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YELLOW CORPORATION
1996 Annual Report
[PICTURE OF GLOBE]
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TABLE OF CONTENTS
Letter To Shareholders 6
Management's Discussion and Analysis 10
Subsidiary Profiles 17
Financial Summary 18
Consolidated Financial Statements and Notes 20
Report of Independent Public Accountants 33
Supplementary Information 34
Officers 35
Directors 36
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1996 REVENUE CONTRIBUTION
<TABLE>
<S> <C>
Yellow Freight System, Inc. 77%
Preston Trucking Company, Inc. 13%
Saia Motor Freight Line, Inc. 9%
WestEx, Inc. 1%
</TABLE>
The Yellow Corporation Family of Operating Companies
Yellow Freight System, Inc. is the nation's largest less-than-truckload carrier
providing comprehensive transportation solutions for shippers throughout North
America, Europe and Asia/Pacific. In 1996, Yellow Freight recorded operating
revenue of $2.4 billion and had an operating ratio of 98.5 (before a special
charge).
Preston Trucking Company, Inc. is a premium service less-than-truckload carrier
providing highly reliable overnight and two-day delivery in 21 northeastern and
upper midwestern states, Puerto Rico, Ontario and Quebec. In 1996, Preston
recorded operating revenue of $418 million and had an operating ratio of 101.4.
Saia Motor Freight Line, Inc. is a premium service less-than-truckload carrier
providing highly reliable, time-definite freight delivery in 11 southeastern
states and Puerto Rico. In 1996, Saia recorded operating revenue of $264
million and had an operating ratio of 95.9.
WestEx, Inc. is an emerging premium service less-than-truckload carrier
providing highly reliable overnight and two-day service in California, Arizona,
New Mexico and parts of Texas and Nevada. In 1996, WestEx recorded operating
revenue of $33 million.
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PEOPLE
Our people are our primary competitive weapon. They understand the freight
business like no one else. Their mission is to satisfy the customer, no matter
what. Our people are why the Yellow companies will be the carriers of choice
for the new millennium.
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[FULL PAGE PICTURE OF MARIO ESTRADA - INTERNATIONAL CUSTOMER SERVICE]
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VALUE
Moving freight is not a commodity service when it is backed by a commitment to
listen to customers, understand their needs and meet expectations. This is the
material that builds shareholder value. By creating value for the customer, we
will create value for our shareholders.
[HALF PAGE PICTURE OF DAVE BILKE - YELLOW FREIGHT SYSTEM CITY DRIVER]
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[HALF PAGE PICTURE OF JANE BONILLA - ACCOUNT MANAGER]
PROFITABILITY
When carrier and shipper work in partnership to unleash hidden values, mutual
profitability is assured. We will negotiate fair prices based on customer
understanding of the real value we bring to them. And we will continuously
manage our costs and seek new opportunities for additional efficiencies.
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TO OUR SHAREHOLDERS
[GRAPHIC]
Our goals in 1996 were clear. We had to begin the steps that would restore
profitability and shareholder returns. We made a good start.
Our focus was to rebuild and renew Yellow Corporation's base of strength.
Those strengths are easy to identify. Yellow is among the most recognized brand
names in freight transportation. Yellow Freight System, our largest operating
subsidiary, operates a highly efficient national transportation network and
utilizes state-of-the-art customer service technology. At the same time, our
regional carriers have established themselves in their niche markets.
As the year progressed, we saw steady improvements in performance. Key factors
were significant operating improvements at Yellow Freight, Preston, Saia and
WestEx. Each company focused on higher margin accounts and each made strides
toward effectively managing their costs.
FINANCIAL PERFORMANCE
Excluding a nonrecurring special charge taken in the fourth quarter, we
reported 1996 net income of $1.1 million, or $.04 per share. This is compared
to a net loss of $30.1 million, or $1.07 per share, in 1995.
[PICTURE OF YELLOW FREIGHT SYSTEM TRACTOR AND TWIN TRAILERS]
The fourth quarter special charge amounted to $46.1 million ($28.3 million
after taxes) and reduced earnings per share by $1.01. As a result, the company
recorded a net loss of $27.2 million, or $.97 per share.
The charge was pivotal in positioning the company for additional service
improvements and cost reductions. It reflected the write down of certain Yellow
Freight real estate and computer software assets, a reduction of a company car
program, the expenses of an early retirement program and other organizational
redesign impacts.
We made progress in strengthening our balance sheet in 1996, far exceeding our
original goal of reducing debt by $100 million. Total debt reported on our
balance sheet decreased $158 million and went from $354 million at year-end
1995 to $196 million at year-end 1996. This was accomplished through a
significant reduction in capital expenditures, a $45 million off-balance-sheet
financing program, a $45 million federal tax refund received in April and a
one-time $23 million cash dividend from our Canadian operations.
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Yellow Corporation Annual Report
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[GRAPHIC]
Our net capital expenditures totaled $46 million in 1996 and were well below
our $130 million in depreciation. We expect 1997 net capital expenditures to
total $109 million. This investment will be focused on the replacement of
tractor and trailer equipment and the attain-ment of improved operating
efficiencies.
YELLOW FREIGHT SYSTEM
After a first quarter marred by severe winter weather, Yellow Freight improved
operations and margins. Yellow Freight, which accounts for 77 percent of our
revenue, benefited from improved account management, a diesel fuel surcharge
and a stabilized pricing environment. This helped drive a 2.4 percent increase
in revenue per ton. Despite higher labor and fuel costs, our costs per ton were
essentially the same as in 1995 because of improvements in linehaul operations
and achievement of a $75 million cost reduction program.
The cost reduction program involved efficiency improvements in pickup and
delivery, dock transfers and linehaul movement. Reductions in general sales and
administrative expenses and more attention to working safer also were factors.
[Picture of Jim Ramick & Pete Peoples - Linehaul Management]
Excluding the special charge, Yellow Freight realized an operating ratio of
98.5, compared with 100.1 in 1995.
COMPETITIVE ADVANTAGES
Yellow Freight is increasingly capitalizing on competitive advantages created
by its broad coverage, highly efficient national linehaul system and optimized
network of terminals.
Yellow's technological capabilities and customer service centers are another
advantage. These centers, located in Des Moines, Iowa and Sioux Falls, South
Dakota, give us better information delivery and problem solving capability than
anyone else in the industry. Our 330 employees at Yellow Technology Services
provide the technology solutions support to meet customers' ever-increasing
information needs.
Yellow Freight is using its competitive advantages to become a global
transportation services provider. In 1996, we substantially completed our
expansion into the Asia/Pacific markets, complementing the European service we
have offered since 1992. Continuing our international expansion is a key
priority for 1997.
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[GRAPHIC]
The Yellow Freight organization redesign was a key step that will focus all of
our operational and technology advantages where they should be -- on the
customer. Our people on the front lines now have more resources and greater
authority to respond quickly to customer requests.
PRESTON TRUCKING COMPANY
Our second largest subsidiary, Preston Trucking Company made substantial
progress in increasing revenue and gaining profitable business, particularly
during the second half of 1996. First quarter performance was particularly weak
due primarily to severe winter storms that paralyzed the northeastern United
States. Preston recorded an operating ratio of 99.4 in the second half of the
year, a 3.7 point improvement over the ratio in the last half of 1995. The
operating ratio for the entire year was 101.4, the same as in the prior year.
REGIONAL MARKET EXPANSION
It was another year of growth for Saia Motor Freight Line. Saia finished 1996
with operating revenue of $264 million, a 26.1 percent increase over 1995
revenue of $210 million. The operating ratio improved to 95.9, versus 96.3 in
1995. As a result of prior year expansions, Saia has established a strong
competitive position in the overnight and second-day-delivery market in the
Southeast. Saia will focus on productivity and margin improvement in 1997.
[Picture of Yellow Freight Storage Boxes]
WestEx completed an aggressive expansion plan in 1996. WestEx recorded revenue
of $33 million, nearly double its revenue in 1995. WestEx has been in a rapid
expansion mode since it was acquired in November 1994. It focuses on overnight
and second-day-delivery markets in California, Arizona, New Mexico and parts of
Texas and Nevada.
OUTLOOK FOR SUCCESS
Our people have been the driving force behind our progress in 1996. Yellow
employs some of the most experienced and talented people in the trucking
industry.
A new pay for performance philosophy is another way we intend to motivate the
improvements in company and share price performance that you expect.
A sizable portion of my compensation and that of about 100 key management
personnel is now linked directly with the goals of shareholders. During 1996
an initial grant of 1.5 million shares was made to top management under a stock
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option program. The options gain value as company performance improves and
share price increases.
