<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
Registrant's telephone number, including area code: (913) 967-4300
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 Par Value
Preferred Stock Purchase Rights
-------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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
---- ----
The aggregate market value of the voting stock held by nonaffiliates of the
registrant at February 29, 1996 was $310,920,379.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding at February 29, 1996
----- --------------------------------
Common Stock, $1 Par Value 28,105,797 shares
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the Form 10-K:
1) 1995 Annual Report to Shareholders - Parts II and IV
2) Proxy Statement dated March 12, 1996 - Part III
<PAGE> 2
Yellow Corporation
Form 10-K
Year Ended December 31, 1995
Index
Item Page
- ---- ----
PART I
1. Business 3
2. Properties 7
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
Executive Officers of the Registrant (Unnumbered Item) 9
PART II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters 11
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
8. Financial Statements and Supplementary Data 11
9. Disagreements on Accounting and Financial Disclosure 11
PART III
10. Directors and Executive Officers of the Registrant 12
11. Executive Compensation 12
12. Security Ownership of Certain Beneficial Owners and
Management 12
13. Certain Relationships and Related Transactions 12
PART IV
14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K 13
Report of Independent Public Accountants on Financial
Statement Schedule 15
Financial Statement Schedule 16
Signatures 17
Executive Officers' Agreements Exhibit (10)
1995 Annual Report to Shareholders Exhibit (13)
Consent of Independent Public Accountants Exhibit (24)
2
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PART I
Item 1. Business.
(a) Yellow Corporation and its wholly-owned subsidiaries are collectively
referred to as "the company". The company provides transportation
services primarily to the less-than-truckload (LTL) market throughout
North America. There were no material changes in the method of
conducting business by the company in 1995. During 1995, the operations
of Yellow Logistics Services, Inc., an integrated logistics management
subsidiary, were realigned and CSI/Reeves, Inc., a specialty carpet
hauler, was sold. Additionally, the company's subsidiaries expanded
geographically, improved their service offerings and implemented cost
control efforts during the year as described below.
(b) The operation of the company is conducted through one predominant
industry segment, which is the interstate transportation of general
commodity freight, primarily LTL, by motor vehicle.
(c) Yellow Corporation is a holding company providing freight
transportation services through its subsidiaries, Yellow Freight
System, Inc. (Yellow Freight), Preston Trucking Company, Inc. (Preston
Trucking), Saia Motor Freight Line, Inc. (Saia), WestEx, Inc. (WestEx)
and Yellow Technology Services, Inc. (Yellow Technology). The company
employed an average of 34,700 persons in 1995.
Yellow Freight, the company's principal subsidiary, had operating
revenue of $2.36 billion in 1995 (77% of the company's total revenue)
and is based in Overland Park, Kansas. It is the nation's largest
provider of LTL transportation services. It provides national and
regional two-day service as well as international service to Mexico,
Canada and, via alliances, Europe and the Asia/Pacific region.
Preston Trucking is primarily a regional LTL carrier serving the
Northeast and upper Midwest markets of the United States. Preston
Trucking markets the SuperRegion - one and two-day service in an
expanded geographic region. Preston Trucking had operating revenue of
$411 million in 1995 (13% of the company's total revenue) and is
headquartered in Preston, Maryland.
Saia is a regional LTL carrier that provides overnight and second-day
service in eleven Southeastern states. It had operating revenue of $210
million in 1995 (7% of the company's total revenue) and is relocating
its headquarters from Houma, Louisiana to Atlanta, Georgia in April
1996.
WestEx provides one and two-day service in California, Arizona and New
Mexico as well as parts of Nevada and Texas. WestEx had operating
revenue of $17 million in 1995 and is headquartered in Phoenix, Arizona.
Yellow Technology supports the company's subsidiaries - primarily Yellow
Freight - with information technology. It ensures access to advanced
information systems to meet the informational demands of transportation
customers. Its headquarters are in Overland Park, Kansas.
3
<PAGE> 4
Item 1. Business. (cont.)
The operations of the freight transportation companies are partially regulated
by the Interstate Commerce Commission (ICC) and state regulatory bodies. As a
result of legislation passed in 1994, the entry and rates for the intrastate
operations of all transportation companies became deregulated January 1, 1995.
With the December 1995 passage of The ICC Termination Act of 1995, the ICC went
out of existence on January 1, 1996. The remaining functions regulating
transportation companies are transferred to the Department of Transportation.
The company's competition includes contract motor carriers, private fleets,
railroads, other motor carriers and small shipment carriers. No single carrier
has a dominant share of the motor freight market.
The company operates in a highly price-sensitive and competitive industry,
making pricing, customer service and cost control major competitive factors.
Traditionally, rate increases have been implemented to offset increases in
labor and other operating costs. The motor carrier subsidiaries have
implemented rate increases of between 4.0% and 5.0% during the first quarter of
1995 to cover increases in operating costs. The full impact of rate increases
is not realized immediately as a result of pricing that is on a contract basis
and can only be increased when the contract is renewed or renegotiated. During
1995, the company experienced industry overcapacity and a faltering economy
that caused severe price discounting. Price increases were more than offset by
discounting, leading to reduced margins and an operating loss for the year.
Yellow Freight's revenue for 1995 increased 6.4% over 1994 on a tonnage
increase of 7.7%. The increase in revenue primarily resulted from the recovery
of lost revenue due to the 24-day labor strike in 1994 by the International
Brotherhood of Teamsters (Teamsters) against Yellow Freight. Despite
significant service enhancements and other cost increases, prices declined for
the year resulting in an operating ratio deterioration from 99.2 in 1994 to
100.1 in 1995. A January 1995 tariff increase of approximately 5.0%, which
applied to about half of Yellow Freight's customers, and attempts to increase
contract term rates on remaining customers were more than offset by price
discounting. Overall, LTL revenue per hundredweight declined 1.5% from 1994 to
1995.
Prices declined and volumes, adjusted for the 1994 strike, remained relatively
static, yet operating costs increased. Approximately 67% of Yellow Freight's
costs pertain to salaries, wages and benefits. On April 1, 1995, union wages
and benefits increased approximately 3.2%. In addition, Yellow Freight
incurred higher expenses in the third and fourth quarters when it implemented a
transit time improvement program to enhance its competitive position in the
market. These transit time improvements were made possible by an on-going
network development program, that in the last three years has reduced the
number of terminals at Yellow Freight from 608 to 448 while still maintaining
full market coverage. For 1995 compared to 1994, transit times improved by
approximately one day, resulting in higher costs associated with a 5.7% lower
load average and a 14.0% increase in total linehaul miles. Some cost savings
were obtained by an increase in direct loadings which reduced rehandlings by
8.7%. Additional savings were achieved through an
4
<PAGE> 5
Item 1. Business. (cont.)
increased use of rail transportation from 13.1% of total miles in 1994 to 17.5%
in 1995 and the elimination of forced overtime for dockworkers, both provisions
of the 1994 labor contract. While Yellow Freight is working to lessen the cost
premiums of the improved service, it is likely that this new service will carry
a higher ongoing cost structure. Through reengineering and the use of new
technology, Yellow Freight began achieving administrative cost reductions in
1995 by consolidating customer service and cashiering functions from its
individual terminals to two centralized locations.
Preston Trucking's revenue in 1995 decreased 1.3% from 1994 and the operating
ratio remained relatively constant at 101.4 in 1995 compared to 101.3 in 1994.
The 1994 performance was subject to severe winter weather, impacts from the
second quarter strike, including benefits from an early return to work, and
shipper uncertainty concerning a wage reduction process, all of which did not
recur in 1995. However, 1995 was subject to severe industry-wide price
discounting as well as a relatively greater labor cost increase. Under the
terms of Preston Trucking's wage reduction program approved in 1994, union
wages and benefits increased approximately 4.9% on April 1, 1995. The higher
wage increase resulted from Preston Trucking employees receiving both the
industry wage and benefit increases as well as a step-down in the wage
reduction from 7.0% to 5.0%. Improved productivity, positive cargo claims
experience and reductions in purchased transportation expense contributed to
offsetting the higher wage and benefit costs.
Saia's revenue grew 17.7% in 1995 compared to 1994 due to geographical
expansions in Texas, Tennessee and Georgia in mid-1994 and North and South
Carolina in mid-1995. Saia's operating ratio increased to 96.3 in 1995 from
93.5 in 1994. Saia was impacted by industry price discounting, but the margin
deterioration was primarily caused by increased wages and the expense impacts
of the expansion activities including lighter initial business densities in the
new markets. The deregulation of intrastate markets in January 1995 also
increased competition in Louisiana and Texas, where Saia had held operating
rights advantages. This was partially offset by new access for Saia in various
other states' intrastate markets.
During 1995 WestEx commenced an expansion from its traditional Arizona and New
Mexico market into the state of California. Holding company expenses in 1995
were comparable to 1994 levels.
Working capital increased by $56 million during 1995, primarily due to
increases in accounts receivable and refundable income taxes. The increased
accounts receivable were a result of both market forces and transition
implementation issues related to a new system for customer billing and stating
at Yellow Freight.
Total debt increased by $106 million during 1995. Borrowings were used to fund
most of the net capital expenditures during the year ($140 million) as the
working capital growth offset a large portion of cash flows from other
operating activities. The additional debt was funded by the company's
commercial paper program, whose authorized maximum was
5
<PAGE> 6
Item 1. Business. (cont.)
increased to $150 million, and by the issuance of medium-term notes.
During 1995 the company entered into a $200 million multi-year bank credit
agreement, replacing a $100 million agreement, to provide additional liquidity
backup for the commercial paper program and for other borrowing needs.
Future Outlook
The company has initiated processes to improve earnings performance and
financial position in 1996 and future years. The motor carrier subsidiaries
have implemented general LTL rate increases in January 1996 in excess of 5.8%
and will also seek improved pricing in negotiations with contract customers
during 1996. While the company expects pricing to remain highly competitive,
it is cautiously optimistic that the extent of destructive price discounting
that prevailed in 1995 will not recur in 1996, particularly in view of the
service enhancements and the need for virtually all trucking sectors to improve
their shareholder returns. The company is encouraged that recent announcements
by competitors of reduced capital expenditure plans and the curtailing of
expansions will begin to moderate the industry's overcapacity in 1996.
However, the severe winter weather experienced in the first quarter of 1996 is
expected to have an adverse impact on first quarter results of operations.
The company strives to control operating costs by maintaining efficient
operations, optimum capacity utilization and strict budgetary controls.
Increased technology investments are expected to reduce costs and increase
productivity while providing improved information benefits for customers.
Yellow Freight's cost reduction and transit time improvement initiatives begun
in 1995 are expected to benefit their competitive position in the future. The
cost reduction programs are projected to save $75 million in 1996 and include
administrative staff reductions and operational efficiency improvements.
Yellow Freight believes its transit time improvements will enhance its price
negotiating posture as well as benefit business volumes through better customer
retention and generating new business. Additionally, Yellow Freight will
continue efforts to decrease the cost premiums associated with the improved
service and will pursue other network development opportunities. On April 1,
1996 Yellow Freight's wages and benefits will increase approximately 3.8% under
the terms of the industry collective bargaining agreement which extends through
March 31, 1998. A portion of this increase is expected to be offset by
continuing to leverage advantages of the 1994 labor agreement. Yellow Freight
believes that significant opportunities are still available to further reduce
costs and increase service through ongoing technological and reengineering
investments.
Preston Trucking plans to improve its performance due to pricing gains and a
plan approved in February 1996 by its union employees to freeze wages at
current levels through the remaining term of the industry collective bargaining
agreement. This wage freeze not only maintains the existing 5.0% reduction
from full-scale pay levels but also avoids the scheduled wage increases due
April 1 of both 1996 and 1997. However, health, welfare and pension benefit
costs will increase by 9.0% on April 1, 1996 and 8.2% on April 1, 1997.
6
<PAGE> 7
Item 1. Business. (cont.)
Saia plans to improve 1996 performance through pricing gains and density
benefits from additional business and improved cost efficiency. No significant
expansions are planned for 1996. WestEx plans to improve its performance
through increased business density benefits although a profit is not expected
until 1997. Holding company expenses are expected to be significantly lower in
1996, mainly due to cost reduction initiatives. The company recently announced
the appointment of A. Maurice Myers as its new President and CEO (see Part I -
Executive Officers of the Registrant and Part IV Item 14(b) - Reports on Form
8-K).
Early in 1996 a major rating agency lowered its rating on the company's
commercial paper. While management intends to continue to finance short-term
working capital needs primarily with the issuance of commercial paper, the
lower rating may require the company to draw on its bank credit agreement or
other market alternatives from time to time. This change is not expected to
have a material impact on interest expense.
Management anticipates the company's liquidity and financial position will
improve significantly in 1996 for several reasons. First, planned capital
expenditures for 1996 are only $65 million as the company intends to improve
its asset utilization through transit time improvements and more efficient
operations including the greater use of rail transportation. Also, receivables
are expected to decline as additional efforts are made to accelerate customer
collections and a large income tax refund is due to be received during the
year. In addition, the company suspended its dividend in July 1995 after
paying $.47 per share or $13 million during the year. No dividends are
expected to be paid in 1996. Finally, operating results should improve in 1996
as a result of cost reduction efforts, transit time improvements and better
industry conditions.
Success of the above improvement initiatives will be dependent on the strength
of the economy, competitive conditions including pricing stability and the
ability to hold down costs.
Item 2. Properties.
The freight transportation companies each operate a network of freight terminal
facilities. At December 31, 1995, the company operated a total of 628 freight
terminals located in 50 states, Puerto Rico, parts of Canada and Mexico. Of
this total, 296 were owned terminals and 332 were leased, generally for terms
of three years or less. The number of vehicle back-in doors totaled 19,120, of
which 14,298 were at owned terminals and 4,822 were at leased terminals. The
freight terminals vary in size ranging from one to three doors at small local
terminals, up to 304 doors at Yellow Freight's largest consolidation and
distribution terminal. Substantially all of the larger terminals, containing
the greatest number of doors, are owned. In addition, the company and most of
its subsidiaries own and occupy general office buildings in their headquarters
city.
7
<PAGE> 8
Item 2. Properties. (cont.)
At December 31, 1995, the company's subsidiaries operated the following number
of linehaul units: tractors - 5,259, 27' and 28' trailers - 34,288 and 45' and
48' trailers - 6,107. The number of city units operated were: trucks and
tractors - 7,944 and trailers - 5,603.
