<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _______________________
Commission file number 0-12255
YELLOW CORPORATION
------------------
(Exact name of registrant as specified in its charter)
Delaware 48-0948788
- ----------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10990 Roe Avenue, P.O. Box 7563, Overland Park, Kansas 66207
- ------------------------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
(913) 696-6100
--------------
(Registrant's telephone number, including area code)
No Changes
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at April 30, 1999
----- -----------------------------
<S> <C>
Common Stock, $1 Par Value 24,834,917 shares
</TABLE>
<PAGE> 2
YELLOW CORPORATION
INDEX
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C> <C>
PART I
1. Financial Statements
Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 3
Statements of Consolidated Operations -
Three Months Ended March 31, 1999 and 1998 4
Statements of Consolidated Cash Flows -
Three Months Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II
6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries
(Amounts in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 35,683 $ 25,522
Accounts receivable 252,927 272,436
Prepaid expenses and other 55,453 76,657
----------- -----------
Total current assets 344,063 374,615
----------- -----------
PROPERTY AND EQUIPMENT:
Cost 1,906,611 1,897,029
Less - Accumulated depreciation 1,203,828 1,194,227
----------- -----------
Net property and equipment 702,783 702,802
----------- -----------
OTHER ASSETS 28,134 28,268
----------- -----------
$ 1,074,980 $ 1,105,685
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and checks outstanding $ 101,372 $ 147,644
Wages and employees' benefits 142,439 119,347
Other current liabilities 147,018 149,127
Current maturities of long-term debt 77 77
----------- -----------
Total current liabilities 390,906 416,195
----------- -----------
OTHER LIABILITIES:
Long-term debt 156,765 156,988
Deferred income taxes 19,733 18,433
Claims, insurance and other 142,413 142,817
----------- -----------
Total other liabilities 318,911 318,238
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value 29,368 29,356
Capital surplus 15,099 14,948
Retained earnings 408,037 403,262
Accumulated other comprehensive income (2,285) (3,163)
Treasury stock (85,056) (73,151)
----------- -----------
Total shareholders' equity 365,163 371,252
----------- -----------
$ 1,074,980 $ 1,105,685
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
STATEMENTS OF CONSOLIDATED OPERATIONS
Yellow Corporation and Subsidiaries
For the Three Months Ended March 31
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
OPERATING REVENUE $ 727,498 $ 692,460
--------- ---------
OPERATING EXPENSES:
Salaries, wages and employees' benefits 473,557 450,368
Operating expenses and supplies 113,270 110,627
Operating taxes and licenses 23,109 23,706
Claims and insurance 16,077 17,082
Depreciation and amortization 24,659 26,881
Purchased transportation 65,074 54,887
--------- ---------
Total operating expenses 715,746 683,551
--------- ---------
INCOME FROM OPERATIONS 11,752 8,909
--------- ---------
NONOPERATING EXPENSES:
Interest expense 2,853 3,099
Other, net 666 232
--------- ---------
Nonoperating expenses, net 3,519 3,331
--------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 8,233 5,578
INCOME TAX PROVISION 3,458 1,815
--------- ---------
INCOME FROM CONTINUING OPERATIONS 4,775 3,763
Loss from discontinued operations, net -- (4,410)
--------- ---------
NET INCOME (LOSS) $ 4,775 $ (647)
========= =========
AVERAGE SHARES OUTSTANDING - Basic 25,411 27,904
========= =========
AVERAGE SHARES OUTSTANDING - Diluted 25,615 28,286
========= =========
BASIC EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ .19 $ .14
Loss from discontinued operations, net -- (.16)
--------- ---------
Net income (loss) $ .19 $ (.02)
========= =========
DILUTED EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ .19 $ .13
Loss from discontinued operations, net -- (.15)
--------- ---------
Net income (loss) $ .19 $ (.02)
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
STATEMENTS OF CONSOLIDATED CASH FLOWS
Yellow Corporation and Subsidiaries
For the Three Months Ended March 31
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash from operating activities $ 49,969 $ 46,365
-------- --------
INVESTING ACTIVITIES:
Acquisition of property and equipment (32,308) (13,397)
Proceeds from disposal of property and equipment 3,765 9,615
Net investment in discontinued operations -- (263)
-------- --------
Net cash used in investing activities (28,543) (4,045)
-------- --------
FINANCING ACTIVITIES:
Treasury stock purchase (11,196) (16,196)
Proceeds from stock options and other, net 202 362
Repayment of long-term debt (271) (1,342)
-------- --------
Net cash used in financing activities (11,265) (17,176)
-------- --------
NET INCREASE IN CASH 10,161 25,144
CASH, BEGINNING OF PERIOD 25,522 17,703
-------- --------
CASH, END OF PERIOD $ 35,683 $ 42,847
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes (received) paid, net $ 960 $ (9,030)
======== ========
Interest paid $ 519 $ 363
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
1. The accompanying consolidated financial statements include the accounts
of Yellow Corporation and its wholly owned subsidiaries (the company)
and have been prepared by the company, without audit by independent
public accountants, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
normal recurring adjustments necessary for a fair statement of the
results of operations for the interim periods included herein have been
made. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from these
statements pursuant to such rules and regulations. Accordingly, the
accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the
company's 1998 Annual Report to Shareholders.
2. The company provides freight transportation services primarily to the
less-than-truckload (LTL) market in North America through its
subsidiaries, Yellow Freight System, Inc. (Yellow Freight), Saia Motor
Freight Line, Inc. (Saia), WestEx, Inc. (WestEx) and Action Express,
Inc. (Action). YCS International (YCS) provides global transportation
solutions through fully integrated ocean, land and air transportation
services. Yellow Services, Inc. (Yellow Services), is a subsidiary that
provides information technology and other services to the company and
its subsidiaries. Yellow Freight comprises approximately 84 percent of
total revenue while Saia comprises approximately 12 percent.
3. The company reports financial and descriptive information about its
reportable operating segments, on a basis consistent with that used
internally for evaluating segment performance and allocating resources
to segments.
Consistent with the Business Segments disclosure in the company's 1998
Annual Report to Shareholders, the company has two reportable segments,
strategic business units that offer different products and services. The
National segment is comprised of the operations of Yellow Freight, a
carrier that provides comprehensive national LTL service as well as
international service throughout North America. The Southeast regional
segment consists of the operations of Saia, a regional LTL carrier that
provides overnight and second-day service in twelve southeastern states
and Puerto Rico.
6
<PAGE> 7
The segments are managed separately because each requires different
operating, technology and marketing strategies and processes. The
company evaluates performance primarily on operating income and return
on capital.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies in the company's 1998
Annual Report to Shareholders. The company also charges a trade name fee
to Yellow Freight (1% of revenue) for use of the company's trademark.
