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NARRATIVE DESCRIPTION
OF PICTURES AND CHARTS FROM
YELLOW CORPORATION 1994 ANNUAL REPORT
Front Cover -- Picture of steering wheel with Yellow Corporation logo
in the middle.
Inside Front Cover -- Photograph of stretch of highway.
Page 3 -- Small inset picture of Yellow Freight System trailer on
rail flatcar.
Page 4 -- Inset picture of a portion of a steering wheel.
Page 5 -- Inset picture of George E. Powell III, President and
Chief Executive Officer of the Company
Page 6 -- Entire page is a picture of a Yellow Freight System
driver adjusting a rear-view mirror
Page 7 -- Small inset picture of a Yellow Freight System tractor
and trailer
Page 8 -- Small inset picture of a Preston Trucking Company
tractor and trailer
Page 9 -- Entire page is a picture of a driver entering his
tractor
Page 10 -- Entire page is a picture of a driver shifting gears
Page 11 -- Small inset picture of a Saia Motor Freight Line
tractor and trailer
Page 12 -- Small inset picture of an interstate highway cloverleaf
intersection
Page 13 -- Entire page is a picture of a driver polishing his
tractor's radiator grill
Page 14-15 -- Small inset picture running on both pages of a tractor
steering wheel
Page 35 -- Small inset pictures of each of the Company's Directors
and the Secretary to the Board
Inside Back Cover -- Picture of a Yellow Freight System tractor and dual
trailers
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YELLOW CORPORATION 1994 ANNUAL REPORT TEXT
CONTENTS
This is Yellow Corporation
and Financial Highlights
Letter To Shareholders
Serving Our Customers
Management's Discussion
and Analysis
Financial Summary
Consolidated Financial
Statements
Notes To Consolidated
Financial Statements
Report Of Independent
Public Accountants
Supplementary Information
Senior Officers
Directors
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FINANCIAL HIGHLIGHTS
Yellow Corporation and Subsidiaries
(Amounts in thousands except per share data)
1994 1993(a) 1992
Operating revenue $ 2,867,492 $ 2,856,505 $ 2,262,676
Income from operations 11,011 53,893 82,814
Income (loss) before extraordinary item and
cumulative effect of accounting change (3,848) 18,801 41,040
Net income (loss) (7,906) 18,801 29,540
Per share data:
Income (loss) before extraordinary item and
cumulative effect of accounting change (.14) .67 1.46
Net income (loss) (.28) .67 1.05
Cash dividends .94 .94 .94
Total debt 247,760 226,503 134,077
Shareholders' equity 460,843 486,453 485,496
(a) - 1993 amounts include the operating results of Preston Corporation
effective March 1, 1993. The 1993 results also include a network development
charge of $11.2 million after taxes ($.40 per share) and a charge of $1.6
million ($.06 per share) to reflect the impact of a higher tax rate on the
company's deferred tax liabilities.
YELLOW CORPORATION
is a holding company whose subsidiaries offer customers an array of
high-service, value-added transportation products that competitively position
each subsidiary for growth.
YELLOW FREIGHT SYSTEM, INC.
Yellow Freight System, headquartered in Overland Park, KS is the corporation's
largest subsidiary with 1994 operating revenue of $2.2 billion. As the largest
provider of less-than-truckload services in the nation, Yellow Freight System
employs 25,400 people throughout a network of 509 facilities. Direct service is
available to more than 35,000 points in the United States and Canada. The
company also provides service to Mexico, the Caribbean, and, via an alliance,
to Europe.
PRESTON TRUCKING COMPANY, INC.
Preston Trucking Company, headquartered in Preston, MD provides regional
less-than-truckload services in the upper Midwest and Northeast. A network of
71 facilities throughout this geographic region is operated by 5,900 employees
who focus on one and two-day service. The company recorded operating revenue of
$417 million in 1994.
SAIA MOTOR FREIGHT LINE, INC.
Saia Motor Freight Line, headquartered in Houma, LA also provides regional
less-than-truckload services. Its market consists of nine states in the South.
Providing premier regional service, Saia's 2,300 employees operate a network of
58 facilities. This year, Saia absorbed the operations of its sister company,
Smalley Transportation Company, adding full coverage for the state of Florida
and parts of Georgia. Combined revenue in 1994 was $178 million.
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CSI/REEVES, INC.
CSI/Reeves, headquartered in Calhoun, GA is a specialty carrier providing
transportation, warehousing and distribution services to the carpet and floor
covering industry. Almost 400 people are employed by CSI/Reeves with 1994
revenue of $36 million.
WESTEX,
WestEx, formerly Johnson's Freightlines, headquartered in Phoenix, AZ is a
recent acquisition. This regional less-than-truckload carrier provides mostly
overnight service to the states of Arizona, New Mexico and parts of Texas and
Nevada. Over 300 people are employed at WestEx with 1994 operating revenue of
$17 million.* The company plans to expand into California and adjoining Western
states.
YELLOW LOGISTICS SERVICES, INC.
Yellow Logistics Services, headquartered in Overland Park, KS offers a full
range of integrated logistics management services including transportation
management, warehousing, information systems, distribution, package design and
testing.
YELLOW TECHNOLOGY SERVICES, INC.
Yellow Technology Services, headquartered in Overland Park, KS employs 300
people and ensures that the operating companies--primarily Yellow Freight
System--have access to advanced information systems that are now required to
meet the ever-increasing information demands of transportation customers.
*This acquisition was completed in November 1994, resulting in only two months
of revenue reflected in the consolidated results.
LETTER TO SHAREHOLDERS
One dominant event had a material impact on Yellow Corporation in 1994. The
24-day national labor strike against our largest subsidiary, Yellow Freight
System, cast a shadow over our perfor-mance in the first half of the year.
During the second half, however, we regained momentum with an improved
performance allowing us to resume progress on our long-term strategy.
That strategy is straightforward: maximize profitability at our core
operations while lever-aging our management experience and reputation to
selectively acquire and build new transportation businesses. Having transformed
in the last two years from the owner of a single motor carrier to a
transportation holding company, we are confident about 1995 and beyond.
1994 PERFORMANCE
Yellow Corporation lost $7.9 million, or $.28 per share in 1994,
compared to a profit of $18.8 million, or $.67 per share, in 1993. The loss was
due directly to the national strike by the International Brotherhood of
Teamsters in April. The work stoppage at Yellow Freight had a negative earnings
impact of an estimated $1.24 per share. Harsh winter weather in the first
quarter and a one-time, after tax charge of $4.1 million, or $.14 per share, in
the third quarter to write-off the value of intrastate operating rights also
contributed to lower corporate earnings. Yellow Freight and Preston Trucking
Company were
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adversely affected by the strike. Yellow Freight, however, regained more than
98 percent of pre-strike revenue by year's end. Cost control, continued
diversification of its product offering and marketplace pricing stability also
contributed to a positive second half performance by Yellow Freight.
Preston Trucking, fortunate to endure only six idle days during the
national strike, saw revenue increase dramatically during April as shippers
turned to the carrier as one of few alternatives to move their goods. Preston
Trucking was, however, adversely affected by the event when the heavy volumes
strained its system. Service performance and profitability suffered in the
remainder of the second quarter and the third quarter. Preston Trucking's
fourth quarter showed improvement with revenue gains and further cost control.
Saia Motor Freight enjoyed significant revenue growth throughout the
year as it acquired new business through geographic expansion. In addition, the
company received modest benefit from the labor strike as shippers sought
alternative transportation capacity. Revenue increased 15 percent year over
year. Saia will also grow as a result of its recent merger with sister company
Smalley Transportation Company. The merger, completed in January 1995, created
a $180 million company.
Yellow Logistics Services successfully expanded logistics activity for
existing customers and attracted new customers. Through this subsidiary, we are
offering services such as transportation management, warehousing, special
integrated services, package testing and optimization, and transportation and
distribution process reengineering. CSI/Reeves, our specialty-carpet logistics
carrier, benefited from yield improvement and market expansion and penetration.
CSI had revenue growth of 28 percent and posted its first operating profit
since 1988.
THE PLAN
Yellow Freight provides 80 percent of our corporate revenue. As the
greatest contributor to revenue and earnings, it is essential that we maximize
the earning power of this core business. Strategically, Yellow Freight will
reduce costs by fully implementing provisions of its new labor agreement,
continuing to reconfigure its terminal network and investing in technology to
improve productivity. Revenue will be enhanced with improved yield management
and continued new product introduction. Profitability will also benefit from
Yellow's continued commitment to pricing stability.