The above facilities and equipment are used in the company's predominant
industry, the interstate transportation of general commodity freight. The
company's facilitates and equipment are adequate to meet current business
requirements, except as noted below concerning revenue equipment "growth" unit
purchases. Net capital expenditures in 1995 totaled $140 million and were
split evenly between revenue equipment and other equipment (primarily
information technology to support Yellow Freight's improvements in customer
service and freight management). About two-thirds of the net capital spending
was for Yellow Freight. Revenue equipment expenditures were made primarily for
replacement units at Yellow Freight and Preston Trucking and for growth units
at Saia and WestEx.
The company expects moderate growth in 1996 and has projected no significant
changes to its operational capacity. Projected net capital expenditures for
1996 are $65 million. Net revenue equipment expenditures of $27 million for
1996 are primarily for replacement units at Yellow Freight and Preston Trucking
and for growth units at Saia and WestEx. The other capital expenditures of $38
million will again be primarily for information technology to support Yellow
Freight's improvements in customer service and freight management.
Item 3. Legal Proceedings.
The information set forth under the caption "Commitments and Contingencies" in
the Notes to Consolidated Financial Statements on page 23 of the registrant's
Annual Report to Shareholders for the year ended December 31, 1995, is
incorporated by reference under Item 14 herein.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
8
<PAGE> 9
Executive Officers of the Registrant
The names, ages and positions of the executive officers of the company as of
March 31, 1996 are listed below. Officers are appointed annually by the Board
of Directors at their meeting which immediately follows the annual meeting of
shareholders.
<TABLE>
<CAPTION>
Name Age Position(s) Held
---- --- ----------------
<S> <C> <C>
A. Maurice Myers 55 President and Chief Executive Officer of the company (since March 1996);
President and Chief Operating Officer of America West Airlines, Inc.
(January 1994 - December 1995); President and Chief Executive Officer of
Aloha Air Group, Inc. (prior to January 1994)
M. Reid Armstrong 58 President of Yellow Freight (since May 1992); Executive Vice President of
the company and of Yellow Freight (December 1991 - May 1992); Senior Vice
President of Yellow Freight (prior to December 1991)
Robert L. Bostick 55 Senior Vice President - Operations Administration of Yellow Freight
(since April 1995); Senior Vice President - Operations of Yellow Freight
(October 1992 - April 1995); Vice President - Operations of Yellow
Freight (May 1992 - October 1992); Vice President - Transportation and
Safety of Yellow Freight (April 1991 - May 1992); Vice President -
Linehaul Operations of Yellow Freight (prior to April 1991)
J. Kevin Grimsley 48 Senior Vice President - Marketing/Sales of Yellow Freight (since January
1994); Vice President - Marketing of Yellow Freight (April 1993 - January
1994); Division Vice President of Yellow Freight (prior to April 1993)
William F. Martin, Jr. 48 Senior Vice President - Legal/Corporate Secretary of the company (since
December 1993); Vice President and Secretary of the company (October 1991
- December 1993); Vice President and Secretary of Yellow Freight (October
1991 - May 1992); Vice President and Assistant Secretary of the company
and Yellow Freight (prior to October 1991)
</TABLE>
9
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Executive Officers of the Registrant (cont.)
<TABLE>
<CAPTION>
Name Age Position(s) Held
---- --- ----------------
<S> <C> <C>
Gail A. Parris 44 President of Yellow Technology (since April 1995); Senior Vice President
- Administration of Yellow Freight (April 1993 - April 1995); Vice
President - Controller of Yellow Freight (prior to April 1993)
Leo H. Suggs 56 President of Preston Corporation, a subsidiary of the company (since
February 1993); Senior Vice President - Corporate Development of the
company (November 1992 - February 1993); Senior Vice President -
Operations Administration of Yellow Freight (December 1991 - November
1992); Vice President - Operations Administration of Yellow Freight (June
1991 - December 1991); Vice President - Quality and Labor Relations of
Yellow Freight (prior to June 1991)
H. A. Trucksess, III 46 Treasurer of the company (since December 1995); Senior Vice President -
Finance and Chief Financial Officer of the company (since June 1994);
Vice President and Chief Financial Officer of Preston Corporation (June
1992 - June 1994); Senior Vice President, Chief Operating Officer and
Chief Financial Officer of JTL Holding Company (prior to July 1991)
</TABLE>
The terms of each officer of the company designated above are scheduled to
expire April 25, 1996. The terms of each officer of the subsidiary companies
are scheduled to expire on the date of the next annual meeting of shareholders
of that company. No family relationships exist between any of the executive
officers named above.
10
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
The information set forth under the caption "Common Stock" on page 27 of the
registrant's Annual Report to Shareholders for the year ended December 31,
1995, is incorporated by reference under Item 14 herein.
Item 6. Selected Financial Data.
The information set forth under the caption "Financial Summary" on pages 12 and
13 of the registrant's Annual Report to Shareholders for the year ended
December 31, 1995, is incorporated by reference under Item 14 herein.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing on pages 6 through 11 of the registrant's Annual Report
to Shareholders for the year ended December 31, 1995, is incorporated by
reference under Item 14 herein.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary information, appearing on pages 14
through 27 of the registrant's Annual Report to Shareholders for the year ended
December 31, 1995, are incorporated by reference under Item 14 herein.
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
11
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PART III
Item 10. Directors and Executive Officers of the Registrant.
The information regarding Directors of the registrant has previously been
reported in the registrant's definitive proxy statement, filed pursuant to
Regulation 14A, and is incorporated by reference. For information with respect
to the executive officers of the registrant, see "Executive Officers of the
Registrant" at the end of Part I of this report.
Item 11. Executive Compensation.
This information has previously been reported in the registrant's definitive
proxy statement, filed pursuant to Regulation 14A, and is incorporated by
reference. The compensation of A. Maurice Myers, whose election as President
and CEO occurred following the dissemination of the definitive proxy statement,
is the subject of an Employment Agreement between Mr. Myers and the company, a
copy of which is attached to Exhibit 10 and the terms of which are incorporated
by reference. As also reported in the proxy statement, the company has agreed
to severance payments over a determined time period for certain executive
officers who have resigned from the company. With respect to former President
and CEO George E. Powell III, the company has reached an understanding with Mr.
Powell that he shall receive severance payments at his current salary level for
a period of one and one-half years from the effective date of his resignation.
During this one and one-half year period, Mr. Powell will continue to be
eligible for certain fringe benefits and will continue vesting under the
company's Defined Benefit Pension Plan. With respect to Robert W. Burdick,
former Senior Vice President, the company has entered into a Separation
Agreement, a copy of which is attached to Exhibit 10 and the terms of which are
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This information has previously been reported in the registrant's definitive
proxy statement, filed pursuant to Regulation 14A, and is incorporated by
reference.
Item 13. Certain Relationships and Related Transactions.
This information has previously been reported in the registrant's definitive
proxy statement, filed pursuant to Regulation 14A, and is incorporated by
reference.
12
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PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) (1) Financial Statements
The following information appearing in the 1995 Annual Report to
Shareholders is incorporated by reference in this Form 10-K Annual
Report as Exhibit (13):
Page
----
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-11
Financial Summary 12-13
Consolidated Financial Statements 14-26
Report of Independent Public Accountants 26
Quarterly Financial Information 27
Common Stock 27
With the exception of the aforementioned information, the 1995 Annual
Report to Shareholders is not deemed filed as part of this report.
Financial statements other than those listed are omitted for the reason
that they are not required or are not applicable. The following
additional financial data should be read in conjunction with the
consolidated financial statements in such 1995 Annual Report to
Shareholders.
(a) (2) Financial Statement Schedule
Page
----
Report of Independent Public Accountants on
Financial Statement Schedule 15
For the years ended December 31, 1995, 1994 and 1993:
Schedule II
Valuation and Qualifying Accounts 16
Schedules other than those listed are omitted for the reason that they
are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
13
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(a) (3) Exhibits
-------------
(10) - Executive Officers' Agreements.
(13) - 1995 Annual Report to Shareholders.
(24) - Consent of Independent Public Accountants.
(27) - Financial Data Schedule (for SEC use only).
The remaining exhibits required by Item 7 of Regulation S-K are omitted
for the reason that they are not applicable or have previously been
filed.
(b) Reports on Form 8-K
On January 24, 1996 a Form 8-K was filed under Item 5, Other Events,
which reported that the company announced on January 17, 1996, that its
President and CEO, George E. Powell III, intended to resign. Powell,
47, who was named to his current position in 1992, agreed to remain
until a replacement candidate is selected and will be involved in
identifying his successor. That selection is expected in the next few
months. Powell will also continue his current Board term and stand for
reelection when that term expires in April concurrent with the Annual
Shareholders meeting. His father, George E. Powell, Jr. will remain as
Chairman of the Board of Directors.
On March 22, 1996 a Form 8-K was filed under Item 5, Other Events, which
reported that the company announced on March 20, 1996 that A. Maurice
Myers will become its new President and CEO. Myers was also appointed
to the Board of Directors. Myers has substantial airline industry
experience where he most recently served as President and Chief
Operating Officer of America West Airlines and helped lead the airline's
financial turnaround. Prior to joining America West in 1994, Myers
served as President and CEO of Aloha Air Group based in Honolulu. Myers
joined Aloha in 1983 after holding various marketing and financial
positions with Continental Airlines, Merrill Lynch & Company and Ford
Motor Company.
14
<PAGE> 15
Report of Independent Public
Accountants on Financial Statement Schedule
To the Shareholders of Yellow Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Yellow Corporation
and Subsidiaries' annual report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated January 31, 1996. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in the index above (Schedule II) is the
responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Kansas City, Missouri,
January 31, 1996
15
<PAGE> 16
Schedule II
Yellow Corporation and Subsidiaries
Valuation and Qualifying Accounts
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
| | | | | |
| COL. A | COL. B | COL. C | COL. D | COL. E
| | | | | |
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
| | | Additions | | |
------------------------------
| | Balance, | -1- | -2- | Deductions- | Balance, |
| Description | Beginning | Charged | Charged | Describe | End Of |
| | Of Period | To Costs | To Other | (1) | Period |
| | | And | Accounts- | | |
| | | Expenses | Describe | | |
| | | | | | |
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
- ----------------------------
Deducted from asset account -
Allowance for uncollectible
accounts $13,082 $13,855 $ - $10,156 $16,781
======= ======= ====== ======= =======
Year ended December 31, 1994:
- ----------------------------
Deducted from asset account-
Allowance for uncollectible
accounts $10,674 $ 9,375 $ - $ 6,967 $13,082
======= ======= ====== ======= =======
Year ended December 31, 1993:
- ----------------------------
Deducted from asset account-
Allowance for uncollectible
accounts $ 8,558 $ 8,521 $2,504 (2) $ 8,909 $10,674
======= ======= ====== ======= =======
</TABLE>
(1) Primarily uncollectible accounts written off - net of recoveries.
(2) Addition from Preston Corporation and subsidiaries acquired in February
1993.
16
<PAGE> 17
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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
BY: /s/ George E. Powell, Jr.
-----------------------------------
George E. Powell, Jr.
March 25, 1996 Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ H. A. Trucksess, III Senior Vice President - March 25, 1996
- ----------------------------
H. A. Trucksess, III Finance/ Chief Financial
Officer and Treasurer
</TABLE>
<TABLE>
<S> <C> <C>
/s/ George E. Powell III Director March 25, 1996
- ----------------------------
George E. Powell III
</TABLE>
<TABLE>
<S> <C> <C>
/s/ M. Reid Armstrong Director March 25, 1996
- ----------------------------
M. Reid Armstrong
</TABLE>
<TABLE>
<S> <C> <C>
/s/ David H. Hughes Director March 25, 1996
- ----------------------------
David H. Hughes
</TABLE>
<TABLE>
<S> <C> <C>
/s/ William L. Trubeck Director March 25, 1996
- ----------------------------
William L. Trubeck
</TABLE>
17
<PAGE> 1
Exhibit (10)
Executive Officers'
------------------
Agreements
----------
<PAGE> 2
Exhibit 10.01
EMPLOYMENT AGREEMENT
AGREEMENT, made this 20th day of March, 1996, by and between
YELLOW CORPORATION, a Delaware corporation ("Yellow"), and A. MAURICE MYERS
(the "Executive").
W I T N E S S E T H
WHEREAS, the Board of Directors of Yellow has approved the
employment of the Executive on the terms and conditions set forth in this
Agreement; and
WHEREAS, the Executive is willing, for the consideration
provided, to enter into employment with Yellow on the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, the parties, intending to be legally bound,
agree as follows:
1. Employment. Yellow hereby agrees to employ the
Executive, and the Executive hereby accepts such employment, upon the terms
and conditions set forth in this Agreement.
2. Term. The term of this Agreement shall be the period
commencing on the date hereof (the "Effective Date") and ending on date of
termination of the Executive's employment
19
<PAGE> 3
determined pursuant to Section 5, 6 or 7, whichever shall be applicable.
3. Position and Duties. The Executive shall serve as
President and Chief Executive Officer of Yellow effective as of the Effective
Date, and shall have such responsibilities and authority as commensurate with
such offices and as may from time to time be prescribed by or pursuant to
Yellow's By-laws. The Executive shall devote substantially all of his working
time and efforts to the business and affairs of the Company, provided, however,
that the Executive may, with prior approval of Yellow's Board of Directors,
(a) serve on corporate, civic or charitable boards or committees, and (b)
deliver lectures, fulfill speaking engagements or teach at educational
institutions, and the Executive may manage his personal investments, so long
as such activities do not interfere materially with his responsibilities under
this Agreement. The Executive shall be a member of the Board of Directors of
Yellow effective as of the Effective Date.
4. Compensation.
During the period of the Executive's employment, Yellow shall
provide the Executive with the following compensation and other benefits:
20
<PAGE> 4
(a) Base Salary. Yellow shall pay to the Executive base
salary at the initial rate of $550,000 per annum, which shall be payable in
accordance with the standard payroll practices of Yellow. Such base salary
rate shall be reviewed annually in accordance with Yellow's normal policies
beginning in calendar year 1997; provided, however, that at no time during the
term of this Agreement shall the Executive's base salary be decreased from the
rate then in effect except (i) in connection with across-the-board reductions
similarly affecting substantially all senior executives of Yellow or (ii) with
the written consent of the Executive.
(b) Bonus. The Executive shall participate in a bonus
program maintained by Yellow pursuant to which a target award in the amount of
60% of the Executive's base salary with a maximum of 100% of base salary shall
be established for the Executive in respect of each fiscal year of Yellow
commencing with 1996, provided that payment under such award shall be
conditioned upon satisfaction of the target. The criteria
for establishment of the target and the parameters for payments at, above or
below the target shall be determined annually by the Compensation Committee of
the Board of Directors of Yellow. The Compensation Committee shall consult with
the Executive prior to establishing the target. At least 80% of the criteria
21
<PAGE> 5
established by the Compensation Committee which would result in a payment of
60% of base salary to the Executive shall be based on specific measurements of
financial performance of Yellow during the applicable fiscal year and the
remaining percentage may be based on non-financial criteria.
