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

Income Taxes

Notes to Consolidated Financial Statements Yellow Corporation and Subsidiaries Income Taxes Deferred income taxes are determined based upon the difference between the book and the tax basis of the company's assets and liabilities. Deferred taxes are recorded at the enacted tax rates expected to be in effect when these differences reverse. Deferred tax liabilities (assets) are comprised of the following at December 31: (in thousands)   2002     2001   Depreciation $ 90,004   $ 81,521   Prepaids   8,193     9,427   Employee benefits   52,330     48,519   Revenue   22,925     20,241   Other   6,354     9,467   Gross tax liabilities before discontinued operations $ 179,806   $ 169,175   Gross tax liabilities of discontinued operations   -     62,530   Gross tax liabilities $ 179,806   $ 231,705   Claims and insurance $ (54,684 ) $ (53,341 ) Bad debts   (5,514 )   (2,812 ) Employee benefits   (45,076 )   (18,712 ) Revenue   (10,882 )   (15,398 ) Other   (21,242 )   (21,698 ) Gross tax assets before discontinued operations $ (137,398 ) $ (111,961 ) Gross tax assets of discontinued operations   -     (20,416 ) Gross tax assets $ (137,398 ) $ (132,377 ) Net tax liability     $ 42,408         $ 99,328     A valuation allowance for deferred tax assets was not required at December 31, 2002 or 2001. A reconciliation between income taxes at the federal statutory rate and the consolidated effective tax rate from continuing operations follows: (in thousands)   2002     2001     2000   Federal statutory rate   35.0 %   35.0 %   35.0 % State income taxes, net   (0.8 )   (2.0 )   4.0   Nondeductible business expenses   4.5     11.3     2.7   Foreign tax credit and rate differential   (2.2 )   (2.5 )   0.6   Other, net   (0.3 )   (2.8 )   (0.9 ) Effective tax rate     36.2 %       39.0 %       41.4 %   The income tax provision from continuing operations consisted of the following: (in thousands)   2002     2001     2000   Current: U.S. federal $ 12,697   $ (6,853 ) $ 28,511   State   (353 )   (3,628 )   5,556   Foreign   (180 )   505     (151 ) Current income tax provision $ 12,164   $ (9,976 ) $ 33,916   Deferred: U.S. federal $ 584   $ 14,220   $ 7,739   State   748     2,937     1,191   Foreign   117     (411 )   676   Deferred income tax provision $ 1,449   $ 16,746   $ 9,606   Income tax provision $ 13,613   $ 6,770   $ 43,522   Based on the income from continuing operations   before income taxes: Domestic $ 37,892   $ 16,119   $ 105,472   Foreign   (306 )     1,240       (345 )   Income from continuing operations before income taxes   $ 37,586     $ 17,359     $ 105,127

Income Taxes