Terminal network changes are streamlining operations. While over 100
facilities have been consolidated, geographic coverage remains unchanged and
service has improved at reduced costs. Annual cost savings are currently
running in excess of $10 million.
Yellow Freight is taking full advantage of the flexibility available
in its new labor agreement. In October, the company conducted operational
changes to implement new intermodal provisions available in the contract. When
the benefits of the provisions are fully realized, annual savings are expected
to approach $30 million. Add the elimination of forced overtime for dockworkers
and a lower new-hire compensation scale, and total savings are expected to
exceed $40 million annually by the fourth and final year of the pact,
offsetting annual increases in wages and benefits agreed to in the contract.
Earning power will also be enhanced over the next three years at
Yellow Freight with a $100 million investment in technology to further automate
information flows, capture information at its source and streamline freight
movement. Because our business is intensely transactional, the reengineering of
these processes presents significant opportunities to reduce administrative
costs and improve productivity through enhanced freight flow planning. As well,
the centralization of customer service
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functions will provide more timely and more valuable customer information.
Partial benefits of this investment are already evident and we expect to
realize full benefits in two to three years.
In addition to removing costs and improving processes, Yellow Freight
continues to create new revenue streams to maintain its market leadership
position. For example, Yellow Integrated Services(TM) provides shippers with
customized solutions such as warehousing, special pick up and delivery or
return goods coordination. Yellow Express Services(TM) includes a guaranteed
service and an expansion of reduced transit time services. Yellow Information
Technology(TM) offers customers technology products ranging from electronic
data interchange to imaging, to PC-based tracing and rating. Additionally,
Yellow Freight will continue to pursue target markets such as the exhibit and
chemical markets. Yellow International Services(TM) will expand in 1995 with
plans to launch service to the Pacific Rim and add an air product to its
existing transatlantic European service.
Evidenced by its emphasis on cost control, technology investment and
attention to revenue opportunities, Yellow Freight is a company determined to
maintain its position as a leader in the transportation marketplace.
Preston Trucking continues its financial turnaround. In 1994,
employees gave the company overwhelming support by voting to continue a wage
reduction at 7 percent below the national union standard. The percentage will
be reduced to 5 percent in April 1995. Full wages will be restored in April
1996. The wage reduction will save an estimated $25 million and provides the
necessary time for new productivity programs and a new service offering to take
hold.
Investment at Preston Trucking is directed toward activities that
provide dramatic service improvements. A $5 million, 170-door distribution
center near Cleveland, Ohio is the centerpiece of the new SuperRegion service
which offers reduced transit times in an expanded geographic region. To date,
competitors have been unable to match the service on a comprehensive basis and
customers are enthusiastic about the superior product. As a result, Preston
Trucking's revenue and profitability are expected to improve throughout 1995.
Saia responded to market demands for high quality regional service in
the South, by opening 20 new facilities during the year. Saia also recently
absorbed the business of Smalley Transportation. The combined operation,
marketed as Saia, now has 58 facilities stretching from Texas to Florida. Saia
will leverage the merger and recent intrastate deregulation to offer customers
full-state and overnight coverage in nine states, as well as a comprehensive
regional service across the South.
Consistent with our corporate strategy to expand our regional
less-than-truckload business, Yellow Corporation acquired a regional carrier
based in Phoenix, AZ. Johnson's Freightlines serves Arizona, New Mexico and
parts of Texas and Nevada. The company was renamed WestEx and will expand its
presence in the Western United States. Plans for expansion into California and
adjoining states are underway.
THE FUTURE
What used to be exceptional service is becoming the norm. It is no
longer acceptable to simply keep pace. Our companies must set the pace by
redefining exceptional service. To do so, our management and employees have
discarded old ways of doing business in favor of unprecedented approaches to
problem solving. In the following pages of this report, you'll read examples of
these new approaches and how they will lead to improved profitability.
As we mark the halfway point of the decade, history continues to
record rapid change
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in the transportation industry. Global competitive pressures are pushing
customers toward optimization of their total logistics costs, requiring faster
and more reliable transit times. In many instances, customers are completely
re-configuring their distribution patterns to meet these demands, resulting in
the need for transportation suppliers to change. This, combined with the
effects of intrastate deregulation, means that we must be prepared for
increased competition.
Yellow Corporation companies have anticipated these challenges and are
continuing to implement changes that strengthen their position as
transportation suppliers of choice. We are equipped with the assets,
technology, management experience and employee commitment to successfully
execute our plans. Our companies will make their customers more competitive.
The result will be enhanced shareholder value.
GEORGE E. POWELL III
President and Chief Executive Officer
YELLOW FREIGHT'S VISION IS CLEAR
In early 1994, Yellow Freight System assembled a plan called Blueprint for
Change that would positively alter its activities for years to come. The
"blueprint" outlines dramatic changes in the company's processes, management
approach and employee skills.
PHOTO COPY: Yellow Freight's vision is clear: to be the fastest, most
convenient and reliable transportation partner of the 21st century.
Supported by a $100 million investment in technology, Yellow Freight
is reconstructing the way it does business. Centralized customer service
facilities are being established. Billing and stating will move onto the
information highway available to customers in various electronic formats, and
rating will be automated. Dispatch will be computer-assisted with pick up and
delivery needs recorded electronically or by fax. Integrated information
systems will make routine requests for shipment tracing, rating or proof of
deliveries an automated reality. The automation and systemization of these
activities will improve service, reduce costs, increase labor productivity and
give customers better information, quicker.
But the true test of superior customer service lies in how efficiently
Yellow Freight can move both freight and freight information. The process is
called freight flow and dramatic improvements are scheduled. The improvements
are based on the guiding principle that shipment information must stay ahead of
the physical flow of freight at all times. Receiving information ahead of time
can accelerate freight flow because information will work as a catalyst to
"pull" freight through the system rather than slow the movement as shipments
wait on information.
Again, technology is key. Computer Assisted Dispatch (CAD) equipment
will electronically communicate with drivers for customer pick up and
deliveries. Drivers receive messages on Mobile Data Terminals (MDTs) for pick
ups and respond with data about the shipments that begin the process of
"pulling" freight with information. Employees plan movements using real-time
information available from the computerized Shipment Transfer and Tracking
System (STATS). Dockworkers use a computer-
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aided Dock Operations Control System (DOCS) to manage the movement of trailers
to and from dock doors. Finally, bar code scanners are used to update shipment
information--eliminating the need to wait on paper to move freight.
Technology advancements are a business requirement, but the
performance of people will be the distinguishing factor in our future success.
The contractual employees of our companies stepped up to the changing
marketplace by overwhelmingly ratifying a new labor agreement that incorporates
unprecedented flexibilities--flexibilities that will result in better service
to customers.
YELLOW FREIGHT EMBRACES CHANGE
The new four-year agreement with the International Brotherhood of
Teamsters allows use of more intermodal rail transportation when it makes sense
for the company and customers. Operational efficiencies are gained and customer
service is enhanced. The contract also includes a combination of flexible
overtime rules, greater options for adding staff in peak periods and lower
new-hire rates. Now, our companies can extend pick up and delivery times and
move freight faster while better managing costs.
Most importantly though, the new agreement creates a true partnership
between contractual employees and our companies. A provision in the contract
referred to as Article 20 recognizes that it is the customer not the company
nor the union that creates jobs and job security. It states "...the union and
the companies agree to work together to provide the kind of quality service and
products that the ultimate employer, the customer, demands."
PHOTO COPY: Preston Trucking has established itself as a leader in high-service
regional transportation with the advent of the SuperRegion.
PRESTON: DIRECT TO DESTINATION
Increased global competition is causing businesses to change
distribution patterns and further reduce the time it takes to make and
distribute products. The result is the need for more regional transportation
services. Preston Trucking Company has established itself as a leader in
high-service regional transportation with the advent of SuperRegion, a
geographically comprehensive one and two-day service in the Northeast and upper
Midwest.
This expansive, faster service was created when Preston Trucking
replaced its hub and spoke system with a single-hub regional concept. The
strategic location of a consol-idation center near Cleveland allows Preston
Trucking to load more freight direct to destination rather than pushing
shipments through a multi-sort configuration. Less freight handling removes
costly time and reduces the opportunity for damage.