(c) Stock Options. Simultaneously with the execution of this
Agreement, Yellow has granted to the Executive, effective as of the Effective
Date, an option to purchase 400,000 shares of Common Stock of Yellow with an
option term of ten years and an option price per share equal to the closing
price of a share of Common Stock of Yellow as reported on the NASDAQ National
Market System on the day before the date of release of the public announcement
of the Executive's election as Chief Executive Officer of Yellow (if such
stock traded on that date or, if not, on the next preceding date on which such
stock traded); provided, however, that such option shall vest and become
exercisable at the rate of (i) 50% on the first anniversary of the Effective
Date; (ii) 25% on the second anniversary of the Effective Date; and (iii) 25%
on the third anniversary of the Effective Date. On the first anniversary of
the Effective Date, the Executive shall be granted an option to purchase
170,000 shares of Common Stock of Yellow with an option term of ten years and
an option price per share equal to
22
<PAGE> 6
the closing price of a share of Common Stock of Yellow as reported on the
NASDAQ National Market System on the date of grant (if such stock traded on
that date or, if not, on the next preceding date on which such stock traded);
provided, however, that such option shall vest and become exercisable at the
rate of (i) 50% on the first anniversary of the date of grant, (ii) 25% on the
second anniversary of the date of grant, and (iii) 25% on the third anniversary
of the date of grant. With respect to succeeding years, the Compensation
Committee of the Board of Directors of Yellow shall determine the number of
stock options, if any, to be granted to the Executive and the
terms and conditions of any such options.
(d) Supplemental Retirement Benefits. Yellow shall enter
into a supplemental retirement benefit agreement with the Executive pursuant to
which the Executive shall receive from Yellow upon his termination of
employment with Yellow (and subject to the vesting provision hereinafter set
forth), the difference between (i) the benefits that he would have received
under the Yellow Freight Office, Clerical, Sales and Supervisory Personnel
Pension Plan (the "Pension Plan") if the service credited for benefit accrual
purposes under the Pension Plan were 20 years plus his actual such service, if
any, after his Normal Retirement Date (as defined under the Pension Plan)
23
<PAGE> 7
credited under the Pension Plan and (ii) the benefits actually payable
to the Executive under the Pension Plan. The Executive shall vest in the
supplemental retirement benefit described in this subsection (d) at the rate of
20% per year commencing on the first anniversary of the Effective Date (so
that he would become 100% vested on the fifth anniversary of the Effective
Date), provided, however, that the Executive shall forfeit any unvested
portion in the event of the termination of his employment prior to becoming
100% vested. Notwithstanding the foregoing, the Executive shall immediately
become 100% vested in the event of the termination of his employment under
circumstances entitling the Executive to benefits pursuant to Section 8. The
supplemental retirement benefit described in this subsection (d) shall be
payable monthly commencing as of the last day of the month following the month
of termination of the Executive's employment and shall continue until the
Executive's death. Upon the Executive's death, if he is survived by and still
married to the person who was his spouse on the Effective Date, the same
monthly supplemental retirement benefit shall continue to said surviving
spouse until her death. If the Executive at the time of his death is either
not survived by or not married to the person who was his spouse on the
24
<PAGE> 8
Effective Date, no further supplemental retirement benefits shall be payable
under this subsection (d) following his death.
(e) Other Benefits. In addition to the compensation and
benefits otherwise specified in this Agreement, the Executive (and, if provided
for under the applicable plan or program, his spouse) shall be entitled to
participate in, and to receive benefits under, Yellow's employee benefit plans
and programs that are or may be available to senior executives generally and
on terms and conditions that are no less favorable than those generally
applicable to other senior executives of Yellow. At no time during the term of
this Agreement shall the Executive's participation in or benefits received
under such plans and programs be decreased except (i) in connection with
across-the-board reductions similarly affecting substantially all senior
executives of Yellow or (ii) with the written consent of the Executive. The
Executive shall be treated as having satisfied any otherwise applicable waiting
period requirement for coverage under Yellow's disability insurance plan,
effective as of the Effective Date. For the three-month period beginning on
the Effective Date (the normal waiting period under Yellow's health insurance
program), Yellow shall reimburse the Executive for any medical payments on
behalf of himself and his spouse that would otherwise be covered under
25
<PAGE> 9
Yellow's health insurance program. In addition, Yellow shall pay to
the Executive an additional amount (the "Gross-Up Reimbursement Payment") such
that the net amount retained by the Executive from the amount reimbursed
pursuant to the preceding sentence of this subsection (e) (the "Medical
Reimbursement") and the Gross-Up Reimbursement Payment, after reduction for any
Federal, state and local income and employment tax on the Medical
Reimbursement and the Gross-Up Reimbursement Payment, shall be equal to the
Medical Reimbursement. For purposes of determining the Gross-Up Reimbursement
Payment, the Executive shall be deemed to pay Federal income taxes at the
highest marginal rate of Federal income taxation in the calendar year in which
the Gross-Up Reimbursement Payment is to be made and state and local income
taxes at the highest marginal rate of taxation to which such payment could be
subject based upon the state and locality of the Executive's residence or
employment, net of the maximum deduction in Federal income taxes which could be
obtained from deduction of such state and local taxes. In addition, for
purposes of determining the amount of the Gross-Up Reimbursement Payment,
Yellow shall make a determination of the amount of any employment taxes
required on the Gross-Up Reimbursement Payment.
26
<PAGE> 10
(f) Expenses. The Executive shall be entitled to prompt
reimbursement of all reasonable expenses incurred by him in performing services
hereunder, provided he properly accounts therefore in accordance with Yellow's
policies.
(g) Office and Services Furnished. Yellow shall furnish
the Executive with office space, secretarial assistance and such other
facilities and services as shall be suitable to the Executive's position and
adequate for the performance of his duties hereunder.
5. Termination of Employment by Yellow.
(a) Cause. Yellow may terminate the Executive's
employment for Cause if the Executive willfully engages in conduct which is
materially and demonstrably injurious to Yellow or if the Executive willfully
engages in an act or acts of dishonesty resulting in material personal gain to
the Executive at the expense of Yellow. Yellow shall exercise its right to
terminate the Executive's employment for Cause by (i) giving him written notice
of termination at least 30 days before the date of such termination specifying
in reasonable detail the circumstances constituting such Cause; and (ii)
delivering to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership
27
<PAGE> 11
of the Board of Directors (except the Executive), after reasonable
notice to the Executive and an opportunity for the Executive and his counsel to
be heard before the Board of Directors, finding that the Executive has engaged
in the conduct set forth in this subsection (a). In the event of such
termination of the Executive's employment for Cause, the Executive shall be
entitled to receive (i) his base salary pursuant to Section 4(a) and any other
compensation and benefits to the extent actually earned pursuant to this
Agreement or any benefit plan or program of Yellow as of the date of such
termination at the normal time for payment of such salary, compensation or
benefits and (ii) any amounts owing under Section 4(f). In addition, in the
event of such termination of the Executive's employment for Cause, all
outstanding options held by the Executive at the effective date of such
termination which had not already been exercised shall be forfeited. Except as
provided in Section 9, the Executive shall receive no other compensation or
benefits from Yellow.
(b) Disability. If the Executive incurs a Permanent and Total
Disability, as defined below, Yellow may terminate the Executive's employment
by giving him written notice of termination at least 30 days before the date of
such termination. In the event of such termination of the Executive's
employment
28
<PAGE> 12
because of Permanent and Total Disability, (i) the Executive shall be
entitled to receive his base salary pursuant to Section 4(a) and any other
compensation and benefits to the extent actually earned by the Executive
pursuant to this Agreement or any benefit plan or program of Yellow as of the
date of such termination of employment at the normal time for payment of such
salary, compensation or benefits, and any amounts owing under Section 4(f),
and (ii) all outstanding stock options held by the Executive at the time of
his termination of employment shall become immediately exercisable at that
time, and the Executive shall have one year from the date of such termination
of employment to exercise any or all of such outstanding options (but not
beyond the term of such option). For purposes of this Agreement, the
Executive shall be considered to have incurred a Permanent and Total Disability
if he is unable to engage in any substantial gainful employment by reason of
any materially determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months. The existence of such Permanent
and Total Disability shall be evidenced by such medical certification as the
Secretary of Yellow shall require and shall be subject to the
29
<PAGE> 13
approval of the Compensation Committee or the Board of Directors of Yellow.
(c) Without Cause. Yellow may terminate the Executive's
employment at any time and for any reason, other than for Cause or because of
Permanent and Total Disability, by giving him a written notice of termination
to that effect at least 30 days before the date of termination. In the event
of such termination of the Executive's employment without Cause, the Executive
shall be entitled to the benefits described in Section 8.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate his
employment for Good Reason by giving Yellow a written notice of termination at
least 30 days before the date of such termination specifying in reasonable
detail the circumstances constituting such Good Reason. In the event of the
Executive's termination of his employment for Good Reason, the Executive shall
be entitled to the benefits described in Section 8. For purposes of this
Agreement, Good Reason shall mean the failure of Yellow in any material way
either (i) to pay or provide to the Executive the compensation and benefits
that he is entitled to receive pursuant to this Agreement by the later of (A)
60 days
30
<PAGE> 14
after the applicable due date or (B) 30 days after the Executive's
written demand for payment, or (ii) to maintain the titles, positions and
duties of the Executive commensurate with those titles and positions and as
required by this Agreement except with the Executive's written consent.
(b) Following Change of Control. The Executive may
terminate his employment at any time within the three-month period
which begins six months after a Change of Control of the Company by giving
Yellow a written notice of such termination at least 30 days before the date
of termination. In the event of the Executive's termination of employment
within such three-month period, the Executive shall be entitled to the
benefits described in Section 8. For purposes of this Agreement, a Change of
Control of Yellow shall be deemed to have taken place if: (i) a third person,
including a "group " as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, purchases or otherwise acquires shares of Yellow after the date
hereof and as a result thereof becomes the beneficial owner of shares of Yellow
having 20% or more of the total number of votes that may be cast for the
election of directors of Yellow; or (ii) as the result of, or in connection
with any cash tender or exchange offer, merger or other Business Combination,
or contested election, or any combination of the foregoing
31
<PAGE> 15
transactions, the Continuing Directors shall cease to constitute a
majority of the Board of Directors of Yellow or any successor to Yellow. For
this purpose, (i) Business Combination means any transaction which is referred
to in any one or more of clauses (a) through (e) of Section 1 of Subparagraph A
of Article Seventh of the Certificate of Incorporation of Yellow, and (ii)
Continuing Director means a director of Yellow who meets the definition of
Continuing Director contained in Section 7 of Subparagraph C of Article Seventh
of the Certificate of Incorporation of Yellow.
(c) Other. The Executive may terminate his employment at
any time and for any reason, other than pursuant to subsection (a) or (b)
above, by giving Yellow a written notice of termination to that effect at least
30 days before the date of termination. In the event of the Executive's
termination of his employment pursuant to this subsection (c), the Executive
shall be entitled to receive (i) his base salary pursuant to Section 4(a) and
any other compensation and benefits to the extent actually earned by the
Executive pursuant to this Agreement or any benefit plan or program of Yellow
as of the date of such termination at the normal time for payment of such
salary, compensation or benefits, and (ii) any amounts owing under Section
4(f). In addition, in the event of the Executive's
32
<PAGE> 16
termination of his employment pursuant to this subsection (c), (i) all
outstanding options held by the Executive at the time of such termination which
had not already become exercisable shall be forfeited, and (ii) all outstanding
options held by the Executive at the time of such termination which had already
become exercisable shall expire 90 days after he date of such termination (or,
if earlier, upon the expiration of the term of the option). Except as provided
in Section 9, the Executive shall receive no other compensation or benefits
from Yellow.
7. Termination of Employment By Death. In the
event of the death of the Executive during the course of his
employment hereunder, (i) the Executive's estate shall be entitled to receive
his base salary pursuant to Section 4(a) and any other compensation and
benefits to the extent actually earned by the Executive pursuant to this
Agreement or any other benefit plan or program of Yellow as of the date of such
termination at the normal time for payment of such salary, compensation or
benefits, and any amounts owing under Section 4(f), (ii) any death benefit due
under the Pension Plan and under Section 4(d) upon the Executive's death shall
be paid to the Executive's beneficiary under the applicable plan, and (iii) all
outstanding stock options held by the Executive at the time of his death shall
become immediately exercisable upon
33
<PAGE> 17
his death, and the Executive's spouse or, if predeceased, the
Executive's estate, shall have one year from the date of his death to exercise
any or all of such outstanding options (but not beyond the term of such
option).
8. Benefits Upon Termination Without Cause, For Good
Reason, or Following Change of Control. If the Executive's employment
with Yellow shall terminate (i) because of termination by Yellow pursuant to
Section 5(c) other than for Cause or because of Permanent and Total Disability,
(ii) because of termination by the Executive for Good Reason pursuant to
Section 6(a), or (iii) because of termination by the Executive within the
three-month period which begins six months after a Change of Control of Yellow
pursuant to Section 6(b), the Executive shall be entitled to the following:
(a) Yellow shall pay to the Executive his base salary
pursuant to Section 4(a) and any other compensation and benefits to the
extent actually earned by the Executive under this Agreement or any benefit
plan or program of Yellow as of the date of such termination at the normal
time for payment of such salary, compensation or benefits.
(b) Yellow shall pay the Executive any amounts owing under
Section 4(f).
34
<PAGE> 18
(c) Yellow shall pay to the Executive as a severance
benefit an amount equal to twice the sum of (i) his annual rate of base salary
immediately preceding his termination of employment, and (ii) the target bonus
payable pursuant to subsection (d) below. Such severance benefit shall be paid
in a lump sum within 30 days after the date of such termination of employment.
(d) Yellow shall pay to the Executive his target bonus
under Yellow's target bonus plan for the fiscal year in which his termination
of employment occurs as if the target had been exactly met. Such payment shall
be made in a lump sum within 30 days after the date of such termination of
employment, and the Executive shall have no right to any further bonuses under
said program.
(e) The Executive shall become 100% vested in all
benefits accrued to the date of termination of his employment but not
previously paid under the Pension Plan, the supplemental retirement benefit
pursuant to Section 4(d), and Yellow's qualified and nonqualified defined
contribution plans. Payment of benefits under such plans shall be made at the
time and in the manner determined under the applicable plan.
