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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM      to     

Commission file number: 0-49983

SCS Transportation, Inc.

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o (Registrant has not been subject to filing requirements for past 90 days)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No x

The aggregate market value of the 14,595,193 shares of voting stock of the registrant held by non-affiliates of the registrant (excluding, for this purpose, shares held by officers, directors or 10 percent stockholders) was $172,223,277 based on the last sales price of the Common Stock on February 18, 2003, as reported on the Nasdaq National Market. The number of shares of Common Stock outstanding as of February 18, 2003 was 14,704,410.

Documents Incorporated by Reference

Portions of the definitive Proxy Statement to be filed within 120 days of December 31, 2002, pursuant to Regulation 14A under the Securities Exchange Act of 1934 for the Annual Meeting of Stockholders to be held April 23, 2003.

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PART I.

Item 1. Business

Overview

SCS Transportation, Inc. (SCST or the Company) is a leading transportation company that provides a variety of trucking transportation and supply chain solutions to a broad range of industries, including the retail, petrochemical and manufacturing industries. Through our operating subsidiaries, Saia Motor Freight Line, Inc. (Saia) and Jevic Transportation, Inc. (Jevic), we serve a wide variety of customers by offering regional, interregional and national less-than-truckload, or LTL, services and selected truckload, or TL, services across the United States, with a focus on regional transportation solutions. None of our approximately 7,500 employees is represented by a union.

We were organized in 2000 as a wholly owned subsidiary of Yellow Corporation (Yellow) to better manage its regional transportation business. Our business consists of (1) Saia, which was acquired by Yellow in 1993 (including WestEx and Action Express, two western regional subsidiaries acquired in 1994 and 1998, respectively, and merged into Saia in 2001), and (2) Jevic, which was acquired by Yellow in 1999. We became an independent public company on September 30, 2002 as a result of a 100 percent tax-free distribution of shares to Yellow shareholders (the Spin-off). Each Yellow shareholder received one share of SCST stock for every two shares of Yellow stock held as of the September 3, 2002 record date. As a result of the Spin-off, Yellow does not own any shares of our capital stock.

We operate two business segments, Saia and Jevic. In 2002, Saia generated revenue of $490 million and operating income of $21.9 million. In 2001, Saia generated revenue of $485 million and operating income of $9.7 million. In 2002, Jevic generated revenue of $286 million and operating income of $5.8 million. In 2001, Jevic generated revenue of $286 million and operating income of $6.0 million. Information regarding revenues and operating income of Saia and Jevic are contained in the notes to our audited financial statements contained in this annual report.

Operating Subsidiaries

Saia Motor Freight Line, Inc.

Founded in 1924, Saia is a leading multi-regional LTL carrier that serves the South, Southwest, Pacific Northwest and the West. Saia specializes in offering its customers a range of regional and interregional LTL services including time-definite and expedited options. Within these service options, Saia provides its customers with the flexibility to handle shipments between 100 and 10,000 pounds.

Saia has invested substantially in technology to enhance its ability to monitor and manage service operations and profitability. These data capabilities enable Saia to provide its trademarked Customer Service Indicators program, allowing customers to monitor service performance. Customers can access the information via the Internet to help manage their shipments. The Customer Service Indicators measure the following: on-time pickup; on-time delivery; claims settled within 30 days; claim free shipments; proof of delivery request turnaround; and invoicing accuracy. The index provides both Saia and the customer with a report card of overall service levels.

Saia operates a network comprised of 109 service facilities. The average Saia shipment weighs approximately 1,300 pounds and travels an average distance of approximately 530 miles. In March 2001, Saia successfully integrated its WestEx and Action Express affiliates into its operations and expanded its geographic reach to 21 states. Saia has approximately 5,100 employees.

Jevic Transportation, Inc.

Founded in 1981, Jevic is a specialized LTL ground transportation services provider that also offers selected TL services throughout the continental United States and Canada. Jevic specializes in offering its customers standard and customized regional transportation solutions based on its non-traditional Breakbulk-Free® operating model, often eliminating the need to rehandle freight at interim and destination service facilities. In 2002, the average shipment weight was approximately 4,600 pounds, and the average shipment distance was approximately 735 miles. Jevic has approximately 2,400 employees.

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The Jevic approach offers customers a broad line of LTL and TL services that can accommodate a wider range of shipment sizes and trip lengths than traditional regional carriers. Jevic develops integrated solutions for customers designed to lower their overall supply chain costs, which can include direct-to-customer deliveries, multi-shipper order consolidation for their inbound supplies, and express and time-definite deliveries. Approximately half of the Jevic trailers are heated and service customers with temperature-sensitive requirements. Jevic is a partner with the American Chemical Council Responsible Care Program and derives over 50 percent of its revenue from the chemical and chemical-related sectors.

The technology employed by Jevic is crucial to its Breakbulk-Free® LTL operating model. Jevic uses the Qualcomm OmniTRACS satellite-based communications system, facilitating the load planning and capacity management processes critical to its operating structure. To leverage this information, Jevic has developed a proprietary suite of programs called PreSys® (predictive systems) providing information to effectively anticipate volumes, optimize load planning and meet customer services expectations while minimizing cost.

Industry

According to an American Trucking Association report, in 2001 the trucking industry accounted for 87.3 percent of total domestic freight revenue, or $610 billion, and 67.4 percent of domestic freight volume. Trucks provide transportation services to virtually every industry operating in the United States and generally offer higher levels of reliability, shipment integrity and speed than other surface transportation options.

The trucking industry consists of three segments, including private fleets and two “for-hire” carrier groups. The private carrier segment consists of fleets owned and operated by shippers who move their own goods. The two “for-hire” groups, TL and LTL, are based on the typical shipment sizes handled by transportation service companies: TL refers to providers generally transporting shipments greater than 10,000 pounds and LTL refers to providers generally transporting shipments less than 10,000 pounds.

