UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(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, 2003
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
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YELLOW CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 48-0948788
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10990 Roe Avenue, Overland Park, Kansas 66207
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(Address of principal executive offices) (Zip Code)
(913) 696-6100
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(Registrant's telephone number, including area code)
No Changes
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 2003
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Common Stock, $1 Par Value Per Share 29,698,931 shares
EXPLANATION OF AMENDMENT
Yellow Corporation (the company) is filing this Form 10-Q/A as Amendment No. 1
to the Company's quarterly report on Form 10-Q for the quarter ended March 31,
2003 that was filed with the Securities and Exchange Commission on May 2, 2003
(Form 10-Q) for the purpose of correcting a single number in the "Contractual
Cash Obligations" table under Item 2. In the Form 10-Q/A, the table reflects
operating lease obligations due in less than one year of $21.2 million. In the
Form 10-Q, the table incorrectly reflected operating lease obligations due in
less than one year of $1.2 million. The total operating lease obligations
reflected in the Form 10-Q was correct.
This amendment has no effect on net income, total assets, total liabilities or
total equity as previously reported. Although only the disclosure with respect
to the "Contractual Cash Obligations" table is modified, the complete text of
Item 2 is included in this Form 10-Q/A pursuant to Rule 12b-15 of the Securities
and Exchange Act of 1934.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) should be read in conjunction with the Consolidated Financial
Statements and the Notes to the Consolidated Financial Statements of Yellow
Corporation (also referred to as "Yellow," "we" or "our"). MD&A and certain
statements in the Notes to Consolidated Financial Statements include
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21 of the Securities Exchange Act of 1934,
as amended (each a forward-looking statement). Forward-looking statements
include those preceded by, followed by or include the words "should," "expects,"
"believes," "anticipates," "estimates" or similar expressions. Our actual
results could differ materially from those projected by these forward-looking
statements due to a number of factors, including (without limitation),
inflation, labor relations, inclement weather, price and availability of fuel,
competitor pricing activity, expense volatility, changes in and customer
acceptance of new technology, changes in equity and debt markets and a downturn
in general or regional economic activity.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
The following table summarizes the Statements of Consolidated Operations for the
three months ended March 31 (in millions):
Percent
2003 2002 Change
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Operating Revenue $ 681.1 $ 578.8 17.7%
Operating Income 11.8 2.7 342.6%
Nonoperating Expenses, net 2.6 2.9 (12.1)%
Income (Loss) from Continuing Operations 5.6 (0.1) n/m(1)
Loss from Discontinued Operations - (72.9) n/m(1)
Net Income (Loss) $ 5.6 $ (73.0) 107.7%
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(1) Not meaningful.
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Our consolidated operating revenue for the first quarter of 2003 increased by
$102.3 million over the first quarter of 2002, primarily as a result of
increased volumes at Yellow Transportation from growth in premium services and
increased market share from the September 2002 closure of Consolidated
Freightways, Inc. (CF), a major competitor of Yellow Transportation. We also
recognized $6.7 million of additional revenue at Meridian IQ, mostly due to
increased volumes in international forwarding, the July 2002 acquisition of
Clicklogistics, Inc. (Clicklogistics) customer contracts and the August 2002
acquisition of MegaSys, Inc. (MegaSys).
Operating income improved by $9.1 million for the first quarter of 2003 compared
to the first quarter of 2002 despite continued economic conditions and extreme
weather experienced during the quarter. Corporate expenses increased
approximately $4.4 million over last year primarily due to $4.0 million for an
industry conference that Yellow hosts every other year. These costs are included
under "Corporate" in the Business Segments note. Operating income for the first
quarter of 2002 included $0.7 million
related to losses on property disposals and spin-off and reorganization charges.
The first quarter of 2003 included minimal losses on property disposals.
Nonoperating expenses decreased by $0.3 million from the first quarter of 2002
due mostly to lower financing costs for our asset-backed securitization (ABS)
obligations, from both lower interest rates and lower average borrowings. In the
first quarter of 2002, ABS obligations were off-balance sheet with financing
costs recorded as "ABS facility charges" on the Statement of Consolidated
Operations. Due to the December 31, 2002 amendment to the facility, ABS
borrowings were prospectively reflected on the Consolidated Balance Sheets and
the related interest was recorded as "interest expense" on the Statement of
Consolidated Operations. Interest expense for the first quarter of 2003 included
approximately $0.4 million related to the ABS facility compared to $0.8 million
of ABS facility charges in the first quarter of 2002.