It's only right that most of my compensation, and that of the senior management
team, be at risk and tied to goals for a reasonable return on your investment.
This creates an incentive for management to do whatever it takes to build a
stronger company. Our middle managers and professional staff also now have
reasonable bonus plans that are tied more directly to company performance. The
bonus plan was introduced in the wake of a salary freeze for all managers
during 1996.
All of our subsidiaries -- Yellow Freight, Preston, Saia, WestEx and Yellow
Technology -- have realigned their organizations to better meet the needs of
our customers. Shippers in every industry are looking for ways to reduce
inventory carrying costs by increasing inventory turns. The trend toward
smaller, more time-definite shipments is definitely increasing. Our specialty
- -- LTL transportation -- fills that need precisely.
One thing is certain about the freight transportation business. We have entered
a new era of dramatic change. Competition continues to increase from all
quarters and will be unrelenting in 1997.
Sure, the competition is tough. And our customers expect more value from the
dollars they spend with us. But that's how it should be. We have largely moved
through our cycle of deregulation. If we expect to prosper, we must adjust and
adapt to the rigor of the marketplace. We welcome it. And you can be assured
that Yellow Corporation is positioned to thrive and prosper.
[Picture of Yellow Corporation Officer]
Sincerely,
A. Maurice Myers
A. Maurice Myers
Chairman, President and
Chief Executive Officer
Yellow Corporation
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1996 VS. 1995
CONSOLIDATED RESULTS (in millions)
1996
Includes Excludes
Special Special
Charge Charge 1995
Revenue $3,073 $3,073 $3,057
Net Income (Loss) $(27.2) $ 1.1 $(30.1)
EPS $ (.97) $ .04 $(1.07)
Operating revenue in 1996 totaled $3.07 billion for Yellow Corporation
(the company) essentially unchanged from the $3.06 billion in 1995. The
company recorded a net loss of $27.2 million, or $.97 per share, which included
a $46.1 million special charge ($28.3 million after taxes, or $1.01 per share)
incurred by Yellow Freight System, Inc. (Yellow Freight), the company's largest
subsidiary. The charge included the write down of certain nonoperating real
estate and computer software assets, an early retirement program, the reduction
of a company car program and other organizational design impacts, primarily
severance. Excluding the special charge, the company had 1996 net income of
$1.1 million, or $.04 per share, compared to a net loss of $30.1 million, or
$1.07 per share, in 1995.
Management and organizational changes designed to sharpen customer focus
and improve profitability at Yellow Freight preceded the special charge. Over
a four month period nearly every facet of the organization was thoroughly
examined. In early December 1996 Yellow Freight announced it was restructuring
into five business units organized by geographic region.
Real estate write downs are part of an ongoing program to improve customer
service and reduce operating expenses which has reduced the number of full
terminals at Yellow Freight from 449 at the beginning of 1995 to 334 at the end
of 1996. The write off of computer software involved specific technology
developed in 1994 and the first half of 1995 which has not nor is intended to
be placed in use in the foreseeable future. It represents a small portion of
the company's investment in technology, the vast majority of which has achieved
the desired results. Early retirement was taken by 130 employees while
severance costs related to the layoff of 70 managerial and general office
employees. Normal attrition is expected to result in further reductions of
between 65 and 70 employees. Overall the organizational design changes lay the
foundation for additional service improvements and cost reductions in all
phases of Yellow Freight's future performance.
Yellow Freight's revenue was $2.36 billion, down 0.3 percent from 1995.
The operating ratio, before the special charge impact, improved from 100.1 in
1995 to 98.5. Including the special charge, the operating ratio was 100.4.
Tonnage declined by 2.8 percent while revenue per ton increased by 2.4 percent.
The tonnage decline was due to market forces and Yellow Freight's efforts to
improve pricing stability. In January 1996 Yellow Freight implemented a
general rate increase averaging 5.8 percent which applied to its customers who
do not have contracts. The 1996 revenue per ton improvement would have been
greater but the intense price discounting experienced in the second half of
1995 resulted in the January 1996 rate increase being calculated on a depressed
rate base. Revenue at Yellow Freight also increased from a fuel surcharge
program implemented in September 1996 to offset higher fuel costs. Yellow
Freight's less-than-truckload (LTL) revenue per ton in the fourth quarter of
1996 was 4.7 percent higher than the fourth quarter of 1995.
Benefiting from aggressive cost reduction programs, operating expenses for
Yellow Freight on a per ton basis were up only 0.6 percent in 1996. This was
in spite of higher fuel costs throughout the year, severe winter weather
experienced in the first quarter and a 3.8 percent increase on April 1 in union
wages and benefits. Higher productivity, including an improvement in load
average, helped moderate other increases in operating costs. The improvement
in load average was especially evident when compared to the last half of 1995.
Load average trended down
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significantly in that period due to the transit time improvement program
implemented in the third quarter of 1995. As this program was adjusted, the
down trend in load average was reversed and by the end of the second quarter of
1996 had substantially improved to levels being achieved prior to the program.
A series of focused cost reduction initiatives were begun at the end of
1995 which included employee reductions, general and administrative expense
cutbacks, the implementation of a "best practices" program and a variety of
other initiatives. The best practices program involves the use of those
procedures being practiced at the most successful terminals throughout the
network. During 1996 these programs achieved a targeted $75 million in cost
reductions and involve a running rate which should benefit future years by a
greater amount.
During 1996, price increases in fuel cost Yellow Freight about $15
million. These additional costs were offset by a fuel hedging program and the
fuel surcharge.
Preston Trucking Company, Inc. (Preston Trucking) had operating revenue of
$418 million in 1996, a 1.5 percent increase over the $411 recorded in 1995.
The operating ratio for Preston Trucking in 1996 was 101.4, the same as in the
prior year. Preston Trucking was adversely impacted by the severe winter
weather in the first quarter of 1996 because of the concentration of its
business in the Northeast and upper Midwest. In addition, first quarter
results suffered from shipper uncertainty regarding a union vote on a company
proposal to freeze wages which at that time were already 5.0 percent below full
contract rates. In February, union members approved the wage proposal enabling
Preston Trucking to avoid a 1.8 percent wage increase scheduled to be effective
April 1, 1996, thus increasing the discount from full rates to 6.8 percent.
Health, welfare and pension costs for union employees were not frozen and
increased 9.0 percent on April 1, 1996.
In the second quarter, a new management team took over at Preston
Trucking. As the year progressed, Preston Trucking's results improved and were
stronger than comparable 1995 periods. Preston recorded an operating ratio of
99.4 in the second half of the year, a 3.7 point improvement over the ratio in
the last half of 1995. Nonunion employee turnover, which had been a
significant problem, also improved dramatically to more reasonable levels.
Preston Trucking's revenue per ton improved 3.0 percent in 1996 over 1995.
The improvement largely occurred in the second half of the year due to
specific rate actions and programs to improve revenue quality. Preston
Trucking implemented a fuel surcharge in June and a general rate increase that
averaged 5.2 percent in late November. LTL revenue per ton was up 6.6 percent
in the fourth quarter of 1996 compared to the fourth quarter of 1995. Preston
Trucking was also able to offset higher fuel costs through a combination of a
fuel hedging program and the fuel surcharge.
Saia Motor Freight Line, Inc. (Saia) again grew at double digit rates in
1996 recording revenue of $264 million compared to 1995 revenue of $210
million, an increase of 26.1 percent. Total tonnage increased by 17.4 percent
with LTL tonnage up 24.6 percent and truckload tonnage up 1.9 percent. The
higher revenue and tonnage resulted from the full year impact of Saia's
significant growth in geographical coverage during 1994 and 1995 as well as an
overall improvement in lane density. Saia also benefited from a 7.4 percent
improvement in revenue per ton partially due to a 2.4 percent increase
in LTL revenue per hundredweight as well as a higher concentration of LTL
freight in the freight mix.
Saia's operating ratio improved to 95.9 compared to 96.3 in 1995. The
improved yield was partially offset by higher salaries and wages which went
from 58.8 percent of revenue to 59.8 percent of revenue in 1996 due to wage
increases and a higher mix of LTL freight. Higher fuel costs and claims and
insurance expense increases were offset by lower purchased transportation
expense which declined due to the purchase of additional equipment and better
asset utilization.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Continued
WestEx, Inc. (WestEx) the company's only other operating subsidiary,
continued to enjoy rapid growth, almost doubling its annual revenue to $33
million in 1996.
