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

Commitments, Contingencies, and Uncertainties

Notes to Consolidated Financial Statements Yellow Corporation and Subsidiaries Commitments, Contingencies, and Uncertainties The company incurs rental expenses under noncancelable lease agreements for certain buildings and operating equipment. Rental expense is charged to operating expense and supplies on the Statements of Consolidated Operations. Actual rental expense, as reflected in income from continuing operations, was $34.8 million, $37.0 million, and $35.7 million for the years ended December 31, 2002, 2001, and 2000, respectively. The company utilizes certain terminals and equipment under operating leases. At December 31, 2002, the company was committed under noncancelable lease agreements requiring minimum annual rentals payable as follows: (in thousands)   2003     2004     2005     2006     2007   Thereafter   Minimum annual rentals     $ 26,203         $ 18,182         $ 13,373         $ 4,076         $ 3,039         $ 5,624     The company expects in the ordinary course of business that leases will be renewed or replaced as they expire. Projected 2003 net capital expenditures are expected to be $100 to $110 million, of which $32 million was committed at December 31, 2002. The company's outstanding letters of credit at December 31, 2002 included $10.6 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 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. The company also provides a guarantee of $6.6 million regarding certain lease obligations of SCST. The company is involved in litigation or proceedings that have arisen in the company's ordinary business activities. The company insures against these risks to the extent deemed prudent by its management, but no assurance can be given that the nature and amount of such insurance will be sufficient to fully indemnify the company against liabilities arising out of pending and future legal proceedings. Many of these insurance policies contain self-insured retentions in amounts the company deems prudent. Based on its current assessment of information available to the company as of the date of these financial statements, the company believes that its financial statements include adequate provision for estimated costs and losses that may ultimately be incurred with regard to the litigation and proceedings to which the company is a party. Labor Negotiations The National Master Freight Agreement covering Yellow Transportation collective-bargaining employees expires on March 31, 2003. Yellow Transportation began formal labor negotiations with the International Brotherhood of Teamsters in October 2002, with a goal to renegotiate the agreement prior to its expiration. Failure to reach an agreement prior to the expiration of the contract could have a significant impact on our financial condition and results of operations. The agreement covers approximately 80 percent of Yellow Transportation employees.

Commitments, Contingencies, and Uncertainties