Over 1,200 lanes in Preston Trucking's service area experienced
improvements in transit time standards to one and two days when the SuperRegion
service was launched in October. Shipment activity for the system is
computerized and tightly scheduled. This data combined with information on
daily pick ups tells individual coordinators working in Cleveland the precise
characteristics of the freight and when it will arrive. Stacking and loading
plans are made accordingly, utilizing the specially designed narrow dock that
eliminates space and saves time.
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Next, teams rapidly and systematically consolidate shipments for their
final destination. Transfer time is recorded at four to six hours, dramatically
below industry levels. Transfer time is the amount of time it takes to unload,
sort and reload freight at a consolidation site. On-time service performance is
running at record highs. Internal measures verify that freight is also more
likely to be damage-free.
PHOTO COPY: Saia is a key provider of transportation services in an explosive
market and well-positioned for growth over the next several years.
GROWING SAIA
The Southeast quadrant of the United States is one of the largest
markets in the world. Saia Motor Freight is a key provider of transportation
services in this explosive market and well-positioned for growth over the next
several years.
Saia's competitive advantage lies in its quality heritage and flexible
workforce. In 1994, Saia employees opened 20 facilities in Texas, Georgia and
Tennessee. Simultaneously, it merged its $140 million operation with the $40
million Smalley Transportation operation, a sister company. Information systems
were successfully integrated, processes were blended and personnel reassigned.
No small task for the 2,300 Saia employees, but all the more impressive when
records confirm continued high on-time service and remarkably low
freight-damage claims.
In 1995, Saia is scheduled to complete an expansion plan that will add
North Carolina and South Carolina to its present nine-state service area.
As Saia expands, the company will focus on continual reduction in
transit times, direct service to all points within its region and enhancement
of information systems. This focus is highly compatible with its customers'
focus on reduced cycle time, lower costs and more accessible information.
Customers now have a premier option for their regional transportation needs in
the South as Saia becomes larger.
Saia gives Yellow Corporation a significant regional presence in the
South. Preston Trucking provides such a presence across the Northeast and upper
Midwest. WestEx, a regional carrier based in Phoenix, AZ will expand to give
the corporation the same presence in the extensive Western regional market.
While growth will be managed to assure high quality customer service, WestEx
will soon expand services beyond Arizona, New Mexico, Texas and Nevada into
California.
MEETING CUSTOMERS' UNIQUE NEEDS
Businesses continued to recognize a need for logistics support in
1994. In an effort to strategically locate its expertise closer to the
marketplace, Yellow Logistics Services opened regional sales offices in major
metropolitan areas. Business Development staff members are located in Chicago,
Kansas City, Philadelphia and Pittsburgh. As well, the company created special
niche units that deliver a unique combination of transportation, warehousing
and information systems above and beyond the core logistics management
services.
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These units include Return Product Management which provides an
organized system for the return of goods that are outdated or in need of
refurbishment or repair. Yellow Logistics manages the packaging, pick up,
transportation, shipment tracking, inspection, repair or disposal of the
merchandise.
Yellow Logistics also offers customized logistics modeling, which is a
planning tool that is offered to companies so they may determine strategic
facility locations and transportation strategies based on cost and service
parameters. The modeling tools use actual company data to analyze needs and
project future growth.
PHOTO COPY: Technology advancements are a business requirement, but the
performance of people will be the distinguishing factor in our future success.
DEVELOPING TOMORROW'S TECHNOLOGY
The collection, organization and dissemination of information is a
critical component of success for all Yellow Corporation companies. Advanced,
innovative information systems will drive our success. That's why a
reengineering effort at Yellow Technology Services is underway that will
dramatically enhance customer satisfaction and improve the application of
technology in the next few years. Specifically, Yellow Technology is moving
from an environment that was dependent on mainframe com-puters to a more
flexible environment which will make information more accessible to employees
and customers.
This renaissance of Yellow Technology will enable it to ensure that
Yellow Corporation companies have the information technology necessary to
anticipate and meet the information needs of customers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
1994 VS. 1993
Operating revenue for Yellow Corporation (the company) totaled $2.87
billion in 1994, an increase of $11.0 million from 1993. The flat revenue was
due to a 24-day national labor strike in April by the International Brotherhood
of Teamsters (Teamsters) against the company's largest subsidiary, Yellow
Freight System, Inc. (Yellow Freight), which essentially offset other revenue
increases. The strike also impacted most of Yellow Freight's major unionized
competitors. The company realized $85 million more revenue from the inclusion
of Preston Corporation (Preston) for twelve months in 1994 versus ten months in
1993. An additional $105 million of increased revenue was generated by full
year growth at the subsidiaries, exclusive of the labor strike impact. This
revenue growth came from rate increases and geographic expansion and was split
evenly between Yellow Freight and the other subsidiaries as a group.
The company had a net loss of $7.9 million, or $.28 per share, in 1994
compared to net income of $18.8 million, or $.67 per share in 1993. The 1994
net loss resulted primarily from
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the labor strike which reduced earnings by an estimated $1.24 per share. A
special charge of $4.1 million after taxes, or $.14 per share, to write-off the
value of intrastate operating rights also negatively impacted 1994 results.
This write-off was necessitated by federal legislation that deregulated the
entry and rates for intrastate operations of all transportation companies. Net
income in 1993 included an $11.2 million, or $.40 per share, charge for network
development at Yellow Freight as well as a reduction of $1.6 million, or $.06
per share, from the impact of the statutory increase in the U.S. federal tax
rate on the company's deferred tax liabilities.
As a result of the labor strike, Yellow Freight experienced a 6%
decrease in revenue for 1994 ($2.22 billion) versus 1993 ($2.36 billion). Rate
increases in January 1994 were offset by a 7% decrease in tonnage levels and a
12% decline in the number of shipments handled from 1993. However, the new
four-year labor contract provides Yellow Freight greater operational
flexibility while giving Teamster employees increased wages, benefits and job
security. The increased flexibility means that Yellow Freight has the ability
to lower operating costs by gaining the right to use more rail transportation
and dock casual workers whose rate of pay is fixed during the contract. In
return, the carriers agreed to a 14% increase in wages and benefits over the
four-year contract term.
Yellow Freight's earnings were also negatively impacted by severe
winter weather experienced in the first quarter of 1994 which caused
significant business disruptions and higher operating expenses. Salaries, wages
and employees' benefits expense as a percentage of revenue was essentially the
same in 1994 and 1993. Slightly lower employee levels were offset by wage and
benefit increases of approximately 3% effective April 1 under the new labor
agreement. Operating expenses and supplies increased as a percent of
revenue, primarily due to the fixed component of certain of these costs and
increases in equipment maintenance and general expenses. In the third quarter,
Yellow Freight implemented a change of linehaul operations, which allows
substantially more freight to be transported via rail. This change, which was
made possible by the new labor agreement, will hold down operating costs,
reduce capital expenditures for revenue equipment and improve service for
customers. Purchased transportation costs were higher in 1994 as a result of
this increased rail usage in the third and fourth quarters. Other nonoperating
expenses decreased $4.1 million due primarily to gains on revenue equipment
sales and less expense related to nonoperating facilities.
Preston Trucking Company, Inc. (Preston Trucking) had revenue of
$416.8 million in 1994, an annualized revenue increase of 5% compared to 1993.
However, their operating margin deteriorated slightly during the year as a
result of severe winter weather in the Northeast during the first quarter, the
impact of the second quarter strike and shipper uncertainty concerning approval
of the wage reduction agreement described below. Preston Trucking saw a
dramatic increase in revenue during the second quarter of 1994 as they returned
to work under an interim agreement with the Teamsters after only six days on
strike. The increased business adversely affected service performance and
costs, reducing profitability in the latter part of the second quarter and into
the third quarter. In mid-1994, the Teamster employees of Preston Trucking
approved a plan to reduce wages in return for a share of profits if certain
operating results are achieved. The plan lessens pay by seven percent from
standard wages under the new contract for the period April 1, 1994 to March 31,
1995 and by five percent for the period April 1, 1995 to March 31, 1996. Pay
levels return to standard contract wages on April 1, 1996. This plan replaced a
one year, nine percent wage reduction approved in March 1993, shortly after
Preston Trucking was acquired by the company. Significant service improvements
were achieved in the fourth quarter through the implementation of a new
regional concept featuring a 170-door distribution center near Cleveland, Ohio.
Called the SuperRegion, it provides reduced transit times and superior service
across an expanded geographic area. This service began attracting new revenue
during the quarter.
