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
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(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
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YELLOW CORPORATION
INDEX
Item Page
- ---- ----
PART I
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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries
(Amounts in thousands except share data)
(Unaudited)
September 30, December 31,
1999 1998
------------- ------------
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
=========== ===========
The accompanying notes are an integral part of these statements.
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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)
Third Quarter Nine Months
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
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)
=========== =========== =========== ===========
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 Nine Months Ended September 30, 1999 and 1998
(Amounts in thousands)
(Unaudited)
1999 1998
--------- ---------
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
========= =========
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 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.
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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):
SE NE Corporate
National Regional Regional and Other Consolidated
-------- -------- -------- --------- ------------
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
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).
Purchase Price:
Common Stock tendered $149.9
Stock options, net of tax benefit 7.0
Transaction fees 3.9
------
$160.8
------
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.
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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.)
For the Nine Months
Ended September 30
-------------------------
1999 1998
----------- -----------
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)
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.
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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.
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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.
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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.
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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.
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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.
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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
THERE- FAIR
1999 2000 2001 2002 2003 AFTER TOTAL VALUE
-------- ------- ------- ------ ------- ------- ------- --------
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%
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
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September 30, 1999, which were not material to the company's financial position
and represented no significant market exposure.
Expected Maturity Date
1999 2000 Total
---- ---- -----
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
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.
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Yellow Freight System, Inc.
Financial Information
For the Quarter Ended September 30
(Amounts in thousands)
Third Quarter Nine Months
------------------ ---------------------
1999 1998 % 1999 1998 %
------- ------- --- --------- --------- -------
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
Third Quarter
Third Quarter Amount/Workday
----------------------- -------------------
1999 1998 % 1999 1998 %
-------- -------- --- -------- ------- ---
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
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Saia Motor Freight Line, Inc.
Financial Information
For the Quarter Ended September 30
(Amounts in thousands)
Third Quarter Nine Months
----------------- -----------------
1999 1998 % 1999 1998 %
------- ------- --- ------- ------- ---
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
Third Quarter
Third Quarter Amount/Workday
---------------------- ------------------------
1999 1998 % 1999 1998 %
------- ------- ---- ------- --------- ----
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
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Jevic Transportation, Inc.
Financial Information
For the Quarter Ended September 30
(Amounts in thousands)
7/10-9/30 7/1-9/30
--------- ------------------------------
1999 1999 1998 %
--------- ------- -------- ----
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
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.
Third Quarter
Third Quarter Amount/Workday
-------------------- -------------------
1999 1998 % 1999 1998 %
-------- -------- ----- -------- ------- -----
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
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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.
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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
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