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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-12255
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YELLOW CORPORATION
------------------
(Exact name of registrant as specified in its charter)
Delaware 48-0948788
- ----------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10990 Roe Avenue, P.O. Box 7563, Overland Park, Kansas 66207
- ------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(913) 696-6100
--------------
(Registrant's telephone number, including area code)
No Changes
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 2002
----- ----------------------------
Common Stock, $1 Par Value 29,165,256 shares
YELLOW CORPORATION
INDEX
Item Page
- ---- ----
PART I
1. Financial Statements
Consolidated Balance Sheets -
June 30, 2002 and December 31, 2001 3
Statements of Consolidated Operations -
Quarter and Six Months Ended June 30, 2002 and 2001 4
Statements of Consolidated Cash Flows -
Six Months Ended June 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II
4. Submission of Matters to a Vote of Security Holders 20
6. Exhibits and Reports on Form 8-K 20
Signatures 24
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries
(Amounts in thousands except per share data)
(Unaudited)
June 30, December 31,
2002 2001
----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 19,514 $ 20,694
Accounts receivable 287,722 208,267
Prepaid expenses and other 42,706 83,449
----------- -----------
Total current assets 349,942 312,410
----------- -----------
PROPERTY AND EQUIPMENT:
Cost 2,128,722 2,133,406
Less - Accumulated depreciation 1,279,670 1,267,834
----------- -----------
Net property and equipment 849,052 865,572
----------- -----------
GOODWILL AND OTHER ASSETS 34,195 107,795
----------- -----------
$ 1,233,189 $ 1,285,777
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and checks outstanding $ 106,284 $ 128,343
Wages and employees' benefits 148,946 130,806
Other current liabilities 112,875 103,778
Current maturities of long-term debt 404 6,281
----------- -----------
Total current liabilities 368,509 369,208
----------- -----------
OTHER LIABILITIES:
Long-term debt 106,611 213,745
Deferred income taxes 91,245 92,817
Claims, insurance and other 140,073 119,018
----------- -----------
Total other liabilities 337,929 425,580
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value 31,404 31,028
Capital surplus 71,880 41,689
Retained earnings 470,680 537,496
Unamortized restricted stock awards (1,296) --
Accumulated other comprehensive income (loss) (4,615) (6,252)
Treasury stock (41,302) (112,972)
----------- -----------
Total shareholders' equity 526,751 490,989
----------- -----------
$1,233,189 $1,285,777
========== ==========
The accompanying notes are an integral part of these statements.
3
STATEMENTS OF CONSOLIDATED OPERATIONS
Yellow Corporation and Subsidiaries
For the Quarter and Six Months Ended June 30, 2002 and 2001
(Amounts in thousands except per share data)
(Unaudited)
Second Quarter Six Months
--------------------------- ----------------------------
2002 2001 2002 2001
--------- --------- ---------- ----------
OPERATING REVENUE $ 842,549 $ 824,770 $1,604,889 $1,656,748
--------- --------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits 541,593 523,117 1,037,934 1,046,461
Operating expenses and supplies 124,391 136,699 235,286 280,629
Operating taxes and licenses 26,542 26,422 52,589 54,659
Claims and insurance 23,098 19,111 41,983 37,602
Depreciation and amortization 30,588 31,565 60,769 63,430
Purchased transportation 81,805 67,978 152,724 135,655
Unusual items 996 2,243 1,964 8,234
--------- --------- ---------- ---------
Total operating expenses 829,013 807,135 1,583,249 1,626,670
--------- --------- ---------- ---------
INCOME FROM OPERATIONS 13,536 17,635 21,640 30,078
--------- --------- ---------- ---------
NONOPERATING (INCOME) EXPENSES:
Interest expense 2,867 4,093 6,770 8,158
Loss in Transportation.com - 1,861 - 4,397
Other, net 763 1,581 1,344 4,306
--------- --------- ---------- ----------
Nonoperating expenses, net 3,630 7,535 8,114 16,861
--------- --------- ---------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 9,906 10,100 13,526 13,217
INCOME TAX PROVISION 3,686 4,444 5,167 5,815
--------- --------- ---------- ---------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 6,220 5,656 8,359 7,402
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR GOODWILL - - (75,175) -
--------- --------- ---------- ---------
NET INCOME (LOSS) $ 6,220 $ 5,656 $ (66,816) $ 7,402
========= ========= ========== =========
AVERAGE SHARES OUTSTANDING-BASIC 28,404 24,164 26,687 23,968
========= ========= ========== =========
AVERAGE SHARES OUTSTANDING-DILUTED 28,810 24,342 27,053 24,238
========= ========= ========== =========
BASIC EARNINGS (LOSS) PER SHARE:
Before cumulative effect of
accounting change $ .22 $ .23 $ .31 $ .31
Cumulative effect of change in
accounting for goodwill - - (2.81) -
--------- --------- ---------- ---------
Total $ .22 $ .23 $ (2.50) $ .31
--------- --------- ---------- ---------
DILUTED EARNINGS (LOSS) PER SHARE:
Before cumulative effect of
accounting change $ .22 $ .23 $ .31 $ .31
Cumulative effect of change in
accounting for goodwill - - (2.78) -
--------- --------- ---------- ---------
Total $ .22 $ .23 $ (2.47) $ .31
--------- --------- ---------- ---------
The accompanying notes are an integral part of these statements.