SCST is primarily an LTL carrier. The LTL segment accounted for approximately $63 billion of revenue in 2001, or 10.3 percent of total trucking revenue according to the American Trucking Association.

LTL transportation providers consolidate numerous orders generally ranging from 100 to 10,000 pounds from businesses in different locations. Orders are consolidated at individual locations within a certain radius from service centers. As a result, LTL carriers require expansive networks of pickup and delivery operations around local service centers and shipments are moved between origin and destination often through an intermediate distribution or “breakbulk” center. Depending on the distance shipped, the LTL segment is typically classified into three subgroups:

•		Regional — Average distance is typically less than 500 miles with a focus on one- and two-day markets. Regional transportation companies can move shipments directly to their respective destination centers, which increase service reliability and avoid costs associated with intermediate handling.
•		Interregional — Average distance is usually between 500 and 1,000 miles with a focus on serving two- and three-day markets.
•		National — Average distance is typically in excess of 1,000 miles with focus on service in two- to five-day markets. National providers rely on intermediate shipment handling through hub and spoke networks, which require numerous satellite service centers, multiple distribution centers, and a relay network. To gain service and cost advantages, they occasionally ship directly between service centers, reducing intermediate handling.

Over the last several years there has been a blurring of the above subgroups as individual companies are increasingly attempting to serve multiple subgroups.

Saia operates as a traditional LTL carrier with a primary focus on regional LTL one- and two-day lanes. Although Jevic focuses on the LTL sector, its non-traditional operating model allows it to provide high quality service across sector boundaries of weight (LTL and TL) and distance (regional, interregional and national).

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The TL segment is the largest portion of the “for-hire” truck transportation market. In 2001 the TL segment generated approximately $274 billion in revenue or 45 percent of total trucking revenue according to the American Trucking Association. TL carriers primarily transport large shipments from origin to destination with no intermediate handling. Although a full truckload can weigh over 40,000 pounds, it is common for carriers to haul two or three shipments exceeding 10,000 pounds at one time, making multiple delivery stops.

Because TL carriers do not require an expansive network to provide point-to-point service, the overall cost structure of industry participants is typically low relative to LTL service providers. The segment is comprised of several major carriers and numerous small entrepreneurial players. At the most basic level, a TL company can be started with capital for rolling stock (a tractor and a trailer), insurance, a driver and little else. As size becomes a factor, capital is needed for technology infrastructure and some limited facilities. While Saia does not compete extensively in the TL sector, Jevic derives approximately one-third of its revenues from TL services.

Capital requirements are significantly different in the traditional LTL segment versus the TL segment. In the LTL sector, substantial amounts of capital are required for a network of service facilities, shipment handling equipment and revenue equipment (both for city pick-up, delivery and linehaul). In addition, investment in effective technology has become increasingly important in the LTL segment, largely due to the number of transactions and number of customers served on a daily basis. Saia, for example, picks up approximately 17,000 shipments per day, each of which has a shipper and consignee, and occasionally a third party, all of whom need access to information in a timely manner. More importantly, technology plays a key role in improving operations, maximizing loads and effectively managing yields. Due to the significant infrastructure spending required, the cost structure is relatively prohibitive to new startup or small entrepreneurial operations. As a result, the LTL segment is more concentrated than the TL segment, with a few large national carriers and several large regional carriers.

Business Strategy

Saia has grown over the last decade through a combination of organic growth and the integration in 2001 with WestEx and Action Express, regional LTL companies which had been acquired by Yellow in 1994 and 1998, respectively. WestEx operated in California and the Southwest, and Action Express operated in the Pacific Northwest and Rocky Mountain states. Saia has successfully integrated these two companies, which had contiguous regional coverage with minimal overlap. All historical segment data for Saia has been restated to give effect to this integration.

Yellow recognized Jevic as an opportunity to acquire a complementary business that would offer additional growth potential to its more traditional LTL network service. Jevic was acquired by Yellow in July 1999.

Key elements of our business strategy to increase growth and profitability include:

Continue focus on delivering best-in-class service.

The foundation of our growth and profitability strategy is a continuing commitment to delivering high-quality service. Commitment to service quality is valued by customers and allows us to gain fair compensation for our services and to maintain and gain market share.

Increase density in existing geographies.

We gain operating leverage by growing volume and density within existing geography. We estimate the potential incremental profitability on growth in current markets can be as much as 15 percent to 20 percent. This improves margins, asset turnover and return on capital. To further support this initiative, sales staffing is being increased by approximately 15 percent by the end of the first quarter of 2003. The additional staffing is being deployed in markets and towards customer segments that provide the greatest opportunities for profitable growth.

Continue focus on improving operating efficiencies.

As a result of aggressive management initiatives and ongoing establishment of comprehensive operating best practices, both Saia and Jevic continue to improve operating efficiency. This success helps offset a variety of structural cost increases like casualty insurance, wage rates and health care benefits. We believe our companies are well positioned to manage costs and asset utilization should the economy remain soft and we continue to see new opportunities for cost savings.

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Manage yields and business mix.

This strategy involves managing both the pricing process and the mix of customers, in ways that allow our networks to operate more profitably. While regional pricing remains highly competitive, it appears to have improved relative to the first half of 2002 trends.

During 2002, Saia reduced business levels in the retail customer segment by eliminating selected business with costly handling characteristics. The reduction in business was offset by targeted growth with lower yielding but more profitable industrial customers.

Expand geographic footprint.

When the time is right, we plan to pursue geographic expansion as it promotes earnings growth and improves our customer value proposition. We have increased our financial capacity during 2002, which allows us to be more opportunistic with growth initiatives.

We actively monitor opportunities to add service facilities where we have sufficient density and we see potential for future volume growth. Both Saia and Jevic have added modest facility capacity, including Jevic’s expansion to Los Angeles and capacity expansion in Houston in 2002, and in Saia’s 2001 opening of three new service facilities in Oregon, North Carolina and Washington.

