YELLOW CORP - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002
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OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
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Commission file number 0-12255
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YELLOW CORPORATION
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(Exact name of registrant as specified in its charter)

Delaware 48-0948788
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

10990 Roe Avenue, P.O. Box 7563, Overland Park, Kansas 66207
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(Address of principal executive offices) (Zip Code)

(913) 696-6100
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(Registrant's telephone number, including area code)

No Changes
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(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 [ ]

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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Class Outstanding at October 31, 2002
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Common Stock, $1 Par Value Per Share 29,381,181 shares

YELLOW CORPORATION

INDEX

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries
(Amounts in thousands except per share data)
(Unaudited)

The accompanying notes are an integral part of these statements.

3

STATEMENTS OF CONSOLIDATED OPERATIONS
Yellow Corporation and Subsidiaries
For the Three and Nine Months Ended September 30, 2002 and 2001
(Amounts in thousands except per share data)
(Unaudited)

The accompanying notes are an integral part of these statements.

4

STATEMENTS OF CONSOLIDATED CASH FLOWS
Yellow Corporation and Subsidiaries
For the Nine Months Ended September 30, 2002 and 2001
(Amounts in thousands)
(Unaudited)

The accompanying notes are an integral part of these statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Yellow Corporation and Subsidiaries
(unaudited)

1. The accompanying consolidated financial statements include the accounts
of Yellow Corporation and its wholly owned subsidiaries (the company or
Yellow).

The company has prepared the consolidated financial statements, without
audit by independent public accountants, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). In the
opinion of management, all normal recurring adjustments necessary for a
fair statement of the financial position, results of operations and
cash flows for the interim periods included herein have been made.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these statements
pursuant to SEC rules and regulations. Accordingly, the accompanying
consolidated financial statements should be read in conjunction with
the consolidated financial statements included in the company's Annual
Report on Form 10-K for the year ended December 31, 2001.

2. Yellow Corporation is a holding company with wholly owned operating
subsidiaries. Its largest subsidiary, Yellow Transportation, offers a
full range of national, regional and international services for the
movement of industrial, commercial and retail goods. Meridian IQ is a
non-asset based company using Web-native technology to provide
customers a single source for transportation management solutions and
global shipment management. Yellow Technologies is a captive resource
providing innovative technology solutions and services exclusively for
Yellow Corporation companies.

On September 30, 2002, the company completed the 100 percent
distribution (the spin-off) of all of its shares of SCS Transportation,
Inc. (SCST) to Yellow shareholders of record on September 3, 2002. SCST
provides regional overnight and second-day less-than-truckload (LTL)
and selected truckload (TL) transportation services through two
subsidiaries, Saia Motor Freight Line, Inc. (Saia) and Jevic
Transportation, Inc. (Jevic). Shares were distributed on the basis of
one share of SCST common stock for every two shares of Yellow common
stock. As a result of the spin-off, the company's financial statements
have been reclassified to reflect SCST as discontinued operations for
all periods presented (see Note 3).

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3. As required under Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the
company evaluated the carrying value of SCST against the fair value, as
determined by the market capitalization of SCST at the spin-off date.
The following table presents the net assets (carrying value) of SCST
compared to the fair value as determined by the market capitalization
(in thousands):

The company's retained earnings on the Consolidated Balance Sheet was
impacted by the spin-off at September 30, 2002, as illustrated below
(in thousands):

7

Summarized results of operations relating to SCST (as reported in
discontinued operations) are as follows (amounts in thousands, except
per share data):

Management fees and other corporate services previously allocated to
SCST were not charged to discontinued operations, as the expenses will
continue to be incurred by the company. Interest expense was allocated
to discontinued operations based on the overall effective borrowing
rate of Yellow applied to the debt reduction realized by Yellow from
the spin-off. Interest expense included in discontinued operations was
$1.6 million and $2.0 million for the three months ended September 30,
2002 and 2001, respectively, and $4.6 million and $6.3 million for the
nine months ended September 30, 2002 and 2001, respectively.