35
<PAGE> 19
(f) During the period of 24 months beginning on the date
of the Executive's termination of employment, the Executive (and, if
applicable under the applicable plan or program, his spouse) shall remain
covered by the employee benefit plans and programs that covered him immediately
prior to his termination of employment as if he had remained in employment
for such period, provided, however, that there shall be excluded for this
purpose any plan or program providing payment for time not worked (including
without limitation holiday, vacation, and long- and short-term disability). In
the event that the Executive's participation in any such employee benefit plan
or program is barred, Yellow shall arrange to provide the Executive with
substantially similar benefits. Any medical insurance coverage for such
two-year period pursuant to this subsection (f) shall become secondary upon the
earlier of (i) the date on which the Executive begins to be covered by
comparable medical coverage provided by a new employer, or (ii) the earliest
date upon which the Executive becomes eligible for Medicare or a comparable
Government insurance program.
(g) All outstanding stock options held by the Executive
at the time of termination of his employment shall become fully
exercisable upon such termination of employment and may be exercised for the
balance of the term of such option.
36
<PAGE> 20
(h) If any payment or benefit received by or in respect
of the Executive under this Agreement or any other plan, arrangement or
agreement with Yellow (determined without regard to any additional payments
required under this subsection (h) and Appendix A of this Agreement) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that
may hereafter be imposed) or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax,together with any
such interest and penalties, being hereinafter collectively referred to as the
"Excise Tax"), Yellow shall pay to the Executive with respect to such Payment
at the time specified in Appendix A an additional amount (the "Gross-up
Payment") such that the net amount retained by the Executive from the Payment
and the Gross-up Payment, after reduction for any Excise Tax upon the payment
and any Federal, state and local income and employment tax and Excise Tax upon
the Gross-up Payment, shall be equal to the Payment. The calculation and
payment of the Gross-up Payment shall be subject to the provisions of Appendix
A.
9. Entitlement To Other Benefits. Except as provided in
this Agreement, this Agreement shall not be construed
37
<PAGE> 21
as limiting in any way any rights or benefits that the Executive may have
pursuant to any other plan or program of Yellow.
10. Relocation Benefits. Yellow shall pay all reasonable
costs of relocation of the Executive and his family to the Kansas City
area, provided, however, that Yellow shall pay for temporary housing up to a
maximum of $3,500 per month until the earlier of (i) the Executive's permanent
relocation to the Kansas City area or (ii) the sale of the Executive's current
residence in Phoenix. In addition, Yellow shall pay to the Executive an
additional amount (the "Gross-Up Relocation Payment") such that the net amount
retained by the Executive from the amount payable pursuant to this Section 10
determined without regard to this sentence (the "Relocation Payment") and the
Gross-Up Relocation Payment, after reduction for any Federal, state and local
income and employment tax on the Relocation Payment and the Gross-Up Relocation
Payment, shall be equal to the Relocation Payment. For purposes of determining
the Gross-Up Relocation Payment, the Executive shall be deemed to pay Federal
income taxes at the highest marginal rate of Federal income taxation in the
calendar year in which the Gross-Up Relocation Payment is to be made and state
and local income taxes at the highest marginal rate of taxation to which such
payment could be subject based upon the state and locality of
38
<PAGE> 22
the Executive's residence or employment, net of the maximum reduction
in Federal income taxes which could be obtained from deduction of such state
and local taxes. In addition, for purposes of determining the amount of the
Gross-Up Relocation Payment, Yellow shall make a determination of the amount of
any employment taxes required to be paid on the Gross-Up Relocation Payment.
11. Legal Expenses of Preparing this Agreement. Yellow
shall pay all of the Executive's reasonable attorneys' fees and related
expenses involved in the negotiation and preparation of this Agreement.
12. Arbitration.
(a) Arbitration of Disputes. Any dispute between the
parties hereto arising out of, in connection with, or relating to this
Agreement or the breach thereof shall be settled by arbitration in Overland
Park, Kansas, in accordance with the rules then in effect of the American
Arbitration Association ("AAA"). Arbitration shall be the exclusive remedy for
any such dispute except only as to failure to abide by an arbitration award
rendered hereunder. Regardless of whether or not both parties hereto
participate in the arbitration proceeding, any arbitration award rendered
hereunder shall be final and
39
<PAGE> 23
binding on each party hereto and judgment upon the award rendered may be
entered in any court having jurisdiction thereof.
The party seeking arbitration shall notify the other party in
writing and request the AAA to submit a list of 5 or 7 potential
arbitrators. In the event the parties do not agree upon an arbitrator, each
party shall, in turn, strike one arbitrator from the list, Yellow having the
first strike, until only one arbitrator remains, who shall arbitrate the
dispute. The parties shall have the opportunity to conduct reasonable
discovery as determined by the arbitrator, and the arbitration hearing shall be
conducted within 30 to 60 days of the selection of an arbitrator or at the
earliest date thereafter that the arbitrator is available or as otherwise set
by the arbitrator.
(b) Indemnification. If arbitration occurs as provided
for herein and the Executive is awarded more than Yellow has asserted
is due him or otherwise substantially prevails therein, Yellow shall reimburse
the Executive for his reasonable attorneys' fees, costs and disbursements
incurred in such arbitration and hereby agrees to pay interest on any money
award obtained by the Executive from the date payment should have been made
until the date payment is made, calculated at
40
<PAGE> 24
the prime interest rate of Boatmen's First National Bank of Kansas
City, N.A., Kansas City, Missouri, in effect from time to time from the date
that payment(s) to him should have been made under this Agreement. If the
Executive enforces the arbitration award in court, Yellow shall reimburse the
Executive for his reasonable attorneys' fees, costs and disbursements incurred
in such enforcement.
13. Confidential Information. The Executive shall retain
in confidence any confidential information known to him concerning
Yellow, its subsidiaries, and their respective businesses until such
information is publicly disclosed. This provision shall survive the
termination of the Executive's employment for any reason under this Agreement.
14. Indemnification under Bylaws. Yellow shall provide
the Executive with rights to indemnification by Yellow that are no less
favorable to the Executive than those set forth in Article V of Yellow's
Bylaws as in effect as of the Effective Date.
15. Successors. This Agreement shall be binding upon and
inure to the benefit of the Executive and his estate and Yellow and any
successor of Yellow, but neither this
41
<PAGE> 25
Agreement nor any rights arising hereunder may be assigned or pledged by the
Executive.
16. Severability. Any provision in this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
17. Notices. All notices required or permitted to be
given under this Agreement shall be given in writing and shall be
deemed sufficiently given if delivered by hand or mailed by registered mail,
return receipt requested, to his residence in the case of the Executive and to
its principal executive offices in the case of Yellow. Either party may by
giving written notice to the other party in accordance with this Section 17
change the address at which it is to receive notices hereunder.
18. Controlling Law. This Agreement shall in all
respects be governed by and construed in accordance with the laws of
the State of Delaware.
42
<PAGE> 26
19. Changes to Agreement. This Agreement may not be
changed orally but only in a writing, signed by the party against whom
enforcement is sought.
20. Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed
an original but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 20th day of March, 1996.
EXECUTIVE: YELLOW CORPORATION
_____________________________ By: ______________________
A. Maurice Myers William F. Martin, Jr.
ATTEST:
By: _______________________
L.D. Berkowitz
43
<PAGE> 27
Appendix A
Gross-up Payments
The following provisions shall be applicable with respect to
the Gross-Up Payments described in Section 8(h) of this Agreement.
(a) For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) all of the Payments received or to be received shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of Section 280G(b)(1) of the
Code shall be treated as subject to the Excise Tax unless, in the opinion of
tax counsel selected by Yellow, the Payments (in whole or in part) do not
constitute parachute payments, including by reason of Section 280G(b)(4)(A) of
the Code, or excess parachute payments (as determined after application of
Section 280G(b)(4)(B) of the Code), and (ii) the value of any non-cash benefits
or any deferred payment or benefit shall be determined by independent auditors
selected by Yellow in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay Federal income taxes at the
highest marginal rate of Federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation to which such payment could be subject based
upon the state and locality of the Executive's residence or employment, net of
the maximum reduction in Federal income taxes which could be obtained from
deduction of such state and local taxes. In addition, for purposes of
determining the amount of the Gross-Up Payment, Yellow shall make a
determination of the amount of any employment taxes required to be paid on the
Gross-Up Payment. In the event that the Excise Tax is subsequently determined
to be less than the amount taken into account hereunder at the time the
Gross-up Payment is made, the Executive shall repay Yellow, at the time that
the amount of such reduction in Excise Tax is finally determined, the portion
of the Gross-up Payment attributable to such reduction (plus the portion of the
Gross-up Payment attributable to the Excise Tax and Federal and state and local
income and employment tax imposed on the portion of the Gross-up Payment being
repaid by the Executive if such repayment results in a reduction in
44
<PAGE> 28
Excise Tax and/or a Federal and state and local income or employment tax
deduction), plus interest on the amount of such repayment at the Federal
short-term rate as defined in Section 1274(d)(1)(C)(i) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payments the existence or amount of which cannot be determined at the time of
the Gross-up Payment), Yellow shall make an additional gross-up payment in
respect of such excess (plus any interest, penalties or additions payable with
respect to such excess) at the time that the amount of such excess is finally
determined. Notwithstanding the foregoing, Yellow shall withhold from any
payment due to the Executive the amount required by law to be so withheld under
Federal, state or local wage or employment tax withholding requirements or
otherwise (including without limitation Section 4999 of the Code), and shall
pay over to the appropriate government authorities the amount so withheld.
(b) The Gross-up Payment with respect to a Payment shall
be paid not later than the thirtieth day following the date of the Payment;
provided, however, that if the amount of such Gross-up Payment or portion
thereof cannot be finally determined on or before such day, Yellow shall pay to
the Executive on such date an estimate, as determined in good faith by Yellow,
of the amount of such payments and shall pay the remainder of such payments
(together with interest at the Federal short-term rate provided in Section
1274(d)(1)(C)(i) of the Code) as soon as the amount thereof can be determined.
In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan
by Yellow to the Executive, payable on the fifth day after demand by Yellow
(together with interest at the Federal short-term rate provided in Section
1274(d)(1)(C)(i) of the Code). At the time that payments are made under
Section 8(h) and this Appendix A, Yellow shall provide the Executive with a
written statement setting forth the manner in which such payments were
calculated and the basis for such calculations, including, without limitation,
any opinions or other advice Yellow has received from outside counsel, auditors
or consultants (and any such opinions or advice which are in writing shall be
attached to the statement).
45
<PAGE> 1
Exhibit 10.2
SEPARATION AGREEMENT AND COMPLETE RELEASE
This Separation Agreement and Complete Release ("Agreement") is made
this 17th day of November, 1995, by Robert W. Burdick (hereinafter "Bob
Burdick") and Yellow Corporation, a Delaware corporation, its predecessors,
successors, subsidiaries, affiliates, assigns, officers, directors, agents and
employees (hereinafter collectively referred to as "Yellow").
WHEREAS, Bob Burdick has indicated a willingness to resign as Senior
Vice President, Corporate Development and Public Affairs of Yellow effective
November 30, 1995; and
WHEREAS, Bob Burdick and Yellow desire to settle fully and finally all
issues between them, including, but not in any way limited to, any disputes
that might arise out of Bob Burdick's employment with Yellow and termination of
that employment; and
WHEREAS, Bob Burdick has had access to confidential and proprietary
information and knowledge about Yellow's business and business practices,
including, but not limited to, Yellow's personnel and their capabilities,
operating capabilities, operating plans, corporate strategy, strategic
alliances, marketing strategy and systems' capabilities (hereinafter
collectively referred to as "Company Information"), the use or disclosure of
which would be contrary to the interests of Yellow; and
WHEREAS, in consideration of Bob Burdick's agreeing not to divulge any
"Company Information," and in consideration of his releasing Yellow from
certain claims and for the other considerations herein indicated, Yellow is
willing to provide Bob Burdick with the payments, benefits and perquisites
provided below; and
WHEREAS, Bob Burdick desires to enter into this Agreement for the
considerations herein indicated;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements contained herein, the parties hereto agree as follows:
46
<PAGE> 2
1. Bob Burdick will submit his written resignation as Senior Vice
President, Corporate Development and Public Affairs of Yellow effective
November 30, 1995, in the form attached hereto as Exhibit A.
Yellow will permit Bob Burdick to remain on its payroll with the status
of an employee at a compensation rate of $18,338.77 per month from November 30,
1995 (a) until such time as Bob Burdick obtains "other employment" (as defined
herein); (b) through January 31, 1998, inclusive; or (c) until such time as Bob
Burdick breaches this Agreement, whichever occurs first. In the event that Bob
Burdick obtains "other employment" as defined herein, his status as an employee
of Yellow shall cease as of the commencement date of such "other employment,"
and Yellow shall pay to Bob Burdick within ten days of such commencement date,
in a lump sum, fifty (50) percent of the compensation that would have been due
Bob Burdick from the commencement date of such "other employment" to January
31, 1998, measured at a compensation rate of $18,338.77 per month. Bob
Burdick's car allowance shall cease effective November 30, 1995. Bob Burdick
shall not be entitled to any bonus or incentive compensation payment from
Yellow for any year that he remains an employee under this Agreement. Bob
Burdick acknowledges that the opportunity to remain on Yellow's payroll after
resignation involves a considerable financial benefit to which he is not
already entitled and that is not owed to him as compensation for work or
services performed by him, but is granted by Yellow as consideration for Bob
Burdick's execution of this Agreement.
"Other employment," as used in this Agreement shall include
self-employment or employment by any firm or entity other than Yellow, whether
as an employee, officer, director, partner, independent contractor, owner or
consultant which meets the following minimum conditions:
(a) If a salaried position, whether full or part-time, a salary of
$110,000 per year. Computation of said salary shall include deferred
compensation, bonus award, car allowance, and any other monetary
47
<PAGE> 3
compensation in lieu of salary. In the event that Bob Burdick accepts
a salaried position which does not qualify as "other employment" under the
conditions outlined above, Yellow will permit Bob Burdick to remain on its
payroll with the status of employee for the term set forth in this paragraph,
but Bob Burdick shall receive each month from Yellow only the difference
between $18,338.77 and his monthly gross earnings from such salaried employment
computed on the basis outlined above. Bob Burdick shall submit to Yellow's
Senior Vice President and Secretary documentation each month of his gross
earnings from such salaried employment, and Yellow shall pay Bob Burdick the
difference between such gross earnings and $18,338.77 each month with
withholding calculated on the earnings from Yellow after deduction for such
salaried employment. The foregoing shall constitute an exception to the
payment of salary by Yellow to Bob Burdick on a semi-monthly basis as outlined
in Paragraph 3 above.