Management may also consider acquisitions from time to time to help expand geographic reach while gaining built-in customer volume. Management believes integration of acquisitions is a core competency and it has developed a repeatable blueprint from its successful experience in 2001 integrating WestEx and Action Express into Saia.

Seasonality

Our revenues are subject to seasonal variations. Customers tend to reduce shipments after the winter holiday season, and operating expenses tend to be higher as a percent of revenue in the winter months primarily due to lower capacity utilization. Generally, the first quarter is the weakest while the third quarter is the strongest.

Labor

Most regional LTL companies and virtually all TL companies are not subject to collective bargaining agreements. By contrast, the vast majority of employees in the national LTL sector are subject to collective bargaining agreements with the International Brotherhood of Teamsters.

In recent years, due to competition for quality employees, the compensation divide between union and non-union carriers has closed dramatically. However, there are still significant differences in benefit costs and work rule flexibility. Benefit costs for union carriers remain significantly above those paid by non-union carriers. In addition, non-union carriers have more work rule flexibility with respect to hours driven, routes and other similar items. Work rule flexibility is a major issue in the regional LTL sector, as flexibility is required to meet the service levels required by customers.

Our employees are not represented by a collective bargaining unit allowing for better communications and employee relations, as well as improved efficiencies and customer service capabilities.

Competition

Shippers have an increasingly wide range of choices. We believe that service quality, performance, service variety, responsiveness and flexibility are the important competitive differentiators.

SCST focuses primarily on regional business and operates in a highly competitive environment against a wide range of transportation service providers. These competitors include a small number of large, national transportation service providers in the national market and two-day markets and a large number of shorter-haul or regional transportation companies in the two-day and overnight market. Since 2000, Jevic has faced additional competition in primarily Northeast markets from a newly established company that employs numerous former Jevic employees and that actively solicits business from Jevic customers. SCST also competes in and against several modes of transportation, including LTL, truckload and private fleets. Entry into the LTL trucking industry on a small scale with a limited service area is relatively easy. The larger the service area, the greater the barriers to entry due to the

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need for broader geographic coverage and additional equipment and facility requirements associated with this coverage. The level of technology applications required and the ability to generate shipment densities that provide adequate labor and equipment utilization also make larger-scale entry into the market difficult.

Regulation

The trucking industry has been substantially deregulated and rates and services are now largely free of regulatory controls, although states retain the right to require compliance with safety and insurance requirements. The trucking industry remains subject to regulatory and legislative changes that can have a material adverse effect on our operations.

Key areas of regulatory activity include:

Department of Homeland Security

The trucking industry is working closely with government agencies to define and implement improved security processes. The Transportation Security Administration is currently focusing on trailer security, driver identification and driver background checking processes.

Department of Transportation

Within the Department of Transportation, the Federal Motor Carrier Safety Administration (the “FMCSA”) is finalizing rules on motor carrier driver hours of service that could impact our operations and productivity. The proposed rules are currently being reviewed by the Office of Management and Budget and are expected to be released this year.

The FMCSA is also considering regulations on background checks for drivers transporting hazardous materials and biometric identification programs.

Environmental Protection Agency

The Environmental Protection Agency is implementing regulations to reduce the amount of certain gases and particulate matter emissions from diesel trucks. The 2004 emission standards were advanced to October 1, 2002 under a consent decree. New engines purchased after this date must conform to the new standards. A more significant reduction in emissions is scheduled for 2006 and 2007, which includes both reductions in sulfur content of diesel fuel and further reductions in engine emissions. These regulations have the potential to increase the cost of replacing and maintaining trucks, increase fuel costs, reduce availability of fuel and reduce productivity.

Our motor carrier operations are also subject to environmental laws and regulations, including laws and regulations dealing with underground fuel storage tanks, the transportation of hazardous materials and other environmental matters. We maintain bulk fuel storage and fuel islands at several of our facilities. Our operations involve the risks of fuel spillage or seepage, environmental damage and hazardous waste disposal, among others. We have established programs to monitor and control environmental risks and to comply with all applicable environmental regulations. As part of our safety and risk management program, we periodically perform internal environmental reviews to maintain environmental compliance and avoid environmental risk. We believe that we are currently in substantial compliance with applicable laws and regulations and that the cost of compliance has not materially affected results of operations.

Trademarks and Patents

We have registered several service marks and trademarks in the United States Patent and Trademark office, including Saia Guaranteed Select® and Jevic’s Breakbulk-Free®. We believe that these service marks and trademarks are important components of our marketing strategy.

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Executive Officers of the Registrant

Information regarding executive officers of SCST is as follows (included herein pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G (3) of Form 10-K):

Officers are elected by, and serve at the discretion of, the Board of Directors. There are no family relationships between any executive officer and any other executive officer or director of SCST or of any of its subsidiaries.

Item 2. Properties

SCST is the corporate holding company for Saia and Jevic and has eight employees. SCST leases its corporate office space in Kansas City, Missouri.

Saia is headquartered in Duluth, Georgia. At December 31, 2002 Saia owned 35 service facilities and the Houma, Louisiana general office and leased 74 service facilities, the Duluth, Georgia corporate office and the Boise, Idaho general office. Although Saia owns only 32 percent of its service facility locations, these locations account for 55 percent of its door capacity. This follows the Saia strategy of owning strategically located facilities that are integral to its operations and leasing service facilities in smaller markets to allow for more flexibility. As of December 31, 2002, Saia owned 2,252 tractors and 7,677 trailers.

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Top 20 Saia Service Facilities by Number of Doors

Jevic is headquartered in Delanco, New Jersey and originates shipments primarily east of the Mississippi River, but provides services to customers throughout the continental United States and Canada through ten origination facilities. As of December 31, 2002, Jevic owned 1,219 tractors and 2,539 trailers.

