Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Consolidated Results
The following table summarizes the Statement of Consolidated Operations for the three years
ended December 31:
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Percent Change |
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| (in millions) |
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2002 |
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2001 |
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2000 |
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2002 vs. 2001 |
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2001 vs. 2000 |
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| Operating Revenue |
$ |
2,624.1 |
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$ |
2,505.1 |
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$ |
2,799.1 |
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4.8 |
% |
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(10.5 |
)% |
| Operating Income |
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46.9 |
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|
38.2 |
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|
126.7 |
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|
22.8 |
% |
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(69.9 |
)% |
| Nonoperating |
| Expenses, net |
|
9.3 |
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20.8 |
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21.6 |
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(55.3 |
)% |
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(3.7 |
)% |
| Income from |
| Continuing Operations |
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24.0 |
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10.6 |
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61.6 |
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126.4 |
% |
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(82.8 |
)% |
| Income (Loss) from |
| Discontinued Operations |
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(117.9 |
) |
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4.7 |
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6.4 |
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n/m |
(1) |
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(26.6 |
)% |
| Net Income (Loss) |
$ |
(93.9 |
) |
$ |
15.3 |
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$ |
68.0 |
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(713.7 |
)% |
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(77.5 |
)% |
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2002 compared to 2001
Our 2002 operating revenue improved over 2001, primarily as a result of increased volumes at
Yellow Transportation from growth in premium services and increased market share from the CF closure.We also recognized additional revenue with a full year of Meridian IQ activity,
including the acquisitions of Clicklogistics and MegaSys.
Operating income in 2002 included $8.4 million of unusual charges mostly related to the spin-off of
SCST. Spin-off charges represented bank fees and external legal and accounting services. Operating
income also included higher corporate expenses in 2002 mostly related to increased incentive compensation
accruals of $2.7 million and professional services of $1.6 million. These costs along with the
spin-off charges of $6.9 million are included under "Corporate" in the Business Segments footnote.
Nonoperating expenses improved by $11.5 million in 2002 as a result of lower interest charges on
variable-rate debt and financing costs for our asset backed securitization (ABS) obligations, due to
both lower interest rates and lower average borrowings. In addition, nonoperating costs in 2001
included a loss of $5.7 million for our equity investment in Transportation.com. Since September
2001, when we acquired the remaining ownership in Transportation.com, results for this entity
have been consolidated under Meridian IQ and reported as operating income or losses.
Our effective tax rate on continuing operations for 2002 was 36.2 percent compared to 39.0 percent
in 2001. The lower tax rate resulted from a variety of factors, including decreased nondeductible
business expenses and the implementation of prudent tax planning strategies. Our notes to the
financial statements provide an analysis of the income tax provision and the effective tax rate.
Our net loss of $93.9 million for 2002 occurred due to the impairment of goodwill associated
with Jevic Transportation, Inc. ( Jevic) and the spin-off of SCST.We recorded a non-cash charge
of $75.2 million in the first quarter of 2002 for the impairment of goodwill related to the
acquisition of Jevic. In the third quarter of 2002, we recorded a non-cash charge of $52.6 million
for the difference between the carrying value of SCST and the fair value, as determined by the
market capitalization of SCST at the spin-off date. Due to the non-cash nature of the charges,
neither charge resulted in tax benefits. As a result of the spin-off, both non-cash charges and
income from operations of $9.9 million for SCST are reflected in discontinued operations on
our Statement of Consolidated Operations for 2002.
2001 compared to 2000
Our 11 percent decline in operating revenue from 2000 to 2001 resulted from a significant decrease
in volumes at Yellow Transportation. The variances between 2001 and 2000 were compounded even
further due to the strength of the 2000 economic environment and our record profitability in that
year. The 2001 economic slowdown was characterized by a large drop-off in business volumes in a
short period of time. The significant drop in volumes, resulting in our lowest tonnage since 1987,
created excess capacity in the industry and increased pressure on pricing.
Operating income in 2001 included $5.4 million of unusual charges mostly related to reorganization
costs along with property gains and losses. The fluctuation in unusual charges between years
reduced operating income by $19.8 million, since 2000 included unusual benefits of $14.4 million
as a result of significant net property gains. The net property gains in 2000 primarily consisted of a
$20.7 million pretax gain on the sale of real estate property in New York and a $6.5 million pretax
loss on obsolete computer aided dispatch technology, both at Yellow Transportation.
Yellow Transportation Results
The table below provides summary information for Yellow Transportation for the three years
ended December 31:
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Percent Change |
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| (in millions) |
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2002 |
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2001 |
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2000 |
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2002 vs. 2001 |
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2001 vs. 2000 |
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| Operating Revenue |
$ |
2,547.1 |
|
$ |
2,492.3 |
|
$ |
2,777.8 |
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|
2.2 |
% |
|
(10.3 |
)% |
| Operating Income |
|
70.6 |
|
|
55.9 |
|
|
141.8 |
|
|
26.3 |
% |
|
(60.6 |
)% |
| Operating Ratio |
|
97.2 |
% |
|
97.8 |
% |
|
94.9 |
% |
|
0.6 |
pp |
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(2.9 |
)pp |
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2002 compared to 2001
As discussed under our consolidated results, Yellow Transportation realized increased volumes in
2002 over 2001 as a result of its premium services and market share growth from the CF closure in
September. Our LTL shipment volumes increased by 2.3 percent in 2002 from 2001. Prior to the
CF closure, volumes were flat in 2002 compared to 2001. A primary indicator of pricing, LTL
revenue per hundred weight excluding fuel surcharge, was up 1.9 percent in 2002 compared to 2001.