Interest and intersegment transactions are recorded at current market
rates. Income taxes are allocated in accordance with a tax sharing
agreement in proportion to each segment's contribution to the parent's
consolidated tax status. The following table summarizes the company's
continuing operations by business segment (in thousands):
<TABLE>
<CAPTION>
S.E. Corporate
National Regional And Other Consolidated
March 31, 1999
<S> <C> <C> <C> <C>
Operating revenue $ 612,786 $ 86,253 $ 28,459 $ 727,498
Income from operations 8,951 5,043 (2,242) 11,752
Identifiable assets 798,955 222,088 53,937 1,074,980
March 31, 1998
Operating revenue $ 597,718 $ 80,271 $ 14,471 $ 692,460
Income from operations 7,406 4,224 (2,721) 8,909
Identifiable assets 908,237 185,422 117,031 1,210,690
</TABLE>
4. On June 1, 1998 the company reached agreement in principle to sell
Preston Trucking Company, Inc. (Preston Trucking) its Northeast regional
LTL segment to a management group of three senior officers of Preston
Trucking. Preston Trucking is a regional carrier serving the Northeast,
Mid-Atlantic and Central States. The sale resulted in a noncash charge
of $63.6 million net of anticipated tax benefits of approximately $28.0
million in 1998. The results of Preston Trucking have been classified as
discontinued operations in the consolidated financial statements. No
interest charges have been allocated to discontinued operations and the
company does not anticipate any material change in the loss recorded on
disposal of the discontinued operations.
5. The difference between average common shares outstanding used in the
computation of basic earnings per share and fully diluted earnings per
share is attributable to outstanding common stock options.
6. The company's comprehensive income includes net income and foreign
currency translation adjustments. Comprehensive income (loss) for the
first quarter ended March 31, 1999 and 1998 was $5.7 million and ($0.6)
million, respectively.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FINANCIAL CONDITION
March 31, 1999 Compared to December 31, 1998
Working capital is reduced through Yellow Freight's asset backed securitization
agreement (ABS). Accounts receivable at March 31, 1999 and December 31, 1998
are net of $80 million and $43 million of receivables sold, resulting in a $37
million reduction in working capital during the period. Excluding the effects
of the ABS transactions, working capital increased during the first three
months of 1999, resulting in a $33.2 million working capital position at March
31, 1999 compared to a $1.4 million working capital position at December 31,
1998. The increase in working capital was primarily the result of a $17.5
million increase in accounts receivable and a decrease in accounts payable and
checks outstanding, partially offset by reductions in prepaids and increases
in other current liabilities. The company can operate with a deficit working
capital position because of rapid turnover of accounts receivable, effective
cash management and ready access to funding.
Total debt during the first three months of 1999 was virtually unchanged from
December 31, 1998. Net capital expenditures for the first three months of 1999
were $28.5 million. Subject to ongoing review, total net capital spending for
1999 are expected to total approximately $147 million.
During the quarter the company purchased 682,500 additional treasury shares.
During April 1999 the company acquired 172,500 additional treasury shares and
had remaining authorization to acquire $4.6 million in additional shares at
April 30, 1999.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1999 and 1998
Continuing Operations:
Net income for the quarter ended March 31, 1999 was $4.8 million or $.19 per
share (diluted). Income from continuing operations for the quarter ended March
31, 1998 was $3.8 million or $.13 per share (diluted). Operating revenue for the
1999 first quarter was $727.5 million an increase of 5 percent over operating
revenue of $692.5 million for the 1998 first quarter.
First quarter 1999 net income improved $3.8 million over the 1998 first quarter
after excluding gains on the sale of real estate assets recorded in 1998. There
were no significant real estate gains in first quarter 1999.
Yellow Freight System, the company's national LTL segment had operating income
of $9.0 million for the first quarter of 1999 an increase of 21% over operating
income of $7.4 million in the first quarter of 1998. Yellow Freight's first
quarter 1999 operating revenue was $612.8 million compared to operating revenue
of $597.7 million in the first quarter of 1998. Yellow Freight's operating ratio
was 98.5 in the first quarter of 1999 versus 98.8 in the first quarter of 1998.
Excluding the gain on the 1998 first quarter real estate transactions, Yellow
Freight's 1998 first quarter operating ratio would have been 99.5.
8
<PAGE> 9
LTL tonnage was up .7 percent in the first quarter compared to the 1998 quarter.
The 1998 quarter was adversely affected by a freight diversion problem that
resulted from customer concerns over labor contract negotiations and a possible
strike. A continued strong pricing environment produced an LTL revenue per
hundredweight increase of 3.1 percent over the 1998 quarter. Yellow Freight's
total revenue increased 2.5 percent net of a reduction in truckload business.
Saia Motor Freight, the company's southeast regional LTL segment had operating
income of $5.0 million in the first quarter of 1999, a 19 percent increase over
operating income of $4.2 million in the first quarter of 1998. Saia's operating
revenue for the first quarter of 1999 was $86.3 million compared to $80.3
million for the first quarter of 1998. Saia's operating ratio improved to 94.2
for the first quarter of 1999 versus 94.7 in the 1998 first quarter.
Saia's 1999 plans include resuming its geographic growth by opening three
terminals in Virginia. The company plans to invest $42 million in Saia this
year, mainly for network expansion, technology enhancements and new revenue
equipment.
WestEx, the company's regional carrier serving California and the Southwest,
reported operating revenue of $16.3 million for the first quarter of 1999
compared to $14.5 million for the 1998 first quarter. Action Express, the
company's regional carrier serving the Pacific Northwest and Rocky Mountain
States had first quarter revenues of $8.3 million. Action Express was acquired
in December 1998. WestEx reported a small operating profit for the 1999 first
quarter while Action Express reported a small operating loss as both companies
absorbed one-time expenses related to network realignments. Saia has absorbed
Action Express operations in Texas. Action has taken over part of WestEx's
operations in Colorado and Utah while WestEx has absorbed part of Action's
California operations.
During the first quarter of 1999, market fuel prices actually fell below the
company's fuel hedge contract prices, depriving the company of approximately
$.11 per share in fuel cost savings. As a result, of fuel price increases in
March and April, current market prices approximate the company's current hedge
contracts. The company remains substantially hedged for the balance of 1999 and
a portion of 2000.
Interest expense declined slightly between years as a result of reduced debt
levels. The effective tax rate was 42.0 percent in the 1999 first quarter and
32.5 percent in the first quarter of 1998.
The 1999 first quarter earnings per share results also reflect the impact of
stock buyback programs which have reduced average shares outstanding by 9
percent compared to last year's first quarter.
Year 2000
The company's Year 2000 project is intended to minimize the business impact of
potential Year 2000 failures. Work efforts both to remediate and replace
mainframe and client/server business applications have been completed on
schedule. The remainder of the year will be used to finalize
9
<PAGE> 10
business contingency plans, complete the planned rollout of equipment, and
continue to retest systems for Year 2000 readiness.