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4. In the third quarter of 2001, the company completed its acquisition of
the 35 percent ownership in Meridian IQ (formerly Transportation.com)
that the company did not previously own, from its venture capital
partners. The cash purchase price of approximately $14.3 million was
allocated to goodwill of $10.6 million, tax benefit receivable of $4.0
million and miscellaneous assets and liabilities of $(0.3) million. The
results of Meridian IQ have been consolidated in the company's
financial statements since September 2001. Prior to the acquisition
date, the company accounted for its ownership interest under the equity
method of accounting due to substantive participating rights of the
minority investors. Losses on the company's investment were recorded in
non-operating expenses until the acquisition date.

In July 2002, Meridian IQ announced that it had acquired selected
assets, consisting primarily of customer contracts, of Clicklogistics,
Inc. (Clicklogistics) for nominal cash consideration and the assumption
of certain obligations. Clicklogistics provides non-asset
transportation and logistics management services.

In August 2002, Meridian IQ completed the acquisition of MegaSys, Inc.
(MegaSys), a Greenwood, Indiana based provider of non-asset
transportation and logistics management services, for approximately $17
million. As part of the acquisition, the company negotiated an earnout
arrangement, which provides for contingent consideration to be paid by
Yellow upon MegaSys reaching certain levels of cash flow results
through December 31, 2005. The company believes the acquisition
supports its strategy to grow its non-asset-based business. MegaSys
offers carrier procurement, routing and scheduling, audit and payment,
and other shipment management capabilities.

5. Unusual items included in the consolidated results of operations are
detailed in the following table (in thousands):

6. The company reports financial and descriptive information about its
reportable operating segments on a basis consistent with that used
internally for evaluating segment operating performance and allocating
resources to segments.

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The company has two reportable segments, which are strategic business
units that offer different, but complementary, transportation services
to its customers. Yellow Transportation is a unionized carrier that
provides comprehensive national, regional and international
transportation services. Meridian IQ provides domestic and
international freight forwarding, multi-modal brokerage and
transportation management services.

The segments are managed separately because each requires different
operating and technology strategies. The company evaluates performance
primarily on income from operations and return on capital. The
accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the company's Annual
Report on Form 10-K for the year ended December 31, 2001. Management
fees and other corporate services are charged to segments based on
direct benefit received or allocated based on revenues. The following
table summarizes the company's operations by business segment (in
thousands):

(1) The December 31, 2001 total assets per the Consolidated Balance Sheets
include $490,948 of assets related to discontinued operations not
represented above.

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The three months and nine months ended September 30, 2001 segment data
presented for Meridian IQ represents the results of operations of other
non-asset based services. As previously discussed in Note 4,
Transportation.com was accounted for under the equity method of
accounting during the first eight months of 2001. Accordingly,
nonoperating expenses include losses from Transportation.com of $1.3
million in the third quarter of 2001 and $5.7 million in the first nine
months of 2001. If Transportation.com had been consolidated for all of
2001, Meridian IQ revenue would have been $7.9 million and $22.3
million and operating losses would have been $3.2 million and $11.9
million for the three months ended September 30, 2001 and nine months
ended September 30, 2001, respectively.

7. The difference between average common shares outstanding used in the
computation of basic earnings per share and fully diluted earnings per
share is attributable to outstanding common stock options and
restricted stock awards.

The outstanding stock options of Yellow were adjusted to reflect the
impact of the spin-off. For employees who continued employment with
Yellow the option remained an option for Yellow common stock with the
number of shares covered by the option and related exercise price
adjusted to preserve the financial value. For employees who worked for
SCST after the spin-off, the Yellow options were cancelled and SCST
options were issued to purchase SCST common stock with the number of
shares of SCST common stock and exercise price set to preserve the
financial value.

Yellow options expire ten years from the initial issue date and vest
ratably over the original four-year vesting period. At September 30,
2002, options on 1,741,899 shares were outstanding at a weighted
average exercise price of $17.37 per share and options on 1,120,894
shares were exercisable at a weighted average exercise price of $17.76
per share. The weighted average remaining contract life on outstanding
options at September 30, 2002 was 6.4 years.