Corporate interest expense declined from $23.4 million to $21.0 million
primarily due to lower borrowing levels.
1995 VS. 1994
CONSOLIDATED RESULTS (in millions)
1995 1994
Revenue $3,057 $2,867
Net Income (Loss) $(30.1) $(7.9)
EPS $(1.07) $(.28)
Operating revenue for Yellow Corporation totaled $3.06 billion in 1995, up
6.6 percent 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 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 in 1995,
compared to the strike-induced net loss of $7.9 million, or $.28 per share, in
1994. The 1995 loss resulted from the deterioration in prices and a variety of
cost increases. The cost increases in general involved the following areas:
annual labor cost increases; increased expenses resulting from service
enhancements; corporate development costs including business expansions at Saia
and WestEx; and certain nonrecurring costs.
Yellow Freight's revenue was $2.36 billion in 1995, an increase of 6.4
percent 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 percent,
demonstrating the recovery of business from the strike-impacted 1994 levels,
although rate increases were more than offset by price discounting with LTL
revenue per ton declining by 1.5% in 1995.
On April 1, 1995, union wages and benefits increased approximately 3.2
percent. In addition, Yellow Freight incurred higher expenses in the third and
fourth quarters when it implemented a transit time improvement program. For
1995 compared to 1994, transit times improved by approximately one day,
resulting in higher costs associated with a 5.7 percent lower load average and a
14.0 percent increase in total linehaul miles. Some cost savings were obtained
by an increase in direct loadings which reduced rehandlings by 8.7 percent.
Additional savings were achieved through an increased use of rail transportation
from 13.1 percent of total miles in 1994 to 17.5 percent in 1995 and the
elimination of forced overtime for dockworkers, both provisions of the 1994
labor contract. 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 into two
centralized locations.
Preston Trucking had revenue of $411 million, a decrease of 1.3 percent
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. 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 percent to $210 million due to geographical
expansions in several states in 1994 and 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
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margin deterioration was primarily caused by increased wages and the impacts of
the expansions. 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 comprised less than 3
percent of consolidated 1995 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 expanded from its traditional Arizona and New Mexico
market into California.
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.
Accounts receivable days outstanding increased at Yellow Freight due to both
market forces and transition implementation issues related to a new system for
customer billing and stating.
The fourth quarter 1995 results included a nonrecurring charge of $6.6
million after taxes, or $.23 per share, pertaining to implementation of cost
reduction programs, the realignment of Yellow Logistics and other expenses
primarily related to severance costs.
1994 VS. 1993
CONSOLIDATED RESULTS (in millions)
1994 1993
Revenue $2,867 $2,857
Net Income (Loss) $ (7.9) $ 18.8
EPS $ (.28) $ .67
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 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.
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. An extraordinary item of $4.1 million after taxes,
or $.14 per share, to write off the value of intrastate operating rights, also
negatively impacted 1994 results. 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 percent
decrease in revenue for 1994 ($2.22 billion) versus 1993 ($2.36 billion). Rate
increases in January 1994 were offset by a 6.6 percent decrease in tonnage
levels and a 12.3 percent 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.
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. Slightly lower employee
levels were offset by wage and benefit increases of approximately 3 percent
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
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Continued
maintenance and general expenses. Purchased transportation costs were higher
in 1994 as a result of increased rail usage in the third and fourth quarters.
Preston Trucking had revenue of $417 million in 1994, an increase of 4.9
percent compared to 1993. However, their operating margin deteriorated
slightly during the year as a result of severe winter weather in the Northeast
during the first quarter, the impact of the second quarter strike and shipper
uncertainty concerning approval of the wage reduction agreement described
below. Preston Trucking saw a dramatic increase in revenue during the second
quarter of 1994 as they returned to work under an interim agreement with the
Teamsters after only six days on strike. The increased business adversely
affected service performance and costs, reducing profitability in the latter
part of the second quarter and into the third quarter. In mid-1994, the
Teamster employees of Preston Trucking approved a plan to reduce wages in
return for a share of profits if certain operating results are achieved. The
plan lessened pay by 7.0 percent from standard wages under the new contract for
the period April 1, 1994 to March 31, 1995 and by 5.0 percent for the period
April 1, 1995 to March 31, 1996.
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 increased 1994 operating expenses. Saia, with revenue of $138
million in 1994, achieved a 14.7 percent increase in revenue compared to 1993
due to growth and second quarter benefits from the labor strike. Effective
January 1, 1995, Smalley Transportation Company, which had revenue of $40
million in 1994, was merged into Saia to offer customers more comprehensive
regional coverage and to reduce costs.
FINANCIAL CONDITION
The company's liquidity needs arise primarily from capital investment in
new equipment and information technology, and funding working capital
requirements.
Net capital expenditures in 1996 totaled only $46 million, down from $140
million in 1995. This dramatic reduction in capital expenditures was designed
to decrease capacity and limit reinvestment in the business given recent year
losses. As a result, the company used internally generated funds to
aggressively pay down debt. Capital expenditures were primarily for additional
and replacement revenue equipment to support the growth at Saia and to replace
some revenue equipment at Yellow Freight. Additional expenditures were used to
fund technology investments. Projected net capital expenditures for 1997 are
$109 million and will mainly be used for replacement of revenue equipment at
Yellow Freight and Saia and for additional investments in information
technology. Actual and projected net capital expenditures are summarized below
(in millions):
Actual
Projected ---------------------
1997 1996 1995 1994
- ------------------------------------ ---- ---- ----
Land and structures:
Additions $ 10 $ 11 $ 13 $28
Sales (17) (10) (16) (25)
Revenue equipment 89 26 74 98
Other 27 19 69 50
- ------------------------------------ ---- ---- ----
Total $109 $ 46 $140 $151
==================================== ==== ==== ====
Debt reduction has been a priority at the company throughout 1996.
Management committed to reducing debt by at least $100 million by year-end.
Total debt declined from $354 million to $196 million at year-end 1996. Almost
$117 million of commercial paper was repaid, $9 million of unsecured bank lines
were paid off and medium term notes were reduced by over $23 million.
Historically, the company has generated strong cash flows from operating
activities. The decreased capital spending described above provided the
largest source of funding for debt paydown. A portion of the reduction was
also achieved through the sale of $45 million under an accounts receivable
sales agreement described below. Additionally, the company received a federal
income tax refund
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totaling $45 million and repatriated approximately $23 million from a Canadian
subsidiary.
TOTAL DEBT (in millions)/DEBT TO CAPITAL
Total Debt Debt to Capital
1996 196 33.1
1995 354 45.5
1994 248 35.0
1993 227 31.8
1992 134 21.6
Early in 1996 a major rating agency lowered its rating on the company's
commercial paper. While the company continued to issue commercial paper
throughout 1996 it became a less cost effective way to finance short-term
working capital needs. In August 1996 the company entered into an $150
million, three year accounts receivable revolving sales agreement with a major
bank. This agreement permits the sale of accounts receivable to a wholly owned
special purpose corporation which in turn sells an undivided interest to a
third party affiliate of the bank. Funds raised by this method are less
expensive to the company than issuing commercial paper.
Working capital declined from a positive $42 million at year-end 1995 to a
negative $34 million at year-end 1996. The company can operate with negative
working capital because of the quick turnover of its accounts receivable and
its ready access to sources of short-term liquidity.
Management anticipates that the company's liquidity will be adequate and
that its financial condition will continue to improve in 1997. Operating
results should improve in 1997 and capital expenditures, while higher than in
1996, will still be below the expected depreciation for the year, thus allowing
some additional debt reduction. To ensure short-term liquidity, the company
has a $200 million bank credit agreement that expires in June 2000. While this
facility is also used to provide letters of credit, approximately $145 million
remained available at year-end 1996. In addition, $105 million of capacity
remained available under the accounts receivable sales agreement at year-end
1996. Access to this facility, however, is dependent on the company having
adequate eligible receivables, as defined under the agreement, available for
sale. Finally, the company also expects to continue to have access to the
commercial paper market and to short-term unsecured bank credit lines.
OTHER
The company uses heating oil swaps and fixed price diesel fuel agreements
to manage a portion of its exposure to fluctuating diesel prices. About 50
percent of the company's total annual fuel usage was covered by such agreements
in 1996. Due to the high cost of diesel fuel, however, the company has chosen
not to enter into new contracts at current prices, resulting in a lower overall
percentage of anticipated fuel consumption being covered by these agreements to
date. Approximately 20 percent of the company's total anticipated 1997 fuel
usage is currently covered. Under the heating oil swap and option agreements,
the company receives or makes payments based on the difference between a fixed
price and a variable price for heating oil. The fair value of the hedge
position at December 31, 1996 was $3.1 million above the purchase price. Gains
and losses on the agreements are recognized as a component of fuel expense when
the corresponding fuel is purchased.