4
STATEMENTS OF CONSOLIDATED CASH FLOWS
Yellow Corporation and Subsidiaries
For the Six Months Ended June 30, 2002 and 2001
(Amounts in thousands)
(Unaudited)
2002 2001
--------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ (66,816) $ 7,402
Depreciation and amortization 60,769 63,430
Loss in joint venture -- 4,397
Cumulative effect of accounting change 75,175 --
Change in accounts receivable (57,455) 16,612
Accounts receivable securitizations, net (22,000) (13,500)
Change in accounts payable and checks outstanding (22,059) (37,304)
Other 91,335 5,965
--------- ---------
Net cash from operating activities 58,949 47,002
--------- ---------
INVESTING ACTIVITIES:
Acquisition of property and equipment (50,752) (73,203)
Proceeds from disposal of property and equipment 3,653 3,996
Other -- (4,113)
--------- ---------
Net cash used in investing activities (47,099) (73,320)
--------- ---------
FINANCING ACTIVITIES:
Increase (decrease) in long-term debt (113,011) 28,142
Proceeds from stock options and other, net 6,189 5,304
Proceeds from issuance of common stock 93,792 --
--------- ---------
Net cash provided by (used in) financing activities (13,030) 33,446
--------- ---------
NET INCREASE (DECREASE) IN CASH (1,180) 7,128
CASH, BEGINNING OF PERIOD 20,694 25,799
--------- ---------
CASH, END OF PERIOD $ 19,514 $ 32,927
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refunds), net $ (5,055) $ 4,434
========= =========
Interest paid $ 7,499 $ 8,278
========= =========
The accompanying notes are an integral part of these statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
(unaudited)
1. The accompanying consolidated financial statements include the accounts of
Yellow Corporation and its wholly-owned subsidiaries (the company or
Yellow).
The consolidated financial statements have been prepared by the company,
without audit by independent public accountants, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). In the opinion
of management, all normal recurring adjustments necessary for a fair
statement of the results of operations for the interim periods included
herein have been made. Certain information and note disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from these
statements pursuant to such rules and regulations. Accordingly, the
accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the
company's 2001 Annual Report to Shareholders.
2. The company is an international transportation services provider with a
focus on national, regional and international less-than-truckload (LTL),
truckload (TL), and non-asset based transportation services through its
three principal operating units and captive technology company. Yellow
Transportation, Inc. (Yellow Transportation) is the largest subsidiary and
provides LTL national, regional and international transportation services
for industrial, commercial, retail and government markets. SCS
Transportation, Inc. (SCS Transportation) provides regional overnight and
second-day LTL and selected TL transportation services through two
subsidiaries, Saia Motor Freight Line, Inc. (Saia) and Jevic
Transportation, Inc. (Jevic). Meridian IQ, LLC (Meridian IQ) provides
domestic and international forwarding, multi-modal brokerage and
transportation management services. Yellow Technologies, Inc. is a
subsidiary that provides information technology and other services to the
company and its subsidiaries. For the quarter ended June 30, 2002 Yellow
Transportation comprised approximately 74 percent of total revenue while
Saia comprised approximately 15 percent and Jevic approximately 9 percent
of total revenue.
The company announced on July 19, 2002, that its Board of Directors had
formally approved the terms of the spin-off of its 100 percent interest in
SCS Transportation. The targeted spin-off date is September 30, 2002. After
the spin-off the company will continue to own and operate Yellow
Transportation and Meridian IQ.
6
3. In the third quarter of 2001, the company completed its acquisition of the
35 percent ownership in Meridian IQ (formerly Transportation.com) that it
did not previously own, from its venture capital partners. The cash
purchase price of approximately $14.3 million was allocated primarily to
goodwill ($10.6 million) and tax benefit receivable ($4.0 million). The
results of Meridian IQ have been consolidated in the company's financial
statements since September 2001. Prior to the acquisition date, the company
accounted for its 65 percent ownership interest under the equity method of
accounting due to substantive participating rights of the minority
investors. Losses on the company's investment were recorded in
non-operating expenses, until the acquisition date.
4. Unusual items include integration and business reorganization costs and
property gains and losses.
5. The company reports financial and descriptive information about its
reportable operating segments on a basis consistent with that used
internally for evaluating segment operating performance and allocating
resources to segments.
The company has four reportable segments, which are strategic business
units that offer different products and services. Yellow Transportation is
a unionized carrier that provides comprehensive national, regional and
international transportation services. Saia is a regional LTL carrier that
provides overnight and second-day service in twenty-one states and Puerto
Rico. On March 4, 2001, WestEx and Action Express were integrated into the
Saia segment. Comparative prior year segment data has been restated to
reflect the integration. Jevic is a hybrid regional heavy LTL and TL
carrier that provides overnight and second-day service primarily in the
Northeastern states. Meridian IQ is a segment that provides domestic and
international forwarding, multi-modal brokerage and transportation
management services.