The increase in volume and price resulted from a disciplined approach to reviewing customer mix
and specific yield management efforts.
Premium services, an integral part of our strategy to offer a broad portfolio of services and meet
the increasingly complex transportation needs of our customers, continued to produce favorable
operating results. Premium services at Yellow Transportation include, among others, Exact Express®,
expedited and time-definite ground service with a 100 percent satisfaction guarantee; and Definite
Delivery®, a guaranteed on-time service with constant shipment monitoring and notification.
Consolidated Exact Express® revenue increased by 36 percent and Definite Delivery® revenue
increased by 26 percent in 2002 from 2001. Yellow Transportation also offers Standard Ground™
Regional Advantage, a high-speed service for shipments moving between 500 and 1,500 miles.
Standard Ground™ Regional Advantage revenue represented more than 23 percent of total Yellow
Transportation revenue in 2002. This service provides higher utilization of assets by more direct
loading and bypassing intermediate handling at distribution centers.
Yellow Transportation realized improved operating income of $14.7 million from 2001 to 2002,
despite increased costs for wages and benefits, workers' compensation and bad debt expense in 2002.
Contractual wage and benefit increases combined with higher volumes impacted expense by over $37
million. Improved productivity and a variance in the labor mix partially offset the increased wages.
In addition, effective cost management over operating supplies and administrative costs reduced
expense by approximately $18 million from 2001.
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 was higher than originally anticipated.
This occurred despite the continued improvement of safety statistics at Yellow Transportation in
2002 compared to 2001.Workers' compensation expense increased by $16.0 million in 2002 from
2001. Yellow Transportation added additional resources to manage these claims.
Bad debt expense also had a negative impact on Yellow Transportation results, increasing by $11.5
million in 2002 from 2001. The increase resulted from a trend of additional write-offs partially
due to the negative impact of the economy on certain customers and their ability to pay. Yellow
Transportation added additional collection personnel and enhanced its credit policies regarding
new and continuing customers.
2001 compared to 2000
Yellow Transportation operating revenue in 2001 declined significantly from 2000 due to the weak
economy. The impact of a 13.5 percent decrease in shipment volumes from 2000 to 2001 was only
partially offset by a 2.9 percent improvement in revenue per hundred weight. A general rate increase
averaging 4.9 percent went into effect August 1, 2001 on approximately half of the revenue base not
covered by contracts. The increase, partially offset by discounting and a decreasing fuel surcharge,
was the primary factor for the improved revenue per hundred weight.
In 2001, Yellow Transportation completed implementation of a new high-speed network started in
2000. Standard Ground™ Regional Advantage service made Yellow competitive with regional carriers
in two- and three-day service lanes. The new network created operational efficiencies and the
service generated positive feedback from customers.
Effective cost management and lower business volumes allowed Yellow Transportation to reduce
operating expenses by approximately 75 percent of the decrease in revenue for 2001. As LTL
networks traditionally have high fixed costs, this reduction was a significant improvement from
prior years. Lower business volumes and an aggressive, proactive program of staff reductions in
both the labor and management ranks resulted in 7.0 percent lower salaries, wages and benefits
expense, more than offsetting wage and benefit cost increases. Curtailing discretionary spending
and modifying operating procedures to improve load average and increase direct loading achieved
further savings.
Meridian IQ Results
Meridian IQ was formed in January of 2002, and formally launched in March, as the Yellow platform
for non-asset-based transportation services. Meridian IQ provides a wide range of transportation
solutions and offers the following services: International Forwarding and Customs Brokerage by arranging
for the administration, transportation and delivery of goods to over 88 countries; Multi-modal Brokerage
Services by providing companies with access to volume capacity and specialized equipment; Domestic
Forwarding and Expedited Services through arranging guaranteed, time definite transportation for
companies within North America; and Transportation Solutions and Technology Management using
web-native systems enabling customers to manage their transportation needs.
Due to the recent formation of Meridian IQ, we evaluated 2002 results based on sequential
growth month over month. Net operating revenue for 2002 was $81.8 million and operating losses
were $2.7 million. Meridian IQ had consistent revenue and operating income improvement, with
modestly profitable results in the second half of 2002. Meridian IQ results were consistent with
our expectations for this newly formed entity.
In September 2001, we completed the acquisition of the remaining ownership in Transportation.com
from our venture capital partners. Prior to the acquisition, we accounted for our investment in
Transportation.com as an unconsolidated joint venture under the equity method of accounting.
Accordingly, nonoperating expenses included losses of $5.7 million and $3.3 million in 2001 and
2000, respectively. As of the acquisition date, we consolidated Transportation.com, as well as our
other non-asset-based services, under Meridian IQ.
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