Jevic Facilities

Item 3. Legal Proceedings

Saia and Jevic are both subject to ordinary-course litigation arising out of personal injury, property damage, freight and employment claims. None of these legal actions separately or in the aggregate are viewed by management to be excessive compared to historical trends, nor are they expected to have a material adverse effect on our financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2002.

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PART II.

Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters

Stock Price Information

SCST’s common stock is listed on the NASDAQ National Market (NASDAQ) under the symbol “SCST.” The following table sets forth, for the periods indicated, the high and low sale prices per share for the common stock as reported on NASDAQ. SCST was spun-off from Yellow Corporation on September 30, 2002 and began “regular trading” on NASDAQ on October 1, 2002; therefore no additional historical quarterly information is available.

Stockholders

As of January 31, 2003, there were 2,072 holders of record of our common stock.

Dividends

We do not pay a dividend on our common stock. Any payment of dividends in the future is dependent upon our financial condition, capital requirements, earnings, cash flow and other factors.

Dividends are prohibited under our current debt agreements, which have been previously filed with the Securities and Exchange Commission and are incorporated by reference herein. However, there are no material restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. See Note 3 of the accompanying audited financial statements.

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Item 6. Selected Financial Data

The following table shows summary historical financial data of SCST, which includes its wholly owned subsidiaries Saia and Jevic, and has been derived from, and should be read together with, the financial statements and accompanying notes and in conjunction with “Management’s Discussion and Analysis of Results of Operations and Financial Condition”. The summary financial information may not be indicative of the future performance of SCST.

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Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition

General

The following management’s discussion and analysis describes the principal factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies, of SCS Transportation, Inc. (also referred to as “SCST”). This discussion should be read in conjunction with the accompanying audited consolidated financial statements, which include additional information about our significant accounting policies, practices and the transactions that underlie our financial results.

SCST is a leading transportation company providing regional and interregional less-than-truckload (LTL) and selected truckload (TL) service solutions to more than 71,000 customers across the United States. Our operating subsidiaries are Saia Motor Freight Line, Inc. (Saia), based in Duluth, Georgia, and Jevic Transportation, Inc. (Jevic), based in Delanco, New Jersey. On September 30, 2002, Yellow Corporation (Yellow) completed a tax-free distribution to its shareholders of 100 percent of the outstanding common stock of SCST (the Spin-off).

The key factors that affect our operating results are the volumes of shipments transported through our networks, as measured by our average daily shipments and tonnage; the prices we obtain for our services, as measured by revenue per hundredweight (yield) and revenue per shipment; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages and benefits, purchased transportation, insurance claims and expense, fuel and maintenance; and our ability to match operating costs to shifting volume levels.

Critical Accounting Policies And Estimates

SCST makes estimates and assumptions in preparing the consolidated financial statements that affect reported amounts and disclosures therein. In the opinion of management, the accounting policies that generally have the most significant impact on the financial position and results of operations of SCST include:

•		Claims and Insurance Accruals. SCST has self-insured retention limits generally ranging from $250,000 to $2,000,000 for medical, workers’ compensation, auto liability, casualty and cargo claims. The liabilities associated with the risk retained by SCST are estimated in part based on historical experience, third-party actuarial analysis, demographics, nature and severity, past experience and other assumptions. However, these estimated accruals could be significantly affected if the actual costs of SCST differ from these assumptions.
•		Depreciation and Capitalization of Assets. Under the SCST accounting policy for property and equipment, management establishes appropriate depreciable lives and salvage values for SCST’s revenue equipment (tractors and trailers) based on their estimated useful lives and estimated fair values to be received when the equipment is sold or traded in. These estimates are continuously evaluated and updated when circumstances warrant. However, actual depreciation and salvage values could differ from these assumptions based on market conditions and other factors.
•		Recovery of Goodwill. On January 1, 2002, SCST adopted Financial Accounting Standards Board Statement No. 142, “Goodwill and Other Intangible Assets”. The statement requires that, upon adoption and at least annually thereafter, SCST assess goodwill impairment by applying a fair value based test. This fair value based test involves assumptions regarding the long-term future performance of the operating subsidiaries of SCST, fair value of the assets and liabilities of SCST, cost of capital rates and other assumptions. However, actual recovery of remaining goodwill could differ from these assumptions based on market conditions and other factors. In the event remaining goodwill is determined to be impaired a charge to earnings may be required.
•		Revenue Recognition and Related Allowances. Revenue is recognized on a percentage-of-completion basis for shipments in transit while expenses are recognized as incurred. In addition, estimates included in the recognition of revenue and accounts receivables include estimates of shipments in transit and estimates of future adjustments to revenue and accounts receivable for billing adjustments and collectibility.

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Revenue is recognized in a systematic process whereby estimates of shipments in transit are based upon actual shipments picked up, scheduled day of delivery and current trend in average rates charged to customers. Since the cycle for pick up and delivery of shipments is generally 1-3 days, typically less than 5 percent of a total month’s revenue is in transit at the end of any month. Estimates for credit losses and billing adjustments are based upon historical experience of credit losses, adjustments processed and trends of collections. Billing adjustments are primarily made for discounts and billing corrections. These estimates are continuously evaluated and updated; however changes in economic conditions, pricing arrangements and other factors can significantly impact these estimates.

These accounting policies, and others, are described in further detail in the notes to our audited consolidated financial statements included in this Form 10-K.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

Results of Operations

Year ended December 31, 2002 vs. year ended December 31, 2001

Revenue and volume

Operating revenue for SCST totaled $775 million in 2002, up slightly from 2001 revenue of $772 million. The relatively flat revenue was the result of small volume increases and competitive pricing pressures brought on by the sluggish economy. In addition, fuel surcharge revenue was lower by approximately $5.4 million in 2002.

