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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
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(Address of principal executive offices) (Zip Code)
(913) 696-6100
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(Registrant's telephone number, including area code)
10777 Barkley, P.O. Box 7563, Overland Park, Kansas 66207
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(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
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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
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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)
June 30 December 31
1996 1995
---------- ----------
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
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Total current assets 382,736 485,010
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PROPERTY AND EQUIPMENT:
Cost 1,995,537 1,989,389
Less - Accumulated depreciation 1,112,890 1,067,541
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Net property and equipment 882,647 921,848
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OTHER ASSETS 26,554 28,039
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$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
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Total current liabilities 393,938 442,796
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OTHER LIABILITIES:
Long-term debt 266,235 341,648
Deferred income taxes 45,885 56,032
Claims, insurance and other 175,264 171,744
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Total other liabilities 487,384 569,424
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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)
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Total shareholders' equity 410,615 422,677
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$1,291,937 $1,434,897
========== ==========
The accompanying notes are an integral part of these statements.
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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)
Second Quarter Six Months
------------------- -----------------------
1996 1995 1996 1995
-------- -------- ---------- ----------
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
======== ======== ========== ==========
The accompanying notes are an integral part of these statements.
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STATEMENTS OF CONSOLIDATED CASH FLOWS
Yellow Corporation and Subsidiaries
For the Six Months Ended June 30, 1996 and 1995
(Amounts in thousands)
(Unaudited)
1996 1995
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OPERATING ACTIVITIES:
Net cash from operating activities $ 87,976 $ 7,043
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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
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Net cash used in investing activities (22,709) (91,283)
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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
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CASH, END OF PERIOD $ 16,925 $ 10,999
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SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes (received) paid, net $(42,063) $ 5,789
======== =========
Interest paid $ 11,982 $ 9,507
======== =========
The accompanying notes are an integral part of these statements.
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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.
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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.
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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
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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
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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
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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
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