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 March 31, 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 April 30, 1994
----- -----------------------------
Common Stock, $1 Par Value 28,107,594 shares
2
YELLOW CORPORATION
INDEX
Item Page
- - ---- ----
PART I
------
1. Financial Statements
Consolidated Balance Sheets -
March 31, 1994 and December 31, 1993 3
Statements of Consolidated Income -
Three Months Ended March 31, 1994 and 1993 4
Statements of Consolidated Cash Flows -
Three Months Ended March 31, 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
-------
4. Submission of Matters to a Vote of Security Holders 9
6. Exhibits and Reports on Form 8-K 9
Signature 9
2
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries
March 31, 1994 and December 31, 1993
(Amounts in thousands except share data)
(Unaudited)
March 31 December 31
1994 1993
---------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 13,276 $ 13,937
Short-term investments 6,541 6,777
Accounts receivable 294,015 276,223
Other current assets 89,863 82,456
---------- ----------
Total current assets 403,695 379,393
---------- ----------
OPERATING PROPERTY:
Cost 1,822,976 1,765,992
Less - Accumulated depreciation 937,338 910,122
---------- ----------
Net operating property 885,638 855,870
---------- ----------
OTHER ASSETS 28,101 30,391
---------- ----------
$1,317,434 $1,265,654
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 78,705 $ 71,580
Wages and employees' benefits 137,830 117,723
Other current liabilities 145,668 140,854
Current maturities of long-term debt 12,328 12,327
---------- ----------
Total current liabilities 374,531 342,484
---------- ----------
OTHER LIABILITIES:
Long-term debt 241,607 214,176
Deferred income taxes 56,043 58,911
Claims, insurance and other 172,244 163,630
---------- ----------
Total other liabilities 469,894 436,717
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value 28,858 28,850
Capital surplus 6,613 6,469
Retained earnings 470,003 483,586
Shares held by Stock Sharing Plan (14,880) (14,880)
Treasury stock (17,585) (17,572)
---------- ----------
Total shareholders' equity 473,009 486,453
---------- ----------
$1,317,434 $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 Three Months Ended March 31, 1994 and 1993
(Amounts in thousands except per share data)
(Unaudited)
First Quarter
-----------------------------
1994 1993
---------- ----------
OPERATING REVENUE $ 748,159 $ 602,220
---------- ----------
OPERATING EXPENSES:
Salaries, wages and employees' benefits 506,710 417,185
Operating expenses and supplies 114,903 88,917
Operating taxes and licenses 29,769 22,619
Claims and insurance 22,627 14,077
Communications and utilities 10,939 8,913
Depreciation 33,523 31,258
Purchased transportation 34,106 17,494
---------- ----------
Total operating expenses 752,577 600,463
---------- ----------
INCOME (LOSS) FROM OPERATIONS (4,418) 1,757
---------- ----------
NONOPERATING (INCOME) EXPENSES:
Interest expense 4,524 3,646
Other, net (32) 526
---------- ----------
Nonoperating expenses, net 4,492 4,172
---------- ----------
LOSS BEFORE INCOME TAXES (8,910) (2,415)
BENEFIT FROM INCOME TAXES (2,526) (666)
---------- ----------
NET LOSS $ (6,384) $ (1,749)
---------- ----------
---------- ----------
AVERAGE COMMON SHARES OUTSTANDING 28,105 28,105
---------- ----------
---------- ----------
LOSS PER SHARE $ (.23) $ (.06)
---------- ----------
---------- ----------
The accompanying notes are an integral part of these statements.
4
5
STATEMENTS OF CONSOLIDATED CASH FLOWS
Yellow Corporation and Subsidiaries
For the Three Months Ended March 31, 1994 and 1993
(Amounts in thousands)
(Unaudited)
1994 1993
-------- --------
OPERATING ACTIVITIES:
Net cash from operating activities $ 39,708 $ 43,029
-------- --------
INVESTING ACTIVITIES:
Acquisition of operating property (64,257) (14,368)
Proceeds from disposal of operating property 2,770 546
Purchases of short-term investments (2,168) (733)
Proceeds from maturities of short-term
investments 2,404 7,966
Purchase of Preston Corporation,
net of cash acquired - (23,683)
-------- --------
Net cash used in investing activities (61,251) (30,272)
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 14,000 395
Repayment of long-term debt (1,561) (78,264)
Commercial paper borrowings, net 14,936 84,665
Cash dividends paid to shareholders (6,604) (6,601)
Other, net 111 64
-------- --------
Net cash from financing activities 20,882 259
-------- ---------
NET INCREASE (DECREASE) IN CASH (661) 13,016
CASH, BEGINNING OF PERIOD 13,937 19,016
-------- --------
CASH, END OF PERIOD $ 13,276 $ 32,032
-------- --------
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 1,587 $ 2,400
-------- --------
-------- --------
Interest paid $ 1,683 $ 1,828
-------- --------
-------- --------
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 three
regional less-than-truckload carriers serving the Northeast, Upper
Midwest and Southeast United States. 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 three months ended March 31, 1993 would have been as follows:
1993
----
Operating revenue $ 689,328
Loss before cumulative effect
of accounting change $ (7,811)
Net loss $ (8,916)
Earnings per share:
-------------------
Loss before cumulative effect
of accounting change $ (.28)
Net loss $ (.32)
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.
6
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
March 31, 1994 Compared to December 31, 1993
Working capital decreased by $8 million during the first three months of 1994,
resulting in a $29 million positive working capital position at March 31, 1994.