Saia had operating revenue of $490 million in 2002, an increase of 0.9 percent over 2001 operating revenue of $485 million. Saia LTL revenue per hundredweight excluding fuel surcharge (a measure of yield) decreased 2.1 percent to $9.52 per hundredweight for 2002, while LTL tonnage was up 4.0 percent to 2.3 million tons and LTL shipments were up 4.2 percent to 4.4 million shipments. The decrease in yield is a combination of freight mix and competitive pricing pressure. Saia has approximately 60 percent of revenue that is subject to individual customer price adjustment negotiations that occur intermittently throughout the year. The remaining 40 percent of revenue is subject to general rate increases. On July 15, 2002, Saia implemented a 5.9 percent general rate increase for this group of customers.

Jevic had operating revenue of $286 million in 2002, consistent with $286 million in 2001. Jevic yield excluding fuel surcharge increased 1.1 percent to $6.15 per hundredweight, while tonnage was down 0.8 percent to 2.2 million tons and shipments were up 1.7 percent to 971,000 shipments. Jevic experienced improved quarter over quarter volume comparisons in the second half of 2002 after several quarters of declining trends due to the economic downturn and competition. The increase in yield is due to some firming in the pricing environment. Jevic has approximately 60 percent of business that is subject to individual customer price adjustment negotiations that occur intermittently throughout the year. The remaining 40 percent of revenue is subject to general rate increases. On August 1, 2002, Jevic implemented a 5.9 percent general rate increase for this group of customers.

Operating income

Operating income for SCST in 2002 was $27.2 million, up from $15.7 million in 2001. The increase in operating income is primarily due to a combination of cost management efforts and a modest increase in shipping volumes. The operating income in 2001 included $6.7 million of costs for the integration of WestEx and Action Express into Saia. SCST’s profitability benefited from the elimination of goodwill amortization of approximately $3.0 million that was included in 2001. The 2002 operating ratio (operating expenses divided by operating revenue) was 96.5 compared to 98.0 in 2001. Both Saia and Jevic continued initiatives to improve productivity and control variable

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costs as volumes fluctuated. However, these costs and productivity initiatives were partially offset by increases in wage rates, casualty insurance premiums and other operating expenses.

Saia had operating income of $21.9 million in 2002, compared to $9.7 million in 2001 (including integration charges of $6.7 million). The operating ratio at Saia was 95.5 in 2002 compared to 98.0 in 2001. Despite the decrease in yield discussed above, Saia improved its operating income due to strong cost controls and improved operating efficiencies. Improvements in productivity offset higher workers’ compensation and pay increases. Saia implemented a wage increase in August 2002, which was substantially offset by labor productivity gains and other expense reductions. As of the end of 2002, Saia’s wage rates are 4 percent higher than the end of 2001. Saia increased its use of purchased transportation to fill peak capacity needs during 2002 versus the prior year.

Jevic operating income was $5.8 million in 2002, down from $6.0 million in 2001. The operating ratio at Jevic was 98.0 in 2002 compared to 97.9 in 2001. Jevic’s profitability benefited from the elimination of goodwill amortization of approximately $2.0 million that was included in 2001. However, Jevic results for 2002 also include $2.7 million higher than anticipated workers’ compensation expense relating to unfavorable development in the severity of open claims and the implementation of a more conservative, actuarial estimate for establishing workers’ compensation reserves. This level of profitability was obtained despite a 2.6 percent average wage increase over 2001. The wage increase was offset by a reduction in purchased transportation as Jevic more efficiently utilized purchased transportation in meeting its peak capacity needs.

Other

SCST interest expense was $6.2 million in 2002 compared to $10.9 million in 2001. Borrowings for the first nine months of 2002 and full year 2001 reflect lower rate, shorter-term financing with Yellow, the former parent. However, the 2001 interest expense of $10.9 million is due to higher average debt balances. The consolidated effective tax rate was 42.5 percent in 2002 compared to 84.0 percent in 2001. The decrease in effective tax rate is due to the lessened impact of nondeductible business expenses on higher income before income taxes along with the elimination of nondeductible goodwill amortization in 2002. SCST had a net loss in 2002 of $63.1 million compared to net income of $0.8 million in 2001. The net loss resulted from a charge of $75.2 million in the first quarter of 2002 from the cumulative effect of a change in accounting for goodwill. The notes to the consolidated financial statements provide an analysis of the income tax provision and the effective tax rate and additional discussion on the charge for the cumulative effect of a change in accounting for goodwill.

Working capital/capital expenditures

SCST working capital increased from $21.3 million at year-end 2001 to $54.9 million at year-end 2002. The change in working capital is a result of increases in accounts receivable due to higher revenues in December 2002 versus December 2001. Working capital was further increased by a reduction of current maturities of long-term debt and a substantial increase in cash equivalents in 2002. Cash from operations in 2002 was used to pay down short-term variable rate debt; however, restrictions on prepayment of long-term fixed rate debt resulted in a higher cash and cash equivalent balance. Net capital expenditures in 2002 increased to $24.8 million from $19.6 million in 2001. The 2002 capital investments primarily represent replacement of revenue equipment and the purchase of three service facilities for Saia, net of proceeds from the sale of an existing Saia service facility.

Year ended December 31, 2001 vs. year ended December 31, 2000

Revenue and volume

Operating revenue for SCST totaled $772 million in 2001, a 2.2 percent decline from 2000 revenue of $789 million. The decrease in 2001 revenue was the result of a continuing weak economy, increased competition at Jevic, lower fuel surcharge revenue by both Saia and Jevic in the second half of 2001 and competitive pricing pressures.

Saia had operating revenue of $485 million in 2001, an increase of 0.7 percent over 2000 operating revenue of $482 million. Saia increased revenue primarily due to improved pricing as LTL yield (measured by revenue per hundredweight) grew 4.7 percent to $10.01 per hundredweight over the prior period, mostly offset by a 6.4 percent decrease in total tonnage as a result of weakening economic conditions. Yield benefited from a 5.9 percent general rate increase on August 1, 2001 for the portion of revenue subject to general rate increases. The remaining revenue is subject to individual account negotiations scheduled throughout the year. Saia year-over-year LTL tonnage was

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down 2.8 percent to 2.2 million tons in 2001, and LTL shipments were down 2.1 percent to 4.2 million shipments in 2001.