The segments are managed separately because each requires different
operating, technology and marketing strategies. The company evaluates
performance primarily on operating income and return on capital.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the company's 2001 Annual
Report to Shareholders. Management fees and other corporate services are
charged to segments based on direct benefit received or allocated based on
revenues. The following table summarizes the company's operations by
business segment (in thousands):
7
Yellow Meridian Corporate
Transportation Saia Jevic IQ and Other Consolidated
-------------- -------- -------- -------- --------- ------------
As of June 30, 2002
Identifiable assets $ 769,875 $279,246 $158,630 $28,768 $(3,330) $1,233,189
As of December 31, 2001
Identifiable assets $ 757,484 $275,852 $231,520 $17,641 $ 3,280 $1,285,777
Three months ended
June 30, 2002
Operating Revenue $ 628,215 $124,027 $ 72,461 $18,942 $(1,096) $ 842,549
Income from operations 10,524 6,010 832 (455) (3,375) 13,536
Three months ended
June 30, 2001
Operating Revenue $ 628,968 $122,988 $ 72,647 $ 445 $ (278) $ 824,770
Income from operations 14,354 3,803 1,554 (723) (1,353) 17,635
Six months ended
June 30, 2002
Operating revenue $1,192,858 $239,055 $140,970 $34,344 $(2,338) $1,604,889
Income from operations 17,185 9,651 1,800 (1,971) (5,025) 21,640
Six months ended
June 30, 2001
Operating revenue $1,264,933 $242,107 $149,504 $ 898 $ (694) $1,656,748
Income from operations 27,955 1,501 3,859 (1,019) (2,218) 30,078
The three months and six months ended June 30, 2001 segment data presented
for Meridian IQ represents the results of operations of other non-asset
based services. As previously discussed in note 3, Transportation.com was
accounted for under the equity method of accounting during the first six
months of 2001. Accordingly, nonoperating expenses include losses from
Transportation.com of $1.9 million in the second quarter of 2001 and $4.4
million in the first six months of 2001. If Transportation.com had been
consolidated in 2001, Meridian IQ revenue would have been $7.7 million and
$14.4 million and operating losses would have been $3.6 million and $8.6
million for the three months ended June 30, 2001 and six months ended June
30, 2001, respectively.
6. The difference between average common shares outstanding used in the
computation of basic earnings per share and fully diluted earnings per
share is attributable to outstanding common stock options.
7. The company's comprehensive income includes net income, changes in the fair
value of interest rate swaps and foreign currency translation adjustments.
Comprehensive income for the second quarter ended June 30, 2002 and 2001
was $6.4 million and $5.7 million, respectively. Comprehensive income
(loss) for the six months ended June 30, 2002 and 2001 was $(65.2) million
and $5.7 million, respectively.
8
8. On June 30, 2001, the Financial Accounting Standards Board issued Statement
No. 142, Goodwill and Other Intangible Assets (Statement No. 142), that was
adopted by the company on January 1, 2002. Statement No. 142 requires that
upon adoption and at least annually thereafter, the company assess goodwill
impairment by applying a fair value based test. With the adoption of
Statement No. 142, goodwill will no longer be subject to amortization
resulting in an increase in annualized operating income and net income of
$3.0 million.
At December 31, 2001 the Company had $100.6 million of goodwill on its
consolidated balance sheet, consisting primarily of $75.2 million remaining
from the acquisition of Jevic. In valuing the goodwill of Jevic the company
used an estimate of that business unit's discounted cash flows in measuring
whether goodwill was recoverable. Based on this estimate, the company has
determined that 100 percent of the Jevic goodwill was impaired due to lower
business volumes, compounded by a weak economy, and an increasingly
competitive business environment. As a result, the company recorded a
non-cash charge of $75.2 million in the first quarter 2002, which was
reflected as a cumulative effect of a change in accounting principle.
The carrying amount of goodwill attributed to each reportable operating
segment with goodwill balances and changes follows (in thousands):
Impairment
December 31, 2001 Adjustment June 30, 2002
------------------------------------------------------
Saia $ 14,796 $ -- $ 14,796
Jevic 75,175 (75,175) --
Meridian IQ 10,600 -- 10,600
------------------------------------------------------
$ 100,571 $ (75,175) $ 25,396
In connection with adopting Statement No. 142, the company also reassessed
the useful lives and the classification of its identifiable intangible
assets and determined that they continue to be appropriate. The components
of amortized intangible assets follow (in thousands):
June 30, 2002 December 31, 2001
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
--------------------------------------------------------------
Contract Based $2,238 $ 976 $2,238 $843
Technology Based 231 48 231 19
Other 42 9 42 3
------------------------------------------------------------
$2,511 $1,033 $2,511 $865
9
Amortization expense for intangible assets for the three months ended June
30, 2002 was $127,583, for the six months ended June 30, 2002 was $167,339,
and is estimated to be $422,505 for the full year 2002. Estimated
amortization expense for the next five fiscal years follows (in thousands):
Estimated
Amortization
Expense
------------
2003 $ 423
2004 405
2005 315
2006 121
2007 -
Actual results of operations before cumulative effect of accounting change
for the three and six months ended June 30, 2002, and proforma results of
operations for the three and six months ended June 30, 2001 had the company
applied the nonamortization provisions of Statement No. 142 in those
periods follow (in thousands, except per share amounts):
Quarter Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------------------------------------------------------
Reported income before cumulative
effect of accounting change $ 6,220 $ 5,656 $ 8,359 $ 7,402
Add: Goodwill amortization - 769 - 1,502
------------------------------------------------------
Adjusted income before cumulative
effect of accounting change $ 6,220 $ 6,425 $ 8,359 $ 8,904
Basic earnings per share:
Reported income before cumulative
effect of accounting change $ .22 $ .23 $ .31 $ .31
Goodwill amortization - .03 - .06
------------------------------------------------------
Adjusted income before cumulative
effect of accounting change $ .22 $ .26 $ .31 $ .37
Diluted earnings per share:
Reported income before cumulative
effect of accounting change $ .22 $ .23 $ .31 $ .31
Goodwill amortization - .03 - .06
------------------------------------------------------
Adjusted income before cumulative
effect of accounting change $ .22 $ .26 $ .31 $ .37
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
June 30, 2002 Compared to December 31, 2001
The company's liquidity needs arise primarily from capital investment in new
equipment, land and structures and information technology, as well as funding
working capital requirements. To ensure short-term and longer-term liquidity,
the company maintains capacity under a bank credit agreement and an asset backed
securitization (ABS) agreement involving Yellow Transportation accounts
receivable. These facilities provide adequate capacity to fund working capital
and capital expenditure requirements.