8. The company's comprehensive income includes net income, changes in the
fair value of an interest rate swap and foreign currency translation
adjustments. Comprehensive income (loss) for the three months ended
September 30, 2002 and 2001 was $(41.7) million and $4.6 million,
respectively. Comprehensive income (loss) for the nine months ended
September 30, 2002 and 2001 was $(106.9) million and $10.3 million,
respectively.

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9. On June 30, 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (Statement No. 142), that was adopted by the
company on January 1, 2002. Statement No. 142 requires that upon
adoption and at least annually thereafter, the company assess goodwill
impairment by applying a fair value based test. With the adoption of
Statement No. 142, goodwill will no longer be subject to amortization.

As a result of the spin-off, results of operations for SCST, including
prior year goodwill amortization, are reported under discontinued
operations. Meridian IQ had not amortized goodwill in accordance with
provisions of Statement No. 142. Therefore, income from continuing
operations does not include goodwill amortization for any period
presented.

At December 31, 2001 the company had $100.6 million of goodwill on its
Consolidated Balance Sheet, consisting primarily of $75.2 million
remaining from the acquisition of Jevic included in noncurrent assets
of discontinued operations. In valuing the goodwill of Jevic the
company used an estimate of that business unit's discounted cash flows
in measuring whether goodwill was recoverable. Based on this estimate,
the company determined that 100 percent of the Jevic goodwill was
impaired due to lower business volumes, compounded by a weak economy,
and an increasingly competitive business environment. As a result, the
company recorded a non-cash charge of $75.2 million in the first
quarter 2002, which was reflected as a cumulative effect of a change in
accounting principle. Due to the spin-off, the non-cash charge was
reclassified to discontinued operations on the Statement of
Consolidated Operations. For a detail of discontinued operations, refer
to Note 3.

The carrying amount of goodwill and related changes are (in thousands):

In connection with adopting Statement No. 142, the company also
reassessed the useful lives and the classification of its identifiable
intangible assets and determined that they continue to be appropriate.
The components of amortized intangible assets follow (in thousands):

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(1) Includes approximately $0.9 million of trade name fees with an indefinite
life.

The gross carrying amount of intangibles at December 31, 2001 included
approximately $2 million of SCST assets and the related accumulated
amortization of $.8 million. SCST intangibles and accumulated
amortization are not reflected in the September 30, 2002 balances.
Identifiable intangibles of approximately $7.7 million are reflected in
the September 30, 2002 balances as a result of the Meridian IQ
acquisitions in the third quarter of 2002.

Amortization expense for intangible assets, as reflected in income from
continuing operations, for the three months ended September 30, 2002
was $121,206, for the nine months ended September 30, 2002 was
$200,717, and is estimated to be $482,425 for the full year 2002.
Estimated amortization expense for the next five fiscal years follows
(in thousands):

10. The company incurs rental expenses under noncancelable lease agreements
for its buildings and operating equipment. Rental expense is charged to
operating expenses and supplies on the Statements of Consolidated
Operations. The following table represents the actual rental expense,
as reflected in income from continuing operations, incurred during each
period presented (in thousands):

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11. Under current legislation regarding multi-employer pension plans, a
termination, withdrawal or partial withdrawal from any multi-employer
plan that is in an under-funded status would render the company liable
for a proportionate share of such multi-employer plans' unfunded vested
liabilities. The company's unionized subsidiary, Yellow Transportation,
has no intention of taking any action that would subject the company to
present obligations under the legislation. This potential unfunded
pension liability also applies to the company's unionized competitors
who contribute to multi-employer plans. Based on the limited
information available from plan administrators, which the company
cannot independently validate, the company believes that its portion of
the contingent liability would be material to its financial position
and results of operations.

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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) should be read in conjunction with the company's Consolidated
Financial Statements and the Notes to the Consolidated Financial Statements.
MD&A and certain statements in the Notes to Consolidated Financial Statements
include forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, (each a "Forward-Looking Statement"). The
words "believe," "intends," "expected," "will" and similar expressions, and the
negative of those expressions, are intended to identify Forward-Looking
Statements. It is important to note that the company's actual future results
could differ materially from those projected in Forward-Looking Statements
because of a number of factors, including (without limitation), labor relations,
inclement weather, price and availability of fuel, competitor pricing activity,
expense volatility, changes in and customer acceptance of new technology and a
downturn in general or regional economic activity.