Jevic had operating revenue of $286 million in 2001, down 6.8 percent from $307 million in 2000. The revenue decrease was primarily due to a 7.7 percent reduction in tonnage as a result of a manufacturing recession, weakness in the truckload market and increased competition. The tonnage decline was partially offset by improved yield as a result of favorable LTL and TL mix changes. Jevic yield (measured by total revenue per hundredweight) increased 0.9 percent over the prior year to $6.35 per hundredweight.

Operating income

Operating income for SCST in 2001 was $15.7 million (including integration charges of $6.7 million and an allocation for claims cost in excess of premiums paid to Yellow of $1.7 million), down from $21.7 million in 2000 (including integration charges of $2.7 million). The integration charges in 2001 and 2000 consisted of costs in connection with the integration of WestEx and Action into Saia. The 2001 operating ratio was 98.0 compared to 97.3 in 2000.

Saia had operating income of $9.7 million in 2001 (including integration charges of $6.7 million and an allocation for claims cost in excess of premiums paid to Yellow of $1.7 million), compared to $7.4 million in 2000 (including the combined operating loss of WestEx and Action Express of $4.7 million and integration charges of $2.7 million). The operating ratio at Saia was 98.0 in 2001 compared to 98.5 in 2000. Operating expenses at Saia excluding integration charges decreased slightly from 2000 as a result of effective cost management, improved productivity and lower business volume. Salaries, wages and benefits expense decreased 1.4 percent from 2000 primarily due to reductions in administration and management functions as a result of the integration of WestEx and Action Express and lower business volumes in 2001. Improvements in productivity offset higher workers’ compensation and health care costs as well as pay increases. Reductions in fuel cost and vehicle maintenance costs were mostly offset by higher purchased transportation costs to reduce empty miles.

Jevic operating income was $6.0 million in 2001, down from $14.3 million in 2000. The revenue decline due to economic weakness and increased competition significantly impacted the profitability of Jevic. The operating ratio at Jevic was 97.9 in 2001 compared to 95.3 in 2000. Cost reduction efforts and lower business volume allowed Jevic to reduce total operating expenses by 4.3 percent from 2000. Salaries, wages and benefits expense was down 2.1 percent from 2000 as a result of lower employee levels and productivity improvements, partially offset by higher group health insurance and other fringe cost increases. The remaining operating expenses were reduced a similar percent of revenue due to effective variable and discretionary cost controls as well as lower fuel prices.

Other

SCST interest expense was $10.9 million in 2001 compared to $15.4 million in 2000 due to lower average debt levels and lower interest rates on SCST variable rate debt. The consolidated effective tax rate was 84.0 percent in 2001 compared to 73.3 percent in 2000. The increase in effective tax rate is due to the impact of nondeductible business expenses and goodwill amortization on lower income before income taxes. SCST had net income in 2001 of $0.8 million compared to $1.7 million in 2000. The notes to the consolidated financial statements provide an analysis of the income tax provision and the effective tax rate.

Working capital/capital expenditures

SCST working capital decreased from $41.3 million at year-end 2000 to $21.3 million at year-end 2001. The change in working capital is a result of decreases in accounts receivable due to lower revenues in December 2001 versus December 2000. Working capital was further decreased by increases in other accrued liabilities, and current maturities of long-term debt. Net capital expenditures in 2001 decreased to $19.6 million from $59.0 million in 2000. Both Saia and Jevic made capital expenditure investments in 2000 based on forecasted revenue growth that did not materialize due to slowing economic conditions. SCST 2001 capital investments were substantially less than 2000 capital expenditures and primarily represent capital for the replacement of revenue equipment.

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Year ended December 31, 2000 vs. year ended December 31, 1999

Revenue and volume

Operating revenue for SCST totaled $789 million in 2000, a 32.7 percent increase over 1999 revenue of $595 million. The increase in 2000 operating revenue was a result of improved yield management and the inclusion of a full year of Jevic operating results versus partial inclusion since its acquisition in July 1999.

Including the results of WestEx and Action Express, Saia operating revenue grew 5.6 percent to $482 million, up from $457 million in 1999. Year-over-year LTL tonnage increased 3.5 percent from 2.2 million tons in 1999 and LTL shipments increased 1.4 percent from 4.3 million shipments in 1999. LTL yield (measured by revenue per hundredweight) grew 1.9 percent to $9.47. Saia initiated a 5.9 percent price increase on September 1, 2000 for the portion of revenue that is not subject to individual account negotiations. Additionally, Saia revenue increased as a result of a fuel surcharge program.

Jevic, which was acquired on July 9, 1999, had operating revenue of $307 million in 2000 and $138 million for the partial year of 1999. On a pro forma full year over year basis, Jevic revenue increased 10.4 percent, tonnage increased 3.3 percent to 2.4 million tons and shipments increased 8.5 percent to 1.0 million shipments. Jevic yield (measured by total revenue per hundredweight) grew 6.8 percent over the prior year to $6.29 per hundredweight, which was supported by a 5.9 percent general rate increase on a portion of its revenue not subject to individual account negotiations initiated on September 1, 2000.

Operating income

Operating income for 2000 was $21.7 million (including integration charges of $2.7 million, which consisted primarily of severance and costs associated with the disposition of duplicate facilities related to the integration of WestEx and Action Express into Saia), down from $28.7 million in 1999. The 2000 operating ratio was 97.3 compared to 95.2 in 1999.