A "pay for performance" incentive compensation plan was initiated by the
company which will reward employees based on operating income and return on
capital goals. Additionally, the company adopted a stock option program
granting an initial 1.5 million shares to approximately 100 key management
personnel to better align compensation to shareholder performance.
The effective income tax rate was (20.8) percent in 1996, (33.1) percent
in 1995 and 14.0 percent in 1994. The notes to consolidated financial
statements contain an analysis of the income tax provision and the effective
tax rate.
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Continued
FUTURE OUTLOOK
Throughout 1996 the company has made many changes designed to improve
future performance, especially at Yellow Freight. The restructuring of Yellow
Freight into five business units is designed to decentralize responsibility for
critical business processes. Decisions that touch the customer will be made
more quickly in order to be more responsive to their shipping expectations.
The new alignment will also allow more efficient use of the leading edge
technology Yellow Freight has developed to react more quickly to customer
needs.
Cost reduction initiatives begun at Yellow Freight in late 1995 were
successfully pursued and achieved targeted savings of $75 million in 1996.
These programs will have a full year impact in 1997 and are expected to save in
excess of $90 million. A second phase of cost reduction initiatives, based on
recommendations of employee teams who studied various operational areas at
Yellow Freight, will be implemented in 1997 and should further reduce costs by
an additional increment. In connection with some of these recommendations,
Yellow Freight filed a change of operations with the Teamsters on January 31,
1997. The operations change is expected to be implemented in April 1997, and
is projected to increase the use of rail transportation from 18 percent to 27
percent of over the road miles thereby lowering costs. The increased use of
rail, improved productivity and continued terminal network enhancements seek to
improve the company's asset utilization and return on capital.
On April 1, 1997 Yellow Freight's wages and benefits will increase
approximately 3.8 percent as required by the terms of the industry collective
bargaining agreement with the Teamsters. This agreement extends through March
31, 1998.
Effective January 1997 Yellow Freight implemented a general rate increase
of 5.2 percent and maintained a separate fuel surcharge program. These
increases seek to not only offset ongoing cost increases but also help improve
shareholder returns which continue to be inadequate. Similar rate increases
for the other operating subsidiaries were implemented in late 1996. The LTL
trucking industry remains highly competitive and the company intends to improve
its shareholder returns through aggressive cost management, improved asset
utilization and an increased focus on marketing and customer service.
Preston Trucking seeks to continue its positive momentum in 1997. Plans
to further improve performance in 1997 focus on pricing discipline, improved
marketing, and improvements in labor productivity. The wage freeze plan
approved by its union employees in 1996 means it will not have to raise wages
on April 1. This will then leave Preston Trucking wages 8.9 percent below
full-scale pay levels. Health, welfare and pension benefit costs, however,
will increase by 8.2 percent on April 1, 1997. Preston's labor agreement also
extends until March 31, 1998.
Saia plans to improve its margins and leverage the benefits of recent year
expansions and tonnage increases. Productivity improvements are an important
priority as well as better pricing, improved marketing and further tonnage
growth. This growth, however, is expected to come more from building business
density in existing service areas rather than from geographical expansion.
WestEx expects to continue to grow rapidly through increased business density.
A small operating profit is planned for WestEx in 1997.
The foregoing information contains forward-looking statements that are
based on current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from current
expectations due to a number of factors. The strength of the national economy,
the actions of competitors especially as they affect pricing stability, the
impact of weather on company operations, union relations, actual future costs
of operating expenses such as fuel and related taxes, self-insurance claims and
employee wages and benefits, actual costs of continuing investments in revenue
equipment and technology, availability and cost of capital and the ability of
the company to implement the cost reduction programs discussed are all
significant variables affecting future performance.
16
<PAGE> 19
SUBSIDIARY PROFILES
17
FINANCIAL SUMMARY
18
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
33
SUPPLEMENTARY INFORMATION
34
OFFICERS
35
DIRECTORS
36
<PAGE> 20
<TABLE>
<CAPTION>
COMPANY SERVICES PROFILE
<S> <C> <C>
[YELLOW FREIGHT LOGO] National LTL 24,000 employees
International LTL/LCL 397 terminals, substations
Express LTL & service centers
Rail Intermodal 9,100 tractors / 34,000 trailers
Heavy Load / Truckload 300,000 customers
Chemical LTL Delivered 8.3 million tons
Exhibit LTL of freight in 1996.
Integrated Logistics Web address:
Information Technology Services http://www.yellowfreight.com
[PRESTON TRUCKING LOGO] Regional LTL - Northeast and 5,500 employees
upper Midwest 77 terminals, substations
Overnight & Second-Day delivery & service centers
Guaranteed expedited service 190,000 customers
Canadian service 2,100 tractors / 6,200 trailers
Delivered 2.3 million tons
of freight in 1996.
Web address:
http://www.yellowcorp.com
/preston/index.htm
[SAIA LOGO] Regional LTL - Southeast 3,900 employees
Overnight & Second-Day delivery 73 terminals, substations
Guaranteed expedited service & service centers
Canadian service 90,000 customers
1,700 tractors / 4,000 trailers
Delivered 2.0 million tons
of freight in 1996
Web address
http://www.saia.com
[WEST EX] Regional LTL - Southwest 700 employees
Overnight & Second-Day delivery 30 terminals, substations
Guaranteed expedited service & service centers
3,000 customers
170 tractors / 740 trailers
Delivered 204,000 million tons
of freight in 1996
Web address
http://www.westex-inc.com
</TABLE>
17
<PAGE> 21
FINANCIAL SUMMARY
Yellow Corporation and Subsidiaries
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
1996 (a) 1995 1994(b) 1993(c)
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FOR THE YEAR:
Operating revenue $3,072,550 $3,056,640 $2,867,492 $2,856,505
Income (loss) from operations (13,515) (21,588) 11,011 53,893
Depreciation 130,098 135,265 133,970 132,371
Interest expense 21,036 23,395 18,433 17,668
Income (loss) before income taxes (34,301) (45,021) (3,375) 35,358
Income (loss) before extraordinary items and
cumulative effect of accounting changes (27,180) (30,122) (3,848) 18,801
Net income (loss) (27,180) (30,122) (7,906) 18,801
Net cash from operating activities 197,521 44,166 157,448 138,802
Capital expenditures, net 46,358 140,254 150,940 66,786
AT YEAR-END:
Net property and equipment 812,690 921,848 918,101 892,600
Total assets 1,227,807 1,434,897 1,307,221 1,265,654
Long-term debt 192,492 341,648 240,019 214,176
Total debt 196,153 353,573 247,760 226,503
Shareholders' equity 395,700 422,677 460,843 486,453
MEASUREMENTS:
Per share data:
Income (loss) before extraordinary items and
cumulative effect of accounting
changes (.97) (1.07) (.14) .67
Net income (loss) (.97) (1.07) (.28) .67
Cash dividends - .47 .94 .94
Shareholders' equity 14.08 15.04 16.40 17.31
Total debt as a % of total capitalization 33.1 % 45.5 % 35.0 % 31.8%
Return on average shareholders' equity (6.6)% (6.8)% (1.7)% 3.9%
Market price range:
High 16 3/8 24 3/8 30 1/4 29 7/8
Low 10 1/4 11 7/8 16 3/4 16 7/8
Average number of employees 34,100 34,700 33,400 35,000
</TABLE>
(a) 1996 results include a special charge of $28.3 million after taxes resulting
from the write down of certain nonoperating real estate and computer
software assets, an early retirement program, the reduction of a company car
program and other organizational design impacts, primarily severance.
(b) 1994 results include the effect of a 24-day Teamster strike at Yellow
Freight System.
(c) 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.