The company's Year 2000 strategy includes mainframe, mid-range, and client
server applications, PCs, workstations, end-user computing, vendor software,
equipment, environmental operations in terminals and offices, suppliers and
customers. Inventory and assessment of all areas have been completed.
Non-compliant vendor software and equipment determined to be critical to the
business has been remediated. PC hardware is being replaced as needed through a
systematic schedule of upgrades.
The company's strategy also includes developing relationships with vendors who
are working toward compliance. The company has material vendor relationships
with financial institutions, utilities and telecommunication companies. These
vendors indicate that they expect to achieve compliance and do not anticipate
business interruptions as the century changes. The company is developing
contingency plans to address potential Year 2000 scenarios that may arise with
key vendors, customers and other external parties. However, these external
risks are beyond the company's total control, thus there can be no assurance
that all year 2000 risks can be contained by company contingency plans.
The company began its Year 2000 project in 1995 and has estimated total project
costs to be approximately $16 million. Through March 31, 1999 the company has
incurred approximately $14.5 million which represents approximately 7.1% of its
information technology budget over the project period. The company expensed $0.8
million of modification costs in the first quarter of 1999 compared to $1.8
million in the first quarter of 1998.
Market Risk
The company is exposed to a variety of market risks, including the effects of
interest rates, fuel prices and foreign currency exchange rates. To ensure
adequate funding through seasonal business cycles and minimize overall borrowing
costs, the company utilizes a variety of both fixed rate and variable rate
financial instruments with varying maturities. The company's long-term financing
is generally at fixed rates.
The company uses swaps as hedges in order to manage a portion of its exposure to
variable diesel prices. These agreements provide protection from rising fuel
prices, but limit the ability to benefit from price decreases below the purchase
price of the agreement. The swap transactions are generally based on the price
of heating oil. Based on historical information, the company believes the
correlation between the market prices of diesel fuel and heating oil is highly
effective.
The company's revenues and operating expenses, assets and liabilities of its
Canadian and Mexican subsidiaries are denominated in foreign currencies, thereby
creating exposures to changes in exchange rates, however the risks related to
foreign currency exchange rates are not material to the company's consolidated
financial position or results of operations.
The table below provides information about the company's debt instruments,
including off balance sheet asset backed securitization (ABS), as of March 31,
1999. The table presents principal cash flows (in millions) and related weighted
average interest rates by contractual maturity dates.
10
<PAGE> 11
Expected Maturity Date
<TABLE>
<CAPTION>
There- Fair
1999 2000 2001 2002 2003 after Total Value
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt $ -- $ 30.5 $ 8.3 $ 23.5 $ 20.7 $ 58.4 $ 141.4 $ 149.8
Average Interest Rate -- 6.84% 8.09% 7.33% 6.33% 6.78%
Variable Rate Debt $ -- $ -- $ -- $ -- $ 5.0 $ 10.4 $ 15.4 $ 15.4
Average Interest Rate -- -- -- -- 4.23% 5.14%
Off Balance Sheet -
Asset Backed Securitization $ 80.0 $ 80.0 $ 80.0
Effective Interest Rate 5.23%
</TABLE>
The following table provides information about the company's diesel fuel hedging
instruments that are sensitive to changes in commodity prices. The table
presents notional amounts in gallons and the weighted average contract price by
contractual maturity date as of March 31, 1999. The company maintained fuel
inventories for use in normal operations at March 31, 1999, which were not
material to the company's financial position and represented no significant
market exposure.
<TABLE>
<CAPTION>
Expected Maturity Date
1999 2000 Total
---- ---- -----
<S> <C> <C> <C>
Heating Oil Swaps:
Gallons (in millions) 88.7 45.3 134.0
Weighted Average Price per Gallon $ .4545 $ .4586 $ .4559
Fair Value (in millions) $ (0.9)
Diesel Fuel Fixed Purchased Contracts:
Gallons (in millions) 3.2 3.2
Weighted Average Price per Gallon $ .5170 $ .5170
Fair Value (in millions) (0.1)
</TABLE>
Statements contained herein that are not purely historical are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including statements regarding the company's expectations, hopes, beliefs
and intentions on strategies regarding the future. It is important to note that
the company's actual future results could differ materially from those projected
in such forward-looking statements because of a number of factors, including but
not limited to inflation, labor relations, inclement weather, competitor pricing
activity, year 2000 issues, expense volatility and a downturn in general
economic activity.
11
<PAGE> 12
Yellow Freight System, Inc.
Financial Information
For the Three Months Ended March 31, 1999 and 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
First Quarter
-----------------------
1999 1998 %
------- -------- ---
<S> <C> <C> <C>
Operating revenue 612,786 597,718 2.5
Operating income 8,951 7,406
Operating ratio 98.5 98.8
Total assets at March 31 798,955 908,237
</TABLE>
<TABLE>
<CAPTION>
First Quarter
First Quarter Amount/Workday
----------------------- ---------------------------
1999 1998 % 1999 1998 %
-------- -------- ----- ---------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Workdays (63) (63)
Financial statement LTL 564,225 543,173 3.9 8,956.0 8,621.8 3.9
revenue TL 49,420 51,846 (4.7) 784.4 823.0 (4.7)
Other (859) 2,699 NM (13.6) 42.8 NM
Total 612,786 597,718 2.5 9,726.8 9,487.6 2.5
Revenue excluding LTL 564,225 543,173 3.9 8,956.0 8,621.8 3.9
revenue recognition TL 49,420 51,846 (4.7) 784.4 823.0 (4.7)
adjustment Other (7) 493 NM (0.1) 7.8 NM
Total 613,638 595,512 3.0 9,740.3 9,452.6 3.0
Tonnage LTL 1,653 1,641 0.7 26.23 26.04 0.7
TL 334 367 (8.9) 5.30 5.83 (8.9)
Total 1,987 2,008 (1.0) 31.53 31.87 (1.0)
Shipments LTL 3,405 3,354 1.5 54.06 53.24 1.5
TL 45 50 (8.0) 0.72 0.79 (8.0)
Total 3,450 3,404 1.4 54.77 54.03 1.4
Revenue/cwt. LTL 17.07 16.55 3.1
TL 7.39 7.07 4.6
Total 15.44 14.82 4.2
Revenue/shipment LTL 165.72 161.93 2.3
TL 1,084.54 1,047.24 3.6
Total 177.86 174.81 1.7
</TABLE>
12
<PAGE> 13
Saia Motor Freight Line, Inc.