Our effective tax rate on continuing operations for the first quarter of 2003
was 38.9 percent compared to 41.0 percent in the first quarter of 2002. The
lower tax rate resulted from projected higher profits before tax and lower
nondeductible business expenses in 2003 compared to 2002.
Our net loss of $73.0 million for the first quarter of 2002 occurred primarily
due to the impairment of goodwill associated with the acquisition of Jevic
Transportation, Inc. (Jevic). In the first quarter of 2002, we recorded a
non-cash charge of $75.2 million as a cumulative effect of change in accounting
for the impairment of Jevic goodwill. In September 2002, we successfully
completed the 100 percent distribution (the spin-off) of all of the shares of
SCS Transportation, Inc. (SCST) to our shareholders. As a result of the
spin-off, the non-cash charge and the results of operations for SCST have been
reclassified as discontinued operations on our 2002 Statement of Consolidated
Operations.
YELLOW TRANSPORTATION RESULTS
The table below provides summary information for Yellow Transportation for the
three months ended March 31 (in millions):
Percent
2003 2002 Change
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Operating Revenue $660.1 $564.6 16.9%
Operating Income 19.5 6.7 192.7%
Operating Ratio 97.0% 98.8% (1.8)pp
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Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
As discussed under our consolidated results, Yellow Transportation realized
increases in volumes and price in the first quarter of 2003 compared to the
first quarter of 2002 as a result of its premium services, pricing discipline,
service quality and market share growth from the CF closure. Less-than-truckload
(LTL) revenue per day increased 17.0% over the first quarter of 2002, primarily
reflecting a 9.2% increase in LTL tonnage per day and a 7.1% improvement in LTL
revenue per hundred weight. A primary indicator of pricing, LTL revenue per
hundred weight excluding fuel surcharge, was up 3.7 percent in the first quarter
of 2003 compared to the first quarter of 2002.
Yellow Transportation realized improved operating income of $12.8 million from
the first quarter of 2002 to the first quarter of 2003, despite increased costs
for wages and benefits, workers' compensation, and bad debts in 2003. In
addition, Yellow Transportation incurred approximately $5.0 million of
unexpected weather-related expenses in the first quarter of 2003, including
driver delays, snow removal, and employee injuries. Higher volumes combined with
contractual wage and benefit increases impacted first quarter 2003 operating
expense by over $35 million. Improved productivity and labor mix slightly offset
the increased wages. Yellow Transportation also recognized a benefit of $1.3
million from a partial insurance recovery under a fidelity policy related to
prior years' cargo expenses. We are reviewing and making appropriate adjustments
to our procedures and controls in response to this insurance claim.
As a result of increased costs per claim and longer duration of cases over the
past several years, the projected ultimate costs of workers' compensation claims
were higher than originally anticipated. This occurred despite the continued
improvement of safety statistics at Yellow Transportation year over year.
Workers' compensation expense increased by $3.7 million in the first quarter of
2003 compared to the first quarter of 2002. During the second half of 2002,
Yellow Transportation added additional resources to manage these claims.
Bad debt expense also had a negative impact on Yellow Transportation results,
increasing by $3.5 million in the first quarter of 2003 compared to the first
quarter of 2002. The increase resulted from higher business levels, and a trend
of additional write-offs partially due to the negative impact of the economy on
certain customers and their ability to pay. During the fourth quarter of
2002, Yellow Transportation added additional collection personnel and improved
its credit policies regarding new and continuing customers.
On March 28, 2003, the International Brotherhood of Teamsters ratified a new
National Master Freight Agreement with the members of the Motor Freight Carrier
Association, including Yellow Transportation. The five-year agreement, effective
April 1, 2003, covers approximately 80 percent of Yellow Transportation
employees. The new contract will increase wages and benefits about 3 percent
annually.