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Saia Motor Freight Line, Inc. (Saia) maintained an operating ratio of
92.0 in 1994 as it expanded geographically in Texas, Tennessee and Georgia.
Start up costs for these expansions burdened 1994 operating expenses while the
full revenue benefits will not be realized until 1995 and subsequent years.
Saia, with revenue of $137.8 million in 1994, achieved a 15% increase in
revenue compared to 1993 due to growth and second quarter benefits from the
labor strike. Smalley Transportation Company (Smalley) continued to improve its
operating ratio, 98.8 for 1994, while maintaining 4% revenue growth to $40.3
million. Effective January 1, 1995, Smalley was merged into Saia to offer
customers more comprehensive regional coverage and to reduce costs.
Merger-related costs in 1994 are estimated to have negatively impacted Saia and
Smalley's operating expenses by $1 million.
1993 VS. 1992
Operating revenue for the company totaled $2.86 billion in 1993 versus
$2.26 billion in 1992, an increase of 26.2%. A significant portion of the
increase in 1993 revenue ($500 million) is attributable to the March 1, 1993
acquisition of Preston. The remaining revenue growth came from increases in
rates and the number of shipments handled as well as contributions from new
services started in 1992. Yellow Freight had revenue of $2.36 billion in 1993,
up 4.2% from 1992, with a 4.9% increase in total tonnage. Tonnage levels in
1993 were essentially the same as 1990 due to the growth in the economy during
that period, offset by Yellow Freight's commitment to improving account
profitability and resisting discounting.
Net income for 1993 was $18.8 million, or $.67 per share, compared to
1992 net income of $29.5 million, or $1.05 per share. Earnings for 1993 reflect
an $11.2 million, or $.40 per share, charge for network development at Yellow
Freight as well as a reduction of $1.6 million, or $.06 per share, from the
impact of the statutory increase in the U.S. federal tax rate on the company's
deferred tax liabilities. Net income for 1992 was reduced $11.5 million, or
$.41 per share, due to a change in the company's revenue recognition policy.
Earnings declined in 1993 largely because of competitive pricing
pressures, especially in the first half of the year, and severe winter weather
across the nation in the first quarter. The operations of the Preston
subsidiaries had a small negative impact on earnings in 1993, although they
showed steady improvement during the year and contributed $.02 per share to
fourth quarter earnings.
The company's operating ratio was 98.1 in 1993 compared to 96.3 in
1992. Purchased transportation increased as a percentage of revenue due to
increased use of rail transportation and the Preston subsidiaries' heavier
usage of purchased transportation. Salaries, wages and employees' benefits
decreased as a percent of revenue despite wage and benefit increases of
approximately 3% effective April 1 for Teamster employees. This is due to a
wage reduction of 9% effective April 1 for employees of Preston Trucking, a
small decrease in the total number of employees and a reduction in workers'
compensation expense. Due to moderate capital expenditures during the last
three years and more efficient use of equipment, depreciation expense also
decreased as a percent of revenue. This resulted in higher equipment
maintenance costs which negated a portion of the depreciation expense savings.
During 1993, Yellow Freight instituted an extensive network
development process by consolidating and realigning terminals to improve
customer service and reduce costs. A charge of $11.2 million after taxes was
recorded for the costs to close certain facilities and dispose of excess
property. This network development will result in better use of assets, reduced
overhead, improved transit times and lower freight handling costs without
reducing customer service.
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Interest expense increased $5.5 million primarily due to increased
debt levels related to the Preston acquisition. Other nonoperating expenses
decreased $4.3 million due to gains on facility sales, lower levels of losses
related to equipment sales and less expense related to nonoperating facilities.
1992 VS. 1991
Operating revenue for the company totaled $2.26 billion in 1992, down
3.5% from $2.34 billion in 1991. Rate increases of approximately 5% were offset
by a decrease in total tonnage of 5.5% in 1992 compared to 1991, reflecting a
commitment to improving account profitability and resisting discounting.
Net income for 1992, before a charge for the cumulative effect of a
change in revenue recognition policy, was $41.0 million, or $1.46 per share,
compared to 1991 net income of $26.7 million, or $.95 per share. The
nonoperating charge of $11.5 million after taxes, or $.41 per share, reduced
full year net income to $1.05 per share and had no impact on cash flow. Yellow
Freight was able to retain most of its January 1, 1992 rate increase, a key
ingredient in improving profitability during 1992. The company's operating
ratio for 1992 improved to 96.3 from 97.6 in 1991 despite decreased revenue and
tonnage. The improvement in costs came primarily in the area of operating
expenses and supplies. Fuel expense decreased as a result of declining prices
and fewer miles operated. General operating expenses also decreased
significantly in a number of key areas as a result of continued cost control
efforts and decreased operating volume. Increased efficiencies and decreased
operating volume resulted in lower employee levels. Additionally, workers'
compensation costs were reduced in 1992. These reductions allowed total
salaries, wages and employees' benefits expense to remain constant as a
percentage of revenue from 1991 to 1992 despite a 3.5% increase in labor costs
on April 1 under the Teamsters' agreement.
FUTURE OUTLOOK
With business near pre-strike levels, a stable pricing environment,
and a new four-year labor agreement which will help reduce costs and improve
efficiency, the company expects improved operating performance in 1995. Revenue
growth is expected to come from rate increases, continued development of
existing services, introduction of new services and expansion of the regional
carriers service area. Rate increases of between 4% and 5% were implemented by
the motor carrier' subsidiaries on January 1, 1995. Yellow Freight expects that
rate increases and tonnage growth coupled with cost savings from the labor
agreement, investments in technology and other programs will result in improved
operating performance in 1995. Preston Trucking plans to continue to leverage
its new SuperRegion concept and expects improvement in both revenue growth and
operating profit. Revenue growth, improved service and improved productivity
are expected to produce benefits in excess of the phase down of the wage
reduction agreement. Saia, following the completion of its merger with Smalley,
anticipates strong revenue growth by expanding both within and outside of their
present service area. Expansion costs and pricing pressures related to the
deregulation of intrastate operations may have some negative impact on
operating performance in 1995. However, benefits are expected from cost savings
as a result of the merger and revenue opportunities from the 1994 and 1995
expansions, including access to new intrastate markets.
14
OTHER
In November 1994 the company acquired Johnson's Freightlines, a
Phoenix, AZ-based regional less-than-truckload carrier. Renamed WestEx, this
acquisition gives the company an established base as it plans to expand into
California and adjoining states.
The company uses heating oil swap and fixed price diesel fuel
agreements to reduce a portion of the exposure to fluctuating diesel prices.
The heating oil swap agreements provide for payments to be made or received
based on the difference between fixed prices and variable prices. Gains and
losses on the agreements are recognized as a component of fuel expense when the
corresponding fuel is purchased.
The effective income tax rate was 14.0% in 1994, 46.8% in 1993 and
37.2% in 1992. The decrease in 1994 primarily resulted from a pre-tax loss and
a higher relative impact from the statutory change in deductibility of certain
business expenses. The increase in 1993 was due primarily to the impact of a
higher U.S. federal tax rate on the company's deferred tax liabilities. The
notes to consolidated financial statements contain an analysis of the income
tax provision and the effective income tax rate.
FINANCIAL CONDITION
Working capital decreased $9.5 million during 1994, resulting in a
$27.4 million positive working capital position at December 31, 1994. The
company's total debt level at December 31, 1994 increased $21.3 million
compared to that of December 31, 1993, primarily due to a higher level of
capital expenditures in 1994 and the impact on cash flow of lower earnings.
Commercial paper borrowings and medium-term note issuances were used to meet
these cash needs and scheduled maturities of other debt. The company maintains
credit availability under a $100 million credit agreement to support the
commercial paper program and provide additional borrowing capacity.
Capital expenditures are financed primarily with internally-generated
funds. It is anticipated that 1995 capital expenditures will be similarly
financed. Actual and projected net capital expenditures are summarized below
(in millions):
Projected Actual
1995 1994 1993 1992
Land and structures $ 25 $ 3 $12 $16
Revenue equipment 85 98 34 49
Other operating property 65 50 21 14
Total $175 $151 $67 $79
Projected facility expenditures will target maintenance and expansion
of existing locations and the construction or purchase of new locations to
improve efficiency and enter new markets in selected areas. Facility
expenditures in 1994 were offset by the sale of a number of facilities at
Yellow Freight and Preston Trucking, resulting in lower net expenditures than
projected. Revenue equipment expenditures are estimated to consist mostly of
replacement units, similar to 1994. The anticipated increase in rail use by
Yellow Freight for 1995 resulted in lower projected revenue equipment
expenditures. There is expected to be an even split in revenue equipment
expenditures between Yellow Freight and the regional companies as a group for
1995. Other property expenditures
15
are primarily for improving efficiency through technological enhancements and
advanced information systems.