FINANCIAL CONDITION

September 30, 2002 Compared to December 31, 2001

The company's liquidity needs arise primarily from capital investment in new
equipment, land and structures and information technology, as well as funding
working capital requirements. To provide short-term and longer-term liquidity,
the company maintains capacity under a bank credit agreement and an asset backed
securitization (ABS) agreement involving Yellow Transportation accounts
receivable. The company believes that these facilities provide adequate capacity
to fund current working capital and capital expenditure requirements. It is not
unusual for the company to have a deficit working capital position. The company
can operate with a deficit working capital position due to rapid turnover of
accounts receivable, effective cash management and ready access to funding.

The ABS facility enables the company to borrow money from the asset-backed
commercial paper market at attractive rates. Financing under the ABS facility is
provided in two primary steps. The first step is the sale of receivables, with
limited recourse, by Yellow Transportation to a special purpose entity, Yellow
Receivables Corporation (YRC). YRC is a wholly owned subsidiary of Yellow
Transportation designed to protect the assets for bankruptcy purposes. At this
stage, all receivables are still reported on the Consolidated Balance Sheets of
Yellow Corporation.

The second step is the sale of an undivided interest in the receivables by YRC
to a conduit provided by a large financial institution. The

15

conduit serves as an intermediary between YRC and commercial paper investors,
and funds the purchase of receivables from YRC through the sale of asset-backed
commercial paper. When YRC sells receivables to the conduit, the receivables,
and the corresponding debt, are no longer reflected on the Consolidated Balance
Sheets of Yellow Corporation.

Activity under the ABS facility impacts the accounting presentation of current
assets and net cash from operating activities. As of September 30, 2002, current
assets were $339.3 million, which were reduced by the sale of $59.5 million in
receivables by YRC to the financial conduit. As of December 31, 2001, current
assets were $312.4 million, which were reduced by the sale of $141.5 million in
receivables by YRC to the financial conduit. The $82.0 million difference
between $59.5 million and $141.5 million in receivables sold is reflected in the
Operating Activities section of the Statements of Consolidated Cash Flows as
Accounts receivable securitizations, net.

Activity under the ABS facility also impacts the accounting presentation of
total debt. The following tables present total indebtedness of the company,
including balance sheet and off-balance sheet obligations, and other commercial
commitments as of September 30, 2002 (in millions):

(1) Cash obligations for the remainder of 2002.

(2) The ABS facility renews annually in April; however, the company views this
revolving facility as long-term debt, since available capacity exists
under the bank credit agreement to refinance the ABS obligations in the
unlikely event it is necessary to do so. Although the company has no
assurance it will be able to renew the facility, it believes other
sources of funding are readily available.

The preceding table is consistent with the manner in which the company
communicates its financial position, including measures such as
debt-to-capitalization, with investors, creditors and rating agencies.

(1) The line of credit renews in April 2004. Although the company has no
assurance it will be able to renew the facility, renewal is completed
well in advance of the expiration and the company believes other
sources of funding are readily available.

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At September 30, 2002, the company had $10 million in outstanding borrowings
against the $300 million bank credit agreement, which expires in April 2004.
This facility is also the source of letters of credit used to provide collateral
for the self-insurance programs of the company, primarily in the areas of
workers' compensation and auto liability. Letter of credit requirements
increased significantly during 2002. Insurance providers increased collateral
requirements in response to the events of September 11, 2001 and the
bankruptcies of several large companies. In addition, the availability of surety
bonds, an alternative form of insurance collateral, has decreased due to the
same factors.

The company intends to refinance under the bank credit facility all other debt
maturing within one year, ($11.3 million at September 30, 2002 and $22.0 million
at December 31, 2001), and has classified these amounts as long-term debt on the
balance sheet.

The $85.1 million of other working capital items on the Statement of
Consolidated Cash Flows for the nine months ended September 30, 2002 primarily
relates to pension and other employee benefits. Included in the change of other
working capital is approximately $40 million due to the amortization of a
prefunded benefit contribution for the company's employees covered by collective
bargaining agreements, $16.2 million related to timing of wages and vacation
payments, and $11.3 million due to timing of pension payments (accrued but not
paid). Additionally, workers' compensation reserves increased by $7.3 million
for the nine months.