18
Yellow Corporation Annual Report
<PAGE> 22
<TABLE>
<CAPTION>
1992 1991 1990 1989(d) 1988 1987 1986
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$2,262,676 $2,344,143 $2,302,421 $2,219,755 $2,016,466 $1,759,992 $1,713,731
82,814 56,907 119,774 48,041 117,786 78,089 135,619
118,419 124,687 128,134 123,268 108,353 98,982 86,850
12,150 14,159 15,763 15,452 12,254 9,172 7,441
65,393 40,348 101,905 26,533 104,997 64,360 123,259
41,040 26,654 65,319 18,585 68,962 41,284 67,084
29,540 26,654 65,319 47,785 68,962 41,284 69,719
139,438 146,954 219,463 179,481 204,943 140,163 169,745
78,651 104,668 162,316 182,232 180,587 152,684 176,622
803,779 842,849 862,272 829,447 774,642 702,664 649,552
1,061,012 1,097,771 1,116,005 1,081,665 1,020,724 923,867 862,359
123,027 145,584 163,703 186,680 168,902 126,241 75,390
134,077 156,707 174,169 192,067 174,223 144,189 112,253
485,496 475,869 468,944 438,588 408,986 392,923 376,370
1.46 .95 2.31 .65 2.40 1.44 2.35
1.05 .95 2.31 1.66 2.40 1.44 2.44
.94 .94 .82 .73 .66 .62 .58
17.28 16.94 16.70 15.24 14.21 13.82 13.14
21.6% 24.8% 27.1% 30.5% 29.9% 26.8% 23.0%
6.1% 5.6% 14.4% 11.3% 17.2% 10.7% 20.0%
32 3/8 33 1/2 31 1/4 32 7/8 34 42 1/2 41 1/8
21 3/4 23 3/4 18 3/4 23 7/8 23 7/8 20 7/8 27 1/2
26,800 28,700 28,900 29,200 27,200 25,500 23,400
</TABLE>
(d) 1989 results include an increase in reserves for workers' compensation and
other reserves of $27.7 million after taxes.
19
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries
December 31, 1996 and 1995
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
ASSETS 1996 1995
- -------------------------------------------------------------------------------------------- ---------
CURRENT ASSETS:
<S> <C> <C>
Cash $24,800 $ 25,861
Short-term investments - 5,414
Accounts receivable, less allowances of $13,819 and $16,781 280,758 323,814
Fuel and operating supplies 15,426 16,909
Refundable income taxes 6,150 49,529
Prepaid expenses 62,874 63,483
- ---------------------------------------------------------------------------------------------- ---------
Total current assets 390,008 485,010
- ---------------------------------------------------------------------------------------------- ---------
PROPERTY AND EQUIPMENT:
Land 120,172 137,112
Structures 607,104 611,284
Revenue equipment 963,442 969,960
Other 275,080 271,033
- -------------------------------------------------------------------------------------------- ----------
1,965,798 1,989,389
Less - Accumulated depreciation 1,153,108 1,067,541
- -------------------------------------------------------------------------------------------- ----------
Net property and equipment 812,690 921,848
- -------------------------------------------------------------------------------------------- ----------
OTHER ASSETS 25,109 28,039
- -------------------------------------------------------------------------------------------- ----------
$1,227,807 $1,434,897
- ----------------------------------------------------------------------------------========== ==========
</TABLE>
The notes to consolidated financial statements are an integral part of these
balance sheets.
20
<PAGE> 24
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
- ------------------------------------------------------- -----------
CURRENT LIABILITIES:
Unsecured bank credit lines $ - $ 9,000
Checks outstanding 75,250 72,667
Accounts payable 76,288 81,986
Wages, vacations and employees' benefits 132,255 134,178
Deferred income taxes 17,658 19,818
Claims and insurance accruals 79,541 79,853
Other current and accrued liabilities 39,052 42,369
Current maturities of long-term debt 3,661 2,925
- ------------------------------------------------------- -----------
Total current liabilities 423,705 442,796
- ------------------------------------------------------- -----------
OTHER LIABILITIES:
Long-term debt 192,492 341,648
Deferred income taxes 31,555 56,032
Claims, insurance and other 184,355 171,744
- ------------------------------------------------------- -----------
Total other liabilities 408,402 569,424
- ------------------------------------------------------- -----------
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 28,863,285
and 28,857,537 shares 28,863 28,858
Capital surplus 6,745 6,678
Retained earnings 377,712 404,761
Treasury stock, at cost (751,740 shares) (17,620) (17,620)
- ------------------------------------------------------- -----------
Total shareholders' equity 395,700 422,677
- ------------------------------------------------------- -----------
$1,227,807 $1,434,897
======================================================= ===========
21
<PAGE> 25
STATEMENTS OF CONSOLIDATED OPERATIONS
Yellow Corporation and Subsidiaries
For the Years Ended December 31
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------- ---------- ----------
OPERATING REVENUE $3,072,550 $3,056,640 $2,867,492
- ------------------------------------------------------------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and employees' benefits 2,040,950 2,051,277 1,918,406
Operating expenses and supplies 472,413 473,356 433,789
Operating taxes and licenses 113,942 115,120 110,004
Claims and insurance 74,931 70,376 76,953
Communications and utilities 42,740 44,412 41,064
Depreciation 130,098 135,265 133,970
Purchased transportation 164,853 188,422 142,295
Special charge 46,138 - -
- ------------------------------------------------------------- ---------- ----------
Total operating expenses 3,086,065 3,078,228 2,856,481
- ------------------------------------------------------------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (13,515) (21,588) 11,011
- ------------------------------------------------------------- ---------- ----------
NONOPERATING (INCOME) EXPENSES:
Interest expense 21,036 23,395 18,433
Interest income (2,287) (2,100) (2,202)
Other, net 2,037 2,138 (1,845)
- ------------------------------------------------------------- ---------- ----------
Nonoperating expenses, net 20,786 23,433 14,386
- ------------------------------------------------------------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (34,301) (45,021) (3,375)
INCOME TAX PROVISION (BENEFIT) (7,121) (14,899) 473
- ------------------------------------------------------------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (27,180) (30,122) (3,848)
EXTRAORDINARY ITEM - WRITE-OFF OPERATING RIGHTS - - (4,058)
- ------------------------------------------------------------- ---------- ----------
NET INCOME (LOSS) $ (27,180) $ (30,122) $ (7,906)
- ---------------------------------------------------========== ========== ==========
AVERAGE COMMON SHARES OUTSTANDING 28,110 28,106 28,107
- ---------------------------------------------------========== ========== ==========
EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary item $ (.97) $ (1.07) $ (.14)
Extraordinary item - write-off operating rights - - (.14)
- ------------------------------------------------------------- ---------- ----------
Net income (loss) $ (.97) $ (1.07) $ (.28)
- ---------------------------------------------------========== ========== ==========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
22
<PAGE> 26
STATEMENTS OF CONSOLIDATED CASH FLOWS
Yellow Corporation and Subsidiaries
For the Years Ended December 31
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------ ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (27,180) $(30,122) $ (7,906)
Noncash items included in income (loss):
Depreciation 130,098 135,265 133,970
Special charge 46,138 - -
Write-off operating rights - - 4,058
Deferred income tax provision (benefit) (26,481) 29,641 4,147
Accounts receivable securitizations, net 45,000 - -
Changes in assets and liabilities, net:
Accounts receivable (1,944) (34,064) (17,263)
Accounts payable and checks outstanding (3,115) 40,273 46,060
Other working capital items 30,661 (82,593) (13,477)
Claims, insurance and other (245) (3,437) 12,007
Other, net 4,589 (10,797) (4,148)
- ------------------------------------------------------------ ---------- ----------
Net cash from operating activities 197,521 44,166 157,448
- ------------------------------------------------------------ ---------- ----------
INVESTING ACTIVITIES:
Acquisition of property and equipment (58,384) (163,426) (182,885)
Proceeds from disposal of property and equipment 12,026 23,172 31,945
Purchases of short-term investments (1,684) (7,759) (8,957)
Proceeds from maturities of short-term
investments 7,098 9,650 8,429
Other, net - 5,106 (6,244)
- ------------------------------------------------------------ ---------- ----------
Net cash used in investing activities (40,944) (133,257) (157,712)
- ------------------------------------------------------------ ---------- ----------
FINANCING ACTIVITIES:
Unsecured bank credit lines, net (9,000) 9,000 -
Commercial paper, net (116,627) 69,510 33,981
Proceeds from issuance of long-term debt - 56,497 14,000
Repayment of long-term debt (32,011) (24,457) (17,701)
Cash dividends - (13,210) (26,416)
Other, net - (1) 76
- ------------------------------------------------------------ ---------- ----------
Net cash from (used in)
financing activities (157,638) 97,339 3,940
- ------------------------------------------------------------ ---------- ----------
NET INCREASE (DECREASE) IN CASH (1,061) 8,248 3,676
CASH, BEGINNING OF YEAR 25,861 17,613 13,937
- ------------------------------------------------------------ ---------- ----------
CASH, END OF YEAR $ 24,800 $25,861 $ 17,613
- ---------------------------------------------------========= ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes (received) paid, net $(23,508) $10,793 $ 1,245
- ---------------------------------------------------========= ========== ==========
Interest paid $ 20,642 $21,018 $ 18,103
- ---------------------------------------------------========= ========== ==========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
23
<PAGE> 27
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Yellow Corporation and Subsidiaries
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
Shares Held
Common Capital Retained by Stock Treasury
Stock Surplus Earnings Sharing Plan Stock
- ----------------------------------------------------- ------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ 28,850 $6,469 $483,586 $(14,880) $(17,572)
Net loss - - (7,906) - -
Cash dividends, $.94 per share - - (26,416) - -
Exercise of stock options, 7,700 shares 8 117 - - -
Amortization of unearned compensation - 92 - - -
Reduction of Stock Sharing
Plan debt guarantee - - - 9,919 -
Purchase of treasury stock - - - - (47)
Foreign equity translation
adjustment - - (1,377) - -
- ------------------------------------------------------ ------ -------- -------- --------
BALANCE, DECEMBER 31, 1994 28,858 6,678 447,887 (4,961) (17,619)
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)
Net loss - - (27,180) - -
Restricted stock awards, 5,748 shares 5 (5) - - -
Amortization of unearned compensation - 72 - - -
Foreign equity translation adjustment - - 131 - -
- ------------------------------------------------------ ------ -------- -------- --------
BALANCE, DECEMBER 31, 1996 $28,863 $6,745 $377,712 $ - $(17,620)
- --------------------------------------------- ======= ====== ======== ======== ========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
24
<PAGE> 28
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 one year, are classified as short-term investments and are
stated at cost which approximates market.