The company's cash dividends paid to shareholders have been $.94 per
share ($26 million) in each of the last three years.
FINANCIAL SUMMARY
Yellow Corporation and Subsidiaries
(Amounts in thousands except per share data)
FOR THE YEAR: 1994 1993(a) 1992 1991
Operating revenue $2,867,492 $2,856,505 $2,262,676 $2,344,143
Income from operations 11,011 53,893 82,814 56,907
Depreciation 133,970 132,371 118,419 124,687
Interest expense 18,433 17,668 12,150 14,159
Income (loss) before income taxes (3,375) 35,358 65,393 40,348
Income (loss) before extraordinary items and
cumulative effect of accounting changes (3,848) 18,801 41,040 26,654
Net income (loss) (7,906) 18,801 29,540 26,654
Net cash from operating activities 157,448 138,802 139,438 146,954
Net operating property additions 150,940 66,786 78,651 104,668
AT YEAR-END:
Net operating property 877,284 855,870 775,080 816,174
Total assets 1,307,221 1,265,654 1,061,012 1,097,771
Long-term debt 240,019 214,176 123,027 145,584
Total debt 247,760 226,503 134,077 156,707
Shareholders' equity 460,843 486,453 485,496 475,869
MEASUREMENTS:
Per share data:
Income (loss) before extraordinary items and
cumulative effect of accounting changes (.14) .67 1.46 .95
Net income (loss) (.28) .67 1.05 .95
Cash dividends .94 .94 .94 .94
Shareholders' equity 16.40 17.31 17.28 16.94
Total debt as a % of total capitalization 35.0% 31.8% 21.6% 24.8%
Return on average shareholders'
equity (1.7)% 3.9% 6.1% 5.6%
Market price range:
High 30-1/4 29-7/8 32-3/8 33-1/2
Low 16-3/4 16-7/8 21-3/4 23-3/4
Average number of employees 33,400 35,000 26,800 28,700
(a) - 1993 amounts include the operating results of Preston Corporation
effective March 1, 1993. The 1993 results also include a network development
charge of $11.2 million after taxes ($.40 per share) and a charge of $1.6
million ($.06 per share) to reflect the impact of a higher tax rate on the
company's deferred tax liabilities.
16
1990 1989 (b) 1988 1987 1986 1985 1984
$2,302,421 $2,219,755 $2,016,466 $1,759,992 $1,713,731 $1,530,313 $1,380,042
119,774 48,041 117,786 78,089 135,619 106,424 77,274
128,134 123,268 108,353 98,982 86,850 75,771 59,125
15,763 15,452 12,254 9,172 7,441 10,290 6,160
101,905 26,533 104,997 64,360 123,259 95,493 72,907
65,319 18,585 68,962 41,284 67,084 55,536 44,103
65,319 47,785 68,962 41,284 69,719 55,536 44,103
219,463 179,481 204,943 140,163 169,745 156,153 120,430
162,316 182,232 180,587 152,684 176,622 143,842 193,599
836,599 803,402 748,613 676,869 623,019 533,703 466,210
1,116,005 1,081,665 1,020,724 923,867 862,359 747,904 666,380
163,703 186,680 168,902 126,241 75,390 66,581 64,341
174,169 192,067 174,223 144,189 112,253 82,961 82,600
468,944 438,588 408,986 392,923 376,370 321,871 280,070
2.31 .65 2.40 1.44 2.35 1.95 1.55
2.31 1.66 2.40 1.44 2.44 1.95 1.55
.82 .73 .66 .62 .58 .52 .48
16.70 15.24 14.21 13.82 13.14 11.27 9.84
27.1% 30.5% 29.9% 26.8% 23.0% 20.5% 22.8%
14.4% 11.3% 17.2% 10.7% 20.0% 18.5% 16.7%
31-1/4 32-7/8 34 42-1/2 41-1/8 29-1/2 22-5/8
18-3/4 23-7/8 23-7/8 20-7/8 27-1/2 15-7/8 11-3/4
28,900 29,200 27,200 25,500 23,400 20,750 19,550
(b) - 1989 results include an increase in reserves for workers' compensation
and other reserves of $27.7 million after taxes ($.96 per share).
17
CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries
December 31, 1994 and 1993
(Amounts in thousands except share data)
ASSETS 1994 1993
CURRENT ASSETS:
Cash $17,613 $13,937
Short-term investments 7,305 6,777
Accounts receivable, less allowances of $13,082 and $10,674 295,332 276,223
Tires on equipment 40,817 36,730
Fuel and operating supplies 21,381 19,183
Deferred income taxes 1,586 9,024
Other current assets 19,323 17,519
Total current assets 403,357 379,393
OPERATING PROPERTY:
Land 141,134 154,264
Structures 613,530 604,759
Revenue equipment 897,426 838,171
Other operating property 214,475 168,798
1,866,565 1,765,992
Less - Accumulated depreciation 989,281 910,122
Net operating property 877,284 855,870
OTHER ASSETS 26,580 30,391
$1,307,221 $1,265,654
The notes to consolidated financial statements are an integral part of these
balance sheets.
18
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993
CURRENT LIABILITIES:
Accounts payable $118,412 $71,580
Wages, vacations and employees' benefits 118,364 117,723
Accrued income taxes -- 6,044
Claims and insurance accruals 84,823 86,804
Other current and accrued liabilities 46,651 48,006
Current maturities of long-term debt 7,741 12,327
Total current liabilities 375,991 342,484
OTHER LIABILITIES:
Long-term debt 240,019 214,176
Deferred income taxes 54,481 58,911
Claims, insurance and other 175,887 163,630
Total other liabilities 470,387 436,717
SHAREHOLDERS' EQUITY:
Series A $10 Preferred stock, $1 par value -
authorized 750,000 shares, none issued -- --
Preferred stock, $1 par value - authorized
4,250,000 shares, none issued -- --
Common stock, $1 par value - authorized 120,000,000
shares, issued 28,857,537 and 28,849,837 shares 28,858 28,850
Capital surplus 6,678 6,469
Retained earnings 447,887 483,586
Shares held by Stock Sharing Plan (4,961) (14,880)
Treasury stock, at cost (751,674 and 749,489 shares) (17,619) (17,572)
Total shareholders' equity 460,843 486,453
$1,307,221 $1,265,654
19
STATEMENTS OF CONSOLIDATED INCOME
Yellow Corporation and Subsidiaries
For the Years Ended December 31
(Amounts in thousands except per share data)
1994 1993 1992
OPERATING REVENUE $2,867,492 $2,856,505 $2,262,676
OPERATING EXPENSES:
Salaries, wages and employees' benefits 1,918,406 1,919,197 1,540,175
Operating expenses and supplies 433,789 410,679 314,202
Operating taxes and licenses 110,004 104,588 83,903
Claims and insurance 76,953 70,206 52,051
Communications and utilities 41,064 38,643 30,994
Depreciation 133,970 132,371 118,419
Purchased transportation 142,295 108,928 40,118
Network development -- 18,000 --
Total operating expenses 2,856,481 2,802,612 2,179,862
INCOME FROM OPERATIONS 11,011 53,893 82,814
NONOPERATING (INCOME) EXPENSES:
Interest expense 18,433 17,668 12,150
Interest income (2,202) (1,446) (1,310)
Other, net (1,845) 2,313 6,581
Nonoperating expenses, net 14,386 18,535 17,421
INCOME (LOSS) BEFORE INCOME TAXES (3,375) 35,358 65,393
PROVISION FOR INCOME TAXES 473 16,557 24,353
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (3,848) 18,801 41,040
EXTRAORDINARY ITEM - WRITE-OFF OPERATING RIGHTS (4,058) -- --
CUMULATIVE EFFECT OF CHANGE IN REVENUE RECOGNITION -- -- (11,500)
NET INCOME (LOSS) $ (7,906) $18,801 $ 29,540
AVERAGE COMMON SHARES OUTSTANDING 28,107 28,105 28,093
EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary item and
cumulative effect of accounting change $(.14) $.67 $1.46
Extraordinary item - write-off operating rights (.14) -- --
Cumulative effect of change in revenue recognition -- -- (.41)
Net income (loss) $(.28) $.67 $1.05
The notes to consolidated financial statements are an integral part of these
statements.
