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Management’s
Discussion and Analysis
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1999 vs. 1998 Operating revenue for Yellow Corporation (the company) totaled $3.2 billion in 1999 an 11.2 percent increase over 1998 revenue of $2.9 billion. Operating income for the year was $107.5 million, an increase of 28.9 percent over 1998 operating income of $83.4 million. Income from continuing operations in 1999 was $50.9 million or $2.02 per share (diluted) compared to income from continuing operations of $40.1 million or $1.49 per share (diluted) in 1998. Yellow Freight’s 1999 operating income was $85.4 million, a 27.7 percent increase over 1998 operating income of $66.9 million. Operating revenue was $2.6 billion for 1999, up 4.8 percent from $2.5 billion in 1998. The 1999 operating ratio was 96.7 compared to 97.3 in 1998. The increase in 1999 revenue was a net result of higher prices, mix changes and volume increases. Yellow Freight had year over year increases in LTL tonnage of 2.4 percent and LTL shipments of 2.1 percent, as well as a 3.2 percent increase in LTL revenue per ton. Yellow Freight benefited from a general rate increase averaging 5.5 percent that went into effect on September 1,1999 on approximately half of the revenue base not covered by term contracts. A fuel surcharge was also reactivated at mid-year 1999 in order to offset rising diesel fuel prices. Performance in 1998 was adversely impacted by the loss of business due to customer concerns over the possibility of a work stoppage in connection with negotiations on a new National Master Freight Agreement with the International Brotherhood of Teamsters. A contract was ratified on April 7, 1998. Yellow Freight’s cost per ton increased 3.2 percent in 1999 due to cost increases in salaries wages and benefits, fuel costs and purchased transportation that were partially offset by increased volume and decreased maintenance related costs and depreciation expense. Yellow Freight’s salary, wages and employee benefits as a percentage of revenue increased due to scheduled wage and benefit increases and higher levels of incentive compensation for Yellow Freight employees. Yellow Freight’s claims and insurance expense decreased slightly from the prior year, despite the increase in shipments and an increase in total miles of 1.4 percent. Yellow Freight maintained the use of rail transportation at 27.3 percent in 1999 unchanged from 1998. However, rail cost increases as well as other purchased transportation service contributed to an overall increase in purchased transportation expense. Diesel fuel prices rose in 1999, however Yellow Freight’s fuel-hedging program substantially offset this cost increase. Saia Motor Freight Line, Inc. (Saia) had operating income of $16.8 million in 1999 compared to $24.7 in 1998. Saia’s revenue grew 2.7 percent in 1999 to $349.3 million compared to $340.1 million in 1998. Saia’s 1999 performance was below 1998 levels due to softer revenue for the early part of 1999 in Texas and Gulf Coast regions with economies tied to the petroleum industry. Tonnage increased 1.7 percent and revenue per ton increased less than one percent. However, revenue and tonnage trends improved during the last quarter of 1999 due in part to company initiatives to significantly improve service levels. Saia also experienced increased wage and benefit expense resulting in an operating ratio of 95.2 in 1999 compared to 92.7 in 1998. Saia’s cost per ton increased 3.5 percent due primarily to cost increases in salaries, wages and benefits. Depreciation increased due to the addition of revenue equipment in 1998 and 1999. Increased purchase transportation and rentals during 1999 allowed Saia to manage temporary surges in business levels. These increases were partially offset by favorable insurance claims expense compared to the prior year. A fuel surcharge was also reactivated at midyear 1999 in order to offset rising diesel fuel prices. Saia initiated a 4.5 percent general rate increase on October 1, 1999 on its non-contract customers. Jevic Transportation, Inc. (Jevic) was acquired on July 9, 1999 and is operated as a separate subsidiary of the company. Jevic is a fully integrated regional and inter-regional LTL and partial TL carrier. Jevic’s operating system combines the high revenue yield characteristics of LTL carriers with the operating flexibility and low fixed costs of TL carriers. Jevic is headquartered in the Philadelphia Metropolitan area. Jevic reported operating income of $10.1 million and revenue of $137.9 million resulting in an operating ratio of 92.7 for the partial year 1999. Operating results for 1999 reflect only contributions since the July 9 acquisition date. On a full year-to-year basis, Jevic’s revenue increased 22.6 percent in 1999 and Jevic’s tonnage increased 18.7 percent. Jevic’s revenue per ton increased 3.1 percent in 1999 and cost per ton increased 3.2 percent. Jevic initiated a price increase of 5.7 percent on November 15, 1999. WestEx, Inc. (WestEx) reported improved operating income of $0.4 million in 1999 compared to an operating loss of $1.2 million in 1998. WestEx had 1999 revenue of $70.9 million, up 9.2 percent from 1998 revenue of $64.9 million. Tonnage increased 5.6 percent, revenue per ton increased 3.7 percent and cost per ton increased 1.0 percent. Salaries, wages and benefits decreased as a percentage of revenue from 58.5 percent of revenue in 1998 to 55.4 percent in 1999 due to mix changes and improved efficiencies. WestEx had an operating ratio of 99.4 in 1999 compared to an operating ratio of 101.8 in 1998. WestEx initiated a general price increase of 5.5 percent on September 13, 1999. |
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