Saia had operating income of $7.4 million in 2000 compared to $18.6 million in 1999. The year-over-year decline in operating income was due substantially to the combined operating loss of $4.7 million of WestEx and Action Express, which were integrated with Saia, and integration charges of $2.7 million in 2000. The two Western subsidiaries had infrastructures that were too large for their actual demand volume. The operating ratio rose to 98.5 in 2000 compared to 95.9 in 1999. Saia cost per ton increased 5.2 percent, primarily due to increased claims and insurance costs (40 percent higher than 1999), fuel costs (30 percent higher than 1999) and health care costs. In addition, due to competitive market conditions, wage rates increased in excess of five percent, reflecting a move to a market-based compensation system. However, strong variable expense controls and productivity gains in other areas offset increased fuel prices, casualty claims and higher wage and benefit rates.

Jevic operating income was $14.3 million in 2000, as compared to $10.1 million for the partial year of 1999. On a year-over-year basis, Jevic operating income declined 31 percent in 2000 as operating ratios increased to 95.3 percent compared to 92.7 percent for the partial year of 1999. The full year pro forma operating ratio for 1999 was 92.5. Jevic’s cost per ton increased approximately 10 percent. Jevic experienced increased competition, higher fuel prices, unusually severe northeast winter weather and a second-half beginning of an economic slowdown. Because Jevic is a hybrid LTL and TL carrier, fuel is a more significant component of operating expense, more than 7 percent of revenue in 2000. Average fuel cost increased more than 30 percent over 1999. Although Jevic had a fuel surcharge program to partially mitigate its risk to rising fuel prices, the program was not fully implemented until 2001. Additionally, cost increases were due in a large part to costs associated with expanding capacity ahead of realized volume growth. In addition, revenue rate increases and fuel surcharge programs were not sufficient to offset the increases in wages, fuel and other costs Jevic experienced in 2000.

Other

Interest expense was $15.4 million in 2000, up from $10.6 million in 1999 due to higher average debt levels associated with the July 1999 Jevic acquisition and increased interest rates on SCST variable rate debt. The consolidated effective tax rate was 73.3 percent in 2000 compared to 45.6 percent in 1999. The increase in effective rate is due to the impact of nondeductible business expenses and goodwill on lower income before income taxes. SCST had net income of $1.7 million in 2000 compared to $9.8 million in 1999. The notes to the consolidated financial statements provide an analysis of the income tax provision and the effective tax rate.

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Working capital/capital expenditures

SCST working capital decreased from $50.8 million at year-end 1999 to $41.3 million at year-end 2000. The change in working capital is a result of decreases in accounts receivable and increases in accounts payable and accrued salaries and wages and benefits. Net capital expenditures increased to $59.0 million, up from $53.0 million in 1999. Both Saia and Jevic made capital expenditure investments in 2000 based on forecasted revenue growth.

Outlook

Our business is highly correlated to the general economy. However, in 2002, we achieved profitability improvement despite a soft economic environment. For 2003, we expect continued benefit from profit improvement initiatives.

In the short-term, we will continue to focus on cost management efforts, while further improving productivity and positioning the Company for longer-term growth. Actual results for 2003 will depend upon a number of factors, including the timing, speed and magnitude of the economic recovery or downturn, our ability to match capacity with shifting volume levels, competitive pricing pressures and insurance claims.

See “Forward-Looking Statements” for a more complete discussion of potential risks and uncertainties that could materially affect our future performance.

New Accounting Pronouncements

See Note 1 to the accompanying consolidated financial statements for further discussion of recent accounting pronouncements.

Financial Condition

SCST liquidity needs arise primarily from capital investment in new equipment, land and structures and information technology, as well as funding working capital requirements.

In connection with the Spin-off, SCST issued $100 million in Senior Notes under a $125 million Master Shelf Agreement with Prudential Investment Management, Inc. and certain of its affiliates. SCST also entered into a $50 million Agented Revolving Credit Agreement (the Credit Agreement) with Bank of Oklahoma, N.A., as agent. Proceeds from the Senior Notes and a portion of the Credit Agreement were used for payments due Yellow discussed below. In addition, SCST has third party borrowings of approximately $16.4 million in subordinated notes. SCST had approximately $120.5 million outstanding under the line-of-credit agreements with Yellow immediately prior to the Spin-off, of which $113.6 million was repaid to Yellow under the terms of the Spin-off. The remaining $6.9 million reduction in the line-of-credit with Yellow was a capital contribution to SCST from Yellow.

The $100 million Senior Notes are unsecured with a fixed interest rate of 7.38 percent and an average maturity of eight years. Payments due under the Senior Notes are interest only until June 30, 2006 and at that time semi-annual principal payments begin, with the final payment due December 2013. Under the terms of the Senior Notes, SCST must maintain several financial covenants including a maximum ratio of total indebtedness to earnings before interest, taxes, depreciation, amortization and rent (EBITDAR), a minimum interest coverage ratio and a minimum tangible net worth, among others. At December 31, 2002, SCST was in compliance with these covenants.

The $50 million Credit Agreement is unsecured with an interest rate based on LIBOR or prime at the Company’s option, plus an applicable spread, in certain instances, and matures in September 2005. The availability under the Credit Agreement is limited to SCST’s qualified receivables (as defined in the Credit Agreement). At December 31, 2002, SCST had no borrowings under the Credit Agreement, $15.0 million in letters of credit outstanding under the Credit Agreement and availability of $35.0 million. The remaining portion of the Credit Agreement is available for future capital expenditures, working capital and letter of credit requirements as needed. Under the terms of the Credit Agreement, SCST must maintain several financial covenants including a maximum ratio of total indebtedness

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to EBITDAR, a minimum interest coverage ratio and a minimum tangible net worth, among others. At December 31, 2002, SCST was in compliance with these covenants.

At December 31, 2002 Yellow provided on behalf of SCST approximately $4.6 million in outstanding surety bonds. These bonds, issued by insurance companies, serve as collateral support primarily for workers’ compensation programs in states where SCST is self-insured. The price and availability of surety bonds fluctuates over time with general conditions in the insurance market. A lack of availability of surety bonds could result in the need for Yellow to issue additional letters of credit. At December 31, 2002, Yellow has provided on behalf of SCST $14.0 million in outstanding letters of credit. Under the terms of the Master Separation and Distribution Agreement, Yellow will continue to provide SCST with this amount of collateral to support SCST’s various insurance programs. The collateral support by Yellow is expected to remain in place for at least four years from the Spin-off date, but the agreement is not limited to any length of time. However, the agreement does provide for significant increases in the cost to SCST for the collateral support by Yellow after the end of the fourth year.