At June 30, 2002, the company did not have any outstanding borrowings against
the $300 million bank credit agreement, which expires in April 2004. This
facility is also the source of letters of credit used to provide collateral for
the self-insurance programs of the company, primarily in the areas of workers'
compensation and auto liability. Letter of credit requirements have increased
significantly during 2002. Insurance providers have increased collateral
requirements in response to the events of September 11 and the bankruptcies of
several large companies. In addition, the availability of surety bonds, an
alternative form of insurance collateral, has decreased due to the same factors.
The following table provides the components of the available unused capacity
under the bank credit agreement at June 30, 2002 and December 31, 2001 (amounts
in thousands):
June 30, 2002 December 31, 2001
------------- -----------------
Total available $ 300,000 $ 300,000
Outstanding borrowings - (85,000)
Letters of credit (163,000) (90,000)
---------- ---------
Available unused capacity $ 137,000 $ 125,000
The company intends to refinance under the bank credit facility all other debt
maturing within one year, (zero at June 30, 2002 and $22.0 million at December
31, 2001), and has classified these amounts as long-term debt on the balance
sheet.
Since it involves the sale of accounts receivable, utilization of the $200
million ABS facility impacts the accounting presentation of current assets, and
therefore impacts working capital. The following table summarizes the impact of
the ABS agreement had it been reflected on the balance sheet (in thousands):
11
June 30, 2002 December 31, 2001
-----------------------------------------------------------------------------------------------
As Reported ABS Facility Adjusted As Reported ABS Facility Adjusted
-----------------------------------------------------------------------------------------------
Current Assets:
Cash $ 19,514 $ -- $ 19,514 $ 20,694 $ -- $ 20,694
Accounts receivable 287,722 119,500 407,222 208,267 141,500 349,767
Prepaid expenses & other 42,706 -- 42,706 83,449 -- 83,449
-----------------------------------------------------------------------------------------------
Total current assets $ 349,942 $ 119,500 $ 469,442 $ 312,410 $ 141,500 $ 453,910
Current Liabilities:
Accounts payable and
Checks outstanding $ 106,284 $ -- $ 106,284 $ 128,343 $ -- $ 128,343
Wages & employees' benefits 148,946 -- 148,946 130,806 -- 130,806
Other current liabilities 112,875 -- 112,875 103,778 -- 103,778
-----------------------------------------------------------------------------------------------
Total current liabilities,
Excl current maturities $ 368,105 $ -- $ 368,105 $ 362,927 $ -- $ 362,927
-----------------------------------------------------------------------------------------------
Working Capital $ (18,163) $ 119,500 $ 101,337 $ (50,517) $ 141,500 $ 90,983
Total debt $ 107,015 $ 119,500 $ 226,515 $ 220,026 $ 141,500 $ 361,526
As reported, working capital excluding current maturities of long-term debt at
June 30, 2002 was $(18.2) million, up from $(50.5) million at December 31, 2001.
However, treating the ABS facility as though it was on the balance sheet
provides a clearer economic view of working capital. Including adjustments for
the ABS facility, working capital at June 30, 2002 was $101.3 million, up $10.3
million from $91.0 million at year-end. Current assets increased $15.5 million
primarily due to an increase in accounts receivable resulting from additional
business volumes. Current liabilities increased $5.2 million from year-end, as
decreased accounts payable were offset by increases in accrued wages and
employees' benefits.
The $91.3 million of other net cash from operating activities for the six months
ended June 30, 2002 is made up primarily of changes in other working capital
items. Prepaid expenses and other decreased $40.7 million from December 31, 2001
primarily due to the amortization of a prefunded benefit contribution for the
company's employees covered by collective bargaining agreements. Wages and
employees' benefits increased $18.1 million from December 31, 2001 primarily due
to the timing of vacation payments (accrued but not paid). Additionally, claims,
insurance and other long-term liabilities increased $21.1 million from December
31, 2001 primarily due to timing of pension payments (accrued but not paid) and
increased workers' compensation reserves.
Net capital expenditures for property and equipment during the first six months
of 2002 were $47.1 million, compared to $69.2 million during the first six
months of 2001. The decrease in capital expenditures is due primarily to timing
of revenue equipment purchases in 2002 compared to 2001, and higher spending in
2001 for a large terminal facility at Yellow Transportation. Full year 2002
revenue equipment spending is expected to be near 2001 levels, and total net
capital expenditures are expected to be approximately $100 million.
In mid April 2002 the company completed the equity offering of 3.4 million
shares and a fifteen percent over-allotment of .5 million shares at a price of
$25.50 per share. The company received $93.8 million of net proceeds from the
offering. The net
12
proceeds were used to repay debt and will provide working capital for
investments in the company's growth strategy.
A registration statement on Form 10 for SCS Transportation was filed on July 19,
2002 with the SEC containing details of the distribution and important financial
and other information about SCS Transportation, including risk factors related
to SCS Transportation and the distribution. The spin-off, which is intended to
be tax-free to Yellow and to Yellow stockholders, is subject to a number of
conditions, including the receipt of a favorable ruling from the Internal
Revenue Service or from outside tax advisors, the absence of any legal
restraints or prohibitions preventing the consummation of the distribution,
final action by the Board of Directors of Yellow to set the record date and
distribution date for the spin-off and the effectiveness of the registration
statement.
