price of the stock, including transaction costs, was approximately $164.5 million, net of cash acquired. Including assumption of debt, the total transaction was approximately $200 million. The acquisition was financed under the company's existing $300 million credit facility and the company's ABS agreement. These facilities provide adequate capacity to fund working capital and capital expenditures requirements. As a result, total debt during the first nine months of 1999 increased by $119.7 million from December 31, 1998 due to the acquisition of Jevic. The remainder of the purchase price was funded through the company's ABS facility. Net capital expenditures (other than the Jevic acquisition) for the first nine months of 1999 were $118.2 million. Subject to ongoing review, total net capital spending for 1999 is expected to total approximately $159 million, exclusive of the Jevic transaction. During the nine months ended September 30, 1999 the company purchased 855,500 additional treasury shares. The company suspended its treasury repurchase program effective in April 1999 as a result of the Jevic transaction and more attractive internal investment opportunities. 9
10 RESULTS OF OPERATIONS Comparison of Three Months Ended September 30, 1999 and 1998 Net income for the quarter ended September 30, 1999 was $15.9 million or $.64 per share (diluted), a 23 percent improvement over earnings per share in the 1998 third quarter. Net income for the quarter ended September 30, 1998 was $13.5 million or $.52 per share (diluted). Operating revenue for the 1999 third quarter was $861.0 million, an increase of 15.6 percent over operating revenue of $744.9 million for the 1998 third quarter. Yellow Freight System, the company's national LTL segment had operating income of $26.6 million for the third quarter of 1999 an increase of 29.6% over operating income of $20.5 million in the third quarter of 1998. Yellow Freight's third quarter 1999 operating revenue was $675.4 million, a 5.6 percent increase over operating revenue of $639.6 million in the third quarter of 1998. Yellow Freight's operating ratio was 96.1 in the third quarter of 1999 versus 96.8 in the third quarter of 1998. LTL tonnage increased 3.2 percent in the third quarter compared to the 1998 quarter, and the number of shipments increased 3.1 percent compared to the 1998 third quarter. A general rate increase averaging 5.5 percent went into effect on September 1 on approximately half of the revenue base not covered by term contracts and contributed to the quarter-to-quarter improvement. Yellow Freight also reactivated a fuel surcharge program that has offset rising diesel fuel prices. The four carriers comprising Yellow Corporation regional group during 1999 third quarter - Saia Motor Freight, Jevic Transportation, WestEx and Action Express - reported combined operating income of $9.6 million on revenue of $180.3 million, producing a combined operating ratio of 94.7. In the 1998 third quarter the regional group excludes the Jevic and Action Express acquisitions and reported combined operating income of $7.1 million on revenue of $105.2 million producing an operating ratio of 93.3. Saia, the company's southeast regional LTL segment had operating income of $4.7 million in the third quarter of 1999 compared to operating income of $6.7 million in the third quarter of 1998. Saia's operating revenue for the quarter ended September 30, 1999 was $89.1 million, a 1.5 percent increase from operating revenue of $87.9 million in the third quarter of 1998. Saia's performance remains below 1998 levels due to softer revenue in the Texas and Gulf Coast regions with economies tied to the petroleum industry and increased wage and benefit expense. Saia's operating ratio was 94.7 for the third quarter of 1999 versus 92.3 in the 1998 third quarter. Jevic, which became part of the Yellow companies beginning July 10, reported third quarter revenue of $63.4 million and operating income of $4.5 million for an operating ratio of 93.0 for this partial quarter. As a stand-alone company in the third quarter of 1998, Jevic reported revenue of $57.0 million and operating income of $4.2 million for an operating ratio of 92.6. 10