Financial Information
For the Three Months Ended March 31, 1999 and 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
First Quarter
-----------------
1999 1998 %
------ ------- -----
<S> <C> <C> <C>
Operating revenue 86,253 80,271 7.5
Operating income 5,043 4,224
Operating ratio 94.2 94.7
Total assets at March 31 222,088 185,422
</TABLE>
<TABLE>
<CAPTION>
First Quarter
First Quarter Amount/Workday
----------------------- -------------------------
1999 1998 % 1999 1998 %
-------- -------- ----- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Workdays (63) (63)
Financial statement LTL 77,417 72,425 6.9 1,228.8 1,149.6 6.9
revenue TL 8,836 7,846 12.6 140.3 124.5 12.6
Total 86,253 80,271 7.5 1,369.1 1,274.1 7.5
Revenue excluding LTL 77,755 72,724 6.9 1,234.2 1,154.3 6.9
revenue recognition TL 8,875 7,878 12.7 140.9 125.0 12.7
adjustment Total 86,630 80,602 7.5 1,375.1 1,279.3 7.5
Tonnage LTL 426 410 3.8 6.76 6.51 3.8
TL 143 132 8.5 2.28 2.10 8.5
Total 569 542 5.0 9.04 8.61 5.0
Shipments LTL 786 780 0.8 12.47 12.38 0.8
TL 14 14 2.3 0.23 0.22 2.3
Total 800 794 0.8 12.70 12.60 0.8
Revenue/cwt. LTL 9.13 8.86 3.0
TL 3.10 2.98 3.8
Total 7.61 7.44 2.4
Revenue/shipment LTL 98.98 93.27 6.1
TL 623.07 565.99 10.1
Total 108.31 101.51 6.6
</TABLE>
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual Meeting of Stockholders on April 22, 1999
(b) The following directors were elected with the indicated number of votes set
forth below.
<TABLE>
<CAPTION>
For Withheld
---------- --------
<S> <C> <C>
Klaus E. Agthe 21,375,684 422,952
Cassandra C. Carr 21,582,280 216,356
Howard M. Dean 21,284,724 513,912
Ronald T. LeMay 21,582,189 216,447
John C. McKelvey 21,582,386 216,250
A. Maurice Myers 21,574,339 224,297
William L. Trubeck 21,582,586 216,050
Carl W. Vogt 21,582,779 215,587
William D. Zollars 21,580,722 217,914
</TABLE>
(c) The appointment of Arthur Andersen LLP as independent public accountants
of the company for 1999 was voted on and approved at the meeting by the
following vote. For: 21,705,518, Against: 76,199, Abstention: 16,919.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.10) - Employment Agreement for William D. Zollars
(27) - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
- None
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YELLOW CORPORATION
------------------------------------
Registrant
Date: May 12, 1999 /s/ A. Maurice Myers
------------------------- -----------------------------------
A. Maurice Myers
Chairman of the Board of
Directors, President & Chief
Executive Officer
Date: May 12, 1999 /s/ H. A. Trucksess, III
------------------------- -----------------------------------
H. A. Trucksess, III
Senior Vice President - Finance/
Chief Financial Officer &
Treasurer
15
<PAGE> 1
EXHIBIT 10.10
-1-
EMPLOYMENT AGREEMENT
AGREEMENT, made this 6th day of September, 1996, by and between
YELLOW FREIGHT SYSTEM, INC., an Indiana corporation ("Yellow"), and WILLIAM D.
ZOLLARS (the "Executive").
W I T N E S S E T H
WHEREAS, the Board of Directors of Yellow has approved the employment
of the Executive on the terms and conditions set forth in this Agreement; and
WHEREAS, the Executive is willing, for the consideration provided, to
enter into employment with Yellow on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. Employment. Yellow hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, upon the terms and conditions set
forth in this Agreement.
2. Term. The term of this Agreement shall be for two (2) years from the
date hereof (the "Effective Date"), with said term renewing daily, and
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ending on the date of termination of the Executive's employment determined
pursuant to Section 5, 6 or 7, whichever shall be applicable.
3. Position and Duties. The Executive shall serve as President of Yellow
effective as of the Effective Date, and shall have such responsibilities and
authority as commensurate with such offices and as may from time to time be
prescribed by or pursuant to Yellow's By-laws. The Executive shall devote
substantially all of his working time and efforts to the business and affairs
of Yellow. The Executive shall be a member of the Board of Directors of Yellow
effective as of the Effective Date.
4. Compensation.
During the period of the Executive's employment, Yellow shall provide the
Executive with the following compensation and other benefits:
(a) Base Salary. Yellow shall pay to the Executive base salary at the
initial rate of $300,000 per annum, which shall be payable in accordance with
the standard payroll practices of Yellow. Such base salary rate shall be
reviewed annually in accordance with Yellow's normal policies beginning in
calendar year 1997; provided, however, that at no time during the term of this
Agreement shall the Executive's base salary be decreased from the rate then in
effect except (i) in connection with across-the-board reductions similarly
affecting substantially
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all senior executives of Yellow or (ii) with the written consent of the
Executive.
(b) Signing Bonus. Yellow shall pay the Executive on the Effective Date a
lump sum signing bonus of $200,000, minus normal deductions.
(c) Annual Bonus. The Executive shall participate in a bonus program
established and maintained by Yellow pursuant to which a threshold award for
each fiscal year is 13.75% of the Executive's base salary; a target award is 55%
of base salary; and a maximum award is 110% of base salary in respect of each
fiscal year of Yellow commencing with 1997, provided that any payment under such
award shall be conditioned upon satisfaction of the threshold. The criteria for
establishment of the threshold and target and the parameters for payments at,
above or below the target shall be determined annually by the Compensation
Committee of the Board of Directors of Yellow. The Compensation Committee shall
consult with the Executive prior to establishing the target. At least 80% of the
criteria established by the Compensation Committee which would result in a
payment of 55% of base salary to the Executive shall be based on specific
measurements of financial performance of Yellow during the applicable fiscal
year and the remaining percentage may be based on non-financial criteria.
(d) Stock Options. Simultaneously with the execution of this Agreement,
Yellow has granted to the Executive, effective as of the Effective Date, an
option to purchase 200,000 shares of Common Stock of Yellow Corporation,
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Yellow's parent, with an option term of ten years and an option price per share
equal to the closing price of a share of Common Stock of Yellow Corporation as
reported on the NASDAQ National Market System on the Effective Date (if such
stock traded on that date or, if not, on the next preceding date on which such
stock traded); provided, however, that such option shall vest and become
exercisable at the rate of (i) 25% on the first anniversary of the Effective
Date; (ii) 25% on the second anniversary of the Effective Date; (iii) 25% on the
third anniversary of the Effective Date; and (iv) 25% on the fourth anniversary
of the Effective Date. with respect to succeeding years, the Compensation
Committee of the Board of Directors of Yellow shall determine the number of
stock options, if any, to be granted to the Executive and the terms and
conditions of any such options.
