Introduction Home Yellow is Number One Three components. One company. One-Stop Shopping Shareholders' Letter Management's Discussion and Analysis Financial Summary Consolidated Balance Sheets Statements of Consolidated Operations Statements of Consolidated Cash Flows Statements of Shareholders' Equity Statements of Comprehensive Income Notes to Financial Statements   Description of Business   Principles of Consolidation...     Cash and Cash Equivalents     Concentration of Credit Risks     Revenue Recognition     Financial Instruments     Unusual Items     Claims and Insurance Accruals     Stock-Based Compensation     Impairment of Long-Lived Assets     Reclassifications   Preferred Stock   Supplemental Cash Flow Information   Discontinued Operations   Prepaid Expenses and Other   Goodwill and Other Assets   Property and Equipment   Accounts Payable   Other Current and Accrued Liabilities   Claims and Other Liabilities   Debt and Financing     Variable-Rate Debt     Fixed-Rate Debt     Other Debt   Employee Benefits     Retirement Plans     Multi-Employer Plans     401(k) Savings Plans     Performance Incentive Awards     Executive Performance Plan   Stock Compensation Plans   Goodwill and Intangibles   Acquisitions   Income Taxes   Commitments, Contingencies...     Labor Negotiations   Business Segments   Earnings Per Common Share Independent Auditors' Report Supplementary Information Glossary Officers Corporate Information Board of Directors Back Cover

Debt and Financing

Notes to Consolidated Financial Statements Yellow Corporation and Subsidiaries Debt and Financing At December 31, debt consisted of the following: (in thousands)   2002     2001   Unsecured credit agreement $ -   $ 85,000   ABS borrowings   50,000     - (1) Unsecured medium-term notes   55,250     77,250   Industrial development bonds   18,900     18,900   SCST debt   -     38,834   Capital leases and other   135     42   Total debt $ 124,285   $ 220,026   ABS borrowings   50,000     - (1)   Current maturities   24,261     6,281   Long-term debt     $ 50,024         $ 213,745     (1) Prior to the December 31, 2002 amendment of the ABS agreement, ABS borrowings were not reflected on the balance sheets of the company. At December 31, 2001, $141.5 million was outstanding under the ABS facility. Variable-Rate Debt The company has a $300 million unsecured credit agreement with a group of banks, which expires April 2004. Yellow may use the agreement for additional short-term borrowings and for the issuance of standby letters of credit. Interest on borrowings is based on LIBOR, which was 1.38 percent and 2.44 percent at December 31, 2002 and 2001, respectively. The company pays a fixed increment over these rates. Under the terms of the agreement, among other restrictions, the company must maintain a minimum consolidated net worth and total debt must be no greater than a specified ratio of earnings before interest, income taxes, depreciation and amortization, and rents, as defined. At December 31, 2002 and 2001, the company was in compliance with all terms of this credit agreement. The following table provides the components of the available unused capacity under the bank credit agreement at December 31: (in thousands)   2002     2001   Total capacity $ 300,000   $ 300,000   Outstanding borrowings   -     (85,000 ) Letters of credit   (146,200 )   (89,900 ) Available unused capacity     $ 153,800         $ 125,100     The company also maintains an ABS agreement that allows it to transfer an ongoing pool of receivables to a conduit administered by an independent financial institution (the conduit). Under the terms of the agreement, the company may transfer Yellow Transportation trade receivables to a special purpose entity, Yellow Receivables Corporation (YRC). YRC is a wholly owned consolidated subsidiary of Yellow Transportation designed to isolate the receivables for bankruptcy purposes. The conduit must purchase from YRC an undivided ownership interest in those receivables. The percentage ownership interest in receivables purchased by the conduit may increase or decrease over time, depending on the characteristics of the receivables, including delinquency rates and debtor concentrations. The company services the receivables transferred to YRC and receives a servicing fee, which company management has determined approximates market compensation for these services. The conduit pays YRC the face amount of the undivided interest at the time of purchase. On a periodic basis, this sales price is adjusted, resulting in payments by YRC to the conduit of an amount that varies based on the interest rate on certain of the conduit's liabilities and the length of time the sold receivables remain outstanding. Prior to December 31, 2002, financing obtained under the ABS facility was treated as a sale of assets and the sold receivables and related obligations were not reflected on the Consolidated Balance Sheets. The right to repurchase receivable interests was limited to instances when ABS obligations were below $10 million. As of December 31, 2002, the ABS agreement was amended to provide YRC the right to repurchase, at any time, 100 percent of the receivable interests held by the conduit. Due to the amendment, the receivables transferred and the related borrowings are reflected on the Consolidated Balance Sheet as of December 31, 2002. The amendment does not alter the costs associated with operating the ABS facility. The ABS facility provides additional liquidity and lower borrowing costs through access to the asset backed commercial paper market. By using the ABS facility, the company obtains 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 the liquidity. Yellow averaged a rate of 2.3 percent on the ABS facility in 2002. The ABS facility involves receivables of Yellow Transportation only and has a limit of $200 million. Under the terms of the agreement, Yellow Transportation retains the associated collection risks. Although the facility has no stated maturity, the company has an underlying letter of credit with the administering financial institution that has a 364-day maturity. The table below provides the borrowing and repayment activity, as well as the resulting balances, for the years ending December 31 of each period presented: (in thousands)   2002     2001   ABS obligations outstanding at January 1 $ 141,500   $ 177,000   Transfer of receivables to conduit (borrowings)   421,500     152,000   Redemptions from conduit (repayments)   (513,000 )     (187,500 )   ABS obligations outstanding at December 31     $ 50,000       $ 141,500   The company's loss on the sale of receivables under the ABS facility to the conduit was $2.6 million in 2002, $8.0 million in 2001, and $10.1 million in 2000. These charges are reflected as ABS facility charges on the Statements of Consolidated Operations. Fixed-Rate Debt Medium-term notes have scheduled maturities through 2008 with fixed interest rates ranging from 6.0 percent to 7.8 percent. The company has loan guarantees, mortgages, and lease contracts in connection with the issuance of industrial development bonds (IDBs) used to acquire, construct or expand terminal facilities. Rates on these bonds range from 5.0 percent to 6.1 percent, with principal payments due through 2010. The principal maturities of long-term debt, including current maturities, for the next five years and thereafter are as follows: (in thousands) Medium-Term Notes     IDBs     Other     Total   2003 $ 19,250   $ 5,000   $ 11   $ 24,261   2004   16,000     -     124     16,124   2005   12,000     4,400     -     16,400   2006   7,000     -     -     7,000   2007   -     -     -     -   Thereafter   1,000     9,500     -     10,500   Total                 $ 55,250         $ 18,900         $ 135         $ 74,285     Based on the borrowing rates currently available to the company for debt with similar terms and remaining maturities, the fair value of fixed-rate debt at December 31, 2002 and 2001, was approximately $81.5 million and $114.2 million, respectively. The carrying amount of such fixed-rate debt at December 31, 2002 and 2001 was $74.3 million and $108.8 million, respectively. Other Debt SCST debt at December 31, 2001 consisted of subordinated debentures of $16.3 million, fixed and variable-rate mortgages of $11.6 million and $5.0 million, respectively, and variable-rate term notes of $5.9 million. SCST assumed the subordinated debentures of $16.3 million and the remaining debt was paid off as part of the spin-off.

Debt and Financing