20
STATEMENTS OF CONSOLIDATED CASH FLOWS
Yellow Corporation and Subsidiaries
For the Years Ended December 31
(Amounts in thousands)
1994 1993 1992
OPERATING ACTIVITIES:
Net income (loss) $ (7,906) $ 18,801 $ 29,540
Noncash items included in income (loss):
Depreciation 133,970 132,371 118,419
Network development -- 18,000 --
Write-off operating rights 4,058 -- --
Deferred income tax provision (benefit) 4,147 (10,819) (14,345)
Changes in assests and liabilities, net of acquisitions:
Accounts receivable (17,263) (27,095) 12,137
Accounts payable 46,060 1,113 (3,859)
Other working capital items (17,564) 9,139 (10,630)
Claims, insurance and other 12,007 (277) 19,055
Other, net (61) (2,431) (10,879)
Net cash from operating activities 157,448 138,802 139,438
INVESTING ACTIVITIES:
Acquisition of operating property (182,885) (76,886) (86,248)
Proceeds from disposal of operating property 31,945 10,100 7,597
Purchases of short-term investments (8,957) (8,086) (16,740)
Proceeds from maturities of short-term investments 8,429 14,693 11,341
Acquisitions, net of cash acquired (6,244) (23,898) --
Net cash used in investing activities (157,712) (84,077) (84,050)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 14,000 37,250 --
Repayment of long-term debt (17,701) (95,553) (3,241)
Commercial paper borrowings, net 33,981 24,968 (11,498)
Cash dividends paid to shareholders (26,416) (26,405) (26,380)
Other, net 76 (64) (88)
Net cash from (used in) financing activities 3,940 (59,804) (41,207)
NET INCREASE (DECREASE) IN CASH 3,676 (5,079) 14,181
CASH, BEGINNING OF YEAR 13,937 19,016 4,835
CASH, END OF YEAR $17,613 $13,937 $19,016
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 1,245 $25,354 $45,523
Interest paid $18,103 $17,715 $12,301
The notes to consolidated financial statements are an integral part of these
statements.
21
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Yellow Corporation and Subsidiaries
(Amounts in thousands except share data)
Shares Held
Common Capital Retained by Stock Treasury
Stock Surplus Earnings Sharing Plan Stock
BALANCE, DECEMBER 31, 1991 $ 28,816 $5,691 $490,627 $(32,241) $(17,024)
Net income -- -- 29,540 -- --
Cash dividends, $.94 per share -- -- (26,380) -- --
Exercise of stock options, 21,300 shares 21 311 -- -- --
Restricted stock awards, 8,886 shares 9 (9) -- -- --
Amortization of unearned compensation -- 255 -- -- --
Reduction of Stock Sharing Plan debt guarantee -- -- -- 7,891 --
Purchase of treasury stock -- -- -- -- (420)
Foreign equity translation adjustment -- -- (1,591) -- --
BALANCE, DECEMBER 31, 1992 28,846 6,248 492,196 (24,350) (17,444)
Net income -- -- 18,801 -- --
Cash dividends, $.94 per share -- -- (26,405) -- --
Exercise of stock options, 3,820 shares 4 60 -- -- --
Amortization of unearned compensation -- 161 -- -- --
Reduction of Stock Sharing Plan debt guarantee -- -- -- 9,470 --
Purchase of treasury stock -- -- -- -- (128)
Foreign equity translation adjustment -- -- (1,006) -- --
BALANCE, DECEMBER 31, 1993 28,850 6,469 483,586 (14,880) (17,572)
Net loss -- -- (7,906) -- --
Cash dividends, $.94 per share -- -- (26,416) -- --
Exercise of stock options, 7,700 shares 8 117 -- -- --
Amortization of unearned compensation -- 92 -- -- --
Reduction of Stock Sharing Plan debt guarantee -- -- -- 9,919 --
Purchase of treasury stock -- -- -- -- (47)
Foreign equity translation adjustment -- -- (1,377) -- --
BALANCE, DECEMBER 31, 1994 $28,858 $6,678 $447,887 $(4,961) $(17,619)
The notes to consolidated financial statements are an integral part of these
statements.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
PRINCIPLES OF CONSOLIDATION AND SUMMARY OF ACCOUNTING POLICIES
The accompanying consolidated financial statements include the
accounts of Yellow Corporation and its wholly-owned subsidiaries (the company).
All significant intercompany accounts and transactions have been eliminated in
consolidation. The company provides transportation services primarily to the
less-than-truckload (LTL) market throughout North America.
Major accounting policies and practices used in the preparation of the
accompanying financial statements not covered in other notes to consolidated
financial statements are as follows:
Cash includes demand deposits and highly liquid investments purchased
with original maturities of three months or less. All other investments, with
maturities less than one year, are classified as short-term investments and are
stated at cost which approximates market.
The cost of tires on equipment is amortized over the estimated tire
lives.
Fuel is carried at cost. The company uses heating oil swap and fixed
price diesel fuel agreements to reduce a portion of the exposure to fluctuating
diesel prices. The heating oil swap agreements provide for payments to be made
or received based on the difference between fixed prices and variable prices.
Gains and losses on the agreements are recognized as a component of fuel
expense when the corresponding fuel is purchased.
Operating property is carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based on the following
service lives:
23
Maintenance and repairs are charged to operations currently;
replacements and improvements are capitalized. When revenue equipment is
traded, the basis of the new equipment is reduced when the trade-in allowance
exceeds the basis of the old equipment. The gain or loss for all other
dispositions is reflected in other nonoperating (income) expense.
Acquisitions have been accounted for by the purchase method. Earnings
of the acquired companies are included in the accompanying consolidated
financial statements since the date of acquisition. The excess of the purchase
price over net assets acquired is included with other long-term assets and is
being amortized over 20 years using the straight-line method.
Claims and insurance accruals, both current and long-term, reflect the
estimated cost of claims for workers' compensation, cargo loss and damage, and
bodily injury and property damage not covered by insurance. These costs are
included in claims and insurance expense except for workers' compensation which
is included in employees' benefits expense.
Reserves for workers' compensation are based upon actuarial analyses
prepared by independent actuaries and are discounted to present value using 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
process of determining reserve requirements utilizes historical trends and
involves an evaluation of claim frequency, severity and other factors. The
effect of future inflation for both medical costs and lost wages is implicitly
considered in the actuarial analyses. Adjustments to previously established
reserves, if required, are included in operating results.
At December 31, 1994 and 1993, estimated future payments for workers'
compensation claims aggregated $162.0 million and $162.1 million. The present
value of these estimated future payments was $139.8 million at December 31,
1994 and $142.3 million at December 31, 1993.
Revenue is recognized on a percentage completion basis while expenses
are recognized as incurred.
Certain reclassifications have been made to the prior year
consolidated financial statements to conform with current presentation.
ACQUISITIONS
In November 1994 the company acquired Johnson's Freightlines (renamed
WestEx), a Phoenix, AZ-based regional LTL carrier with annual revenue of
approximately $17.0 million.
In February 1993 the company acquired the stock of Preston Corporation
(Preston) for $25.3 million, including related expenses. Preston is the holding
company for principally three regional LTL carriers serving the Northeast,
upper Midwest and Southeast United States. Preston's total debt at the date of
acquisition was $135.0 million, of which $78.1 million was repaid with funds
advanced to Preston by the company. The company recorded fair values at the
date of acquisition of $246.3 million for assets acquired and $232.4 million
for liabilities assumed, resulting in an excess of the purchase price over net
assets acquired of $11.4 million. The accompanying consolidated financial
statements include the results of Preston effective March 1, 1993. Assuming
the acquisition of Preston
24
had occurred on January 1, 1992, the company's unaudited results of operations
are as follows (in thousands, except per share data) for the twelve months
ended December 31:
1993 1992
Operating revenue $2,943,613 $2,843,768
Income before cumulative effect of accounting change 12,739 31,047
Net income 11,634 18,710
Earnings per share:
Income before cumulative effect of accounting change $ .45 $ 1.11
Net income .41 .67
The unaudited pro forma results are not necessarily indicative of what
would have occurred if the Preston acquisition had been consummated at the
beginning of each year, nor are they necessarily indicative of future results.