(b) If self-employment or employment on an output, fee, hourly or
consultant basis, employment which results in gross earnings to Bob Burdick of
an average of at least $9,170 in any three consecutive months. Once such
$9,170 threshold is reached in any three-month period, Bob Burdick shall be
regarded as having obtained "other employment" as of the last of the three
consecutive months without further consideration of Bob Burdick's earnings in
subsequent months. For the purpose of computing such earnings, services by Bob
Burdick shall be regarded as earned in the month in which the work is
performed. In the event that Bob Burdick enters self-employment which does not
qualify as "other employment" under the conditions outlined above, Yellow will
permit Bob Burdick to remain on its payroll with the status of employee for the
term set forth in this paragraph, but Bob Burdick shall only receive each month
from Yellow the sum of $18,338.77 less that portion of Bob Burdick's monthly
gross
48
<PAGE> 4
earnings from self-employment which exceeds $5,000. Bob Burdick shall
submit to Yellow's Senior Vice President and Secretary documentation each month
of his gross earnings from such self-employment and Yellow shall pay Bob
Burdick the difference between that portion of Bob Burdick's monthly gross
earnings that exceeds $5,000 and his salary from Yellow of $18,338.77 each
month with withholding calculated on the earnings from Yellow after deduction
for such employment. The foregoing shall constitute an exception to the payment
of salary by Yellow to Bob Burdick on a semi-monthly basis as outlined in
Paragraph 3 above.
Any fringe benefit of Yellow for which Bob Burdick would be eligible as
an employee which is based or calculated on Bob Burdick's earnings from Yellow
shall be based or calculated on such earnings after deduction of gross earnings
from any employment not constituting "other employment." Yellow's medical,
dental and vision plans shall cover Bob Burdick while Bob Burdick is engaged in
employment not constituting "other employment" only if and to the extent that
such employment does not match or equal Yellow's coverage. Any failure of Bob
Burdick to report to Yellow earnings within 60 days after the receipt of said
earnings from any employment, including "other employment" as defined herein or
employment not constituting "other employment," shall constitute a breach of
this Agreement with the consequences outlined in Paragraph 5, herein subject to
the concepts of materiality outlined in Paragraph 5.
3. During such time following resignation as Bob Burdick remains on
Yellow's payroll with the status of an employee at a compensation rate of
$18,337.77 per month, such compensation, minus normal deductions, shall be paid
semi- monthly. In addition to such compensation, so long as Bob Burdick
remains on Yellow's payroll with the status of an employee, as discussed in
Paragraph 2 above, the following additional benefits apply:
(a) Bob Burdick shall be entitled to continued vesting under the
Yellow's Defined Benefit Pension Plan;
49
<PAGE> 5
(b) Bob Burdick shall be entitled to all other applicable
fringe benefits of a non-officer, salaried employee of Yellow, including
medical and insurance coverages, except that Bob Burdick shall not be entitled
to those benefits that provide payment for time not worked which include
holiday, vacation, short and long-term disability.
4. Yellow will reimburse reasonable outplacement costs for Bob
Burdick up to a maximum amount of $12,000, for a maximum period of four months
of full service assistance, to be paid to an agency designated by Yellow and
approved by Bob Burdick. Yellow will pay the actual charges for Arthur
Andersen & Co.'s preparation of Bob Burdick's personal income tax return for
the tax year 1995, if Yellow provides the same service to its senior officers
for 1995. No tax return preparation will be provided by Yellow for the tax
years 1996-1998. Yellow shall permit Bob Burdick to retain the car phone
presently installed in his car, with all monthly billings to be switched to Bob
Burdick effective December 1, 1995.
5. Bob Burdick agrees that the provisions and conditions of this
Agreement survive the payments to be made to him by Yellow hereunder. Any
material breach of the provisions of this Agreement by Bob Burdick, after
receipt of written notice by Bob Burdick from Yellow and the failure by Bob
Burdick to completely cure said material breach, shall result in the forfeiture
by Bob Burdick of his right to any financial payments, benefits, or perquisites
payable under this Agreement after the occurrence of the material breach and
the failure to timely cure said material breach, and Yellow shall further be
entitled to reimbursement by Bob Burdick of all payments made to Bob Burdick
after the occurrence of the material breach plus all costs, including
attorneys' fees, incurred by Yellow in asserting its right to such
reimbursement.
6. Upon Bob Burdick's resignation as Senior Vice President, he
shall return to Yellow any documents or other information relating to Yellow
(regardless of their source), including "Company Information" and all related
reports, files, memoranda, records, tapes, microfilm and other documents,
including duplicates or copies, in his possession or under his control.
50
<PAGE> 6
7. Bob Burdick understands and agrees that "Company Information"
acquired during the course of his employment, will remain confidential
at all times following execution of this Agreement; that he will not disclose
or communicate such "Company Information" to any individual or entity not a
party to this Agreement, including family members, and that he will not make
use of "Company Information" on his own behalf, or on behalf of a family
member, or aid or encourage any family member to do so. Bob Burdick
specifically agrees that any disclosure of "Company Information" by a family
member, or by an individual or entity who has obtained such information from
Bob Burdick or a family member, shall be regarded as a breach of this Agreement
by Bob Burdick.
8. Bob Burdick represents and agrees that he will not make any
derogatory, disparaging or false statements intended to harm the
business or personal reputation of Yellow, its directors, officers and
employees.
9. Except for claims made by Bob Burdick for amounts due to him
under this Agreement (an "Agreement Claim"), Bob Burdick acknowledges
and represents that he will not file any charges, complaints, or lawsuits
against Yellow with any governmental agency or any court which arise out of his
employment with Yellow; that he waives any right to bring a lawsuit relating
thereto, and waives the right to recover wages or damages in any lawsuit
brought by the Equal Employment Opportunity Commission or any third party on
his behalf relating thereto.
10. As a material inducement to Yellow to enter into this
Agreement, Bob Burdick represents and agrees to irrevocably and
unconditionally release, quit, and forever discharge Yellow and each of its
directors, officers, employees, representatives, attorneys, parents, affiliates
(and any agents, directors, officers, employees, representatives, and attorneys
of such parent companies, and affiliates), and all persons acting by, through
or in concert with any of them (collectively "Releasees") , or any of them,
from any and all charges, complaints, claims (other than an Agreement Claim),
controversies,
51
<PAGE> 7
damages, actions, causes of actions, suits, costs, losses, debts, and
expenses (including attorneys' fees and costs actually incurred) of any nature
whatsoever, known or unknown, including, but not limited to, rights under
federal, state or local laws prohibiting age or other forms of discrimination
including the Age Discrimination in Employment Act and claims growing out of
any legal restrictions on Yellow's right to terminate its employees, which Bob
Burdick now has, owns, or holds, or now claims to have, own, or hold, or which
Bob Burdick at any time heretofore has owned, or held, or which Bob Burdick
claimed to have, own, or hold against each or any of the Releases.
11. Bob Burdick acknowledges that the filing by him of any charge,
complaint or lawsuit as described in Paragraph 9 above constitutes a
breach of this Agreement. Should such a breach occur, all rights to future
payments and benefits due under this Agreement are forfeited and Yellow shall
be entitled to reimbursement from Bob Burdick of all monies paid under this
Agreement prior to such breach.
12. Bob Burdick represents and agrees that he will keep the terms
and amount of this Agreement completely confidential and he will not
hereafter disclose such terms and amounts to anyone except his spouse; his
private attorneys, his tax consultants, and any individuals requiring personal
financial information; provided that they agree to keep said information
confidential and not disclose it to others.
13. Yellow represents and agrees that it will keep the terms and
amounts of this Agreement completely confidential and that it will not
hereafter disclose any information concerning this Agreement to anyone except
its private attorneys and other key company officials requiring this
information in fulfilling the responsibility of their position on Yellow's
behalf; provided that they agree to keep said information confidential and not
disclose it to others.
14. Bob Burdick represents and agrees that he has been given at
least 21 days time to consider whether to enter into this Agreement,
that he has been advised and encouraged to consult an attorney, that he fully
52
<PAGE> 8
understands his right to discuss all aspects of this Agreement with his
private attorney, that to the extent if any that he desires, he has availed
himself of his right, that he has carefully read and fully understands all the
provisions of this Agreement, and that he is voluntarily and knowingly entering
into this Agreement.
15. Bob Burdick represents and acknowledges he has been informed
that for a period of seven (7) days following the date this Agreement
is executed, he has a right to revoke this Agreement. If he does not revoke
this Agreement during this seven (7) day period, it shall become effective and
enforceable.
16. Bob Burdick represents and acknowledges that in executing this
Agreement he does not rely, and has not relied, upon any representation
or statement not set forth herein made by any of the Releasees or by any of the
Releasees' agents, representatives, or attorneys with regard to the subject
matter, basis or effect of this Agreement.
17. This Agreement sets forth the entire agreement between the
parties hereto and fully supersedes any and all prior agreements or
understandings between the parties hereto pertaining to the subject matter
hereof.
18. In the event of Bob Burdick's death prior to the completion of
the payment to Bob Burdick of any monetary compensation called for
hereunder and provided further that Bob Burdick has not breached any of the
provisions of this Agreement prior to his death, Yellow shall pay any further
monetary compensation due to Bob Burdick's estate on a lump sum basis within
ten days after his estate is opened. Provided, however, if Bob Burdick has
given Yellow written beneficiary designations during his lifetime then such
monetary compensation due under Paragraph 18 at his death shall be paid to the
beneficiary designated in such written beneficiary designation.
19. This Agreement is made in the State of Kansas and shall be
construed pursuant to the laws thereof.
53
<PAGE> 9
20. This Agreement shall be binding on the representatives, heirs,
successors, and assigns of the parties hereto, including any successor
or successors in bankruptcy or similar proceedings.
21. This Agreement cannot be changed, modified, or amended in any
respect except by written instrument signed by all parties.
22. The provisions of this Agreement are several, if any part of
it is found to be unenforceable, the other paragraphs shall remain
fully validated and enforceable.
IN WITNESS WHEREOF, this Agreement was executed on the day and year
first above written.
YELLOW CORPORATION
ATTEST:
________________________ By______________________
William F. Martin, Jr. George E. Powell III
Secretary President
______________________
Robert W. Burdick
54
<PAGE> 1
Exhibit (13)
Yellow Corporation
1995 Annual Report
to Shareholders
<PAGE> 2
IMPROVING THE SERVICE YELLOW CORPORATION
1995 ANNUAL REPORT
YELLOW CORPORATION
Yellow Corporation is a holding company with operating subsidiaries
specializing in national, regional, and international less-than-truckload
transportation.
YELLOW FREIGHT SYSTEM, INC.
Yellow Freight System, headquartered in Overland Park, KS is the corporation's
largest subsidiary with 1995 operating revenue of $2.4 billion. As the largest
provider of less-than-truckload services in the nation, Yellow Freight System
employs 24,700 people throughout a network of 445 facilities. It provides
national and regional two-day service as well as international service to
Mexico, Canada and, via alliances, Europe and the Asia/Pacific region.
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
75 terminals throughout this geo-graphic region is operated by 5,400 employees.
Preston markets the SuperRegion (TM)--one and two-day service in an expanded
geo-graphic region. It recorded 1995 operating revenue of $411 million.
SAIA MOTOR FREIGHT LINE, INC.
Saia Motor Freight Line, will relocate its headquarters to Atlanta, GA from
Houma, LA in April. Its regional less-than-truckload market consists of eleven
states in the south where it operates 73 terminals and employs 3,500 people.
Saia offers comprehensive overnight and two-day service in its market and
recorded operating revenue of $210 million in 1995.
WESTEX, INC.
WestEx, the newest regional carrier in the corporate family is headquartered in
Phoenix, AZ and provides one and two-day service in California, Arizona and New
Mexico as well as parts of Nevada and Texas. WestEx employs 440 people and
recorded 1995 operating revenue of $17 million.
YELLOW TECHNOLOGY SERVICES, INC.
Yellow Technology Services, headquartered in Overland Park, KS employs 360
people and ensures that the operating companies--primarily Yellow Freight
System--have access to advanced information systems to meet the informational
demands of transportation customers.
FINANCIAL HIGHLIGHTS
Yellow Corporation and Subsidiaries
<PAGE> 3
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
1995 1994 1993(a)
<S> <C> <C> <C>
Operating revenue $3,056,640 $2,867,492 $2,856,505
Income (loss) from operations (21,588) 11,011 53,893
Income (loss) before extraordinary item (30,122) (3,848) 18,801
Net income (loss) (30,122) (7,906) 18,801
Per share data:
Income (loss) before extraordinary item (1.07) (.14) .67
Net income (loss) (1.07) (.28) .67
Cash dividends .47 .94 .94
Total debt 353,573 247,760 226,503
Shareholders' equity 422,677 460,843 486,453
</TABLE>
(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 and a charge of $1.6 million to reflect the impact of
a higher tax rate on the company's deferred tax liabilities.
TABLE of CONTENTS
Letter To Shareholders 2
Management's Discussion 6
and Analysis
Financial Summary 12
Consolidated Financial 14
Statements and Notes
Report of Independent 26
Public Accountants
Supplementary Information 27
Officers/Directors 28
LETTER TO SHAREHOLDERS
Company Performance
For the less-than-truckload transportation industry, 1995 was arguably the
worst year since it was deregulated in 1980. Barely recovered from the
financial blow dealt by the 24-day Teamsters' strike in 1994, the industry
faced overcapacity and a faltering economy that
<PAGE> 4
triggered the most extreme price discounting in a decade. The result was a
financial stall for the entire industry segment.
Yellow Corporation was significantly impacted by these circumstances,
recording a loss of $30.1 million, or $1.07 per share, in 1995, compared to a
loss of $7.9 million, or $.28 per share, in 1994.
In mid-year the Yellow Corporation Board of Directors suspended the
company dividend until a return to consistent profitability is attained and
trimmed previously planned capital expenditures. The company's principal
subsidiary, Yellow Freight, began to work aggressively on a focused plan to
address three key issues: transit time improvement, expense reduction and price
improvement. The regional companies, Preston, Saia and WestEx, completed
previously planned expansions, turning their attention to margin improvement.
IMPROVING THE SERVICE
Yellow Freight System, which contributes nearly 80 percent of corporate
revenue, progressed its extensive technological reengineering program. That
effort, in combination with an ongoing terminal consolidation program, created
the foundation for sweeping transit time improvements in the last half of the
year. Yellow's two new services... Further, FasterTM and 2-Day USA,TM shaved
delivery times of one or more days off 70 percent of the shipments delivered by
the company. By the end of the year, Yellow Freight--a national LTL
carrier--was delivering up to 40 percent of its shipments in two days or less
with the most comprehensive transit time reduction program in the industry.