MERIDIAN IQ RESULTS
The table below provides summary information for Meridian IQ for the three
months ended March 31 (in millions):
Percent
2003 2002 Change
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Operating Revenue $22.1 $15.4 43.4%
Operating Loss (0.9) (1.5) (41.1)%
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Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
As discussed under our consolidated results, Meridian IQ recognized additional
revenue of $6.7 million in the first quarter of 2003 compared to the first
quarter of 2002, mostly due to increased volumes in international forwarding and
the recent acquisitions of MegaSys and the customer contracts of Clicklogistics.
Meridian IQ also realized additional revenue from premium services. Operating
losses at Meridian IQ declined from the first quarter of 2002 as a result of
improved operating revenue and margins.
FINANCIAL CONDITION
LIQUIDITY
Our liquidity needs arise primarily from capital investment in new equipment,
land and structures, and information technology, as well as funding working
capital requirements. To provide short-term and longer-term liquidity, we
maintain capacity under a bank credit agreement and an ABS agreement involving
Yellow Transportation accounts receivable. We believe these facilities provide
adequate capacity to fund current working capital and capital expenditure
requirements. It is not unusual for us to have a deficit working capital
position, as we can operate in this position due to rapid turnover of accounts
receivable, effective cash management and ready access to funding.
Bank Credit Agreement
We maintain a $300 million bank credit agreement scheduled to expire in April
2004. In addition to funding short-term liquidity needs, we also use the
facility to provide letters of credit that reduce available borrowings under the
credit agreement. Letters of credit serve as collateral for our self-insurance
programs, primarily in the areas of workers' compensation and bodily injury and
property damage. The following table summarizes the availability under the bank
credit agreement at each period end (in millions):
March 31, December 31,
2003 2002
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Total capacity $ 300.0 $ 300.0
Outstanding borrowings - -
Letters of credit (152.5) (146.2)
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Available unused capacity $ 147.5 $ 153.8
Our outstanding letters of credit at March 31, 2003 included $14.0 million for
property damage and workers' compensation claims against SCST. Yellow agreed to
maintain the letters of credit outstanding at the spin-off date until SCST
obtained replacement letters of credit or third party guarantees. SCST agreed to
use its reasonable best efforts to obtain these letters of credit or guarantees,
which in many cases would allow Yellow to obtain a release of its letters of
credit. SCST also agreed to indemnify Yellow for any claims against the letters
of credit provided by Yellow. SCST reimburses Yellow for all fees incurred
related to the remaining outstanding letters of credit. We also provide a
guarantee regarding certain lease obligations of SCST equaling $6.9 million at
March 31, 2003.
Asset Backed Securitization Facility
Our ABS facility provides us with additional liquidity and lower borrowing costs
through access to the asset backed commercial paper market. By using the ABS
facility, we obtain a variable rate based on the A1 commercial paper rate plus a
fixed increment for utilization and administration fees. A1 rated commercial
paper comprises more than 90 percent of the commercial paper market,
significantly increasing our liquidity. We averaged a rate of 2.1 percent on the
ABS facility in the first quarter of 2003 compared to a rate of 2.3 percent for
the year ended December 31, 2002.
The table below provides the borrowing and repayment activity, as well as the
resulting balances, for the periods presented (in millions):
Three Months Ended Twelve Months Ended
March 31, 2003 December 31, 2002
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ABS obligations outstanding at beginning of period $50.0 $ 141.5
Transfer of receivables to conduit (borrowings) 85.0 421.5
Redemptions from conduit (repayments) (85.0) (513.0)
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ABS obligations outstanding at end of period $50.0 $ 50.0
Our ABS facility involves receivables of Yellow Transportation only and has a
limit of $200 million. Under the terms of the agreement, Yellow Transportation
provides servicing of the receivables and retains the associated collection
risks. Although the facility has no stated maturity, there is an underlying
letter of credit with the administering financial institution that has a 364-day
maturity. Refer to our Annual Report on Form 10-K for the year ended December
31, 2002 for a further understanding of the process related to the ABS facility.