(e) Supplemental Retirement Benefits. Yellow shall provide Executive with
supplemental retirement benefits in accordance with this subsection (e) and
Appendix A pursuant to which the Executive shall receive from Yellow upon his
termination of employment with Yellow (and subject to the vesting provision
hereinafter set forth), the difference between (i) the monthly benefit that he
would have received under Section 4.4 of the Yellow Freight Office, Clerical,
Sales and Supervisory Personnel Pension Plan (the "Pension Plan") (calculated as
a single life annuity payable commencing at his Normal Retirement Date as
defined under the Pension Plan with an actuarial reduction if payment commences
prior to his Normal Retirement Date) using 20 years of Credited Service as
defined under the Pension Plan plus his actual Credited Service credited under
the Pension Plan after five (5) years from the Effective Date, if any, and using
Compensation as
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defined in Section 2.1(h)(2) of the Pension Plan but without any reduction under
Section 401 (a) (17) of the internal Revenue Code of 1986, as amended (the
"Code") and (ii) the monthly benefit actually payable to the Executive under
Section 4.4 of the Pension Plan, calculated at the time the Executive commences
payment of a Vested Pension under the Pension Plan, if any. The Executive shall
vest in the supplemental retirement benefit described in this subsection (e) at
the rate of 20% per year commencing on the first anniversary of the Effective
Date (so that he would become 100% vested on the fifth anniversary of the
Effective Date), provided, however, that the Executive shall forfeit any
unvested portion in the event of the termination of his employment prior to
becoming 100% vested. Notwithstanding the foregoing, the Executive shall
immediately become 100% vested in the event of the termination of his employment
under circumstances entitling the Executive to benefits pursuant to Section 8.
The supplemental retirement benefit described in this subsection (e) and
Appendix A shall be payable monthly commencing as of the last day of the month
following the month of termination of the Executive's employment or, if
Executive has not yet qualified for payment of a retirement benefit under the
Pension Plan as of his date of termination, the supplemental retirement benefit
shall be payable monthly commencing as of the earliest date of Executive's
eligibility to retire under the Pension Plan subject to actuarial reduction for
payments commencing prior to Executive's normal retirement date, and shall
continue until the Executive's death. Upon the Executive's death, if at the time
of his death he had already qualified for payment of a retirement benefit under
the Pension Plan and if he is survived by and still married to the person who
was his spouse on the Effective Date, the
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monthly supplemental retirement benefit payable to the Executive during his life
shall continue to said surviving spouse until her death. If at the time of his
death, the Executive had not yet qualified for payment of a retirement benefit
under the Pension Plan, if he is survived by and still married to the person who
was his spouse on the effective date, said spouse shall qualify to receive the
same monthly supplemental retirement benefit commencing on the last day of the
month in which Executive would have reached his Normal Retirement Date. If the
Executive at the time of his death is neither survived by or not married to the
person who was his spouse on the Effective Date, no further supplemental
retirement benefits shall be payable under this subsection (e) following his
death. The Executive acknowledges that these supplemental retirement benefits
are an element of the compensation to be paid for his services and not an
unfunded plan of deferred compensation within the meaning of Section 201 of the
Employee Retirement Income Security Act, as amended.
(f) Other Benefits. In addition to the compensation and benefits otherwise
specified in this Agreement, the Executive (and, if provided for under the
applicable plan or program, his spouse) shall be entitled to participate in, and
to receive benefits under, Yellow's employee benefit plans and programs that are
or may be available to senior executives generally and on term and conditions
that are no less favorable than those generally applicable to other senior
executives of Yellow. At no time during the term of this Agreement shall the
Executive's participation in or benefits received under such plans and programs
be decreased except (i) in connection with across-the-board reductions
similarly
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affecting substantially all senior executives of Yellow or (ii) with the written
consent of the Executive. The Executive shall be treated as having satisfied any
otherwise applicable waiting period requirement for coverage under Yellow's
disability insurance plan, effective as of the Effective Date. For the
three-month period beginning on the Effective Date (the normal waiting period
under Yellow's health insurance program), Yellow shall reimburse the Executive
for the cost of COBRA coverage from his prior employer for himself and his
spouse. In addition, Yellow shall pay to the Executive an additional amount (the
"Gross-Up Reimbursement Payment") such that the net amount retained by the
Executive from the amount reimbursed pursuant to the preceding sentence of this
subsection (f) (the "Medical Reimbursement") and the Gross-Up Reimbursement
Payment, after reduction for any Federal, state and local income and employment
tax on the Medical Reimbursement and the Gross-Up Reimbursement Payment, shall
be equal to the Medical Reimbursement. For purposes of determining the Gross-Up
Reimbursement Payment, the Executive shall be deemed to pay Federal income taxes
at the highest marginal rate of Federal income taxation in the calendar year in
which the Gross-Up Reimbursement Payment is to be made and state and local
income taxes at the highest marginal rate of taxation to which such payment
could be subject based upon the state and locality of the Executive's residence
or employment, net of the maximum deduction in Federal income taxes which could
be obtained from deduction of such state and local taxes. In addition, for
purposes of determining the amount of the Gross-Up Reimbursement Payment,
Yellow shall make a determination of the amount of any employment taxes required
on the Gross-Up Reimbursement Payment.
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(g) Expenses. The Executive shall be entitled to prompt reimbursement of
all reasonable expenses incurred by him in performing services hereunder,
provided he properly accounts therefor in accordance with Yellow's policies.
(h) Office and Services Furnished. Yellow shall furnish the Executive with
office space, secretarial assistance and such other facilities and services as
shall be suitable to the Executive's position and adequate for the performance
of his duties hereunder.
5. Termination of Employment by Yellow.
(a) Cause. Yellow may terminate the Executive's employment for Cause if the
Executive willfully engages in conduct which is materially and demonstrably
injurious to Yellow or if the Executive willfully engages in an act or acts of
dishonesty resulting in material personal gain to the Executive at the expense
of Yellow. Yellow shall exercise its right to terminate the Executive's
employment for Cause by (i) giving him written notice of termination at least 30
days before the date of such termination specifying in reasonable detail the
circumstances constituting such Cause; and (ii) delivering to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board of Directors (except the
Executive), after reasonable notice to the Executive and an opportunity for the
Executive and his counsel to be heard before the Board of Directors, finding
that the Executive has
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engaged in the conduct set forth in this subsection (a). In the event of such
termination of the Executive's employment for Cause, the Executive shall be
entitled to receive (i) his base salary pursuant to Section 4(a) and any other
compensation and benefits to the extent actually earned pursuant to this
Agreement or any benefit plan or program of Yellow as of the date of such
termination at the normal time for payment of such salary, compensation or
benefits and (ii) any amounts owing under Section 4(g). In addition, in the
event of such termination of the Executive's employment for Cause, all
outstanding options held by the Executive at the effective date of such
termination which had not already been exercised shall be forfeited. Except as
provided in Section 9, the Executive shall receive no other compensation or
benefits from Yellow.