11 WestEx, the company's regional carrier serving California and the Southwest, reported operating revenue of $18.5 million for the third quarter of 1999 compared to $17.4 million for the 1998 third quarter. Action, the company's regional carrier serving the Pacific Northwest and Rocky Mountain States had third quarter revenues of $9.3 million. Action was acquired in December 1998. WestEx had an operating ratio of 99.6 for the third quarter of 1999 compared to an operating ratio of 97.9 for the third quarter of 1998. Action Express reported an operating ratio of 96.1 for the third quarter of 1999. Corporate and other business development expenses were $2.3 million in the 1999 third quarter, up from $0.9 million in the 1998 third quarter. The company continues to evaluate a variety of strategic initiatives to increase shareholder value. Nonoperating expenses in the 1999 third quarter were $6.2 million, up from $3.0 million in the 1998 third quarter, due to increased financing expense resulting primarily from the Jevic acquisition. The effective tax rate was 42.5 percent in the 1999 third quarter and 42.2 percent in the third quarter of 1998. The 1999 third quarter earnings per share results also reflect the impact of stock buyback programs which have reduced average shares outstanding by approximately 4.4 percent compared to last year's third quarter. Comparison of Nine Months Ended September 30, 1999 and 1998 Continuing Operations: Net income for the nine months ended September 30, 1999 was $33.6 million or $1.33 per share (diluted). Income from continuing operations for the nine months ended September 30, 1998 was $29.6 million or $1.08 per share (diluted). Operating revenue for the nine months ended September 30, 1999 was $2,344.5 million an increase of 8.3 percent over operating revenue of $2,164.8 million for the nine months ended September 30, 1998. Yellow Freight System had operating income of $58.1 million for the nine months ended September 30, 1999 an increase of 22.0% over operating income of $47.6 million in the comparable 1998 period. Yellow Freight's 1999 year to date operating revenue was $1,927.0 million, up 3.5 percent from operating revenue of $1,862.2 million for the nine months ended September 30, 1998. Yellow Freight's operating ratio was 97.0 for the first nine months of 1999 versus 97.4 in the first nine months of 1998. 11
12 Yellow Freight System is benefiting from a continued strong pricing environment that has produced LTL yield improvements in excess of 3 percent for the first nine months of 1999 compared to 1998. Year to date LTL tonnage increased 1.1 percent and year to date LTL shipments are up 4.5 percent compared to 1998. In addition, the first nine months of 1998 were adversely affected by the freight diversion problem that resulted from customer concerns over labor contract negotiations and a possible strike. Saia had operating income of $12.5 million for the nine months ended September 30, 1999 compared to $18.0 million for the nine months ended September 30, 1998. Saia's 1999 year to date operating revenue was $260.5 million up 2.3 percent from $254.7 million for the first nine months of 1998. Saia's business weakness was mostly concentrated in Texas and other Gulf Coast states with economies tied to the petroleum industry. Saia's operating ratio was 95.2 for the nine months ended September 30, 1999 compared to 92.9 for the nine months ended September 30, 1998. Year to date results of operations for the company include Jevic from the acquisition date of July 9, 1999. For the period from July 10, 1999 through September 30, 1999, Jevic reported year to date revenue of $63.4 million and year to date operating income of $4.5 million for an operating ratio of 93.0. WestEx reported operating revenue of $52.3 million for the first nine months of 1999, up 9.5 percent from $47.8 million for the nine months ended September 30, 1998. Action had revenues of $26.9 million for the first nine months of 1999. Action was acquired in December 1998. Both WestEx and Action reported small operating profits for the first nine months of 1999 as both companies absorbed one-time expenses related to network realignments and other corporate development programs. Saia has substantially absorbed Action operations in Texas. Action has taken over part of