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, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _______________________
Commission file number 0-12255
YELLOW CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 48-0948788
- - - ---------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10777 Barkley, P.O. Box 7563, Overland Park, Kansas 66207
- - - --------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(913) 967-4300
-----------------------------------
(Registrant's telephone number, including area code)
No changes.
-----------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1994
----- -------------------------------
Common Stock, $1 Par Value 28,107,475 shares
2
YELLOW CORPORATION
INDEX
Item Page
- - - ---- ----
PART I
------
1. Financial Statements
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993 3
Statements of Consolidated Income -
Three Months and Nine Months Ended September 30, 1994 and 1993 4
Statements of Consolidated Cash Flows -
Nine Months Ended September 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II
-------
5. Other Information 8
6. Exhibits and Reports on Form 8-K 9
Signatures 9
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3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries
September 30, 1994 and December 31, 1993
(Amounts in thousands except share data)
(Unaudited)
September 30 December 31
1994 1993
---------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 14,725 $ 13,937
Short-term investments 7,772 6,777
Accounts receivable 306,519 276,223
Other current assets 92,356 82,456
---------- ----------
Total current assets 421,372 379,393
---------- ----------
OPERATING PROPERTY:
Cost 1,860,432 1,765,992
Less - Accumulated depreciation 980,662 910,122
---------- ----------
Net operating property 879,770 855,870
---------- ----------
OTHER ASSETS 19,990 30,391
---------- ----------
$1,321,132 $1,265,654
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 99,462 $ 71,580
Wages and employees' benefits 131,795 117,723
Other current liabilities 134,448 140,854
Current maturities of long-term debt 12,205 12,327
---------- ----------
Total current liabilities 377,910 342,484
---------- ----------
OTHER LIABILITIES:
Long-term debt 253,594 214,176
Deferred income taxes 54,839 58,911
Claims, insurance and other 182,091 163,630
---------- ----------
Total other liabilities 490,524 436,717
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value 28,858 28,850
Capital surplus 6,668 6,469
Retained earnings 444,679 483,586
Shares held by Stock Sharing Plan (9,920) (14,880)
Treasury stock (17,587) (17,572)
---------- ----------
Total shareholders' equity 452,698 486,453
---------- ----------
$1,321,132 $1,265,654
========== ==========
The accompanying notes are an integral part of these statements.
3
4
STATEMENTS OF CONSOLIDATED INCOME
Yellow Corporation and Subsidiaries
For the Quarter and Nine Months Ended September 30, 1994 and 1993
(Amounts in thousands except per share data)
(Unaudited)
Third Quarter Nine Months
------------------- ----------------------
1994 1993 1994 1993
-------- -------- ---------- ----------
OPERATING REVENUE $769,259 $761,706 $2,109,629 $2,096,827
-------- -------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits 501,247 507,774 1,425,057 1,418,022
Operating expenses and supplies 110,862 107,567 320,822 301,249
Operating taxes and licenses 28,460 27,182 82,643 76,576
Claims and insurance 20,945 19,730 59,319 50,641
Communications and utilities 9,850 9,661 30,698 28,621
Depreciation 33,202 33,324 99,989 98,677
Purchased transportation 37,517 30,834 98,392 74,763
Network development - - - 18,000
-------- -------- ---------- ----------
Total operating expenses 742,083 736,072 2,116,920 2,066,549
-------- -------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 27,176 25,634 (7,291) 30,278
-------- -------- ---------- ----------
NONOPERATING (INCOME) EXPENSES:
Interest expense 4,865 4,593 14,108 13,035
Other, net (468) 613 (1,376) 1,691
-------- -------- ---------- ----------
Nonoperating expenses, net 4,397 5,206 12,732 14,726
-------- -------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 22,779 20,428 (20,023) 15,552
PROVISION FOR INCOME TAXES 9,575 9,960 (4,967) 8,719
-------- -------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 13,204 10,468 (15,056) 6,833
EXTRAORDINARY ITEM - WRITE-OFF
OPERATING RIGHTS (4,058) - (4,058) -
-------- -------- ---------- ----------
NET INCOME (LOSS) $ 9,146 $ 10,468 $ (19,114) $ 6,833
======== ======== ========== ==========
AVERAGE COMMON SHARES OUTSTANDING 28,108 28,106 28,107 28,106
======== ======== ========== ==========
EARNINGS PER SHARE:
Income (loss) before extraordinary item $ .47 $ .37 $ (.54) $ .24
======== ======== ========== ==========
Net income (loss) $ .33 $ .37 $ (.68) $ .24
======== ======== ========== ==========
The accompany 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, 1994 and 1993
(Amounts in thousands)
(Unaudited)
1994 1993
--------- ---------
OPERATING ACTIVITIES:
Net cash from operating activities $ 98,026 $ 100,842
--------- ---------
INVESTING ACTIVITIES:
Acquisition of operating property (135,198) (50,906)
Proceeds from disposal of operating property 14,573 5,260
Purchases of short-term investments (7,951) (7,032)
Proceeds from maturities of short-term
investments 6,956 13,678
Purchase of Preston Corporation,
net of cash acquired - (23,683)
--------- ---------
Net cash used in investing activities (121,620) (62,683)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 14,000 24,250
Repayment of long-term debt (13,840) (93,933)
Commercial paper borrowings, net 43,925 63,892
Cash dividends paid to shareholders (19,812) (19,802)
Reduction of Stock Sharing Plan debt guarantee (4,960) (4,509)
Shares allocated by Stock Sharing Plan 4,960 4,509
Other, net 109 55
--------- ---------
Net cash from (used in) financing activities 24,382 (25,538)
--------- ----------
NET INCREASE IN CASH 788 12,621
CASH, BEGINNING OF PERIOD 13,937 19,016
--------- ---------
CASH, END OF PERIOD $ 14,725 $ 31,637
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 2,551 $ 16,516
========= =========
Interest paid $ 11,077 $ 11,358
========= =========
The accompanying notes are an integral part of these statements.