(b) Disability. If the Executive incurs a Permanent and total
Disability, as defined below, Yellow may terminate the Executive's employment
by giving him written notice of termination at least 30 days before the date of
such termination. In the event of such termination of the Executive's
employment because of Permanent and Total Disability, (i) the Executive shall
be entitled to receive his base salary pursuant to Section 4(a) and any other
compensation and benefits to the extent actually earned by the Executive
pursuant to this Agreement or any benefit plan or program of Yellow as of the
date of such termination of employment at the normal time for payment of such
salary, compensation or benefits, and any amounts owing under Section 4(g), and
(ii) all outstanding stock options held by the Executive at the time of his
termination of employment shall become immediately exercisable at that time,
and the Executive shall have one year
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from the date of such termination of employment to exercise any or all of such
outstanding options (but not beyond the term of such option). For purposes of
this Agreement, the Executive shall be considered to have incurred a Permanent
and Total Disability if he is unable to engage in any substantial gainful
employment by reason of any materially determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than 12 months. The
existence of such Permanent and Total Disability shall be evidenced by such
medical certification as the Secretary of Yellow shall require and shall be
subject to the approval of the Compensation Committee or the Board of Directors
of Yellow.
(c) Without Cause. Yellow may terminate the Executive's employment at any
time and for any reason, other than for Cause or because of Permanent and Total
Disability, by giving him a written notice of termination to that effect at
least 30 days before the date of termination. In the event of such termination
of the Executive's employment without Cause, the Executive shall be entitled to
the benefits described in Section 8.
6. Termination of Employment by the Executive.
(a) Good Reason. The Executive may terminate his employment for Good
Reason by giving Yellow a written notice of termination at least 30 days before
the date of such termination specifying in reasonable detail the circumstances
constituting such Good Reason. In the event of the Executive's
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termination of his employment for Good Reason, the Executive shall be entitled
to the benefits described in Section 8. For purposes of this Agreement, Good
Reason shall mean the failure of Yellow in any material way either (i) to pay
or provide to the Executive the compensation and benefits that he is entitled
to receive pursuant to this Agreement by the later of (A) 60 days after the
applicable due date or (B) 30 days after the Executive's written demand for
payment, or (ii) to maintain the titles, positions and duties of the Executive
commensurate with those titles and positions and as required by this Agreement
except with the Executive's written consent, or (iii) Executive's receipt of
notice from Yellow of the cut-off of the automatic renewal of the term of this
Agreement as described in Section 2 above.
(b) Following Change of Control of Yellow Corporation. The Executive may
terminate his employment at any time within the three-month period which begins
six months after a Change of Control of Yellow Corporation by giving Yellow a
written notice of such termination at least 30 days before the date of
termination. In the event of the Executive's termination of employment within
such three-month period, the Executive shall be entitled to the benefits
described in Section 8. For purposes of this Agreement, a Change of Control of
Yellow Corporation shall be deemed to have taken place if: (i) a third person,
including a "group" as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, purchases or otherwise acquires shares of Yellow Corporation after
the date hereof and as a result thereof becomes the beneficial owner of shares
of Yellow Corporation having 20% or more of the total number of votes that may
be cast for
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the election of directors of Yellow; or (ii) as the result of, or in connection
with any cash tender or exchange offer, merger or other Business Combination, or
contested election, or any combination of the foregoing transactions, the
Continuing Directors shall cease to constitute a majority of the Board of
Directors of Yellow Corporation or any successor to Yellow Corporation. For
this purpose, (i) Business Combination means any transaction which is referred
to in any one or more of clauses (a) through (e) of Section 1 of Subparagraph A
of Article Seventh of the Certificate of Incorporation of Yellow Corporation,
and (ii) Continuing Director means a director of Yellow Corporation who meets
the definition of Continuing Director contained in Section 7 of Subparagraph C
of Article Seventh of the Certificate of Incorporation of Yellow Corporation.
(c) Other. The Executive may terminate his employment at any time and for
any reason, other than pursuant to subsection (a) or (b) above, by giving Yellow
a written notice of termination to that effect at least 30 days before the date
of termination. In the event of the Executive's termination of his employment
pursuant to this subsection (c), the Executive shall be entitled to receive (i)
his base salary pursuant to Section 4(a) and any other compensation and
benefits to the extent actually earned by the Executive pursuant to this
Agreement or any benefit plan or program of Yellow as of the date of such
termination at the normal time for payment of such salary, compensation or
benefits, and (ii) any amounts owing under Section 4(g). In addition, in the
event of the Executive's termination of his employment pursuant to this
subsection (c), (i) all outstanding options held by the Executive at the time
of
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such termination which had not already become exercisable shall be forfeited,
and (ii) all outstanding options held by the Executive at the time of such
termination which had already become exercisable shall expire 90 days after the
date of such termination (or, if earlier, upon the expiration of the term of the
option). Except as provided in Section 9, the Executive shall receive no other
compensation or benefits from Yellow.
7. Termination of Employment by Death. In the event of the death of the
Executive during the course of his employment hereunder, (i) the Executive's
estate shall be entitled to receive his base salary pursuant to Section 4(a) and
any other compensation and benefits to the extent actually earned by the
Executive pursuant to this Agreement or any other benefit plan or program of
Yellow as of the date of such termination at the normal time for payment of such
salary, compensation or benefits, and any amounts owing under Section 4(g), (ii)
any death benefit due under the Pension Plan shall be paid to the Executive's
beneficiary under the Pension Plan and any death benefit due under Section 4(e)
shall be paid to the Executive's spouse as provided under Section 4(e) and (iii)
all outstanding stock options held by the Executive at the time of his death
shall become immediately exercisable upon his death, and the Executive's spouse
or, if predeceased, the Executive's estate, shall have one year from the date of
his death to exercise any or all of such outstanding options (but not beyond the
term of such option).
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8. Benefits Upon Termination Without Cause, For Good Reason, or Following
Change of Control. If the Executive's employment with Yellow shall terminate (i)
because of termination by Yellow pursuant to section 5(c) and not for Cause or
because of Permanent and Total Disability, (ii) because of termination by the
Executive for Good Reason pursuant to Section 6(a), or (iii) because of
termination by the Executive within the three-month period which begins six
months after a Change of Control of Yellow Corporation pursuant to Section 6(b),
the Executive shall be entitled to the following:
(a) Yellow shall pay to the Executive his base salary pursuant to Section
4(a) and, subject to the further provisions of this Section 8, any other
compensation and benefits to the extent actually earned by the Executive under
this Agreement or any benefit plan or program of Yellow as of the date of such
termination at the normal time for payment of such salary, compensation or
benefits.
(b) Yellow shall pay the Executive any amounts owing under Section 4(g).
(c) Yellow shall pay to the Executive as a severance benefit an amount
equal to twice the sum of (i) his annual rate of base salary immediately
preceding his termination of employment, and (ii) the target bonus payable
pursuant to subsection (d) below. Such severance benefit shall be paid in a lump
sum within 30 days after the date of such termination of employment.