Net capital expenditures for property and equipment, excluding discontinued
operations, during the first nine months of 2002 were $57.5 million, compared to
$74.6 million during the first nine months of 2001. The decrease in capital
expenditures is due primarily to timing of revenue equipment purchases in 2002
compared to 2001, and higher spending in 2001 for a large terminal facility at
Yellow Transportation. Full year 2002 revenue equipment spending is expected to
be near 2001 levels, and total net capital expenditures are expected to be
approximately $90 million.

In April 2002 the company completed the equity offering of 3.4 million shares
and a fifteen- percent over-allotment of .5 million shares at a price of $25.50
per share. The company received $93.8 million of net proceeds from the offering.
The net proceeds were used to repay debt and will provide capacity for
investments in the company's growth strategy.

In July 2002, Meridian IQ announced that it had acquired selected assets,
consisting primarily of customer contracts, of Clicklogistics for nominal cash
consideration and the assumption of certain obligations. Clicklogistics provides
non-asset transportation and logistics management services.

17

In August 2002, Meridian IQ completed the acquisition of MegaSys, a Greenwood,
Indiana based provider of non-asset transportation and logistics management
services, for approximately $17 million. MegaSys offers carrier procurement,
routing and scheduling, audit and payment and other shipment management
capabilities. Meridian IQ employed key members of the MegaSys management team as
part of the transaction.

On September 30, 2002, the company successfully completed the 100 percent
distribution of all of the shares of SCST to the company's shareholders of
record at the close of business on September 3, 2002. Shares were distributed on
the basis of one share of SCST common stock for every two shares of Yellow
common stock. On September 30, 2002, as part of the spin-off agreement, SCST
paid Yellow $111 million in cash and assumed debt of $16 million. Yellow used
the proceeds to pay down the ABS balance and pay spin-off related fees. In
October 2002, SCST paid Yellow an additional $3 million for a total dividend of
$130 million.

RESULTS OF OPERATIONS

Comparison of Three Months Ended September 30, 2002 and 2001

Net loss for the three months ended September 30, 2002 was $41.3 million, or
$1.40 per share, compared with net income of $6.5 million, or $.26 per share in
the third quarter of 2001. The three months ended September 30, 2002 included
income from continuing operations of $7.3 million, income from discontinued
operations of $4.1 million and a non-cash charge of $52.6 million related to the
spin-off of SCST.

Consolidated operating revenue for the third quarter of 2002 was $682 million,
up 6.7 percent from $639 million in the third quarter of 2001. Consolidated
income from operations was $13.5 million, compared to $12.8 million in the prior
year. The three months ended September 30, 2002 included unusual charges of
approximately $5.3 million of spin-off fees.

On September 3, 2002, Consolidated Freightways (CF) announced it was filing for
Chapter 11 bankruptcy. CF was the third largest, national LTL carrier with 2001
annual revenues of approximately $2 billion. Yellow Transportation followed a
disciplined approach regarding assumption of the former CF business. Yellow
Transportation evaluated the potential business based on return on investment
and available capacity. As a result of this strategic approach, Yellow
Transportation has experienced revenue and incremental margin increases, while
maintaining quality of service.

Although the closure of CF had and will continue to have an impact on the
industry, Yellow Transportation would have reported increased operating income
for the third quarter 2002 compared to 2001 without the CF impact. Operating
income was $23.0 million and $17.4 million for the

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three months ended September 30, 2002 and 2001, respectively. Yellow
Transportation revenue for the three months ended September 30, 2002 was $662
million, up $25.6 million or 4% from $637 million for the three months ended
September 30, 2001. The operating ratio was 96.5 for the third quarter of 2002,
compared with 97.3 a year earlier.

Yellow Transportation third quarter 2002 LTL tonnage per day increased by 1.9
percent and the number of LTL shipments per day increased 3.3 percent compared
to the third quarter of 2001. The primary reasons for the increase in volumes
are increased market share from the CF closure and growth in premium services.
LTL revenue per hundred weight, excluding fuel surcharge, for the third quarter
of 2002 was up 3.0 percent over the third quarter of 2001.