5
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
1. In the opinion of management, all adjustments necessary for a fair
statement of the results of operations for the interim periods included
herein have been made.
2. The company's reserves for workers' compensation are discounted to
present value using a rate of 5.5% at December 31, 1993. Effective
January 1, 1994, the company changed its discount rate to a risk-free
rate. The risk-free rate is the U.S. Treasury rate for maturities that
match the expected pay-out of workers' compensation liabilities. The
change in rates was prompted by a Securities and Exchange Commission
directive requiring a discount rate that does not exceed a risk-free
rate. This change did not have a material impact on the financial
condition or results of operations of the company.
3. In February 1993, Yellow Corporation (the company) acquired the stock of
Preston Corporation (Preston). Preston is the holding company for
principally three regional less-than-truckload (LTL) carriers. Preston
Trucking Company, Inc. (Preston Trucking) serves the Northeast and Upper
Midwest. Saia Motor Freight Line, Inc. (Saia) serves the Southeast and
Smalley Transportation Company (Smalley) serves Florida and Georgia.
The acquisition was accounted for by the purchase method and,
accordingly the financial statements include the operating results of
Preston effective March 1, 1993. Assuming the acquisition of Preston
had occurred on January 1, 1993, the company's unaudited results of
operations (in thousands, except per share data) for the nine months
ended September 30, 1993 would have been as follows:
1993
----
Operating revenue $ 2,183,935
Income before cumulative effect
of accounting change $ 771
Net loss $ (334)
Earnings per share:
-------------------
Income before cumulative effect
of accounting change $ .03
Net loss $ (.01)
The unaudited pro forma results are not necessarily indicative of what
would have occurred if the acquisition had been consummated at the
beginning of 1993, nor are they necessarily indicative of future
consolidated results.
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7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
September 30, 1994 Compared to December 31, 1993
Working capital increased by $6 million during the first nine months of 1994,
resulting in a $43 million positive working capital position at September 30,
1994.
The company decreased its total debt level by $12 million in the third quarter
of 1994, resulting in total debt at September 30, 1994 that was $39 million
more than at December 31, 1993. This overall increase was primarily due to the
relatively higher level of capital expenditures in the first nine months of
1994 and the impact on cash flow of a 24 day strike in April against Yellow
Freight System, Inc., (Yellow Freight), the company's largest operating
subsidiary. Additional borrowings during the period were primarily from
commercial paper. Most of the capital expenditures were for revenue equipment
at Yellow Freight. It is anticipated that the remaining capital expenditures
for 1994 will be financed primarily through internally-generated funds and that
the total debt level at December 31, 1994 will approximate that of September
30, 1994.
The Board of Directors of the company declared a quarterly dividend of $.235
per share of common stock on October 20, 1994, payable on November 14 to
shareholders of record on October 31.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1994 and 1993
Operating revenue for the company was $769.3 million in this year's third
quarter compared to $761.7 million in the third quarter last year, an increase
of 1%. Net income before an extraordinary item was $13.2 million, or $.47 per
share, compared to $10.5 million, or $.37 per share in last year's third
quarter. Last year's results were reduced by $1.6 million, or $.06 per share,
due to the impact of a higher tax rate on the company's deferred tax
liabilities.
Federal legislation passed during this year's third quarter effectively
deregulated entry and rates for intrastate operations of all transportation
companies. As a result, the company wrote off the $4.1 million after tax value
of its intrastate operating rights. This $.14 per share non-cash charge was
recorded as an extraordinary item and reduced net income to $9.1 million, or
$.33 per share.
During the third quarter, Yellow Freight continued its recovery from the
effects of the strike. Operating revenue in the quarter was about equal to
last year while profitability was higher. A stable pricing environment helped
Yellow Freight offset decreases in tonnage and the number of shipments handled.