- - 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, 1996 the company had agreements with financial
institutions and oil companies to exchange payments on 31.4 million gallons at
a fixed cost averaging $.54 per gallon over the next 11 months, representing
20% of total anticipated annual fuel usage. At December 31, 1995 the company
had agreements on 83.3 million gallons at a fixed cost averaging $.50 per
gallon over the next 14 months, representing 50% of total anticipated annual
fuel usage. Based on quoted market prices, the fair value of the hedge position
at December 31, 1996 and 1995 was $3.1 million and $2.0 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 multi-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. In the fourth quarter of 1996, management determined that a
portion of the software related to the freight management area would not be
placed in use in the foreseeable future and recognized an impairment loss of $8
million as part of the special charge at Yellow Freight.
As of December 31, 1996, the company had an investment of $50 million in
the projects. Of that amount $29 million has been placed into service. The
remaining $21 million represents other systems applications in various stages
of completion. These applications are expected to be placed in service and
management believes the related costs are realizable. The company is still
evaluating future investments in mobile data terminals which will impact
whether the total technology investment will meet or exceed $100 million.
25
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
PRINCIPLES OF CONSOLIDATION AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
- - Acquisitions have been accounted for by the purchase method. Earnings of the
acquired companies are included in the accompanying consolidated financial
statements since the date of acquisition. The excess of the purchase price over
net assets acquired is included with other long-term assets and is being
amortized over 20 years using the straight-line method.
- - Claims and insurance accruals, both current and long-term, reflect the
estimated cost of claims for workers' compensation, cargo loss and damage, and
bodily injury and property damage not covered by insurance. These costs are
included in claims and insurance expense except for workers' compensation which
is included in employees' benefits expense.
Reserves for workers' compensation are based upon actuarial analyses
prepared by independent actuaries and are discounted to present value using a
risk-free rate. The risk-free rate is the U.S. Treasury rate for maturities
that match the expected pay-out of workers' compensation liabilities. The
process of determining reserve requirements utilizes historical trends and
involves an evaluation of claim frequency, severity and other factors. The
effect of future inflation for both medical costs and lost wages is implicitly
considered in the actuarial analyses. Adjustments to previously established
reserves are included in operating results.
At December 31, 1996 and 1995, estimated future payments for workers'
compensation claims aggregated $156.5 million and $164.9 million. The present
value of these estimated future payments was $130.0 million at December 31,
1996 and $142.6 million at December 31, 1995.
- - 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.
- - The earnings per share data is computed based on the weighted average number
of shares of common stock outstanding. The exercise of outstanding stock
options would not result in a material dilution of the earnings per share.
DEBT AND FINANCING
At December 31, debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------ ----------
<S> <C> <C>
Unsecured bank credit lines $ - $ 9,000
Commercial paper 11,832 128,459
Medium term notes 125,000 148,500
Industrial development bonds 26,600 32,100
Capital leases and other 7,113 10,124
Subordinated debentures 25,608 25,390
- ------------------------------------------------------ ----------
Total debt 196,153 353,573
Less - Unsecured bank credit lines - 9,000
Current maturities 3,661 2,925
- ------------------------------------------------------ ----------
Total long-term debt $ 192,492 $ 341,648
- -------------------------------------------=========== ==========
</TABLE>
26
<PAGE> 30
DEBT AND FINANCING (CONTINUED)
The company has a five year $200 million unsecured credit agreement with a
group of banks which expires June 23, 2000. The agreement may be used for
short-term borrowings or for the issuance of standby letters of credit.
Interest on borrowings is based, at the company's option, at a fixed increment
over the London interbank offered rate, or at the agent bank's base rate. The
company may also solicit competitive bids from the bank group. There are no
compensating balances required but a facility fee is charged. Under the terms
of the agreement the company must maintain a minimum consolidated tangible net
worth and annual cash flow must be a specified ratio of total debt. At December
31, 1996 and 1995, the company was in compliance with all terms of the credit
agreement. At December 31, 1996 there were no borrowings outstanding, but $55
million of letters of credit had been issued under the agreement. There were no
borrowings under this credit agreement or its predecessor in 1995.
Effective August 2, 1996, the company entered into a $150 million, three
year accounts receivable sales agreement with a major bank. The agreement
involves the sale of accounts receivable to a wholly owned, special purpose
corporation (SPC). The SPC in turn sells an undivided interest in a revolving
pool of eligible receivables as funding is required. Under terms of the
agreement, the SPC's assets are available to satisfy its obligations prior to
any distribution to its shareholders. The company maintains responsibility for
processing and collecting all receivables. Accounts receivable at December 31,
1996 are net of $45 million of receivables sold. All costs associated with this
agreement are recorded in Other, net nonoperating expense.
The company maintains financing flexibility under the credit agreement and
the accounts receivable sales agreement to support the commercial paper program
and provide additional liquidity if needed. 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, 1996 and 1995 were 6.0% and 6.2%. 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 4.6% 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
10.2%.
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: 1997 - $3,661,000, 1998 - $4,063,000, 1999 - $2,849,000,
2000 - $30,956,000, 2001 - $8,481,000.
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, 1996 and 1995 was approximately $193 million and $355 million.
27
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
SPECIAL CHARGES
In the fourth quarter of 1996, the company's Yellow Freight subsidiary
recorded a special charge of $46.1 million, or $28.3 million after taxes. The
charge was the result of management and organizational changes designed to
sharpen customer focus and improve profitability by reducing operating
expenses. As part of these changes Yellow Freight was restructured into five
geographic business units designed to decentralize responsibility for critical
business processes. The major components of the charge are as follows (amounts
in thousands):
<TABLE>
<S> <C>
Write down nonoperating real estate $ 16,548
Write off computer software 8,359
Early retirement program 13,731
Company car program reduction 3,600
Severance and organization design 3,900
------------------------------------------------
Total charge before taxes $ 46,138
-------------------------------------===========
</TABLE>
A total of 13 parcels of property held for sale were written down to their
estimated fair values, as determined by independent appraisal, less selling
costs. The write off of computer software related to a portion of the
freight management project that was determined to be impaired. In 1996, an
early retirement program was announced that offered unreduced retirement
benefits to employees over age 55 with at least 20 years of service. The cost
primarily represents the pension benefit obligation for the 130 employees
electing this program. The reduction in the company car program related to a
decrease in the number of employees eligible and the costs associated with
reducing the program. The severance and organization design costs relate
primarily to the layoff of 70 managerial and general office employees.
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.
INCOME TAXES
The company accounts for income taxes in accordance with the liability
method. Deferred income taxes are determined based upon the difference between
the book and the tax basis of the company's assets and liabilities. Deferred
taxes are provided at the enacted tax rates expected to be in effect when these
differences reverse.