WestEx's operations in Colorado and Utah while WestEx has absorbed part of Action's California operations. During the first half of 1999, market fuel prices fell below the company's fuel hedge contract prices, depriving the company of fuel cost savings. However during the last three months, this trend has reversed. As a result, of fuel price increases in the third quarter of 1999, current market prices are above the company's current hedge contracts. The company remains substantially hedged for the balance of 1999 and a portion of 2000. Nonoperating expense increased between years, primarily a result of increased financing costs associated with the Jevic acquisition. The effective tax rate for the first nine months of 1999 was 42.0 percent, the same as the effective tax rate for the first nine months of 1998. Earnings per share results through September 30, 1999 also reflect the impact of stock buyback programs, which have reduced average shares outstanding by 13 percent compared to the average shares outstanding for the first nine months of 1998. 12
13 Year 2000: The company's Year 2000 project is intended to minimize the business impact of potential Year 2000 failures. Work efforts both to remediate and replace mainframe and client/server business applications have been completed on schedule. Business contingency plans have also been developed. The remainder of the year will be used to refine and communicate the business contingency plans, complete the planned rollout of equipment, and continue to retest systems for Year 2000 readiness. The company's Year 2000 strategy included mainframe, mid-range, and client server applications, PCs, workstations, end-user computing, vendor software, equipment, environmental operations in terminals and offices, suppliers and customers. Inventory and assessment of all areas have been completed. Non-compliant vendor software and equipment determined to be critical to the business has been remediated. PC hardware and software is being replaced as needed through a systematic schedule of upgrades. The company's strategy also included developing relationships with vendors who are working toward compliance. The company has material vendor relationships with financial institutions, utilities and telecommunication companies. These vendors indicate that they expect to achieve compliance and do not anticipate business interruptions as the century changes. The company has developed and is refining contingency plans to address potential Year 2000 scenarios that may arise with key vendors, customers and other external parties. However, these external risks are beyond the company's total control, thus there can be no assurance that all year 2000 risks can be contained by company contingency plans. The company began its Year 2000 project in 1995 and has estimated total project costs to be approximately $16 million. Through September 30, 1999 the company has incurred approximately $15.2 million which represents approximately 6% of its information technology budget over the project period. The company expensed $0.5 million of modification costs in the third quarter of 1999 and $1.4 million for the nine months ended September 30, 1999 compared to $1.4 million in the third quarter of 1998 and $4.9 million for the nine months ended September 30, 1998. 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, fuel prices and foreign currency exchange rates. To ensure adequate funding through seasonal business cycles and minimize overall borrowing costs, the company utilizes a variety of both fixed rate and variable rate financial instruments with varying maturities. At September 30, 1999 approximately 66 percent of the company's long-term financing including ABS is at variable rates with the balance at fixed rates. The company uses interest rate swaps to hedge a portion of its exposure to variable interest rates. 13