Clearly, these improvements required considerable investment. Keeping
promises to customers for better transit times, trucks were frequently required
to leave terminals with partial loads because it was simply "time to go",
resulting in lower load averages and higher labor costs. Some costs were offset
by reduced shipment handling resulting from increased direct loading.
Furthermore, as customer awareness of these new services grew and employees
embraced the new "time-sensitive" attitude, the company added more business and
began correcting operational inefficiencies. While these new services are
expected to elevate ongoing costs, the company expects a net benefit from
improved prices and volume.
To support the new services, Yellow Freight opened two state-of-the-art
customer service centers during the year replacing terminal-based customer
service functions. This centralization enabled the company to lower fixed
overhead costs while instituting the most convenient, responsive customer
service in the industry. More than 200 highly trained representatives provide
customers a way to expedite their business requests 24 hours a day, seven days
a week.
The investment in transit time improvement combined with weak industry
fundamentals negatively impacted Yellow Freight's overall financial
performance, yet it exceeded the perform-ance of principal competitors
throughout much of the year.
Preston Trucking Company, the company's second largest operation--
a regional LTL provider serving the northeast and central states--experienced
pressures similar to Yellow Freight from the economy and price discounting. Yet
it provided consistently superior on-time service throughout the year.
Bolstered by this service performance, Preston added North Carolina to its
well-received SuperRegionTM which provides customers with one and two-day
transit times over an expanded geographic region. During its 15 months of
operation, the SuperRegionTM has reduced transit time by 12 percent while
length of haul has increased 18 percent. Preston anticipates improved revenue
in 1996 from its new guaranteed, expedited service for time-sensitive shipments
and new direct service to Canada. Market circumstances kept Preston's financial
performance in the red in 1995, but its trends outpaced many competitors--a
tribute to management's attention to cost control and employee commitment to
the customer.
<PAGE> 5
Saia Motor Freight, serving the southern tier of the United States, was a
small but valuable contributor to the corporation in 1995. As one of two
non-union, regional carriers in the family, Saia saw over 17 percent revenue
growth as it recorded full-year benefits from 1994 expansion activity,
broadened service in the state of Texas and entered the states of North and
South Carolina. While expansion costs and pricing pressures squeezed operating
margins, Saia continued its high service performance and recorded a profitable
year.
California was the 1995 target for WestEx, the company's newest non-union
regional subsidiary. It expanded throughout California providing overnight
intrastate service and two-day service between that state and the southwest.
Twelve facilities were opened in California and Reno, Nevada, expanding the
terminal network to three states and portions of Nevada and Texas. WestEx is
similar to a start-up operation, and as such, is a small contributor to overall
corporate revenue. Nevertheless, it grew according to plan and is expected to
be profitable in 1997.
IMPROVING THE COST
All Yellow companies delivered service improvements in 1995, but in the highly
competitive transportation arena these achievements mean little without
internal expense reduction. It simply isn't good enough any more to have the
best service. You have to have the best service and be highly cost-efficient.
In the third quarter, Yellow Freight initiated a rigorous cost reduction
process that is expected to save $75 million in 1996. Adjustments were made in
the administrative, finance, and sales and marketing areas in December.
Linehaul and terminal operations will be the focus of efficiency and
productivity improvements this year. The company took a one-time, 1995 fourth
quarter charge of $6.6 million, or $.23 per share, related to the
implementation of these cost reduction programs, realignment of the company's
logistics operations and other nonrecurring expenses primarily relating to
severance costs.
Among the cost improvement efforts
at Preston was a majority vote by union employees in February to continue their
current five percent wage reduction and forego scheduled April 1 increases for
the duration of the current National Master Freight Agreement, which will
expire the end of March 1998. This demonstration of employee commitment is
expected to generate more than $15 million in savings in 1996.
Saia and WestEx will turn their attention to performance improvement as
each company focuses on harvesting business from the expansion activities of
1995. The revenue anticipated in 1996 will improve lane density for the
carriers resulting in more efficient operations. Additionally, each company has
the opportunity to reduce expenses as they apply greater cost control in
terminal and linehaul operations. We expect revenue increases combined with
cost containment to produce improved margins for these companies in the coming
year.
IMPROVING THE PRICE
Overcapacity has plagued the LTL industry, if not all trucking modes, and
triggered severe price discounting that has eroded profits. Much of the
industry reacted to this erosion by further discounting rates to protect market
share. The Yellow companies opted for a more long-term strategy--improve the
product and lower internal costs, thereby improving the value customers
receive. With these efforts underway, the companies are now prepared to
negotiate better prices for their services which will help improve
profitability.
In January, rate increases were announced, representing a step toward
closing the gap between the price Yellow companies charge their customers and
the value they offer. For example, over the past ten years the Consumer Price
Index grew by nearly 50 percent
<PAGE> 6
while the average price per hundred weight for Yellow's companies, adjusted for
freight mix changes, remained nearly the same. We are committed to price
improvement, in view of our service enhancements and the need to improve
shareholder returns.
CHANGE AND COMMITMENT
After twenty-five years of service to the organization, President and CEO
George E. Powell III announced in January his intention to resign. At this
writing the Board of Directors is awaiting the results of a search for a
successor, which we are confident will be concluded shortly.
The outlook for 1996 will be initially marred by the winter blizzards that
idled operations for a few days in various parts of the country and slowed the
movement of freight. Weather complications can be costly and distracting, but
the focus of our management and employees remains sharp. We will build on 1995.
We will maximize the investment in service improvements, further scrutinize
expenses and attain better prices for our services.
Though change is sure to become the hallmark of 1996, our commitment to
improve the business performance of our companies is a constant, as is our goal
of generating positive returns for shareholders.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
1995 vs. 1994
Operating revenue for Yellow Corporation (the company) totaled $3.06
billion in 1995, up 6.6% from $2.87 billion in 1994. The increase in revenue
primarily resulted from the recovery of lost revenue due to the
24-day labor strike in 1994 by the International Brotherhood of Teamsters
(Teamsters) against the company's primary subsidiary, Yellow Freight System,
Inc. (Yellow Freight). Excluding the impact of the strike, operating revenue
increased only nominally due to other volume gains being substantially offset
by lower prices. The lower prices resulted from competitive discounting and
industry overcapacity.
The company had a net loss of $30.1 million, or $1.07 per share, compared
to the strike-induced net loss of $7.9 million, or $.28 per share, last year.
The 1995 loss resulted from the deterioration in prices and a variety of cost
increases. The cost increases varied by operating subsidiary, but in general
involved the following areas: annual labor cost increases; increased expenses
resulting from service enhancements; corporate development costs including
business expansions at Saia Motor Freight Line, Inc. (Saia) and WestEx, Inc.
(WestEx); and certain nonrecurring costs.
Yellow Freight's revenue was $2.36 billion, an increase of 6.4% over 1994.
Yellow Freight experienced a deterioration in its operating ratio from 99.2 in
1994 to 100.1 in 1995. Tonnage increased 7.7%, demonstrating the recovery of
business from the strike-impacted 1994 levels. Despite significant service
enhancements and other cost increases, prices declined for the year. A January
1995 tariff increase of approximately 5.0%, which applied to about half of
Yellow Freight's customers, and attempts to increase contract term rates on
remaining customers were more than offset by price discounting. Overall,
less-than-truckload (LTL) revenue per hundredweight declined 1.5% from $15.77
in 1994 to $15.53 in 1995.
Prices declined and volumes, adjusted for the 1994 strike, remained
relatively static, yet operating costs increased. Approximately 67% of Yellow
Freight's costs pertain
<PAGE> 7
to salaries, wages and benefits. On April 1, 1995, union wages and benefits
increased approximately 3.2%. In addition, Yellow Freight incurred higher
expenses in the third and fourth quarters when it implemented a transit time
improvement program to enhance its competitive position in the market. These
transit time improvements were made possible by an on-going network development
program, that in the last three years has reduced the number of terminals at
Yellow Freight from 608 to 448 while still maintaining full market coverage.
For 1995 compared to 1994, transit times improved by approximately one day,
resulting in higher costs associated with a 5.7% lower load average and a 14.0%
increase in total linehaul miles. Some cost savings were obtained by an
increase in direct loadings which reduced rehandlings by 8.7%. Additional
savings were achieved through an increased use of rail transportation from
13.1% of total miles in 1994 to 17.5% in 1995 and the elimination of forced
overtime for dockworkers, both provisions of the 1994 labor contract. While
Yellow Freight is working to lessen the cost premiums of the improved service,
it is likely that this new service will carry a higher ongoing cost structure.
However, Yellow Freight intends to receive future benefits through improved
pricing, better customer service and business volume growth. Through
reengineering and the use of new technology, Yellow Freight began achieving
administrative cost reductions in 1995 by consolidating customer service and
cashiering functions from its individual terminals to two centralized
locations.
Preston Trucking Company, Inc. (Preston Trucking) had revenue of $411.2
million, a decrease of 1.3% from 1994. Preston Trucking's operating ratio in
1995 was 101.4 compared to 101.3 in 1994. The 1994 performance was subject to
severe winter weather, impacts from the second quarter strike, including
benefits from an early return to work, and shipper uncertainty concerning a
wage reduction process (see 1994 vs. 1993 discussion), all of which did not
recur in 1995. However, 1995 was subject to severe industry-wide price
discounting as well as a relatively greater labor cost increase. Under the
terms of Preston Trucking's wage reduction program approved in 1994, union
wages and benefits increased approximately 4.9% on April 1, 1995. The higher
wage increase resulted from Preston Trucking employees receiving both the
contractual wage and benefit increases as well as a step-down in the wage
reduction from 7.0% to 5.0%. Improved productivity, positive cargo claims
experience and reductions in purchased transportation expense contributed to
offsetting the higher wage and benefit costs.
Saia revenue grew 17.7% to $209.6 million due to geographical expansions
in Texas, Tennessee and Georgia in mid-1994 and North and South Carolina in
mid-1995. Saia's operating ratio increased to 96.3 in 1995 from 93.5 in 1994.
Saia was impacted by industry price discounting, but the margin deterioration
was primarily caused by increased wages and the expense impacts of the
expansion activities including lighter initial business densities in the new
markets. The deregulation of intrastate markets in January 1995 also increased
competition in Louisiana and Texas, where Saia held operating rights
advantages. This was partially offset by new access for Saia in various other
states' intrastate markets.
The remaining operating entities of the company comprise less than 3% of
consolidated revenue and include Yellow Logistics Services, Inc. (Yellow
Logistics), CSI/ Reeves, Inc. (CSI), WestEx and the Yellow Corporation holding
company. During 1995, Yellow Logistics was realigned and CSI was sold. WestEx
commenced an expansion from its traditional Arizona and New Mexico market into
the state of California, but remains immaterial to overall company results.
Holding company expenses were comparable to 1994 levels.
Corporate interest expense increased from $18.4 million in 1994 to $23.4
million in 1995 due to increased debt levels, primarily resulting from lower
net income, increased working capital requirements, and capital expenditures.
The working capital impacts on interest expense primarily pertained to
increased accounts receivable days outstanding at Yellow Freight due to both
market forces and transition implementation issues related to a new system for
customer billing and stating.
<PAGE> 8
The fourth quarter 1995 results included nonrecurring charges of $6.6
million after income taxes pertaining to implementation of cost reduction
programs, the realignment of Yellow Logistics and other expenses primarily
related to severance costs.
1994 vs. 1993
Operating revenue for 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 Teamsters against 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 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 5.8%
decrease in revenue for 1994 ($2.22 billion) versus 1993 ($2.36 billion). Rate
increases in January 1994 were offset by a 6.6% decrease in tonnage levels and
a 12.3% 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.
Preston Trucking had revenue of $416.8 million in 1994, an annualized
revenue increase of 4.9% 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
<PAGE> 9
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 lessened pay by 7.0% from standard wages under
the new contract for the period April 1, 1994 to March 31, 1995 and by 5.0% for
the period April 1, 1995 to March 31, 1996. Pay levels would return to standard
contract wages on April 1, 1996. This plan replaced a one year, 9.0% 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,TM it
provides reduced transit times and superior service across an expanded
geographic area. This service began attracting new revenue during the quarter.
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 benefits were realized in
1995 and are expected to continue in subsequent years. Saia, with revenue of
$137.8 million in 1994, achieved a 14.7% 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 4.4% 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
<PAGE> 10
is due to a wage reduction of 9.0% 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 $18.0 million, or $11.2 million after taxes, was
recorded for the costs to close certain facilities and dispose of excess
property.
FUTURE OUTLOOK
The company has initiated processes to improve earnings performance and
financial position in 1996 and future years. The subsidiaries implemented
general LTL rate increases in January 1996 in amounts averag-ing in excess of
5.8% and will also seek improved pricing in negotiations with contract
customers during the year. While the company expects pricing to remain highly
competitive, it is cautiously optimistic that the extent of destructive price
discounting that prevailed in 1995 will not recur in 1996, particularly in view
of the service enhancements and the need for virtually all trucking sectors to
improve their shareholder returns.
In addition to pricing improvements, Yellow Freight intends to strengthen
performance through cost reduction initiatives and increased benefits from the
1995 transit time improvements. The cost reduction programs are projected to
save $75 million in 1996 and include administrative staff reductions and
operational efficiency improvements. Yellow Freight believes its transit time
improvements will enhance its price negotiating posture as well as benefit
business volumes through better customer retention and generating new business.
Additionally, Yellow Freight will continue to decrease the cost premiums
associated with the improved service and will pursue other network development
opportunities. On April 1, Yellow Freight's wages and benefits will increase
approximately 3.8% under the terms of the industry collective bargaining
agreement which extends through March 31, 1998. A portion of this increase is
expected to be offset by continuing to leverage advantages of the 1994 labor
agreement. Yellow Freight believes that significant opportunities are still
available to further reduce costs and increase service through ongoing
technological and reengineering investments.
Preston Trucking plans to improve its performance due to pricing gains and
a plan approved in February 1996 by its union employees to freeze wages at
current levels through the remaining term of the industry collective bargaining
agreement. This wage freeze not only maintains the existing 5.0% reduction from
full-scale pay levels but also avoids the scheduled wage increases due April 1
of both 1996 and 1997. However, health, welfare and pension benefit costs will
increase by 9.0% on April 1, 1996 and 8.2% on April 1, 1997.
Saia plans to improve 1996 performance through pricing gains and density
benefits from additional business and improved cost efficiency. No significant
expansions are planned for 1996. Similarly, WestEx plans to improve its
performance through increased business density benefits although a profit is
not expected until 1997.