Higher workers' compensation expenses at Yellow Transportation impacted
consolidated operating results. Increased costs per claim and longer duration of
cases over the past several years have resulted in the ultimate cost of claims
being higher than were originally anticipated. This has occurred despite the
continued improvement of safety statistics at Yellow Transportation year over
year. On a consolidated basis, workers' compensation costs have increased over
$6.7 million, or nearly 65 percent from the third quarter of last year. The
company is adding additional resources aimed at managing and moderating these
claims.

The National Master Freight Agreement (the agreement) covering the company's
collective-bargaining associates 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.

In October 2002, the Environmental Protection Agency issued new engine emission
standards that apply to heavy-duty vehicles. Yellow Transportation is testing
several units for fuel economy, reliability and performance standards. As Yellow
Transportation uses tractors an average of seven years over the road and then
converts them to city use for another seven to eight years, the emission
standards are not expected to have a material impact on the company's capital
expenditures or operating expenses for the remainder of 2002 and 2003.

Meridian IQ was formed in January of this year, and formally launched in March,
as the Yellow platform for non-asset-based transportation services. These
capabilities include international and domestic freight forwarding services,
multi-modal brokerage services and transportation management solutions.

Meridian IQ operating revenue for the third quarter of 2002 was $21.5 million
with slightly profitable income from operations, an improvement from the $.5
million operating loss in the second quarter of 2002, and consistent with
company expectations for this newly formed entity.

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Corporate and other expenses were $9.5 million in the third quarter of 2002,
compared to $2.9 million in the third quarter of 2001. The increase is due to
spin-off fees of $5.3 million, higher incentive compensation accruals of $0.9
million and professional services and other of $0.4 million. Spin-off fees
include bank fees and external legal and audit services.

Nonoperating expenses were $2.0 million for the three months ended September 30,
2002 compared to $4.9 million for the three months ended September 30, 2001. The
third quarter of 2001 included a loss on Transportation.com of $1.3 million and
$2.0 million of higher financing costs, including interest expense and ABS
borrowing costs due to higher interest rates and higher average borrowings
outstanding. The effective tax rate was 36.4 percent in the third quarter of
2002 compared to 35.2 percent in the third quarter of 2001.

Comparison of Nine Months Ended September 30, 2002 and 2001

Net income (loss) for the nine months ended September 30, 2002 was $(108.1)
million, or $(3.88) per share, compared with net income of $13.9 million, or
$.57 per share in the first nine months of 2001. The nine months ended September
30, 2002 included income from continuing operations of $9.8 million, income from
discontinued operations of $9.9 million, a non-cash charge of $75.2 million for
the impairment of goodwill associated with Jevic and a non-cash charge of $52.6
million related to the spin-off of SCST, both non-cash charges were recorded in
discontinued operations.

Consolidated operating revenue was $1.9 billion for the nine months ended
September 30, 2002 and 2001. Consolidated income from operations was $22.3
million, compared to $36.3 million in the prior year.

Yellow Transportation reported operating income of $40.2 million for the nine
months ended September 30, 2002 down from $45.3 million in 2001. Although
effective cost management continues to be a focus, increased workers'
compensation costs of approximately $15 million for the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001, have
negatively impacted operating results. Yellow Transportation revenue was $1.9
billion for the nine months ended September 30, 2002 and 2001. The nine month
operating ratio for 2002 was 97.8, compared with 97.6 a year earlier.

Yellow Transportation year-to-date 2002 LTL tonnage per day decreased by 1.3
percent and the number of LTL shipments per day decreased 1.1 percent from the
same period in 2001. LTL revenue per hundred weight, excluding fuel surcharge,
was up 1.3 percent over the first nine months of 2001.

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Meridian IQ operating revenue for the nine months ended September 30, 2002 was
$55.9 million and operating losses were $1.9 million. Meridian IQ has had
consistent revenue and operating income improvement and results are consistent
with company expectations for this newly formed entity.

Corporate and other expenses were $15.9 million in the first nine months of
2002, compared to $6.3 million in the first nine months of 2001. The increase is
due to spin-off fees of $6.2 million, higher incentive compensation accruals of
$2.0 million and professional services and other of $1.4 million. Spin-off fees
include bank fees and external legal and audit services.