The company's total debt level at March 31, 1994 increased $27 million compared
to that of December 31, 1993, primarily due to the relatively higher level of
capital expenditures in the first three months of 1994. Additional borrowings
were split evenly between commercial paper and medium-term notes. Primarily
all of the capital expenditures were at the company's primary operating
subsidiary, Yellow Freight System, Inc., mainly for revenue equipment. It is
anticipated that the remaining capital expenditures for 1994 will be financed
primarily through internally-generated funds.
The Board of Directors of the company declared a quarterly dividend of $.235
per share of common stock on April 21, 1994, payable on May 16 to shareholders
of record on May 2.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1994 and 1993
Operating revenue for the company was $748.2 million in this year's first
quarter compared to $602.2 million in the first quarter last year, an increase
of 24.2%. Results for the Preston group of companies are included effective
March 1, 1993. Without the inclusion of the Preston companies, operating
revenue would have increased 8.7% from last year. Increases in the number of
shipments handled, tonnage growth and retention of price increases were the
primary reasons for the revenue increase.
Tonnage levels at Yellow Freight System, Inc. (Yellow Freight System), the
company's primary motor carrier subsidiary, continued to show favorable
year-over-year comparisons. On a per day basis, less-than-truckload
tonnage was up 6.8% in this year's first quarter compared to the first quarter
of 1993. Total tonnage per day for Yellow Freight System was up 7.5%. These
increases continued the trend of the third and fourth quarter of 1993 which
recorded comparable tonnage gains. Helped by a strengthening economy and its
success in meeting customer needs, Yellow Freight System achieved this growth
while resisting additional price discounting.
All of the company's operating subsidiaries instituted rate increases early in
this year's first quarter. There was broad customer acceptance of the need for
these increases and the pricing environment remains stable. While every
subsidiary works hard at controlling costs, pricing must continue to improve if
we are to provide the service levels our customers require while earning a fair
return for our shareholders.
7
8
The company recorded a net loss of $6.4 million, or $.23 per share, in the
quarter versus a net loss of $1.7 million, or $.06 per share in the first
quarter of 1993. The net loss for the first quarter of this year was primarily
due to the impact of the severe winter weather which caused significant
business disruptions and higher operating expenses for Yellow Freight System,
as well as Preston Trucking Company. Yellow Freight System's results were also
affected by the earthquake in Southern California. While last year's results
were hurt by the weather as well, the frequency and intensity of the storms,
especially on the Northeast and Upper Midwest, were unprecedented. Preston
Trucking was especially hard hit as their operations are concentrated in the
areas most affected by the weather.
Revenue and net income were lower in both the first quarter of 1994 and 1993
due to a required change in the method of recognizing revenue, implemented in
1992. The change significantly reduces revenue and net income in the first
quarter of each year while increasing both in the fourth quarter. This
accounts for a substantial portion of the decline in earnings between the
fourth quarter of 1993 and the first quarter of 1994, but will have negligible
impact on full year earnings.
During the first quarter, the employees of Preston Trucking continued their
efforts toward the goal of achieving consistent profitability. While the
quarter was difficult, we remain optimistic that Preston's employees working
together will be successful in accomplishing this goal. Saia Motor Freight
Line continued its expansion in Texas and Tennessee during the quarter while
recording an operating ratio of 92.5. We are especially pleased with the
excellent job being done by the people of Smalley Transportation who recorded a
much improved operating ratio of 97.9 in the first quarter.
The industry labor agreements between Yellow Freight System and Preston
Trucking and the International Brotherhood of Teamsters (Teamsters) expired
March 31. When a replacement agreement had not been negotiated by April 6, the
Teamster employees of both companies went on strike. On April 11, Preston
Trucking exercised its legal option and withdrew from Trucking Management, Inc.
(TMI), the multi-employer bargaining group which had been negotiating for both
Preston Trucking and Yellow Freight System. Preston Trucking then signed an
interim agreement with the Teamsters which allowed their Teamster employees to
return to work while negotiations toward a permanent national agreement
continued.
On April 28, 1994, the Teamsters and TMI reached a tentative agreement on a new
four-year contract, and the Teamsters suspended their strike. The agreement
allows Yellow Freight System and Preston Trucking greater operational
flexibility and 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 life of the contract. Because Preston Trucking returned
to work on April 11, their revenue was above normal levels during the three
week Teamsters strike. However, Yellow Freight System generated no revenue
during the strike which will result in a significant consolidated loss in the
second quarter of 1994. The impact of the strike on business levels and
profitability during the remainder of this year is not known as the amount of
business that may have been lost to other carriers is not determinable at the
present time.
8
9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual Meeting on April 21, 1994.
(b) A stockholder proposal to declassify the Board of Directors for the
purpose of director elections was voted on and defeated at the
meeting. Affirmative votes: 4,579,103, Negative votes: 12,237,185,
Abstention votes: 121,190.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
On March 21, 1994, a Form 8-K was filed under Item 5, Other Events,
which reported that due primarily to the impact of severe winter
weather in January and February, the company expects to report a net
loss in the first quarter of 1994 greater than the net loss of $.06
per share recorded in the first quarter of 1993. Severe winter
weather caused significant business disruptions and higher operating
expenses for both the company's largest motor carrier subsidiary,
Yellow Freight System, Inc. and for Preston Trucking Company, Inc.
Preston Trucking, whose operations are concentrated in the Northeast
and Upper Midwest, was especially hard hit by the weather.
SIGNATURE
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: May 4, 1994 /s/ Phillip A. Spangler
-----------------------------
Phillip A. Spangler
Vice President and Treasurer
9