Holding company expenses are expected to be significantly lower than prior
year, mainly due to cost reduction initiatives. The company has previously
announced the pending resignation of its current president and CEO. The company
believes this announcement has had no significant adverse impact on its
financial condition or results of operations. A search for a successor is in
process and is expected to be completed shortly.
Success of the improvement initiatives will be dependent on the strength
of the economy, competitive conditions including pricing stability, the ability
to hold down costs
<PAGE> 11
and the promptness of the management transition. The company is encouraged that
recent announcements by competitors of reduced capital expenditure plans and
the curtailing of expansions will begin to moderate the industry's overcapacity
in 1996. However, the severe winter weather experienced in the first quarter of
1996 is expected to have an adverse impact on first quarter results of
operations.
OTHER
In March 1995, the Financial Accounting Standards Board issued its
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which requires adoption in 1996. The
company has not yet determined the impact the adoption will have on its
financial condition or results of operations.
The company uses heating oil swap and fixed price diesel fuel agreements
to manage a portion of its expo-sure to fluctuating diesel prices.
Approximately 50% of the company's anticipated annual fuel usage is covered by
such agreements. Under the heating oil swap and option agreements, the company
receives or makes payments based on the difference between a fixed and a
variable price for heating oil. Historically, the fair values of the hedge
positions have not been materially different from the purchase price. 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 (33.1)% in 1995, 14.0% in 1994 and 46.8%
in 1993. The notes to con-solidated financial statements contain an analysis of
the income tax provision and the effective income tax rate.
FINANCIAL CONDITION
The company's liquidity needs arise primarily from capital investment in
new equipment and information technology, and funding working capital
requirements.
Working capital increased from a deficit of $13.5 million in 1994 to a
positive $42.2 million in 1995. Both prepaid expenses and checks outstanding
were significantly increased by the establishment of a Voluntary Employees'
Beneficiary Association (VEBA) near year-end 1995. The VEBA was used to
partially prefund certain benefit expenditures for the company's contract
employees. Other significant working capital changes were increases in accounts
receivable and refundable income taxes. Capital expenditures in 1995 totaled
$140.3 million, down from $150.9 million in 1994. About two-thirds of these
expenditures were made for the benefit of Yellow Freight. The 1995 total was
lower than originally planned because management reduced capital expenditures
during the year as economic and industry conditions weakened. Projected
expenditures for 1996 will be for information technology and replacement of
revenue equipment. Actual and projected net capital expenditures are summarized
below (in millions):
<TABLE>
<CAPTION>
Projected Actual
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Land and structures $ -- $(3) $ 3 $ 12
Revenue equipment 27 74 98 34
Other 38 69 50 21
Total $65 $140 $151 $67
</TABLE>
Capital expenditures are usually financed by internally generated funds,
with depreciation totaling $135.3 million in 1995 and $134.0 million in 1994.
Funds provided
<PAGE> 12
by operations, however, were much lower in 1995 at $44.2 million compared to
$157.4 million in 1994. This was due to a higher net loss in 1995, an increase
in accounts receivable and an increase in refundable income taxes.
As a result of the low levels of cash generated by operations in 1995,
total debt levels increased by $105.8 million. The additional debt was funded
by the company's commercial paper program, whose authorized maximum was
increased to $150 million, and by the issuance of medium-term notes. During
1995 the company entered into a $200 million multi-year bank credit agreement,
replacing a $100 million agreement, to provide additional liquidity backup for
the commercial paper program and for other borrowing needs.
Early in 1996 a major rating agency lowered its rating on the company's
commercial paper. While management intends to continue to finance short-term
working capital needs primarily with the issuance of commercial paper, the
lower rating may require the company to draw on its bank credit agreement from
time to time. This change is not expected to have a material impact on interest
expense.
Management anticipates the company's liquidity and financial position will
improve significantly in 1996 for several reasons. First, planned capital
expenditures for 1996 are only $65 million as the company intends to improve
its asset utilization through transit time improvements and more efficient
operations including the greater use of rail transportation. Also, receivables
are expected to decline as additional efforts are made to accelerate customer
collections and a large income tax refund is due to be received during the
year. In addition, the company suspended its dividend in July 1995. No
dividends are expected to be paid in 1996. Dividend payments of $.47 per share
($13 million) were made in 1995 and $.94 per share ($26 million) in 1994 and
1993. Finally, operating results should improve in 1996 as a result of cost
reduction efforts, transit time improvements and better industry conditions.
Management expects a substantial reduction in total debt outstanding by
year-end.
FINANCIAL SUMMARY
Yellow Corporation and Subsidiaries
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
1995 1994 1993(a) 1992
<S> <C> <C> <C> <C>
FOR THE YEAR:
Operating revenue $3,056,640 $2,867,492 $2,856,505 $2,262,676
Income (loss) from operations (21,588) 11,011 53,893 82,814
Depreciation 135,265 133,970 132,371 118,419
Interest expense 23,395 18,433 17,668 12,150
Income (loss) before income taxes (45,021) (3,375) 35,358 65,393
Income (loss) before extraordinary items and
cumulative effect of accounting changes (30,122) (3,848) 18,801 41,040
Net income (loss) (30,122) (7,906) 18,801 29,540
Net cash from operating activities 44,166 157,448 138,802 139,438
Capital expenditures, net 140,254 150,940 66,786 78,651
AT YEAR-END:
Net property and equipment 921,848 918,101 892,600 803,779
Total assets 1,434,897 1,307,221 1,265,654 1,061,012
Long-term debt 341,648 240,019 214,176 123,027
Total debt 353,573 247,760 226,503 134,077
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C>
Shareholders' equity 422,677 460,843 486,453 485,496
MEASUREMENTS:
Per share data:
Income (loss) before extraordinary
items and cumulative effect of
accounting changes (1.07) (.14) .67 1.46
Net income (loss) (1.07) (.28) .67 1.05
Cash dividends .47 .94 .94 .94
Shareholders' equity 15.04 16.40 17.31 17.28
Total debt as a % of total capitalization 45.5% 35.0% 31.8% 21.6%
Return on average shareholders' equity (6.8)% (1.7)% 3.9% 6.1%
Market price range:
High 24 3/8 30 1/4 29 7/8 32 3/8
Low 11 7/8 16 3/4 16 7/8 21 3/4
Average number of employees 34,700 33,400 35,000 26,800
</TABLE>
(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 and a charge of $1.6 million to reflect the impact of
a higher tax rate on the company's deferred tax liabilities.
<TABLE>
<CAPTION>
1991 1990 1989(b) 1988 1987 1986 1985
- ----------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$2,344,143 $2,302,421 $2,219,755 $2,016,466 $1,759,992 $1,713,731 $1,530,313
56,907 119,774 48,041 117,786 78,089 135,619 106,424
124,687 128,134 123,268 108,353 98,982 86,850 75,771
14,159 15,763 15,452 12,254 9,172 7,441 10,290
40,348 101,905 26,533 104,997 64,360 123,259 95,493
26,654 65,319 18,585 68,962 41,284 67,084 55,536
26,654 65,319 47,785 68,962 41,284 69,719 55,536
146,954 219,463 179,481 204,943 140,163 169,745 156,153
104,668 162,316 182,232 180,587 152,684 176,622 143,842
842,849 862,272 829,447 774,642 702,664 649,552 554,233
1,097,771 1,116,005 1,081,665 1,020,724 923,867 862,359 747,904
145,584 163,703 186,680 168,902 126,241 75,390 66,581
156,707 174,169 192,067 174,223 144,189 112,253 82,961
475,869 468,944 438,588 408,986 392,923 376,370 321,871
.95 2.31 .65 2.40 1.44 2.35 1.95
.95 2.31 1.66 2.40 1.44 2.44 1.95
.94 .82 .73 .66 .62 .58 .52
16.94 16.70 15.24 14.21 13.82 13.14 11.27
24.8% 27.1% 30.5% 29.9% 26.8% 23.0% 20.5%
5.6% 14.4% 11.3% 17.2% 10.7% 20.0% 18.5%
33 1/2 31 1/4 32 7/8 34 42 1/2 41 1/8 29 1/2
23 3/4 18 3/4 23 7/8 23 7/8 20 7/8 27 1/2 15 7/8
28,700 28,900 29,200 27,200 25,500 23,400 20,750
(b) 1989 results include an increase in reserves for workers' compensation and
other reserves of $27.7 million after taxes.
</TABLE>
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries
December 31, 1995 and 1994
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash $25,861 $17,613
Short-term investments 5,414 7,305
Accounts receivable, less
allowances of $16,781 and $13,082 323,814 295,332
Fuel and operating supplies 16,909 21,381
Refundable income taxes 49,529 -
Deferred income taxes - 1,586
Prepaid expenses 63,483 19,323
Total current assets 485,010 362,540
PROPERTY AND EQUIPMENT:
Land 137,112 141,134
Structures 611,284 613,530
Revenue equipment 969,960 938,243
Other 271,033 214,475
1,989,389 1,907,382
Less - Accumulated
depreciation 1,067,541 989,281
Net property and
equipment 921,848 918,101
OTHER ASSETS 28,039 26,580
$1,434,897 $1,307,221
</TABLE>
The notes to consolidated financial statements are an integral part of these
balance sheets.
<PAGE> 15
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
<S> <C> <C>
CURRENT LIABILITIES:
Unsecured bank credit lines $9,000 $ -
Checks outstanding 72,667 23,706
Accounts payable 81,986 94,706
Wages, vacations and employees' benefits 134,178 118,364
Deferred income taxes 19,818 -
Claims and insurance accruals 79,853 84,823
Other current and accrued liabilities 42,369 46,651
Current maturities of long-term debt 2,925 7,741
Total current liabilities 442,796 375,991
OTHER LIABILITIES:
Long-term debt 341,648 240,019
Deferred income taxes 56,032 54,481
Claims, insurance and other 171,744 175,887
Total other liabilities 569,424 470,387
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 shares 28,858 28,858
Capital surplus 6,678 6,678
Retained earnings 404,761 447,887
Shares held by Stock Sharing Plan - (4,961)
Treasury stock, at cost (751,740 and 751,674 shares) (17,620) (17,619)
Total shareholders' equity 422,677 460,843
$ 1,434,897 $ 1,307,221
<CAPTION>
STATEMENTS OF CONSOLIDATED INCOME
YELLOW CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1995 1994 1993
<S> <C> <C> <C>
OPERATING REVENUE $3,056,640 $2,867,492 $2,856,505
OPERATING EXPENSES:
Salaries, wages and employees' benefits 2,051,277 1,918,406 1,919,197
Operating expenses and supplies 473,356 433,789 410,679
Operating taxes and licenses 115,120 110,004 104,588
Claims and insurance 70,376 76,953 70,206
Communications and utilities 44,412 41,064 38,643
Depreciation 135,265 133,970 132,371
Purchased transportation 188,422 142,295 108,928
Network development - - 18,000
Total operating expenses 3,078,228 2,856,481 2,802,612
INCOME (LOSS) FROM OPERATIONS (21,588) 11,011 53,893
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
NONOPERATING (INCOME) EXPENSES:
Interest expense 23,395 18,433 17,668
Interest income (2,100) (2,202) (1,446)
Other, net 2,138 (1,845) 2,313
Nonoperating expenses, net 23,433 14,386 18,535
INCOME (LOSS) BEFORE INCOME TAXES (45,021) (3,375) 35,358
INCOME TAX PROVISION (BENEFIT) (14,899) 473 16,557
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (30,122) (3,848) 18,801
EXTRAORDINARY ITEM - WRITE-OFF OPERATING RIGHTS - (4,058) -
NET INCOME (LOSS) $(30,122) $(7,906) $18,801
AVERAGE COMMON SHARES OUTSTANDING 28,106 28,107 28,105
EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary item $(1.07) $(.14) $.67
Extraordinary item - write-off operating rights - (.14) -
Net income (loss) $(1.07) $(.28) $.67
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
STATEMENTS OF CONSOLIDATED CASH FLOWS
Yellow Corporation and Subsidiaries
For the Years Ended December 31
(Amounts in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(30,122) $(7,906) $18,801
Noncash items included in income (loss):
Depreciation 135,265 133,970 132,371
Network development - - 18,000
Write-off operating rights - 4,058 -
Deferred income tax provision (benefit) 29,641 4,147 (10,819)
Changes in assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable (34,064) (17,263) (27,095)
Accounts payable and checks outstanding 40,273 46,060 1,113
Other working capital items (82,593) (13,477) 9,227
Claims, insurance and other (3,437) 12,007 (277)
Other, net (10,797) (4,148) (2,519)
Net cash from operating activities 44,166 157,448 138,802
INVESTING ACTIVITIES:
Acquisition of property and equipment (163,426) (182,885) (76,886)
Proceeds from disposal of property and equipment 23,172 31,945 10,100
Purchases of short-term investments (7,759) (8,957) (8,086)
Proceeds from maturities of short-term investments 9,650 8,429 14,693
Proceeds from sale of CSI/Reeves, Inc., net 5,106 - -
Acquisitions, net of cash acquired - (6,244) (23,898)
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
Net cash used in investing activities (133,257) (157,712) (84,077)
FINANCING ACTIVITIES:
Proceeds from unsecured bank credit lines, net 9,000 - -
Commercial paper borrowings, net 69,510 33,981 24,968
Proceeds from issuance of long-term debt 56,497 14,000 37,250
Repayment of long-term debt (24,457) (17,701) (95,553)
Cash dividends paid to shareholders (13,210) (26,416) (26,405)
Other, net (1) 76 (64)
Net cash from (used in) financing activities 97,339 3,940 (59,804)
NET INCREASE (DECREASE) IN CASH 8,248 3,676 (5,079)
CASH, BEGINNING OF YEAR 17,613 13,937 19,016
CASH, END OF YEAR $25,861 $17,613 $13,937
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $10,793 $1,245 $25,354
Interest paid $21,018 $18,103 $17,715
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
STATEMENTS OF CONSOLIDATED
SHAREHOLDERS' EQUITY
Yellow Corporation and Subsidiaries
(Amounts in thousands except share data)
<TABLE>
Shares Held
Common Capital Retained by Stock Treasury
Stock Surplus Earnings Sharing Plan Stock
<S> <C> <C> <C> <C> <C>
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) - -
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C> <C>
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)
Net loss - - (30,122) - -
Cash dividends, $.47 per share - - (13,210) - -
Reduction of Stock Sharing Plan
debt guarantee - - - 4,961 -
Purchase of treasury stock - - - - (1)
Foreign equity translation
adjustment - - 206 - -
BALANCE, DECEMBER 31, 1995 $28,858 $6,678 $404,761 $ - $(17,620)
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
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. Management makes estimates and assumptions which affect the
amounts reported in the financial statements and footnotes. Actual results
could differ from those estimates.