LTL and total tonnage were down only 2% compared to the third quarter of 1993.
Late in the quarter Yellow Freight implemented a change of linehaul operations
which will allow substantially more freight to be transported via rail. This
change, which was made possible by the new labor agreement, will lower
operating costs and improve service for customers.
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8
Preston Trucking reported lower results for the third quarter. Flat revenue
and increased operating expenses resulted in a 102.6 operating ratio in this
year's third quarter compared to breakeven results in the same quarter last
year. Operating expenses included the impact of the new labor contract and
additional changes in a wage reduction program (see Part II, Item 6(b)). In
October, Preston Trucking opened a new distribution center located in the
Cleveland, Ohio area which will enable them to offer two day or less service
throughout almost all of its expanded "SuperRegion". This service offering
provides a competitive advantage and is an important step in making Preston
Trucking a contributor to the company's profitability.
The merger of Smalley into Saia is proceeding as planned with completion still
expected in the first quarter of next year. Third quarter revenue increased
14% at Saia and 6% at Smalley compared to last year, mainly from growth in the
number of shipments handled. Saia's third quarter operating ratio of 93.8
reflects merger preparation costs as well as costs related to the continuing
expansion in Texas and Tennessee. The full benefits of the expansion will
impact 1995 and beyond. Smalley's operating ratio of 98.7 is a full seven
points better than its performance in the third quarter of 1993.
Comparison of Nine Months Ended September 30, 1994 and 1993
For the first nine months of 1994, operating revenue was $2,109.6 million
compared to $2,096.8 million in the same period last year. The inclusion of
the Preston group of companies, effective March 1, 1993, increased revenue by
6.3% but the strike offset this increase, resulting in essentially the same
revenue as last year.
For the first nine months of 1994 there was a net loss of $19.1 million, or
$.68 per share, compared to net income of $6.8 million, or $.24 per share in
1993. The loss in 1994 primarily reflects the impact of a 24 day strike in
April against Yellow Freight which is estimated to have cost $1.24 per share.
The results for 1993 include an $11.2 million, or $.40 per share, after tax
charge for network development.
PART II - OTHER INFORMATION
Item 5. Other Information
On October 31, 1994, the company announced that it had signed a final purchase
agreement to acquire Johnson's Freightlines, a Phoeniz, AZ-based regional LTL
carrier. Johnson's has annual revenue of approximately $17 million and
provides service to Arizona, New Mexico and parts of Texas. The purchase will
provide a profitable base for gaining a regional LTL presence in the western
region of the United States. The purchase is expected to be completed in
November subject to regulatory approvals. The acquisition will be accounted
for by the purchase method and, accordingly, the company will include operating
results of Johnson's in the financial statements from the date of acquisition.
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PART II - OTHER INFORMATION (continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (27) - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
On July 5, 1994, a Form 8-K was filed under Item 5, Other Events, which
reported that the company announced on June 30, 1994, that the union associates
of its Preston Trucking Company subsidiary had approved a plan that would
reduce wages in return for a share of profits if certain operating results are
achieved. The associates, members of the International Brotherhood of
Teamsters, voted to approve a wage reduction program that would lessen pay by
seven percent in 1994, five percent in 1995 and return to standard contract
wages in 1996. This plan replaced a one year, nine percent wage reduction
approved in March 1993, shortly after Preston Trucking was acquired by the
company.
The company indicated that the temporary reduction in wages was necessary to
help complete a financial turnaround of Preston Trucking. The vote on the wage
reduction provides Preston Trucking with additional time to implement permanent
changes and complete the turnaround.
On October 5, 1994, a Form 8-K was filed under Item 5, Other Events, which
reported that the company announced on September 29, 1994, that it will record
a charge to earnings in the third quarter of $6.7 million, $4.1 million after
taxes, or $.14 per share. This charge, recorded as an extraordinary item, is
to write-off the book value of its intrastate operating rights. The non-cash
charge resulted from the recent passage of the Trucking Industry Regulatory
Reform Act of 1994 which deregulates the entry and rates for the intrastate
operations of all transportation companies.
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 7, 1994 /s/ H. A. Trucksess, III
------------------------------ ---------------------------------
H. A. Trucksess, III
Senior Vice President - Finance
Date: November 7, 1994 /s/ Phillip A. Spangler
------------------------------ ---------------------------------
Phillip A. Spangler
Vice President and Treasurer
9
5
1,000
9-MOS
DEC-31-1994
JAN-01-1994
SEP-30-1994
14,725
0
306,519
0
0
421,372
1,860,432
980,662
1,321,132
377,910
253,594
28,858
0
0
423,840
1,321,132
0
2,109,629
0
2,116,920
0
0
14,108
(20,023)
(4,967)
(15,056)
0
(4,058)
0
(19,114)
(.68)
(.68)