It is expected that Yellow shareholders will receive one share of SCS
Transportation common stock for every two shares of Yellow common stock they own
as of the record date. In addition, at or around the time of the spin-off, it is
anticipated that SCS Transportation will raise approximately $150 million
pursuant to one or more credit facilities that will be utilized in part to repay
indebtedness owed to Yellow and in part for general working capital purposes.
On July 22, 2002, Meridian IQ announced that it had reached a tentative
agreement to acquire MegaSys, Inc. (MegaSys), a Greenwood, Indiana based
provider of non-asset transportation and logistics management services. MegaSys
offers carrier procurement, routing and scheduling, audit and payment, and other
shipment management capabilities. Meridian IQ expects the acquisition to be
completed by mid-August.
On July 23, 2002, Meridian IQ announced that it had acquired selected assets of
Clicklogistics, Inc. (Clicklogistics), a provider of non-asset transportation
and logistics management services, for a nominal purchase price. Meridian IQ
acquired certain material assets, consisting primarily of customer contracts and
key employees within the Clicklogistics sales, operations and professional
services group.
13
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 2002 and 2001
Net income for the second quarter ended June 30, 2002 was $6.2 million, or $.22
per share, compared with net income of $5.7 million, or $.23 per share in the
second quarter of 2001. The second quarter of 2001 included expense of $.8
million, or $.03 per share, related to the amortization of goodwill for SCS
Transportation. Beginning in 2002, with the adoption of Statement No. 142,
goodwill is no longer amortized but is periodically tested for impairment.
Consolidated operating revenue for the second quarter of 2002 was $843 million,
up 2.2 percent from $825 million in the second quarter of 2001. Consolidated
operating income was $13.5 million, compared to $17.6 million in the prior year.
Second quarter 2001 results included $2.2 million of unusual item costs,
primarily related to the integration of WestEx, Inc. and Action Express into
Saia.
Higher workers' compensation expenses impacted consolidated operating results.
Rising health care costs over the past several years have resulted in the
ultimate cost of claims being higher than were originally anticipated. On a
consolidated basis, workers' compensation costs are up over 70 percent from the
second quarter of last year. The company has in place aggressive claims
management programs, but expects the impact of increased claims costs to
continue in the near term.
Yellow Transportation, the company's largest subsidiary, reported second quarter
2002 operating income of $10.5 million, down from $14.4 million in the second
quarter of 2001. Yellow Transportation revenue for the second quarter of 2002
was $628 million, down slightly from $629 million in the prior year. The
operating ratio was 98.3 for the second quarter of 2002, compared with 97.7 a
year earlier.
Yellow Transportation second quarter 2002 LTL tonnage per day increased by 1.3
percent and the number of LTL shipments per day increased 1.1 percent compared
to the second quarter of 2001. The primary reasons for the increase in volumes
are a slowly improving economy, some selective gains in market share and growth
in premium services. LTL revenue per hundred weight, excluding fuel surcharge,
for the second quarter of 2002 was up .8 percent over the second quarter of
2001.
Meridian IQ was formed earlier this year, and formally launched in March, as the
Yellow platform for non-asset-based transportation services. These capabilities
include international and domestic freight forwarding services, multi-modal
brokerage services and transportation management solutions.
14
Meridian IQ operating revenue for the second quarter of 2002 was $19 million and
operating losses were $.5 million, which is an improvement from the $1.5 million
loss in the first quarter of 2002, and consistent with company expectations for
this newly formed entity.
Consolidated operating revenue for SCS Transportation was $196 million for the
second quarter of 2002, unchanged from $196 million a year ago. Operating income
for the second quarter of 2002 was $6.8 million, compared to $5.1 million in the
previous year. Second quarter 2001 operating income included expense of $.8
million related to the amortization of goodwill and $1.4 million of unusual item
costs related to the March 2001 integration of WestEx, Inc. and Action Express
into Saia. All prior period amounts for Saia have been restated to reflect this
merger.
At Saia, second quarter 2002 revenue was $124 million and operating income was
$6.0 million, compared with revenue of $123 million and operating income of $3.8
million in the second quarter of 2001, which included $1.4 million of
integration costs. The second quarter 2002 operating ratio was 95.2, compared
with 95.7 (excluding integration costs) in the second quarter of 2001. Saia LTL
tonnage for the second quarter of 2002 was up 5.0 percent and LTL shipments were
up 4.5 percent on a per-day basis over the second quarter of 2001. However, Saia
LTL revenue per hundred weight, excluding fuel surcharge for the second quarter
of 2002 was down 2.7 percent over the second quarter of 2001 due to planned mix
changes designed to replace selected poor performing business with more
profitable accounts and competitive pressures.
Jevic reported second quarter 2002 revenue of $72.5 million and operating income
of $.8 million. On a comparative basis, Jevic had second quarter 2001 revenue of
$72.6 million and operating income of $1.6 million. The second quarter of 2002
operating ratio for Jevic was 98.9, compared with 97.9 in the second quarter of
2001. The second quarter of 2002 included a $1.5 million charge due to
unfavorable development in workers' compensation claims. Excluding this item,
operating results relating directly to the second quarter improved from the
prior period. Jevic total tonnage per day for the second quarter of 2002 was up
1.7 percent, consisting of a 0.5 percent decline in LTL volumes and a 3.5
percent increase in truckload volumes compared to the second quarter of 2002.
Excluding the fuel surcharge, total revenue per hundred weight was down 1.6
percent consisting of a 0.6 percent improvement in LTL yields and a 3.2 percent
decline in truckload pricing. Overall, the pricing environment for Jevic has
stabilized although rates remain weak due to pricing pressures over the past two
years.