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(d) Yellow shall pay to the Executive his target bonus under Yellow's
target bonus plan for the fiscal year in which his termination of employment
occurs as if the target had been exactly met. Such payment shall be made in a
lump sum within 30 days after the date of such termination of employment, and
the Executive shall have no right to any further bonuses under said program.
(e) The Executive shall become 100% vested in all benefits accrued to the
date of termination of his employment but not previously paid under the
supplemental retirement benefits pursuant to Section 4(e), and Yellow's
nonqualified defined contribution plans. Payment of benefits under such plans,
and under the Pension Plan and Yellow's qualified defined contribution plans,
shall be made at the time and in the manner determined under the applicable
plan.
(f) During the period of 24 months beginning on the date of the Executive's
termination of employment, the Executive (and, if applicable under the
applicable plan or program, his spouse) shall remain covered by the employee
benefit plans and programs that covered him immediately prior to his termination
of employment as if he had remained in employment for such period, provided,
however, that there shall be excluded for this purpose any plan or program
providing payment for time not worked (including without limitation holiday,
vacation, and long- and short-term disability). In the event that the
Executive's participation in any such employee benefit plan or program is
barred, Yellow shall
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arrange to provide the Executive with substantially similar benefits. Any
medical insurance coverage for such two-year period pursuant to this subsection
(f) shall become secondary upon the earlier of (i) the date on which the
Executive begins to be covered by comparable medical coverage provided by a new
employer, or (ii) the earliest date upon which the Executive becomes eligible
for Medicare or a comparable Government insurance program.
(g) All outstanding stock options held by the Executive at the time of
termination of his employment shall become fully exercisable upon such
termination of employment and may be exercised for the balance of the term of
such option.
(h) If any payment or benefit received by or in respect of the Executive
under this Agreement or any other plan, arrangement or agreement with Yellow
(determined without regard to any additional payments required under this
subsection (h) and Appendix B of this Agreement) (a "Payment") would be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code") (or any similar tax that may hereafter be imposed) or
any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties,
being hereinafter collectively referred to as the "Excise Tax"), Yellow shall
pay to the Executive with respect to such Payment at the time specified in
Appendix B an additional amount (the "Gross-up Payment") such that the net
amount retained by the Executive from the Payment and the Gross-up Payment,
after reduction for any
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Excise Tax upon the payment and any Federal, state and local income and
employment tax and Excise Tax upon the Gross-up Payment, shall be equal to the
Payment. The calculation and payment of the Gross-up Payment shall be subject to
the provisions of Appendix B.
9. Entitlement to Other Benefits. Except as provided in this Agreement,
this Agreement shall not be construed as limiting in any way any rights or
benefits that the Executive may have pursuant to any other plan or program of
Yellow.
10. Relocation Benefits. Yellow shall pay all reasonable costs of
relocation of the Executive and his family to the Kansas City area, provided,
however, that Yellow shall pay for temporary housing up to a maximum of $2,500
per month until the earlier of (i) the Executive's permanent relocation to the
Kansas City area or (ii) the sale of the Executive's current residence in
Miami. In addition, Yellow shall pay to the Executive an additional amount (the
"Gross-up Relocation Payment") such that the net amount retained by the
Executive from the amount payable pursuant to this Section 10 determined without
regard to this sentence (the "Relocation Payment") and the Gross-Up Relocation
Payment, after reduction for any Federal, state and local income and employment
tax on the Relocation Payment and the Gross-Up Relocation Payment, shall be
equal to the Relocation Payment. For purposes of determining the Gross-Up
Relocation Payment, the Executive shall be deemed to pay Federal income taxes at
the highest marginal rate of Federal income taxation in the calendar year in
which the Gross-Up
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Relocation Payment is to be made and state and local income taxes at the highest
marginal rate of taxation to which such payment could be subject based upon the
state and locality of the Executive's residence or employment, net of the
maximum reduction in Federal income taxes which could be obtained from deduction
of such state and local taxes. In addition, for purposes of determining the
amount of the Gross-Up Relocation Payment, Yellow shall make a determination of
the amount of any employment taxes required to be paid on the Gross-Up
Relocation Payment.
11. Arbitration.
(a) Arbitration of Disputes. Any dispute between the parties hereto arising
out of, in connection with, or relating to this Agreement or the breach thereof
shall be settled by arbitration in Overland Park, Kansas, in accordance with the
rules then in effect of the American Arbitration Association ("AAA"),
Arbitration shall be the exclusive remedy for any such dispute except only as to
failure to abide by an arbitration award rendered hereunder. Regardless of
whether or not both parties hereto participate in the arbitration proceeding,
any arbitration award rendered hereunder shall be final and binding on each
party hereto and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
The party seeking arbitration shall notify the other party in writing and
request the AAA to submit a list of 5 or 7 potential arbitrators. In the event
the parties do not agree upon an arbitrator, each party shall, in turn,
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strike one arbitrator from the list, Yellow having the first strike, until only
one arbitrator remains, who shall arbitrate the dispute. The parties shall have
the opportunity to conduct reasonable discovery as determined by the arbitrator,
and the arbitration hearing shall be conducted within 30 to 60 days of the
selection of an arbitrator or at the earliest date thereafter that the
arbitrator is available or as otherwise set by the arbitrator.
(b) Indemnification. If arbitration occurs as provided for herein and the
Executive is awarded more than Yellow has asserted is due him or otherwise
substantially prevails therein, Yellow shall reimburse the Executive for his
reasonable attorneys' fees, costs and disbursements incurred in such arbitration
and hereby agrees to pay interest on any money award obtained by the Executive
from the date payment should have been made until the date payment is made,
calculated at the prime interest rate of Boatmen's First National Bank of Kansas
City, N.A., Kansas City, Missouri, in effect from time to time from the date
that payment(s) to him should have been made under this Agreement. If the
Executive enforces the arbitration award in court, Yellow shall reimburse the
Executive for his reasonable attorneys' fees, costs and disbursements incurred
in such enforcement.
12. Confidential Information. The Executive shall retain in confidence any
confidential information known to him concerning Yellow, its parent,
subsidiaries, and their respective businesses until such information is
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publicly disclosed. This provision shall survive the termination of the
Executive's employment for any reason under this Agreement.
13. Indemnification under Bylaws. Yellow shall provide the Executive with
rights to indemnification by Yellow that are no less favorable to the Executive
than those set forth in Yellow's Bylaws as in effect as of the Effective Date.
14. Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate and Yellow and any successor of Yellow,
but neither this Agreement nor any rights arising hereunder may be assigned or
pledged by the Executive.
15. Severability. Any provision in this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16. Notices. All notices required or permitted to be given under this
Agreement shall be given in writing and shall be deemed sufficiently given if
delivered by hand or mailed by registered mail, return receipt requested, to his
residence in the case of the Executive and to its principal executive offices in
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the case of Yellow. Either party may by giving written notice to the other party
in accordance with this Section 16 change the address at which it is to receive
notices hereunder.