Nonoperating expenses were $7.0 million for the nine months ended September 30,
2002, compared to $17.4 million for the nine months ended September 30, 2001.
The first nine months of 2001 included a loss on Transportation.com of $5.7
million and $5.7 million higher financing costs, including interest expense and
ABS borrowing costs, due to higher interest rates and higher average borrowings.
The effective tax rate was 36.2 percent for the nine months ended September 30,
2002 and 39.1 percent for the nine months ended September 30, 2001. The decrease
in tax rate is due to a variety of factors including the projected full-year
profit before tax, the implementation of prudent tax planning strategies and
decreased travel and entertainment expenses.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The company is exposed to a variety of market risks, including the effects of
interest rates, foreign currency exchange rates and fuel prices. To ensure
adequate funding through seasonal business cycles and minimize overall borrowing
costs, the company utilizes both fixed rate and variable rate financial
instruments with varying maturities.

At September 30, 2002, approximately 48 percent of the company's debt and
off-balance sheet financing are at variable rates with the balance at fixed
rates. The company uses an interest rate swap to hedge a portion of its exposure
to variable interest rates. The company has hedged approximately 72 percent of
its variable debt at September 30, 2002.

The table below provides information regarding the company's interest rate risk
as of September 30, 2002. For fixed-rate debt, principal cash flows are stated
in millions and weighted average interest rates are by contractual maturity. The
fair value of fixed-rate debt has been estimated by discounting the principal
and interest payments at rates available for debt of similar terms and maturity.
The fair value of variable-rate debt is estimated to approximate the carrying
amounts due to the fact that the interest rates are generally set for periods of
three months or less, and is excluded from the following table. For interest
rate swaps, the table presents notional amounts (in millions) and contractual
interest rates by instrument.

Financial instruments subject to interest rate market risk as of
September 30, 2002:

(1) Interest rate swap on the ABS facility. The variable rate is based on the
3-month LIBOR as of September 30, 2002.

The company's revenues and operating expenses, and assets and liabilities of its
Canadian and Mexican subsidiaries are denominated in foreign currencies, thereby
creating exposure to fluctuations in exchange rates. The risks related to
foreign currency exchange rates are not material to the company's consolidated
financial position or results of operations.

22

Yellow Transportation has implemented an effective fuel surcharge program. 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, company exposure to
fuel price volatility is significantly reduced.

23

Item 4. Controls and Procedures

The company maintains a rigorous set of disclosure controls and procedures and
internal controls designed to ensure that information required to be disclosed
in its filings under the Securities and Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The company's principal
executive and financial officers have evaluated its disclosure controls and
procedures within 90 days prior to the filing of this Quarterly Report on Form
10-Q and have determined that such disclosure controls and procedures are
effective.

Subsequent to the evaluation by the company's principal executive and financial
officers, there were no significant changes in internal controls or other
factors that could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

24

PART II - OTHER INFORMATION

Item 1. Legal Proceedings - None

Item 2. Changes in Securities and Use of Proceeds - None

Item 3. Defaults Upon Senior Securities - None

Item 4. Submission of Matters to a Vote of Security Holders - None

Item 5. Other Information - None

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

3.1 - Bylaws, as amended on October 25, 2002.

4.1 - Bylaws, as amended on October 25, 2002 (filed above as Exhibit 3.1 to the
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2002).

10.1 - Executive Severance Agreement dated as of October 25, 2002, between
Yellow Corporation and Daniel J. Churay.

10.2 - Master Separation and Distribution Agreement between Yellow Corporation
and SCS Transportation, Inc.

10.3 - Tax Indemnification and Allocation Agreement between Yellow Corporation
and SCS Transportation, Inc.

10.4 - Amendment to Revolving Credit Agreement.

99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxyley Act of 2002.

99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxyley Act of 2002.

(b) Reports on Form 8-K

On July 19, 2002, a Form 8-K was filed under Item 5, Other Events, which
reported that the company announced its Board of Directors had formally approved
the terms of the spin-off. The Board of Directors of Yellow anticipated that the
spin-off would occur during the third quarter of 2002.