Cash Flow Measurements
We use free cash flow as a measurement to manage working capital and capital
expenditures. Free cash flow indicates excess cash available to fund additional
capital expenditures, to reduce outstanding debt, or to invest in our growth
strategies. This measurement should not be construed as a better measurement
than net cash from operating activities as defined by generally accepted
accounting principles. The following table illustrates our calculation for
determining free cash flow for the three months ended March 31 (in millions):
2003 2002
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Net cash from operating activities $ 20.1 $ 48.1
Net change in operating activities of discontinued operations - 3.1
Accounts receivable securitizations, net - (30.5)
Net property and equipment acquisitions (25.5) (26.0)
Proceeds from stock options - 2.0
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Free cash flow $ (5.4) $ (3.3)
The slight decline of $2.1 million in free cash flow from the first quarter of
2002 compared to first quarter of 2003 resulted primarily from decreases of
accounts payable and other working capital items partially offset by improved
operating results and favorable changes in accounts receivable. Other working
capital fluctuations resulted primarily from performance incentive accruals,
income tax refunds and prefunded benefit contributions.
The items discussed above impact net cash from operating activities in addition
to free cash flow. Other variances included in net cash from operating
activities were changes in accounts receivable securitizations related to our
ABS facility and net operating activities of discontinued operations. In the
first quarter of 2002, we reduced ABS obligations by $30.5 million. In 2003, ABS
obligations were reflected as a financing activity on the Statements of
Consolidated Cash Flows and had no impact on free cash flow or net cash from
operating activities. Changes in operating activities of discontinued operations
related to SCST activity until the spin-off in September 2002.
Nonunion Pension Obligations
As discussed in more detail in our Annual Report on Form 10-K for the year ended
December 31, 2002, we provide defined benefit pension plans for most employees
not covered by collective bargaining agreements, or approximately 4,000
employees. Increases in our pension benefit obligations combined with market
losses in 2002 and 2001 negatively impacted the funded status of our plans,
resulting in additional funding and expense over the next several years. Based
on a recent valuation study from the
independent actuary, our actual 2003 pension expense will be approximately $17
million, significantly less than the $24 million we expected at December 31,
2002. Cash funding requirements have not changed since December 31, 2002, and
will approximate $35 million in 2003.
Regulatory Changes
In October 2002, the Environmental Protection Agency issued new engine emission
standards that apply to heavy-duty vehicles. Yellow Transportation continues to
test several units for fuel economy, reliability and performance standards.
Although meaningful mileage and test results will not be available until the end
of 2003, early results indicate that the engines are performing as expected and
will not have a material impact on our capital expenditures or operating
expenses in 2003.
CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS
The following tables provide aggregated information regarding our contractual
obligations and commercial commitments as of March 31, 2003.
Contractual Cash Obligations
(amounts in millions) Payments Due by Period
Less than After 5
1 year 2 - 3 years 4 - 5 years years Total
--------- ----------- ----------- ------- ------
Balance sheet obligations:
ABS borrowings $ 50.0 $ - $ - $ - $ 50.0
Long-term debt 35.3 21.5 7.0 10.5 74.3
Off-balance sheet obligations:
Operating leases 21.2 35.5 6.8 6.0 69.5(1)
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Total contractual obligations $106.5 $ 57.0 $ 13.8 $ 16.5 $193.8
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(1) The net present value of operating leases, using a discount rate of 10
percent, was $58.3 million at March 31, 2003.
Other Commercial Commitments
The following table reflects other commercial commitments or potential cash
outflows that may result from a contingent event.
(amounts in millions) Amount of Commitment Expiration Per Period
Less than After 5
1 year 2 - 3 years 4 - 5 years years Total
--------- ----------- ----------- ------- ------
Available line of credit $ - $147.5(1) $ - $ - $147.5
Letters of credit 20.1 132.4 - - 152.5
Lease guarantees for SCST 1.3 3.3 1.9 0.4 6.9
Surety bonds 21.0(2) 34.6 1.2 0.3 57.1
----- ------ ---- ----- ------
Total commercial commitments $42.4 $317.8 $3.1 $ 0.7 $364.0
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(1) The line of credit renews in April 2004. Although we have no assurance we
will be able to renew the facility, we expect to begin the renewal process well
in advance of the expiration and we believe other sources of funding are readily
available.
(2) Includes $4.6 million of surety bonds for SCST related to property damage
and workers' compensation self insurance.
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
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Registrant
Date: May 7, 2003 /s/ Donald G. Barger, Jr.
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Donald G. Barger, Jr.
Senior Vice President
& Chief Financial Officer