Deferred tax liabilities (assets) are comprised of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------- ---------
<S> <C> <C>
Depreciation $ 111,608 $ 128,810
Prepaids 17,711 19,022
Employee benefits 12,501 19,357
Revenue 8,287 7,038
Other 9,511 5,489
- ------------------------------------------- ---------
Gross liabilities 159,618 179,716
- ------------------------------------------- ---------
Claims and insurance (81,261) (84,779)
Bad debts (10,995) (7,554)
NOL and AMT credit carryforwards (9,492) (4,043)
Other (8,657) (7,490)
- ------------------------------------------- ---------
Gross assets (110,405) (103,866)
- ------------------------------------------- ---------
Net liability $ 49,213 $ 75,850
- ----------------------------------========= =========
</TABLE>
28
<PAGE> 32
INCOME TAXES (CONTINUED)
The income tax provision (benefit) is computed based on the following
amounts of income (loss) before income taxes (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------ --------- --------
<S> <C> <C> <C>
Domestic $ (41,007) $ (51,120) $ (7,276)
Foreign 6,706 6,099 3,901
- ------------------------------------------------------------ --------- --------
Total loss before income taxes $ (34,301) $ (45,021) $ (3,375)
- --------------------------------------------------========== ========= ========
</TABLE>
The income tax provision (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------ --------- --------
<S> <C> <C> <C>
Current:
U.S. federal $ 8,639 $ (40,370) $ (4,158)
State 7,588 (7,094) (1,870)
Foreign 3,133 2,924 2,354
- ------------------------------------------------------------ --------- --------
Total current 19,360 (44,540) (3,674)
- ------------------------------------------------------------ --------- --------
Deferred:
U.S. federal (16,715) 24,703 4,235
State (9,668) 4,645 768
Foreign (98) 293 (856)
- ------------------------------------------------------------ --------- --------
Total deferred (26,481) 29,641 4,147
- ------------------------------------------------------------ --------- --------
Total provision (benefit) $ (7,121) $ (14,899) $ 473
- --------------------------------------------------========== ========= ========
</TABLE>
A reconciliation between income taxes at the federal statutory rate (35%)
and the consolidated provision (benefit) follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------ --------- --------
<S> <C> <C> <C>
Benefit at federal statutory rate $ (12,005) $ (15,757) $ (1,181)
State income taxes, net (1,352) (1,592) (716)
Nondeductible business expenses 2,431 3,103 2,571
Foreign tax rate differential 688 1,082 133
Repatriation of Canadian earnings, net 3,169 - -
Other, net (52) (1,735) (334)
- ------------------------------------------------------------ --------- --------
Total provision (benefit) $ (7,121) $ (14,899) $ 473
- --------------------------------------------------========== ========= ========
Effective tax rate (20.8)% (33.1)% 14.0%
- --------------------------------------------------========== ========= ========
</TABLE>
29
Yellow Corporation Annual Report
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
COMMITMENTS AND CONTINGENCIES
The company leases certain terminals and equipment. At December 31, 1996,
the company was committed under noncancellable lease agreements requiring
minimum annual rentals aggregating $66.8 million payable as follows: 1997 -
$29.1 million, 1998 - $14.7 million, 1999 - $6.2 million, 2000 - $3.7 million,
2001 - $2.7 million and thereafter, $10.4 million.
Projected 1997 net capital expenditures are $109 million, of which $3
million was committed at December 31, 1996.
The company estimates it will incur between $17-20 million in costs over
the next three years to modify its internal-use software for the year 2000.
These costs will be charged to expense as incurred.
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 (approximately 30% of total
employees). 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 corporate fixed income securities and U.S.
equities.
The pension benefit obligation increased by $12.9 million in 1996 as the
result of 130 employees electing an early retirement program described in the
Special Charges note. The following tables set forth the plans' funded status
and components of net pension cost (in thousands):
<TABLE>
<CAPTION>
FUNDED STATUS AT DECEMBER 31: 1996 1995
- -------------------------------------------------------------------------------------------------------- --------
<S> <C> <C>
Actuarial present value of benefits at current salary levels and service rendered to date:
Vested benefits $ 179,196 $148,691
Non-vested benefits 1,178 1,042
- -------------------------------------------------------------------------------------------------------- --------
Accumulated benefit obligation 180,374 149,733
Effect of anticipated future salary increases 24,127 25,824
- -------------------------------------------------------------------------------------------------------- --------
Projected benefit obligation 204,501 175,557
Plan assets at fair value 169,188 141,442
- -------------------------------------------------------------------------------------------------------- --------
Plan assets less than projected benefit obligation (35,313) (34,115)
Unrecognized net (gain) loss (4,240) 8,618
Unrecognized initial net asset being amortized over 17 years (15,670) (18,058)
- -------------------------------------------------------------------------------------------------------- --------
Pension cost accrued, not funded $ (55,223) $(43,555)
- ---------------------------------------------------------------------------------------------=========== ========
<CAPTION>
NET PENSION COST: 1996 1995 1994
- -------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 9,469 $ 7,412 $ 8,313
Interest cost on projected benefit obligation 13,478 12,429 11,109
Actual return on plan assets (20,669) (27,205) 393
Amortization of unrecognized net assets (1,965) (2,420) (2,197)
Net deferral 9,188 16,550 (10,818)
- -------------------------------------------------------------- -------- --------
Net pension cost $ 9,501 $ 6,766 $ 6,800
- ------------------------------------------------------======== ======== ========
<CAPTION>
ASSUMPTIONS USED IN THE ACCOUNTING AT DECEMBER 31: 1996 1995 1994
- -------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
Discount rate 7.5% 7.5% 8.5%
Rate of increase in compensation levels 4.0% 5.0% 4.0%
Expected rate of return on assets 9.0% 9.0% 9.0%
</TABLE>
-30-
Yellow Corporation Annual Report
<PAGE> 34
EMPLOYEE BENEFITS (CONTINUED)
The company contributes to multi-employer health, welfare and pension
plans for employees covered by collective bargaining agreements (approximately
70% of total employees). 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>
1996 1995 1994
- -------------------------------- --------- ----------
<S> <C> <C> <C>
Health and welfare $ 166,124 $ 160,512 $ 142,695
Pension 152,440 142,906 129,321
- -------------------------------- --------- ----------
Total $ 318,564 $ 303,418 $ 272,016
- -----------------------========= ========= ==========
</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 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.
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, 1996 were not material to the operations of the company.
-31-
Yellow Corporation Annual Report
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
STOCK OPTIONS
The company has reserved 2.2 million shares of its common stock for
issuance to key management personnel of the company and its operating
subsidiaries under two stock option plans. Collectively, the plans permit three
types of awards: grants of nonqualified stock options, grants of stock options
coupled with a grant of stock appreciation rights and grants of restricted
stock awards.
The company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for its plans, and accordingly has
not recognized compensation costs in its financial statements for such plans.
Had compensation costs been recognized in accordance with Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation, the
company's operating results would have been reported at the unaudited pro forma
amounts indicated below (in thousands except per share) for the year ended
December 31:
<TABLE>
<CAPTION>
1996
- -----------------------------
<S> <C>
Net loss:
- -----------------------------
As reported $ (27,180)
Pro Forma $ (27,980)
Loss per share:
- -----------------------------
As reported $ (.97)
Pro Forma $ (1.00)
</TABLE>
Under both plans, the exercise price of each option equals the market
price of the company's common stock on the date of grant and the options expire
ten years from the date of grant. The options vest ratably, generally over a
period of four years. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for the 1996 grants:
<TABLE>
<CAPTION>
1996
- -----------------------------------------
<S> <C>
Dividend yield .5%
Expected volatility 31.9%
Risk-free interest rate 6.3%
Expected option life (years) 5
</TABLE>
A summary of the company's stock option plans as of December 31, 1996 and
changes during 1996 is presented below. There were no options granted in 1995
or 1994 and there were no options outstanding at December 31, 1995 or 1994.
<TABLE>
<CAPTION>
1996
- ------------------------------------------------------------------
Shares Weighted Avg.