SPECIAL CHARGES
In the third quarter of 1994, the company recorded a charge to
earnings of $6.7 million, $4.1 million after taxes, or $.14 per share. This
charge, recorded as an extraordinary item, was to write-off the book value of
its intrastate operating rights. The non-cash charge resulted from the passage
of the Trucking Industry Regulatory Reform Act of 1994 which deregulated the
entry and rates for intrastate operations of all transportation companies.
In the second quarter of 1993, the company's primary subsidiary,
Yellow Freight System, Inc., began an extensive multi-year network development
process by consolidating and realigning terminals to improve customer service
and reduce costs. A charge of $18.0 million, $11.2 million after taxes, or $.40
per share, was recorded for the costs to close certain facilities and dispose
of excess property.
In the first quarter of 1992, the company recorded a nonoperating
charge of $18.4 million, $11.5 million after taxes, or $.41 per share. This
charge, which had no impact on cash flow, is the cumulative effect of a change
in revenue recognition policy. Since January 1, 1992, revenue has been
recognized on a percentage completion basis. Prior to that time, revenue was
recognized when a shipment was picked up.
25
DEBT
At December 31, long-term debt consisted of the following (in
thousands):
1994 1993
Commercial paper $58,949 $24,968
Medium-term notes 114,250 111,250
Stock Sharing Plan debt guarantee 4,961 14,880
Industrial development bonds 32,100 32,883
Capital leases and other 12,334 17,583
Subordinated debentures 25,166 24,939
Total debt 247,760 226,503
Less - current maturities 7,741 12,327
Total long-term debt $240,019 $214,176
The company has a five year $100 million credit agreement with a
group of banks which expires May 31, 1997. Interest is based, at the company's
option, on competitive bidding among the banks, at a fixed increment over the
London interbank offered rate, or at the agent bank's base rate. There are no
compensating balances required but a facility fee is charged. There were no
borrowings under this agreement in 1994 or 1993.
The company maintains credit availability under the credit agreement
to support the commercial paper program and provide additional borrowing
capacity. Accordingly, commercial paper and medium-term notes maturing within
one year, and intended to be refinanced, are classified as long-term. The
weighted average interest rates on commercial paper outstanding at December 31,
1994 and 1993 were 6.4% and 3.5%. Medium-term notes have scheduled maturities
through 2008 with interest rates ranging from 5.7% to 9.7% per annum.
The company has guaranteed the debt of the Stock Sharing Plan (see
Employee Benefits). This debt bears interest at a rate of 7.9% and is payable
by the Stock Sharing Plan in 1995.
The company has loan guarantees, mortgages and lease contracts in
connection with the issuance of industrial development bonds used to acquire,
construct or expand terminal facilities. Interest rates on some issues are
variable and rates currently range from 5.0% to 6.1% per annum, with principal
payments due through 2016.
Certain subsidiaries lease operating equipment under capital leases
with scheduled maturities through 1998 and interest rates ranging from 9.0% to
9.9% per annum.
The subordinated debentures have an interest rate of 7.0% and are due
in installments from 1997 to 2011.
The aggregate amounts of principal maturities of long-term debt
(excluding commercial paper and medium-term notes due within one year) for the
next five years are as follows: 1995 - $7,741,000, 1996 - $26,640,000, 1997 -
$14,636,000, 1998 - $4,031,000, 1999 - $2,816,000.
The company has short-term unsecured credit lines with domestic and
foreign banks totaling $135 million. There are no compensating balance
requirements or fees associated with these credit lines and the lines can be
cancelled by either the banks or the company at any time. There were no
borrowings outstanding under these lines at December 31, 1994 or 1993.
Based on the borrowing rates currently available to the company for debt
with similar terms and remaining maturities, the fair value of total debt at
December 31, 1994 and 1993 was approximately $242 million and $234 million.
26
INCOME TAXES
The company accounts for income taxes in accordance with the liability
method. Deferred income taxes are determined based upon the difference between
the book and the tax basis of the company's assets and liabilities. Deferred
taxes are provided at the enacted tax rates expected to be in effect when these
differences reverse.
Deferred tax liabilities (assets) are comprised of the following at
December 31 (in thousands):
1994 1993
Depreciation $118,469 $123,787
Prepaids 19,555 17,345
Revenue 8,783 8,806
Other 11,486 6,067
Gross liabilities 158,293 156,005
Claims and insurance (84,425) (81,577)
NOL and AMT credit carryovers (3,582) (5,856)
Bad debts (5,466) (4,797)
Other (11,925) (13,888)
Gross assets (105,398) (106,118)
Net liability $52,895 $49,887
The provision for income taxes is computed based on the following
amounts of income (loss) before income taxes (in thousands):
1994 1993 1992
Domestic $(7,276) $31,175 $62,553
Foreign 3,901 4,183 2,840
Total income (loss) before income taxes $(3,375) $35,358 $65,393
27
The provision for income taxes consists of the following (in
thousands):
1994 1993 1992
Current:
U.S. federal $(4,158) $21,407 $32,701
State (1,870) 4,814 4,768
Foreign 2,354 2,216 2,211
Total current (3,674) 28,437 39,680
Deferred:
U.S. federal 4,235 (9,214) (11,408)
State 768 (3,244) (2,131)
Foreign (856) -- (806)
Change in U.S. federal tax rate -- 1,639 --
Total deferred 4,147 (10,819) (14,345)
Investment tax credit amortization -- (1,061) (982)
Total provision $473 $16,557 $24,353
A reconciliation between income taxes at the federal statutory rate
(35% in 1994 and 1993, 34% in 1992) and the consolidated provision follows:
1994 1993 1992
Provision (benefit) at federal statutory rate $(1,181) $12,375 $22,234
State income taxes, net (716) 1,021 1,740
Change in U.S. federal tax rate -- 1,639 --
Foreign tax rate differential 133 752 439
Nondeductible business expenses 2,571 1,331 909
Amortization of investment tax credits -- (1,061) (982)
Other, net (334) 500 13
Total provision $ 473 $16,557 $24,353
Effective tax rate 14.0% 46.8% 37.2%
28
EMPLOYEE BENEFITS
Certain subsidiaries provide defined benefit pension plans for
employees not covered by collective bargaining agreements. The benefits are
based on years of service and the employees' final average earnings. The
company's funding policy is to contribute the minimum required tax-deductible
contribution for the year. The plans' assets consist primarily of U.S.
Government and equity securities.
The following tables set forth the plans' funded status and components
of net pension cost (in thousands):
Funded status at December 31: 1994 1993
Actuarial present value of benefits at current
salary levels and service rendered to date:
Vested benefits $114,788 $120,843
Non-vested benefits 1,624 2,422
Accumulated benefit obligation 116,412 123,265
Effect of anticipated future salary increases 22,165 23,449
Projected benefit obligation 138,577 146,714
Plan assets at fair value 118,080 122,092
Plan assets less than projected benefit obligation (20,497) (24,622)
Unrecognized net loss 4,153 17,188
Unrecognized initial net asset being amortized
over 17 years (20,445) (22,833)
Pension cost accrued, not funded $(36,789) $(30,267)
Net pension cost: 1994 1993 1992
Service cost - benefits earned during the period $8,313 $6,919 $8,072
Interest cost on projected benefit obligation 11,109 9,954 10,018
Actual return on plan assets 393 (8,177) (8,333)
Amortization of unrecognized net assets (2,197) (2,393) (2,251)
Net deferral (10,818) (1,683) (800)
Net pension cost $6,800 $4,620 $6,706
Assumptions used in the accounting at December 31: 1994 1993 1992
Discount rate 8.5% 7.5% 8.5%
Rate of increase in compensation levels 4.0% 5.5% 7.8%
Expected rate of return on assets 9.0% 9.0% 9.0%
29
The company contributes to multi-employer health, welfare and pension
plans for employees covered by collective bargaining agreements. The health
and welfare plans provide health care and disability benefits to active
employees and retirees. The pension plans provide defined benefits to retired
participants. The company charged to expense and contributed the following
amounts to these plans (in thousands):
1994 1993 1992
Health and welfare $142,695 $138,448 $112,370
Pension 129,321 126,449 104,560
Total $272,016 $264,897 $216,930
The company has a Stock Sharing Plan for employees of participating
domestic affiliates not covered by collective bargaining agreements. The Stock
Sharing Plan used proceeds of a bank loan to purchase shares of the company's
common stock. The loan is guaranteed by the company and the outstanding balance
is reflected in the financial statements as long-term debt (see Debt) and as a
reduction in shareholders' equity. The company's contribution to the Stock
Sharing Plan is determined annually by the Board of Directors. These
contributions combined with plan earnings must be sufficient to meet the plan's
debt service requirements. Expense is recorded as funds are contributed or
committed to be contributed. Shares are allocated in accordance with the
principal and interest method as defined by the Internal Revenue Code. Expenses
and dividends related to the Stock Sharing Plan were (in thousands):
1994 1993 1992
Employees' benefits expense $6,735 $ -- $7,185
Interest expense 979 1,746 2,417
Total expense $7,714 $1,746 $9,602
Dividends $1,456 $1,532 $1,591
Certain subsidiaries also sponsor defined contribution plans,
primarily for employees not covered by collective bargaining agreements. The
plans principally consist of noncontributory profit sharing plans and
contributory 401(k) savings plans. Company contributions to the profit sharing
plans are discretionary and are determined annually by the Board of Directors
of each participating company. Contributions for each of the three years in the
period ended December 31, 1994 were not material to the operations of the
company.