Projected net capital expenditures for 2003 are approximately $50 million of which approximately $3 million was committed at December 31, 2002, an increase from 2002 net capital expenditures of $24.8 million. Net capital expenditures pertain primarily to replacement of revenue equipment at both subsidiaries and additional investments in information technology, land and structures.

The Company has adequate sources of capital to meet short-term and longer-term liquidity and capital expenditure requirements through cash balances, future operating cash flows and availability under its long-term debt facilities. Future operating cash flows are primarily dependent upon the Company’s profitability and working capital requirements. The Company has the ability to adjust its capital expenditures in the event of a shortfall in anticipated operating cash flows.

Actual net capital expenditures are summarized in the following table (in millions):

In accordance with accounting principles generally accepted in the United States, our operating leases are not recorded in our balance sheet; however, the minimum lease payments related to these leases are disclosed in the notes to our audited consolidated financial statements included in this Form 10-K, and in “Contractual Cash Obligations” table below.

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Contractual Cash Obligations

The following tables set forth a summary of our contractual cash obligations and other commercial commitments as of December 31, 2002 (in millions):

(1)  See Note 3 to the accompanying audited consolidated financial statements in this Form 10-K.

Forward-Looking Statements

Certain statements in this Report, including those contained in Item 1, “Outlook” and Item 7, “Financial Condition” are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of SCST. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “predict,” “believe” and similar words or expressions are intended to identify forward-looking statements. The Company uses such forward-looking statements regarding its future financial condition, results of operations and business operations in this report. Actual results may differ materially from those contemplated by such forward-looking statements, because of, among other things, potential risks and uncertainties. All forward-looking statements reflect the present expectation of future events of our management and are subject to a number of important factors, risks, uncertainties and assumptions, including industry and economic conditions; labor relations; governmental regulations; cost and availability of fuel; inclement weather; competitive initiatives and pricing pressures; self insurance claims and other expense volatility; and other financial, operational and legal risks and uncertainties detailed from time to time in other filings with the Securities and Exchange Commission.

As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this Report. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

SCST is exposed to a variety of market risks, including the effects of interest rates and fuel prices. The detail of SCST’s debt structure is more fully described in the notes to the consolidated financial statements. To mitigate our risk to rising fuel prices, Saia and Jevic each have implemented effective fuel surcharge programs. These programs are well established within the industry and customer acceptance of fuel surcharges remains high. Since the amount of fuel surcharge is based on average national diesel fuel prices and is reset weekly, exposure of SCST to fuel price volatility is significantly reduced.

The following table provides information about SCST third-party financial instruments as of December 31, 2002. The table presents principal cash flows (in millions) and related weighted average interest rates by contractual maturity dates.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENTS

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Independent Auditors’ Report

The Board of Directors and Shareholders
SCS Transportation, Inc.:

We have audited the accompanying consolidated balance sheet of SCS Transportation, Inc. and subsidiaries as of December 31, 2002, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The 2001 and 2000 consolidated financial statements of SCS Transportation, Inc. were audited by other auditors who have ceased operations. Those auditors’ report dated January 25, 2002, on those consolidated financial statements was unqualified and included an explanatory paragraph that described the relationship of SCS Transportation, Inc. and Yellow Corporation, before the revisions described in Notes 5 and 13.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of SCS Transportation, Inc. and subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed above, the 2001 and 2000 consolidated financial statements of SCS Transportation, Inc. were audited by other auditors who have ceased operations. As described in Note 5, effective January 1, 2002, the Company changed its method of accounting for goodwill as required by Statement of Financial Accounting Standards No. 142 (SFAS No. 142), Goodwill and Other Intangible Assets, and these consolidated financial statements have been revised to include the required transitional disclosures. Additionally, as described in Note 13, these consolidated financial statements have been revised to include the required 2001 and 2000 financial statement schedule information for valuation and qualifying accounts. In our opinion, the disclosures for 2001 and 2000 in Notes 5 and 13 are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 consolidated financial statements of SCS Transportation, Inc. other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 consolidated financial statements taken as a whole.

/s/ KPMG LLP

Kansas City, Missouri
January 22, 2003

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This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with SCS Transportation, Inc.’s 2001 consolidated financial statements previously filed on Form 10 and before certain limited revisions described in Notes 5 and 13. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K.

Report of independent public accountants

To the Board of Directors of
Yellow Corporation:

We have audited the accompanying consolidated balance sheets of SCS Transportation, Inc. and Subsidiaries (formerly Yellow Corporation’s Regional Transportation Group as identified in Note 1) as of December 31, 2001 and 2000, and the related consolidated statements of income, the Parent company equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SCS Transportation, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

SCS Transportation, Inc., is wholly owned by Yellow Corporation. As indicated in Note 1, SCS Transportation, Inc., relies on Yellow Corporation for administrative, cash management and other services. The financial position, results of operations and cash flows of SCS Transportation, Inc., could differ from those that would have resulted had SCS Transportation, Inc., operated autonomously or as an entity independent of Yellow Corporation.

/s/ Arthur Andersen LLP

Kansas City, Missouri,
January 25, 2002

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SCS Transportation, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2002 and 2001
(in thousands, except share data)

See accompanying notes to consolidated financial statements.

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SCS Transportation, Inc. and Subsidiaries
Consolidated Statements of Operations
For the years ended December 31, 2002, 2001 and 2000
(in thousands, except share data)

See accompanying notes to consolidated financial statements.

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SCS Transportation, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
For the years ended December 31, 2002, 2001 and 2000
(in thousands)