14 The company uses swaps as hedges in order to manage a portion of its exposure to variable diesel prices. These agreements provide protection from rising fuel prices, but limit the ability to benefit from price decreases below the purchase price of the agreement. The swap transactions are generally based on the price of heating oil. Based on historical information, the company believes the correlation between the market prices of diesel fuel and heating oil is highly effective. The company's revenues and operating expenses, assets and liabilities of its Canadian and Mexican subsidiaries are denominated in foreign currencies, thereby creating exposures to changes in exchange rates, however the risks related to foreign currency exchange rates are not material to the company's consolidated financial position or results of operations. The table below provides information about the company's debt instruments (including off balance sheet asset backed securitzation (ABS)) and interest rate swaps as of September 30, 1999. For debt obligations the table presents principal cash flows (in millions) and related weighted average interest rates by contractual maturity dates. For interest rate swaps the table presents notional amounts (in millions) and weighted average interest rates by contractual maturity. Weighted average variable rates are based on the 30-day LIBOR rate at September 30, 1999. EXPECTED MATURITY DATE <TABLE> <CAPTION> THERE- FAIR 1999 2000 2001 2002 2003 AFTER TOTAL VALUE -------- ------- ------- ------ ------- ------- ------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> DEBT OBLIGATIONS FIXED RATE DEBT $ 0.1 $ 29.0 $ 7.2 $ 22.2 $ 19.5 $ 69.5 $ 147.5 $ 148.2 AVE. INT. RATE 7.06% 6.75% 8.28% 7.35% 6.29% 6.89% VAR. RATE DEBT $ 0.3 $ 1.5 $ 101.5 $ 5.8 $ 5.1 $ 15.1 $ 129.3 $ 129.3 AVE. INT. RATE 5.98% 5.98% 6.14% 5.89% 4.32% 5.90% OFF BAL. SHEET - ABS $ 152.0 $ 152.0 $ 152.0 AVE. INT. RATE 5.41% INTEREST RATE DERIVATIVES: VARIABLE TO FIXED: NOTIONAL AMOUNT $ 0.4 $ 1.5 $ 1.5 $ 5.8 $ 0.1 $ 4.8 $ 14.1 $ 14.1 AVERAGE PAY RATE (FIXED) 5.80% 5.81% 5.81% 5.70% 7.65% 7.65% AVERAGE RECEIVE RATE (VARIABLE) 5.98% 5.98% 5.99% 5.89% 7.55% 7.55% </TABLE> The following table provides information about the company's diesel fuel hedging instruments that are sensitive to changes in commodity prices. The table presents notional amounts in gallons and the weighted average contract price by contractual maturity date as of September 30, 1999. The company maintained fuel inventories for use in normal operations at 14
15 September 30, 1999, which were not material to the company's financial position and represented no significant market exposure. Expected Maturity Date <TABLE> <CAPTION> 1999 2000 Total ---- ---- ----- <S> <C> <C> <C> Heating Oil Swaps: Gallons (in millions) 26.5 38.6 65.1 Weighted Average Price per Gallon $ .4563 $ .4578 $ .4572 Fair Value (in millions) $ 8.3 </TABLE> Statements contained herein that are not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the company's expectations, hopes, beliefs and intentions on strategies regarding the future. It is important to note that the company's actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including but not limited to inflation, labor relations, inclement weather, competitor pricing activity, year 2000 issues, expense volatility and a downturn in general economic activity. 15
16 Yellow Freight System, Inc. Financial Information For the Quarter Ended September 30 (Amounts in thousands) <TABLE> <CAPTION> Third Quarter Nine Months ------------------ --------------------- 1999 1998 % 1999 1998 % ------- ------- --- --------- --------- ------- <S> <C> <C> <C> <C> <C> <C> Operating revenue 675,412 639,627 5.6 1,927,015 1,862,242 3.5 Operating income 26,590 20,514 58,110 47,639 Operating ratio 96.1 96.8 97.0 97.4 Total assets at September 30 781,689 780,944 </TABLE> <TABLE> <CAPTION> Third Quarter Third Quarter Amount/Workday ----------------------- ------------------- 1999 1998 % 1999 1998 % -------- -------- --- -------- ------- --- <S> <C> <C> <C> <C> <C> <C> <C> Workdays (64) (64) Financial statement LTL 624,900 585,450 6.7 9,764.1 9,147.7 6.7 revenue TL 54,334 54,310 0.0 849.0 848.6 0.0 Other (3,822) (133) NM (59.7) (2.1) NM Total 675,412 639,627 5.6 10,553.4 9,994.2 5.6 Revenue excluding LTL 624,900 585,450 6.7 9,764.1 9,147.7 6.7 revenue recognition TL 54,334 54,310 0.0 849.0 848.6 0.0 adjustment Other 3 529 NM 0.0 8.3 NM Total 679,237 640,289 6.1 10,613.1 10,004.6 6.1 Tonnage LTL 1,819 1,763 3.2 28.43 27.55 3.2 TL 361 379 (4.7) 5.64 5.91 (4.7) Total 2,180 2,142 1.8 34.07 33.46 1.8 Shipments LTL 3,685 3,575 3.1 57.58 55.86 3.1 TL 49 51 (4.0) .77 .80 (4.0) Total 3,734 3,626 3.0 58.35 56.66 3.0 Revenue/cwt. LTL 17.17 16.60 3.4 TL 7.53 7.17 4.9 Total 15.58 14.94 4.3 Revenue/shipment LTL 169.59 163.75 3.6 TL 1,102.77 1,058.20 4.2 Total 181.90 176.41 3.1 </TABLE> 16