The company has reserved 800,000 shares of its common stock for
issuance to key employees under a stock option incentive plan. This plan
permits three types of awards: grants of stock options, both qualified and
nonqualified, grants of stock options coupled with a grant of stock
appreciation rights, and grants of restricted stock awards. At December 31,
1994 there were 791,114 shares available for future grants and no options were
outstanding.
COMMITMENTS AND CONTINGENCIES
The company leases certain terminals and equipment. At December 31,
1994, the company was committed under noncancellable lease agreements requiring
minimum annual rentals aggregating $90,279,000 payable as follows: 1995 -
$32,800,000, 1996 - $22,916,000, 1997 - $12,991,000, 1998 - $7,354,000, 1999 -
$3,126,000 and thereafter, $11,092,000.
Projected 1995 net capital expenditures are $175 million, of which $66
million was committed at December 31, 1994.
Various claims and legal actions are pending against the company. It
is the opinion of management that these matters will have no significant impact
upon the financial condition or results of operations of the company.
SERIES A $10 PREFERRED STOCK AND RIGHTS
Each share of the company's common stock carries with it one preferred
stock purchase right. Under certain circumstances, each right may be exercised
to purchase 1/100th of a share of Series A $10 Preferred stock at an exercise
price of $120, subject to adjustment. The rights, which are nonvoting, expire
on December 8, 1996 and may be redeemed by the company at a price of $.05 per
right at any time prior to ten days after public announcement of the
acquisition of 20% or more of the outstanding common stock.
If a person acquires 20% of the company's voting stock or if certain
other transactions occur, each right not owned by a 20% shareholder will
entitle the holder to purchase at the exercise price a number of shares of the
common stock of the company or, depending on the nature of the transaction, the
stock of an acquiring company, having a market value equal to twice the
exercise price of such right.
Dividends and voting rights on each 1/100th share of the Series A $10
Preferred stock will be equal to that of one share of common stock.
30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders of Yellow Corporation:
We have audited the accompanying consolidated balance sheets of Yellow
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Yellow Corporation
and Subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
January 31, 1995
31
SUPPLEMENTARY INFORMATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Amounts in thousands except per share data)
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter
Operating revenue $748,159 $592,211 $769,259 $757,863
Income (loss) from operations (4,418) (30,049) 27,176 18,302
Income (loss) before extraordinary item (6,384) (21,876) 13,204 11,208
Net income (loss) (6,384) (21,876) 9,146(a) 11,208
Earnings per share:
Income (loss) before extraordinary item (.23) (.78) .47 .40
Net income (loss) (.23) (.78) .33(a) .40
1993(b)
Operating revenue $602,220 $732,901 $761,706 $759,678
Income from operations 1,757 2,887 (c) 25,634 23,615
Net income (loss) (1,749) (1,886)(c) 10,468(d) 11,968
Earnings (loss) per share (.06) (.07)(c) .37(d) .43
(a) - Includes an extraordinary item of $4.1 million after taxes ($.14 per
share) to write-off intrastate operating rights.
(b) - 1993 amounts include the operating results of Preston Corporation
effective March 1, 1993.
(c) - Includes network development charge of $18.0 million, $11.2 million after
taxes ($.40 per share).
(d) - Includes charge for the tax rate change of $1.6 million after taxes ($.06
per share).
COMMON STOCK
Yellow Corporation's stock is held by approximately 3,400 shareholders
of record. The company's only class of stock outstanding is common stock,
traded in over-the-counter markets. Trading activity averaged about 218,000
shares per day during the year, up from 168,000 shares per day in 1993. Prices
are quoted by the National Association of Securities Dealers Automatic
Quotation System National Market (NASDAQ-NMS) under the symbol YELL.
Quarter Ended
Dividends Dividends
1994 High Low Per Share 1993 High Low Per Share
March 31 30-1/4 23-1/2 $ .235 March 31 29-7/8 22-1/4 $.235
June 30 24-1/8 16-3/4 .235 June 30 24-1/4 16-7/8 .235
September 30 21-5/8 17 .235 September 30 24-7/8 17-1/8 .235
December 31 24-1/4 18-1/4 .235 December 31 25-7/8 22-3/8 .235
$ .940 $.940
32
SENIOR OFFICERS
YELLOW CORPORATION
George E. Powell III
President and Chief Executive Officer
Robert W. Burdick
Senior Vice President - Corporate Development and Public
Affairs
William F. Martin, Jr.
Senior Vice President - Legal/Corporate Secretary
H. A. Trucksess, III
Senior Vice President - Finance and Chief Financial Officer
YELLOW FREIGHT SYSTEM, INC.
M. Reid Armstrong
President
Robert L. Bostick
Senior Vice President - Operations
J. Kevin Grimsley
Senior Vice President - Marketing and Sales
Gail A. Parris
Senior Vice President - Administration
PRESTON TRUCKING COMPANY, INC.
Leo H. Suggs
President
J. Sean Callahan
Senior Vice President - Finance and Administration
Gordon MacKenzie
Senior Vice President - Operations and Sales
SAIA MOTOR FREIGHT LINE, INC.
Jimmy D. Crisp
President
CSI/REEVES, INC.
Thor N. Edman, Jr.
President
WESTEX, INC.
Frank E. Myers
President
YELLOW LOGISTICS SERVICES, INC.
Robert G. Olterman
General Manager
YELLOW TECHNOLOGY SERVICES, INC.
William F. Martin, Jr.
President
33
BOARD OF DIRECTORS / YELLOW CORPORATION
GEORGE E. POWELL, JR.
Director since 1952
Chairman of the Board of the Company
KLAUS E. AGTHE
Director since 1984
Director, VIAG North America
M. REID ARMSTRONG
Director since 1992
President of Yellow Freight System, Inc.
HOWARD M. DEAN
Director since 1987
Chairman and Chief Executive Officer of Dean Foods Company
+ DAVID H. HUGHES
Director since 1973
Retired Vice Chairman of Hallmark Cards, Inc.
RONALD T. LEMAY
Director since 1994
President and Chief Operating Officer of Sprint Corporation
Long Distance Division
+ JOHN C. McKELVEY
Director since 1977
President and Chief Executive Officer of Midwest Research
Institute
GEORGE E. POWELL III
Director since 1984
President and Chief Executive Officer of the Company
+ WILLIAM L. TRUBECK
Director since 1994
Senior Vice President and Chief Financial Officer of SPX
Corporation
WILLIAM F. MARTIN, JR.
Secretary to the Board
+ Member, Audit Committee
34
CORPORATE INFORMATION
YELLOW CORPORATION
10777 Barkley, P.O. Box 7563
Overland Park, Kansas 66207
(913) 967-4300
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Kansas City, Missouri
TRANSFER AGENT AND REGISTRAR
Mellon Securities Trust Company
Shareholder Relations Department
P.O. Box 305
Pittsburgh, Pennsylvania 15230
(800) 526-0801
ANNUAL MEETING
April 19, 1995, at 9:30 a.m.
Overland Park Marriott
10800 Metcalf Avenue
Overland Park, Kansas 66210
10-K REPORT
Please write to:
Treasurer
Yellow Corporation
P.O. Box 7563
Overland Park, Kansas 66207