The company provides transportation services primarily to the
less-than-truckload (LTL) market throughout North America. Principal operating
subsidiaries are Yellow Freight System, Inc. (Yellow Freight), Preston Trucking
Company, Inc. (Preston Trucking) and Saia Motor Freight Line, Inc. (Saia).
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
<PAGE> 19
one year, are classified as short-term invest-ments and are stated at cost
which approximates market. The company had cash and short-term investments held
in Canada of US$24.9 million at December 31, 1995 and US$18.5 million at
December 31, 1994.
- - Fuel is carried at cost. The company uses heating oil swap and fixed price
agreements to manage a portion of its exposure to fluctuating diesel prices.
Under the heating oil swap and option agreements the company receives or makes
payments based on the difference between a fixed and a variable price for
heating oil. These agreements provide protection from rising fuel prices, but
limit the ability to benefit from price decreases below the purchase price of
the agreement. At December 31, 1995 the company had agreements with financial
institutions and oil companies to exchange payments on 83.3 million gallons at
a fixed cost averaging $.50 per gallon over the next 14 months, representing
50% of anticipated fuel usage. At December 31, 1994 the company had agreements
on 61.9 million gallons at a fixed cost averaging $.50 per gallon over the next
11 months, representing 50% of anticipated fuel usage. Based on quoted market
prices, the fair value of the hedge position at December 31, 1995 and 1994 was
$2.0 million and $.2 million above its purchase price. Gains and losses on the
agreements are recognized as a component of fuel expense when the corresponding
fuel is purchased.
- - Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based on the following
service lives:
<TABLE>
<CAPTION>
Years
<S> <C>
Structures 10-40
Revenue equipment 5-10
Other operating property 2-10
</TABLE>
- - 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.
- - The company had previously announced plans to invest over $100 million in
technology over a three year period. The investment was designed to enable
significant improvements in the customer service and freight management areas.
The investment consists primarily of advanced communications equipment and
related software. As of December 31, 1995, the company had invested over $54
million in the projects. Of that amount $22 million has been placed into
service. The remaining $32 million represents other systems applications in
various stages of completion. It is management's intent to continue the
projects; however, economic conditions may restrict the full implemetation on
a system-wide basis in the near term. A substantial delay in implementation
may materially reduce the value of a portion of the investment.
- - 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-
<PAGE> 20
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, 1995 and 1994, estimated future payments for workers'
compensation claims aggregated $164.9 million and $162.0 million. The present
value of these estimated future payments was $142.6 million at December 31,
1995 and $139.8 million at December 31, 1994.
- - 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.
In February 1993 the company acquired the stock of Preston Corporation
(Preston) for $25.3 million, including related expenses. 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 had
occurred on January 1, 1993, the company's unaudited results of operations for
the twelve months ended December 31, 1993 would have reported operating revenue
of $2.94 billion. Income before the cumulative effect of accounting change
would have been $12.7 million, or $.45 per share, and net income would have
been $11.6 million, or $.41 per share. These results are not necessarily
indicative of what would have occurred if the Preston acquisition had been
consummated at the beginning of 1993, nor are they necessarily indicative of
future results.
DEBT
At December 31, debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Unsecured bank credit lines $9,000 $ -
Commercial paper 128,459 58,949
Medium-term notes 148,500 114,250
Stock Sharing Plan debt guarantee - 4,961
Industrial development bonds 32,100 32,100
Capital leases and other 10,124 12,334
Subordinated debentures 25,390 25,166
Total debt 353,573 247,760
Less - Unsecured bank credit lines 9,000 -
Current maturities 2,925 7,741
Total long-term debt $341,648 $240,019
</TABLE>
<PAGE> 21
On June 23, 1995, the company entered into a five- year $200 million
credit agreement with a group of banks. 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. Under the terms
of the credit agreement, the company must maintain a minimum consolidated
tangible net worth and annual cash flow, as defined in the agreement, must be
at least a specified ratio of total debt. There were no borrowings under credit
agreements in 1995 or 1994, and at December 31, 1995, the company was in
compliance with all terms of the credit agreement.
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, 1995 and
1994 were 6.2% and 6.4%. Medium-term notes have scheduled maturities through
2008 with interest rates ranging from 5.7% to 9.3%.
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 3.6% to 8.0%, 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%.
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: 1996 - $2,925,000, 1997 - $14,748,000, 1998 - $4,063,000,
1999 - $2,849,000, 2000 - $30,956,000.
The company has short-term unsecured credit lines with domestic and
foreign banks totaling $205 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. At December 31, 1995,
$9.0 million was outstanding under these lines with a weighted average interest
rate of 6.0%.
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, 1995 and 1994 was approximately $355 million and $242 million.
SPECIAL CHARGES
In the third quarter of 1994, the company recorded a charge to earnings of
$6.7 million, or $4.1 million after taxes. 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 legislation in 1994
which deregulated the entry and rates for intrastate operations of all
transportation companies.
In the second quarter of 1993, the company's pri-mary subsidiary, Yellow
Freight, recorded a charge of $18.0 million, or $11.2 million after taxes, for
the costs to close certain facilities and dispose of excess property.
INCOME TAXES
<PAGE> 22
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):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Depreciation $128,810 $118,469
Employee benefits 19,357 2,148
Prepaids 19,022 19,555
Revenue 7,038 6,040
Other 5,489 9,338
Gross liabilities 179,716 155,550
Claims and insurance (84,779) (84,425)
Bad debts (7,554) (5,466)
Other (11,533) (12,764)
Gross assets (103,866) (102,655)
Net liability $75,850 $52,895
</TABLE>
The income tax provision (benefit) is computed based on the following
amounts of income (loss) before income taxes (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Domestic $(51,120) $(7,276) $31,175
Foreign 6,099 3,901 4,183
Total income (loss)
before income taxes $(45,021) $(3,375) $35,358
</TABLE>
The income tax provision (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current:
U.S. federal $(40,370) $(4,158) $21,407
State (7,094) (1,870) 4,814
Foreign 2,924 2,354 2,216
Total current (44,540) (3,674) 28,437
Deferred:
U.S. federal 24,703 4,235 (9,214)
State 4,645 768 (3,244)
Foreign 293 (856) -
Change in U.S. federal tax rate - - 1,639
Total deferred 29,641 4,147 (10,819)
Investment tax credit amortization - - (1,061)
Total provision (benefit) $(14,899) $ 473 $ 16,557
</TABLE>
A reconciliation between income taxes at the federal statutory rate (35%)
and the consolidated provision (benefit) follows:
<PAGE> 23
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Provision (benefit) at
federal statutory rate $(15,757) $(1,181) $12,375
State income taxes, net (1,592) (716) 1,021
Change in U.S. federal tax rate - - 1,639
Foreign tax rate differential 1,082 133 752
Nondeductible business expenses 3,103 2,571 1,331
Amortization of investment tax credits - - (1,061)
Other, net (1,735) (334) 500
Total provision (benefit) $(14,899) $473 $16,557
Effective tax rate (33.1)% 14.0% 46.8%
</TABLE>
COMMITMENTS AND CONTINGENCIES
The company leases certain terminals and equipment. At December 31, 1995,
the company was committed under noncancellable lease agreements requiring
minimum annual rentals aggregating $82.7 million payable as follows: 1996 -
$32.1 million, 1997 - $18.1 million, 1998 - $10.8 million, 1999 - $5.5 million,
2000 - $3.3 million and thereafter, $12.9 million.
Projected 1996 net capital expenditures are $65 million, of which $14
million was committed at December 31, 1995.
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.
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):
<TABLE>
<CAPTION>
Funded status at December 31: 1995 1994
Actuarial present value of benefits at current salary levels and service rendered to date:
<S> <C> <C>
Vested benefits $148,691 $114,788
Non-vested benefits 1,042 1,624
Accumulated
benefit obligation 149,733 116,412
Effect of anticipated future
salary increases 25,824 22,165
Projected benefit
obligation 175,557 138,577
Plan assets at fair value 141,442 118,080
Plan assets less than projected
benefit obligation (34,115) (20,497)
Unrecognized net loss 8,618 4,153
Unrecognized initial net asset
being amortized over 17 years (18,058) (20,445)
Pension cost accrued, not funded $(43,555) $(36,789)
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
Net pension cost: 1995 1994 1993
<S> <C> <C> <C>
Service cost - benefits earned during the period $7,412 $8,313 $6,919
Interest cost on projected benefit obligation 12,429 11,109 9,954
Actual return on plan assets (27,205) 393 (8,177)
Amortization of unrecognized net assets (2,420) (2,197) (2,393)
Net deferral 16,550 (10,818) (1,683)
Net pension cost $6,766 $6,800 $4,620
<CAPTION>
Assumptions used in the accounting at December 31: 1995 1994 1993
<S> <C> <C> <C>
Discount rate 7.5% 8.5% 7.5%
Rate of increase in compensation levels 5.0% 4.0% 5.5%
Expected rate of return on assets 9.0% 9.0% 9.0%
</TABLE>
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):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Health and welfare $160,512 $142,695 $138,448
Pension 142,906 129,321 126,449
Total $303,418 $272,016 $264,897
</TABLE>
Under current legislation regarding multi-employer pension plans, a
termination, withdrawal or partial withdrawal from any multi-employer plan that
is in an under-funded status would render the company liable for a
proportionate share of such multi-employer plans' unfunded vested liabilities.
This potential unfunded pension liability applies equally to the company's
unionized competitors who contribute to multi-employer plans. Based on the
limited information available from plan administrators, which the company
cannot independently validate, the company believes that its portion of the
contingent liability would be material to its financial condition and results
of operations. The company's unionized subsidiaries have no intention of taking
any action that would subject the company to obligations under the legislation.
The company had a Stock Sharing Plan for employees of participating
domestic affiliates not covered by collective bargaining agreements. In 1995
this plan merged into another company defined contribution plan. Company
contributions combined with plan earnings were used to meet the plan's debt
service requirements. Expense was recorded as funds were contributed or
committed to be contributed. During 1995, the final debt payment was made and
the remaining shares were allocated to participants 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):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Employees' benefits expense $4,241 $6,735 $-
Interest expense 195 979 1,746
Total expense $4,436 $7,714 $1,746
Dividends $693 $1,456 $1,532
</TABLE>
<PAGE> 25
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, 1995 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, 1995 there were 791,114
shares available for future grants and no options were outstanding.
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. During 1995, the
company's Board of Directors voted not to renew the rights upon their scheduled
1996 expiration.
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.
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, 1995
and 1994, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1995. 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.
<PAGE> 26
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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
January 31, 1996
SUPPLEMENTARY INFORMATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in thousands except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1995 (a) (a)
<S> <C> <C> <C> <C>
Operating revenue $764,998 $773,825 $771,965 $745,852
Income (loss) from operations 8,601 5,866 (12,366) (23,689)
Net income (loss) 3,198 1,039 (11,634) (22,725)
Earnings (loss) per share .11 .04 (.41) (.81)
1994 (b) (c) (d)
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 11,208
Earnings per share:
Income (loss) before extraordinary item (.23) (.78) .47 .40
Net income (loss) (.23) (.78) .33 .40
</TABLE>
(a) Includes the impact of price discounting and excess industry capacity which
severely diminished operating margins.
(b) Includes the effect of severe winter weather which caused significant
business disruptions and higher operating expenses.
(c) Includes the effect of the 24-day Teamster strike at Yellow Freight.
(d) Includes an extraordinary item of $4.1 million after taxes to write-off
intrastate operating rights.
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 130,000 shares per
day during the year, down from 218,000 shares per day in 1994. Prices are
quoted by the National Association of Securities Dealers Automatic Quotation
System National Market (NASDAQ-NMS) under the symbol YELL.
<PAGE> 27
<TABLE>
Quarter Ended
Dividends Dividends
1995 High Low Per Share 1994 High Low Per Share
<S> <C> <C> <C> <C> <C> <C> <C>
March 31 24 3/8 15 7/8 $.235 March 31 30 1/4 23 1/2 $.235
June 30 20 1/8 15 7/8 .235 June 30 24 1/8 16 3/4 .235
September 30 20 13 1/2 - September 30 21 5/8 17 .235
December 31 13 7/8 11 7/8 - December 31 24 1/4 18 1/4 .235
$.470 $.940
</TABLE>
SENIOR OFFICERS
YELLOW CORPORATION
George E. Powell III
President and Chief Executive Officer
William F. Martin
Senior Vice President - Legal/Corporate Secretary
H.A. Trucksess, III
Senior Vice President - Finance/
Chief Financial Officer and Treasurer
YELLOW FREIGHT SYSTEM, INC.
M. Reid Armstrong
President
Robert L. Bostick
Senior Vice President - Operations Administration
J. Kevin Grimsley
Senior Vice President - Marketing and Sales
Ralph P. Nowell
Senior Vice President - Operations
C. Kermit Scarborough
Senior Vice President - Human Resources
PRESTON TRUCKING COMPANY, INC.
Leo H. Suggs
President
J. Sean Callahan
Senior Vice President - Finance and Administration
Gordon S. MacKenzie
Senior Vice President - Operations
Nicholas J. Marino
Senior Vice President - Sales and Marketing
SAIA MOTOR FREIGHT LINE, INC.
Jimmy D. Crisp
President
WESTEX, INC.
Frank E. Myers
President
YELLOW TECHNOLOGY SERVICES, INC.
<PAGE> 28
Gail A. Parris
President
BOARD OF DIRECTORS
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
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
Secretary to the Board
* Member, Audit Committee
<PAGE> 29
CORPORATE INFORMATION
YELLOW CORPORATION
P.O. Box 7563
Overland Park, Kansas 66207
(913) 967-4300
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Kansas City, Missouri
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholder Services, L.L.C.
P.O. Box 590
Ridgefield Park, NJ 07660
(800) 526-0801
ANNUAL MEETING
April 25, 1996, at 9:30 a.m.
Radisson Hotel of Overland Park
I-35 & 87th Street
Overland Park, Kansas 66214
10-K REPORT
Please write to:
Treasurer, Yellow Corporation
YELLOW CORPORATION
P.O. BOX 7563
OVERLAND PARK, KANSAS 66207
PRINTED IN THE U.S.A. #505
<PAGE> 1
Exhibit (24)
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our reports included and incorporated by reference in this
Form 10-K, into the company's previously filed Form S-8 Registration Statement
File No. 33-47946.
ARTHUR ANDERSEN LLP
Kansas City, Missouri,
March 25, 1996
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