17 Saia Motor Freight Line, Inc. Financial Information For the Quarter Ended September 30 (Amounts in thousands) <TABLE> <CAPTION> Third Quarter Nine Months ----------------- ----------------- 1999 1998 % 1999 1998 % ------- ------- --- ------- ------- --- <S> <C> <C> <C> <C> <C> <C> Operating revenue 89,137 87,852 1.5 260,487 254,703 2.3 Operating income 4,698 6,730 12,512 17,998 Operating ratio 94.7 92.3 95.2 92.9 Total assets at September 30 227,645 207,261 </TABLE> <TABLE> <CAPTION> Third Quarter Third Quarter Amount/Workday ---------------------- ------------------------ 1999 1998 % 1999 1998 % ------- ------- ---- ------- --------- ---- <S> <C> <C> <C> <C> <C> <C> <C> Workdays (64) (64) Financial statement LTL 80,281 79,041 1.6 1,254.4 1,235.0 1.6 revenue TL 8,856 8,811 .5 138.4 137.7 .5 Total 89,137 87,852 1.5 1,392.8 1,372.7 1.5 Revenue excluding LTL 80,379 79,054 1.7 1,255.9 1,235.2 1.7 revenue recognition TL 8,867 8,812 .6 138.5 137.7 .6 adjustment Total 89,246 87,866 1.6 1,394.4 1,372.9 1.6 Tonnage LTL 450 442 1.9 7.03 6.90 1.9 TL 148 145 2.4 2.32 2.26 2.4 Total 598 587 2.0 9.35 9.16 2.0 Shipments LTL 824 822 .2 12.87 12.84 .2 TL 15 15 (1.7) .23 .24 (1.7) Total 839 837 .2 13.10 13.08 .2 Revenue/cwt. LTL 8.93 8.95 (.2) TL 2.99 3.04 (1.7) Total 7.46 7.49 (.4) Revenue/shipment LTL 97.59 96.21 1.4 TL 595.30 581.46 2.4 Total 106.43 105.00 1.4 </TABLE> 17
18 Jevic Transportation, Inc. Financial Information For the Quarter Ended September 30 (Amounts in thousands) <TABLE> <CAPTION> 7/10-9/30 7/1-9/30 --------- ------------------------------ 1999 1999 1998 % --------- ------- -------- ---- <S> <C> <C> <C> <C> Operating revenue 63,380 69,743 57,037 22.3 Operating income 4,467 4,949 4,242 Operating ratio 93.0 92.9 92.6 Total assets at September 30 259,730 259,730 135,425 </TABLE> For comparative purposes, all information presented below is based on information covering the period July 1 through September 30. The period from July 1 through July 9 is not included in Yellow Corporation consolidated financial filings. Current quarter results include purchase accounting adjustments that decreased operating income by $0.4 million. <TABLE> <CAPTION> Third Quarter Third Quarter Amount/Workday -------------------- ------------------- 1999 1998 % 1999 1998 % -------- -------- ----- -------- ------- ----- <S> <C> <C> <C> <C> <C> <C> <C> Workdays (64) (64) Financial statement LTL 43,661 35,467 23.1 682.2 554.2 23.1 revenue TL 26,082 21,570 20.9 407.5 337.0 20.9 Total 69,743 57,037 22.3 1,089.7 891.2 22.3 Revenue excluding LTL 43,870 35,689 22.9 685.5 557.6 22.9 revenue recognition TL 26,213 21,709 20.7 409.6 339.2 20.7 adjustment Total 70,083 57,398 22.1 1,095.1 896.8 22.1 Tonnage LTL 241 204 18.2 3.76 3.18 18.2 TL 359 296 21.6 5.62 4.62 21.6 Total 600 500 20.2 9.38 7.80 20.2 Shipments LTL 203 170 19.0 3.16 2.66 19.0 TL 36 30 20.8 0.57 0.47 20.8 Total 239 200 19.5 3.73 3.13 19.5 Revenue/cwt. LTL 9.12 8.77 4.0 TL 3.65 3.67 (0.7) Total 5.84 5.75 1.7 Revenue/shipment LTL 216.51 209.86 3.2 TL 722.72 727.64 (0.7) Total 293.37 287.14 2.2 </TABLE> 18
19 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (10) - Amendment and Restatement Dated July 30, 1999 of the Receivables Purchase Agreement Dated as of August 2, 1996 (27) - Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K - Yellow Corporation announced November 9, 1999 the resignation of A. Maurice Myers as chairman, president and chief executive officer and the immediate appointment of William D. Zollars as chairman, president and chief executive officer. 19
20 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 12, 1999 /s/ William D. Zollars --------------------------- --------------------------------------- William D. Zollars Chairman of the Board of Directors, President & Chief Executive Officer Date: November 12, 1999 /s/ H. A. Trucksess, III --------------------------- --------------------------------------- H. A. Trucksess, III Senior Vice President - Finance/ Chief Financial Officer & Treasurer 20