On August 7, 2002, a Form 8-K was filed under Item 9, Regulation FD Disclosure,
William D. Zollars, Yellow Corporation's Chief Executive Officer, and Donald G.
Barger, Jr., Yellow Corporation's Chief Financial Officer, had each executed a
Statement Under Oath of Principal Executive Officer and Principal Financial
Officer Regarding Facts and Circumstances Relating to Exchange Act Filings.

On August 12, 2002, a Form 8-K was filed under Item 5, Other Events, which
stated that the company received a favorable ruling from the Internal Revenue
Service confirming the tax-free nature of the pending spin-off of SCST.

25

On August 26, 2002, a Form 8-K was filed under Item 5, Other Events, which
announced a record date of September 3, 2002, for the spin-off of SCST. Yellow
Corporation shareholders of record as of the close of business on September 3,
2002, would receive one share of SCST common stock for every two shares of
Yellow common stock.

On September 10, 2002, a Form 8-K was filed under Item 5, Other Events,
declaring the Registration Statement on Form 10 for SCST, relating to the
spin-off of Yellow's 100 percent interest in SCST, the holding company for its
regional operating companies, Saia and Jevic to its shareholders, effective by
the SEC.

On September 11, 2002, a Form 8-K was filed under Item 5, Other Events,
reporting that following the distribution, on or near October 1, 2002, of the
shares of its SCST subsidiary, Yellow would continue to trade on The NASDAQ
National Market under the symbol "YELL," and SCST had been approved to trade as
a separate issue on The NASDAQ National Market under the symbol "SCST." Yellow
further announced that "when issued" trading was expected to develop for both
Yellow and SCST during the period beginning September 11, 2002 and end with the
distribution date.

On September 30, 2002, a Form 8-K was filed under Item 5, Other Events,
announcing the completion of the 100 percent distribution of the shares of SCST
to Yellow shareholders of record. SCST shares had been distributed to Yellow
shareholders on the basis on one SCST share for every two Yellow shares held on
the record date of September 3, 2002.

On October 22, 2002, a Form 8-K was filed under Item 7, Financial Statements and
Exhibits, and Item 9, Regulation FD Disclosure. The company made available the
unaudited historical consolidated balance sheets as of March 31, 2001, June 30,
2001, September 30, 2001, December 31, 2001, March 31, 2002, June 30, 2002 and
September 30, 2002, statements of consolidated operations and statements of
consolidated cash flows for the three months ended March 31, 2001, June 30,
2001, September 30, 2001, December 31, 2001, March 31, 2002, June 30, 2002,
September 30, 2002, the twelve months ended December 31, 2001, and the nine
months ended September 30, 2002. These historical financial statements have been
presented to reflect the operations of SCST as a discontinued operation as
required by the spin-off of SCST to shareholders on September 30, 2002.

26

STATISTICAL INFORMATION
Yellow Transportation, Inc.
For the Three Months Ended September 30
(Amounts in thousands except per unit data)

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

YELLOW CORPORATION
------------------
Registrant

Date: November 14, 2002 /s/ William D. Zollars
--------------------- ----------------------------
William D. Zollars
Chairman of the Board of
Directors, President & Chief
Executive Officer

Date: November 14, 2002 /s/ Donald G. Barger, Jr.
--------------------- ----------------------------
Donald G. Barger, Jr.
Senior Vice President
& Chief Financial Officer

28

CERTIFICATION

I, William D. Zollars, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Yellow
Corporation;

(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have;

a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

(5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

29

(6) The registrant's other certifying officer and I have indicated in this
report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: November 14, 2002 /s/ William D. Zollars
----------------- ----------------------
William D. Zollars
Chairman of the Board of
Directors, President & Chief
Executive Officer

30

CERTIFICATION

I, Donald G. Barger, Jr., certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Yellow
Corporation;

(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have;

a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

(5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

31

(6) The registrant's other certifying officer and I have indicated in this
report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: November 14, 2002 /s/ Donald G. Barger, Jr.
----------------- --------------------------
Donald G. Barger, Jr.
Senior Vice President
& Chief Financial Officer

32