17. Controlling Law. This Agreement shall in all respects be governed by
and construed in accordance with the laws of the State of Kansas.
18. Changes to Agreement. This Agreement may not be changed orally but only
in a writing, signed by the party against whom enforcement is sought.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 6th day
of September, 1996.
EXECUTIVE: YELLOW FREIGHT SYSTEMS, INC.
/s/ WILLIAM D. ZOLLARS
- ------------------------ By: /s/ D. L. HORNBECK
William D. Zollars ----------------------------
Vice President & Secretary
ATTEST:
By: /s/ RONALD E. SULLIVAN
-----------------------------
Assistant Secretary
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Appendix A
Supplemental Retirement Benefits
The following provisions shall be applicable with respect to the
supplemental retirement benefits described in Section 4(e) of this Agreement.
1. Benefit Calculation
For purposes of calculating the supplemental retirement benefits, the
following assumptions shall be utilized.
(a) "Credited Service", shall be assumed to be twenty (20) years for
periods of employment prior to five (5) years of employment measured
from the Effective Date, plus actual Credited Service, if any, for
periods of employment after five (5) years of employment measured from
the Effective Date. For example, after six years of employment the
Executive's Credited Service shall equal 21 years.
(b) If the Executive is employed by Yellow for less than five (5) years,
"Average Final Compensation" shall be calculated as the average "base
wage" as so defined in Section 2.1(h)(2) of the Plan for actual number
of years of employment, with partial years annualized;
(c) Any vested accrued benefit which the Executive is paid under the
Pension Plan, shall reduce any supplement retirement benefits payable
under this Agreement; and
(d) The defined terms used in this Appendix A and in Section 4(e) of this
Agreement shall have the meanings provided in the Yellow Freight
office, clerical, Sales and Supervisory Personnel Pension Plan as
restated as of January 1, 1989 and as amended by Amendment No. 1 dated
July 15, 1992, by Amendment No. 2 dated December 28, 1994, all as in
existence as of the Effective Date of this Agreement (collectively the
"Pension Plan") unless another meaning is expressly provided in this
Agreement and Appendix or unless the Executive and Yellow agree in
writing to apply any subsequent amendments, revisions, interpretations
or restatements of the Pension Plan.
2. Vesting
Notwithstanding the vesting provisions of Section 4(e), the Executive shall
become 100% vested in the supplemental retirement benefits provided under
that subsection and this Appendix upon the termination of his employment
for any of the following reasons:
(a) Termination by Yellow without "Cause",
(b) Termination by the Executive for "Good Reason", or
(c) The Executive's resignation within the three month period which begins
six months after a "Change of Control" of Yellow Corporation.
"Cause", "Good Reason", and "Change of Control", shall have the respective
meanings as defined in Section 5, 6(a) and 6(b) of this Agreement.
<PAGE> 23
3. Taxability of Benefit
The Executive and Yellow understand and agree that for federal tax
purposes, all supplemental retirement benefits paid under this agreement to
the Executive or his spouse shall be treated as ordinary income under the
applicable provisions of the Internal Revenue Code of 1986, as amended, and
are subject to any taxes required to be withheld by federal, state or local
law; provided that the Executive shall have the right to determine the
timing of any withholding within the parameters permitted under the Code
and under any Regulations or proposed Regulations under Code Section
3121(v) or any successor thereto.
4. Nonassignability
The supplemental retirement benefits payable under this Agreement, and any
and all rights thereto, shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, charge,
garnishment, execution, or levy of any kind, either voluntarily or
involuntarily. Any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, charge, or otherwise dispose of any rights to
benefits payable hereunder shall be void.
<PAGE> 24
Appendix B
Gross-up Payments
The following provisions shall be applicable with respect to the Gross-Up
Payments described in Section 8(h) of this Agreement.
(a) For purposes of determining whether any of the Payments will be subject
to the Excise Tax and the amount of such Excise Tax, (i) all of the Payments
received or to be received shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax unless, in the opinion of tax counsel selected by
Yellow, the Payments (in whole or in part) do not constitute parachute payments,
including by reason of Section 280G(b)(4)(A) of the Code, or excess parachute
payments (as determined after application of Section 280G(b)(4)(B) of the
Code), and (ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by independent auditors selected by Yellow in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay Federal income taxes at the highest marginal rate of Federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation to
which such payment could be subject based upon the state and locality of the
Executive's residence or employment, net of the maximum reduction in Federal
income taxes which could be obtained from deduction of such state and local
taxes. In addition, for purposes of determining the amount of the Gross-Up
Payment, Yellow shall make a determination of the amount of any employment taxes
required to be paid on the Gross-Up Payment. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account hereunder
at the time the Gross-up Payment is made, the Executive shall repay Yellow, at
the time that the amount of such reduction in Excise Tax is finally determined,
the portion of the Gross-up Payment attributable to such reduction (plus the
portion of the Gross-up Payment attributable to the Excise Tax and Federal and
state and local income and employment tax imposed on the portion of the Gross-up
Payment being repaid by the Executive if such repayment results in a reduction
in Excise Tax and/or a Federal and state and local income or employment tax
deduction), plus interest on the amount of such repayment at the Federal
short-term rate as defined in Section 1274(d)(1)(C)(i) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payments the existence or amount of which cannot be determined at the time of
the Gross-up Payment), Yellow shall make an additional gross-up payment in
respect of such excess (plus any interest, penalties or additions payable with
respect to such excess) at the time that the amount of such excess is finally
determined. Notwithstanding the foregoing, Yellow shall withhold from any
payment due to the Executive the amount required by law to be so withheld under
Federal, state or local wage or employment tax withholding requirements or
otherwise (including without limitation Section 4999 of the Code), and shall pay
over to the appropriate government authorities the amount so withheld.
(b) The Gross-up Payment with respect to a Payment shall be
paid not later than the thirtieth day following the date of the Payment;
provided, however, that if the amount of such Gross-up Payment or portion
thereof cannot be finally determined on or before such day, Yellow shall pay to
the Executive on
<PAGE> 25
such date an estimate, as determined in good faith by Yellow, of the amount of
such payments and shall pay the remainder of such payments (together with
interest at the Federal short-term rate provided in Section 1274(d)(1)(C)(i) of
the Code) as soon as the amount thereof can be determined. In the event that
the amount of the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by Yellow to the
Executive, payable on the fifth day after demand by Yellow (together with
interest at the Federal short-term rate provided in Section 1274(d)(1)(C)(i) of
the Code). At the time that payments are made under Section 8(h) and this
Appendix A, Yellow shall provide the Executive with a written statement setting
forth the manner in which such payments were calculated and the basis for such
calculations, including, without limitation, any opinions or other advice
Yellow has received from outside counsel, auditors or consultants (and any such
opinions or advice which are in writing shall be attached to the statement).
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<TABLE> <S> <C>
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<S> <C>
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0
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