15
Corporate and other expenses were $3.4 million in the second quarter of 2002,
compared to $1.4 million in the second quarter of 2001. The increase is due
primarily to higher self-insurance retention reserves, higher incentive
compensation accruals and professional service costs related to the spin-off of
SCS Transportation.
Nonoperating expenses were $3.6 million in the second quarter of 2002 compared
to $7.5 million in the second quarter of 2001. The second quarter of 2001 had
$1.9 million of Transportation.com business development costs and $2.0 million
higher financing costs, including interest expense and ABS borrowing costs due
to higher interest rates and higher average borrowings outstanding. The
effective tax rate was 37.2 percent in the second quarter of 2002 compared to
44.0 percent in the second quarter of 2001. This decrease in tax rate is due to
a variety of factors including the projected full-year profit before tax, the
implementation of prudent tax planning strategies and decreased travel and
entertainment expenses.
Comparison of Six Months Ended June 30, 2002 and 2001
Net income (loss) for the six months ended June 30, 2002 was $(66.8) million, or
$(2.47) per share, compared with net income of $7.4 million, or $.31 per share
in the first half of 2001. The first half of 2002 included a non-cash charge of
$75.2 million for the impairment of goodwill associated with Jevic, which was
recorded as a cumulative effect of change in accounting for goodwill. The first
half of 2001 included expense of $1.5 million, or $.06 per share, related to the
amortization of goodwill attributable to SCS Transportation.
Consolidated operating revenue for the first half of 2002 was $1.6 billion, down
3.1 percent from $1.7 billion in the first half of 2001. Consolidated operating
income was $21.6 million, compared to $30.1 million in the prior year.
Yellow Transportation reported operating income of $17.2 million for the first
half of 2002 down from $28.0 million in the first half of 2001. Yellow
Transportation revenue for the first half of 2002 was $1.2 billion, down 5.0
percent, on a per-day basis, from $1.3 billion in the first half of 2001. The
2002 first half operating ratio was 98.6, compared with 97.8 a year earlier.
Yellow Transportation first half 2002 LTL tonnage per day decreased by 3.0
percent and the number of LTL shipments per day decreased 3.4 percent from the
first half of 2001. LTL revenue per hundred weight, excluding fuel surcharge,
was up .4 percent over the first half of 2001.
16
Meridian IQ operating revenue for the first half of 2002 was $34.3 million and
operating losses were $2.0 million. Meridian IQ has had consistent
month-over-month revenue and operating income improvement and results are
consistent with company expectations for this newly formed entity.
Consolidated operating revenue for SCS Transportation for the first half of 2002
was $380 million down from $392 million in the first half of 2001. Operating
income was $11.6 million in the first half of 2002, compared to $4.8 million in
the first half of 2001. First half 2001 included expense of $1.5 million related
to the amortization of goodwill and $6.8 million of unusual item costs related
to the March 2001 integration of WestEx, Inc. and Action Express into Saia.
For the first half of 2002, Saia revenue was $239 million compared to $242
million in 2001. Operating income in the first half of 2002 was $9.7 million,
compared with operating income of $1.5 million in the first half of 2001, which
included $6.8 million of integration costs.
Jevic reported revenue of $141 million for the first half of 2002 compared to
$150 million in the first half of 2001. Operating income was $1.8 million in the
first half of 2002, compared to $3.9 million in the first half of 2001. Most of
the deterioration in operating income was a result of higher workers'
compensation costs in the second quarter as described earlier and weak
performance in the first quarter due to economic and competitive conditions.
Corporate and other expenses were $5.0 million in the first half of 2002,
compared to $2.2 million in the first half of 2001. The increase is due
primarily to higher self-insurance retention reserves, higher incentive
compensation accruals and professional service costs related to the spin-off of
SCS Transportation.
Nonoperating expenses were $8.1 million in the first half of 2002, compared to
$16.9 million in the first half of 2001. The first half of 2001 had $4.4 million
of Transportation.com business development costs and $4.4 million higher
financing costs, including interest expense and ABS borrowing costs, due to
higher interest rates and higher average borrowings. The effective tax rate was
38.2 percent in the first half of 2002 compared to 44.0 percent in the first
half of 2001. The decrease in tax rate is due to the factors described earlier
in the results of operations for the three months ended June 30, 2002.
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The company is exposed to a variety of market risks, including the effects of
interest rates, fuel prices and foreign currency exchange rates. To ensure
adequate funding through seasonal business cycles and minimize overall borrowing
costs, the company utilizes a variety of both fixed rate and variable rate
financial instruments with varying maturities. At June 30, 2002 approximately 55
percent of the company's debt and off-balance sheet financing is at variable
rates with the balance at fixed rates. The company uses interest rate swaps to
hedge a portion of its exposure to variable interest rates. The company has
hedged approximately 44 percent of its variable debt.
The company's revenues and operating expenses, assets and liabilities of its
Canadian and Mexican subsidiaries are denominated in foreign currencies, thereby
creating exposures to changes in exchange rates. However, the risks related to
foreign currency exchange rates are not material to the company's consolidated
financial position or results of operations.
The following table provides information about the company's financial
instruments as of June 30, 2002. The table presents principal cash flows (in
millions) and related weighted average interest rates by contractual maturity
dates. For interest rate swaps the table presents notional amounts (in millions)
and weighted average interest rates by contractual maturity.