(thousands) Exercise Price
- ------------------------------------------------ --------------
<S> <C> <C>
Outstanding at beginning of year - $ -
Granted 1,520 12.24
Exercised - -
Cancelled (10) 12.25
- -------------------------------------------- ----------
Outstanding at end of year 1,510 $ 12.24
- ---------------------------------------===== ==========
Options exercisable at year-end -
Weighted average fair value of
options granted during the year $ 4.69
Weighted average remaining
contract life (years) 3.2
</TABLE>
-32-
Yellow Corporation Annual Report
<PAGE> 36
BUSINESS SEGMENTS
The following table provides information about the company's operations by
business segment for each of the three years ended December 31, 1996 (in
thousands):
<TABLE>
<CAPTION>
Corporate,
NE SE Other and
National Regional Regional Eliminations Consolidated
- ------------------------------------------------------ ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1996: Operating revenue $ 2,357,674 $ 417,558 $ 264,318 $ 33,000 $ 3,072,550
Income (loss) from operations (10,017) (5,766) 10,830 (8,562) (13,515)
Identifiable assets 930,681 155,351 159,116 (17,341) 1,227,807
Capital expenditures, net 15,859 3,193 21,953 5,353 46,358
Depreciation 94,468 11,349 14,180 10,101 130,098
- ------------------------------------------------------ ---------- ----------- ------------ ------------
1995: Operating revenue $ 2,363,583 $ 411,238 $ 209,623 $ 72,196 $ 3,056,640
Income (loss) from operations (1,729) (5,952) 7,805 (21,712) (21,588)
Identifiable assets 1,073,132 165,261 146,144 50,360 1,434,897
Capital expenditures, net 74,938 19,646 28,185 17,485 140,254
Depreciation 103,020 11,629 11,858 8,758 135,265
- ------------------------------------------------------ ---------- ----------- ------------ ------------
1994: Operating revenue $ 2,220,780 $ 416,770 $ 178,090 $ 51,852 $ 2,867,492
Income (loss) from operations 17,738 (5,467) 11,511 (12,771) 11,011
Identifiable assets 985,819 159,571 118,126 43,705 1,307,221
Capital expenditures, net 110,849 10,084 19,057 10,950 150,940
Depreciation 108,046 10,043 10,224 5,657 133,970
</TABLE>
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, 1996
and 1995, and the related consolidated statements of operations, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Yellow Corporation and
Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Kansas City, Missouri - January 31, 1997
-33-
Yellow Corporation Annual Report
<PAGE> 37
SUPPLEMENTARY INFORMATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in thousands except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1996 (a) (b)
- ------------------------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenue $ 741,678 $ 759,285 $ 790,444 $ 781,143
Income (loss) from operations (8,151) 8,414 24,095 (37,873)
Net income (loss) (14,251) 2,019 8,939 (23,887)
Earnings (loss) per share (.51) .07 .32 (.85)
<CAPTION>
1995 (c) (d)
- ------------------------------------------- --------- --------- ---------
<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)
</TABLE>
(a) Includes a nonrecurring charge to the income tax provision of $6.7 million
related to a dividend from Canadian operations. Also includes the
effect of unusually severe winter weather which caused business disruptions
and higher operating expenses.
(b) Includes a special charge of $28.3 million after taxes resulting from the
write down of certain nonoperating real estate and computer software
assets, an early retirement program, the reduction of a company car program
and other organizational design impacts, primarily severance. Also includes
a $3.5 million foreign tax credit benefit.
(c) Includes the impact of price discounting and excess industry capacity which
severely diminished operating margins.
(d) Includes the impact of price discounting and excess industry capacity which
severely diminished operating margins. Also includes nonrecurring charges of
$6.6 million after taxes pertaining to implementation of cost reduction
programs and the realignment of Yellow Logistics.
COMMON STOCK
Yellow Corporation's stock is held by approximately 3,200 shareholders of
record. The company's only class of stock outstanding is common stock, traded
in over-the-counter markets. Trading activity averaged about 195,000 shares per
day during the year, up from 130,000 shares per day in 1995. Prices are quoted
by the National Association of Securities Dealers Automatic Quotation System
National Market (NASDAQ-NMS) under the symbol YELL.
Dividends of $.235/share were paid in the first two quarters of 1995. The
company's quarterly dividend was suspended on July 20, 1995 and has not been
reinstated as of December 31, 1996.
The high and low prices at which Yellow Corporation common stock traded
for each calendar quarter in 1996 and 1995 are shown below.
<TABLE>
<CAPTION>
1996 High Low
- -------------------------------- ---
<S> <C> <C>
March 31 13 5/8 10 1/4
June 30 13 3/4 10 3/4
September 30 14 1/8 12 1/8
December 31 16 3/8 11 5/8
<CAPTION>
1995 High Low
- -------------------------------- ---
<S> <C> <C>
March 31 24 3/8 15 7/8
June 30 20 1/8 15 7/8
September 30 20 13 1/2
December 31 13 7/8 11 7/8
</TABLE>
34
Yellow Corporation Annual Report
<PAGE> 38
SENIOR OFFICERS
YELLOW CORPORATION PRESTON TRUCKING
COMPANY, INC.
A. Maurice Myers
Chairman, President and David J. Letke
Chief Executive Officer President
William F. Martin, Jr. SAIA MOTOR FREIGHT
Senior Vice President LINE, INC.
Legal/Corporate Secretary
Jimmy D. Crisp
H.A. Trucksess, III President
Senior Vice President
Finance/Chief Financial WESTEX, INC.
Officer and Treasurer
Frank E. Myers
Samuel A. Woodward President
Senior Vice President
Operations and Planning
YELLOW FREIGHT YELLOW TECHNOLOGY
SYSTEM, INC. SERVICES, INC.
William D. Zollars Thomas L. Smith
President President
35
Yellow Corporation Annual Report
<PAGE> 39
BOARD OF DIRECTORS
A. MAURICE MYERS RONALD T. LEMAY
Director since 1996 Director since 1994
Chairman of the Board, President and Chief Operating
President and Chief Executive Officer of Sprint Corporation
Officer of the Company
KLAUS E. AGTHE JOHN C. MCKELVEY
Director since 1984 Director since 1977
Director, VIAG North America President and Chief Executive
Officer of Midwest Research
Institute
HOWARD M. DEAN WILLIAM L. TRUBECK
Director since 1987 Director since 1994
Chairman and Chief Executive Senior Vice President - Finance
Officer of Dean Foods Company and Chief Financial Officer
International MultiFoods, Inc.
DAVID H. HUGHES
CARL W. VOGT
Director since 1973
Retired Vice Chairman Director since 1996
of Hallmark Cards, Inc. Senior Partner of Fulbright &
Jaworski, L.L.P.
WILLIAM F. MARTIN, JR.
Secretary to the Board
Member, Audit Committee
36
Yellow Corporation Annual Report
<PAGE> 40
YELLOW CORPORATION
P.O. Box 7563 o Overland Park,
Kansas 66207 o (913) 696-6100
http://www.yellowcorp.com
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP o Kansas City, Missouri
TRANSFER AGENT AND REGISTRAR
Chase Mellon Shareholder Services, L.L.C.
P.O. Box 590 o Ridgefield Park, New Jersey 07660
(800) 526-0801 o http://www.cmssonline.com
ANNUAL MEETING
April 24, 1997, at 9:30 a.m.
Overland Park Marriott o 10800 Metcalf Avenue
Overland Park, Kansas 66210
10-K REPORT
Please write to: Treasurer,
Yellow Corporation or see our web site
<PAGE> 41
YELLCORP 1996 AR
P.O. Box 7563 o Overland Park, KS 66207 o http://www.yellowcorp.com
Printed in the U.S.A. #505
<PAGE> 42
NARRATIVE DESCRIPTION OF GRAPHICS IN
YELLOW CORPORATION 1996 ANNUAL REPORT
Front Cover - Picture of globe in Yellow Corporation colors
Unnumbered page, inside front cover - Pie chart displaying revenue
contribution of the various Yellow Corporation subsidiaries and small circular
inset pictures of tractor-trailers in the colors and logo of Yellow Freight
System, Preston Trucking, Saia Motor Freight, and WestEx.
Page 1 - Picture of a set of Yellow Freight System, Inc. twin trailers
and tractor.
Page 3 - Full page picture of Mario Estrada - International Customer
Service rep of Yellow Freight System.
Page 4 - Half page picture of Yellow Freight city driver Dave Bilke.
Page 5 - Half page picture of Yellow Freight System account manager
Jane Bonilla.
Page 6 - Small inset box at top of page of two upward arrows with
underline and center line small circular inset picture of Yellow Freight System
tractor and twin trailers.
Page 7 - Small inset picture at top of page of umbrella with raindrops
in box and small circular inset picture in the middle of the page of Yellow
Freight System linehaul management employees Jim Romick and Pete Peoples.
Page 8 - Small inset picture at top of the page of wine glass in a box
and small inset circular picture in the middle of the page of two stacked
boxes.
<PAGE> 43
Page 9 - Picture in the upper right hand corner of Yellow Corporation
Chairman Maury Myers standing next to two stacked boxes.
Page 17 - In the left column of this page divided into three columns,
pictures of the logos of Yellow Freight System, Preston Trucking, Saia Motor
Freight, and WestEx.