Debt Instrument Information
There- Fair
2002 2003 2004 2005 2006 After Total Value
------ ------ ------ ------ ------ ------ ------ -----
Fixed Rate Debt $ 0.1 $ 24.5 $ 16.3 $ 17.9 $ 8.7 $ 34.5 $ 102.0 $ 109.8
Average interest rate 6.37% 6.02% 6.78% 6.62% 6.79% 6.85%
Variable Rate Debt $ 0.1 $ 0.1 $ 0.2 $ 4.6 - - $ 5.0 $ 5.0
Average interest rate 4.01% (1)
Off Balance Sheet ABS $ 119.5 $ 119.5 $ 119.5
Average interest rate 1.96%
Interest Rate Swaps
Notional amount $ 0.1 $ 50.1 (2) $ 0.2 $ 4.6 - - $ 55.0 $ 57.6
Avg. pay rate (fixed) 7.65% 6.06% 7.65% 7.65% N/A N/A
Avg. receive rate 4.01% 1.88% (2) 4.01% 4.01% N/A N/A
(variable)
(1) Weighted average variable rates are based on the 90-day commercial
paper rate as of June 30, 2002.
(2) Includes a $50 million interest rate swap on the ABS facility. The
variable rate on the ABS swap is 1.88% based on the 3-month LIBOR as of
June 18, 2002.
18
Yellow Transportation, Saia and Jevic, each have implemented effective fuel
surcharge programs. These programs are well established within the industry and
customer acceptance of fuel surcharges remains high. Since the amount of fuel
surcharge is based on average national diesel fuel prices and is reset weekly,
company exposure to fuel price volatility is significantly reduced.
Statements contained in, and preceding management's discussion and analysis that
are not purely historical are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, including statements
regarding the company's expectations, hopes, beliefs and intentions on
strategies regarding the future. It is important to note that the company's
actual future results could differ materially from those projected in such
forward-looking statements because of a number of factors, including but not
limited to inflation, labor relations, inclement weather, price and availability
of fuel, competitor pricing activity, expense volatility, changes in and
customer acceptance of new technology, changes in equity and debt markets and a
downturn in general or regional economic activity.
19
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxyley Act of 2002, filed herewith.
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxyley Act of 2002, filed herewith.
(b) Reports on Form 8-K
On May 17, 2002, a Form 8-K was filed under Item 4, Changes in Registrant's
Certifying Accountant, which stated that the Audit Committee approved dismissal
of Arthur Andersen LLP as the company's independent auditors and appointed KPMG
LLP to serve as the company's independent auditors for the year ending December
31, 2002.
On May 22, 2002, a Form 8-K was filed under Item 5, Other Events, which reported
that Yellow Transportation, a Yellow Corporation subsidiary, announced that it
will implement a general rate increase averaging 5.9 percent effective June 3,
2002.
On July 19, 2002, a Form 8-K was filed under Item 5, Other Events, which
reported that the company announced its Board of Directors has formally approved
the terms of the spin-off of its 100% interest in SCS Transportation, the
holding company for its regional operating companies, Saia and Jevic, to its
shareholders. The Board of Directors of Yellow anticipates that the spin-off
will occur during the third quarter of 2002.
On August 7, 2002, a Form 8-K was filed under Item 9, Regulation FD Disclosure,
William D. Zollars, Yellow Corporation's Chief Executive Officer, and Donald G.
Barger, Jr., Yellow Corporation's Chief Financial Officer, have each executed a
Statement Under Oath of Principal Executive Officer and Principal Financial
Officer Regarding Facts and Circumstances Relating to Exchange Act Filings.
20
Yellow Transportation
Financial Information
For the Quarter and Six Months Ended June 30, 2002 and 2001
(Amounts in thousands)
Second Quarter Six Months
------------------------------ ---------------------------------
2002 2001 % 2002 2001 %
----------------------------------------------------------------------------------------
Operating revenue 628,215 628,968 (0.1) 1,192,858 1,264,933 (5.7)
Operating income --
Before unusual items 10,994 15,351 (28.4) 18,225 29,579 (38.4)
Operating income -- as reported 10,524 14,354 (26.7) 17,185 27,955 (38.5)
Operating ratio --
Before unusual items 98.2 97.6 98.5 97.7
Operating ratio -- as reported 98.3 97.7 98.6 97.8
Total assets at June 30 769,875 709,768
Second Quarter
---------------------------------
Second Quarter Amount/Workday
--------------------------- ---------------------------------
2002 2001 % 2002 2001 %
---------------------------------------------------------------------------------------
Workdays 64 64
Financial statement LTL 585,826 580,462 0.9 9,153.5 9,069.7 0.9
Revenue TL 44,255 48,369 (8.5) 691.5 755.8 (8.5)
Other (1,866) 137 n/m (29.2) 2.1 n/m
Total 628,215 628,968 (0.1) 9,815.8 9,827.6 (0.1)
Revenue excluding LTL 585,826 580,462 0.9 9,153.5 9,069.7 0.9
Revenue recognition TL 44,255 48,369 (8.5) 691.5 755.8 (8.5)
Adjustment Other - 368 n/m - 5.8 n/m
Total 630,081 629,199 0.1 9,845.0 9,831.3 0.1
Tonnage LTL 1,536 1,516 1.3 23.99 23.69 1.3
TL 297 308 (3.5) 4.65 4.82 (3.5)
Total 1,833 1,824 0.5 28.64 28.51 0.5
Shipments LTL 3,084 3,051 1.1 48.20 47.67 1.1
TL 41 42 (3.5) 0.63 0.66 (3.5)
Total 3,125 3,093 1.0 48.83 48.33 1.0
Revenue/cwt. LTL 19.07 19.14 (0.4)
TL 7.44 7.85 (5.2)
Total 17.19 17.23 (0.2)
Revenue/cwt. LTL 18.76 18.61 0.8
(excl fuel surcharge) TL 7.35 7.67 (4.2)
Total 16.90 16.76 0.8
Revenue/shipment LTL 189.94 190.23 (0.2)
TL 1,091.07 1,150.57 (5.2)
Total 201.63 203.28 (0.8)
21
Saia Motor Freight Line, Inc.
Financial Information
For the Quarter and Six Months Ended June 30, 2002 and 2001
(Amounts in thousands)
Second Quarter Six Months
------------------------------- --------------------------
2002 2001 % 2002 2001 %
------------------------------------------------------------------------------------
Operating revenue 124,027 122,988 0.8 239,055 242,107 (1.3)
Operating income --
before unusual items 6,029 5,059 19.2 9,869 8,109 21.7
Operating income --
as reported * 6,010 3,803 58.0 9,651 1,501 n/m
Operating ratio --
before unusual items 95.1 95.9 95.9 96.7
Operating ratio -- as reported 95.2 96.9 96.0 99.4
Total assets at June 30 279,246 287,494
Second Quarter
Second Quarter Amount/Workday
--------------------------- -----------------------------
2002 2001 % 2002 2001 %
------------------------------------------------------------------------------------
Workdays 64 64
Financial statement LTL 114,027 113,132 0.8 1,781.7 1,767.7 0.8
Revenue TL 10,000 9,856 1.5 156.3 154.0 1.5
Total 124,027 122,988 0.8 1,938.0 1,921.7 0.8
Revenue excluding LTL 114,361 113,151 1.1 1,786.9 1,768.0 1.1
revenue recognition TL 10,029 9,858 1.7 156.7 154.0 1.7
adjustment Total 124,390 123,009 1.1 1,943.6 1,922.0 1.1
Tonnage LTL 598 569 5.0 9.35 8.90 5.0
TL 144 143 1.0 2.25 2.23 1.0
Total 742 712 4.2 11.60 11.13 4.2
Shipments LTL 1,120 1,072 4.5 17.50 16.75 4.5
TL 18 16 11.0 0.28 0.25 11.0
Total 1,138 1,088 4.6 17.78 17.00 4.6
Revenue/cwt. LTL 9.56 9.94 (3.8)
TL 3.48 3.46 0.8
Total 8.38 8.64 (3.0)
Revenue/cwt. LTL 9.37 9.64 (2.7)
(excl fuel surcharge) TL 3.46 3.42 1.1
Total 7.56 7.71 (2.0)
Revenue/shipment LTL 102.13 105.56 (3.2)
TL 567.48 619.26 (8.4)
Total 109.36 113.08 (3.3)
* - 2001 results include $1,440,000 in second quarter and $6,825,000 in first
six months of one-time integration costs associated with the merger of WestEx
and Action into Saia.
22
Jevic Transportation, Inc.
Financial Information
For the Quarter and Six Months Ended June 30, 2002 and 2001
(Amounts in thousands)
Second Quarter Six Months
----------------------------- -----------------------------
2002 2001 % 2002 2001 %
------------------------------------------------------------------------------------
Operating revenue 72,461 72,647 (0.3) 140,970 149,504 (5.7)
Operating income --
before unusual items 810 1,425 (43.2) 1,843 3,743 (50.8)
Operating income -- as reported 832 1,554 (46.5) 1,800 3,859 (53.4)
Operating ratio --
before unusual items 98.9 98.0 98.7 97.5
Operating ratio -- as reported 98.9 97.9 98.7 97.4
Total assets at June 30 158,630 249,840
Second Quarter
Second Quarter Amount/Workday
----------------------------- ------------------------
2002 2001 % 2002 2001 %
------------------------------------------------------------------------------------------
Workdays 64 63
Financial statement LTL 46,367 46,515 (0.3) 724.5 738.3 (1.9)
revenue TL 24,869 24,940 (0.3) 388.6 395.9 (1.8)
Other 1,225 1,192 2.8 19.1 18.9 1.2
Total 72,461 72,647 (0.3) 1,132.2 1,153.1 (1.8)
Revenue excluding LTL 46,661 46,390 0.6 729.1 736.4 (1.0)
revenue recognition TL 25,027 24,873 0.6 391.0 394.8 (1.0)
adjustment Other 1,225 1,192 2.8 19.1 18.9 1.2
Total 72,913 72,455 0.6 1,139.2 1,150.1 (0.9)
Tonnage LTL 257 254 1.1 4.02 4.03 (0.5)
TL 333 317 5.2 5.20 5.03 3.5
Total 590 571 3.4 9.22 9.07 1.7
Shipments LTL 215 207 3.7 3.36 3.29 2.1
TL 36 35 3.0 0.57 0.56 1.4
Total 252 242 3.6 3.93 3.85 2.0
Revenue/cwt. LTL 9.08 9.12 (0.5)
TL 3.76 3.93 (4.3)
Total 6.07 6.24 (2.7)
Revenue/cwt. LTL 8.91 8.86 0.6
(excl fuel surcharge) TL 3.69 3.81 (3.2)
Total 5.96 6.06 (1.6)
Revenue/shipment LTL 217.05 223.82 (3.0)
TL 690.25 706.92 (2.4)
Total 285.34 293.93 (2.9)
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YELLOW CORPORATION
-------------------------
Registrant
Date: August 7, 2002 /s/ William D. Zollars
------------------ ----------------------------
William D. Zollars
Chairman of the Board of
Directors, President & Chief
Executive Officer
Date: August 7, 2002 /s/ Donald G. Barger, Jr.
------------------ ----------------------------
Donald G. Barger, Jr.
Senior Vice President
& Chief Financial Officer
24