SEC Filing | Yellow Corporation

1 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 [FEE REQUIRED] For the fiscal year ended December 31, 1997 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____________________ to _______________________ Commission file number 0-12255 ------- YELLOW CORPORATION ------------------ (Exact name of registrant as specified in its charter) Delaware 48-0948788 ------------------------------- ------------------- (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 - -------------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (913) 696-6100 -------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1 Par Value Preferred Stock Purchase Rights ------------------------------- (Title of class) 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 --- --- 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 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. Yes No --- --- The aggregate market value of the voting stock held by nonaffiliates of the registrant at March 13, 1998 was $575,347,817. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at March 13, 1998 ----- ----------------------------- Common Stock, $1 Par Value 27,685,910 shares DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference into the Form 10-K: 1) 1997 Annual Report to Shareholders - Parts I, II and IV 2) Proxy Statement dated March 6,1998 - Part III 2 Yellow Corporation Form 10-K Year Ended December 31, 1997 Index

2 3 PART I Item 1. Business. (a) Yellow Corporation and its wholly-owned subsidiaries are collectively referred to as "the company". The company provides transportation services primarily to the less-than-truckload (LTL) market throughout North America and, through partnership alliances, other international markets. During 1997, the company's subsidiaries concentrated on cost reduction and productivity strategies as described below. (b) The company provides interstate transportation of general commodity freight, primarily LTL, primarily by motor vehicle. The operation of the company is conducted among three primary business segments. Financial disclosures for these segments are presented in the Business Segments footnote on page 44 of the 1997 Annual Report to Shareholders which is incorporated herein by reference. (c) Yellow Corporation is a holding company providing freight transportation services through its subsidiaries, Yellow Freight System, Inc. (Yellow Freight), Saia Motor Freight Line, Inc. (Saia), Preston Trucking Company, Inc. (Preston Trucking), and WestEx, Inc. (WestEx). Yellow Services, Inc. (Yellow Services) is a subsidiary that provides information technology and other services to the company and its subsidiaries. The company employed an average of 34,400 persons in 1997. Yellow Freight, the company's principal subsidiary, had operating revenue of $2.54 billion in 1997 (76% of the company's total revenue) and is based in Overland Park, Kansas. It is one of the nation's largest providers of LTL transportation services. It provides comprehensive national LTL service as well as international service to Mexico, Canada and, via alliances, Europe, the Asia/Pacific region, South America and Central America. Saia is a regional LTL carrier that provides overnight and second-day service in eleven southeastern states and Puerto Rico. It had operating revenue of $311 million in 1997 (9% of the company's total revenue) and is headquartered in a suburb of Atlanta, Georgia. Preston Trucking is primarily a regional LTL carrier providing overnight and two-day delivery in 22 northeastern and upper midwestern states, Puerto Rico, Ontario and Quebec. Preston Trucking had operating revenue of $451 million in 1997 (14% of the company's total revenue) and is headquartered in Preston, Maryland. WestEx provides one and two-day service in Arizona, California, Colorado, Nevada, New Mexico, and Texas. WestEx had operating revenue of $49 million in 1997 and is headquartered in Phoenix, Arizona. Yellow Services supports the company's subsidiaries - primarily Yellow Freight - with information technology and other services. Its headquarters is in Overland Park, Kansas. 3 4 Item 1. Business. (cont.) The operations of the freight transportation companies are partially regulated by the United States Department of Transportation and state regulatory bodies. The company's competition includes contract motor carriers, private fleets, railroads, other motor carriers and small shipment carriers. No single carrier has a dominant share of the motor freight market. The company operates in a highly price-sensitive and competitive industry, making pricing, customer service and cost control major competitive factors. Operating revenue for Yellow Corporation (the company) totaled $3.35 billion in 1997, up 9.0 percent from $3.07 billion in 1996. Operating income for the year was $98.7 million, more than triple the $32.6 million recorded in 1996, excluding a special charge. The fourth quarter 1996 special charge pertained to restructuring of Yellow Freight and was $46.1 million before income taxes ($28.3 million after income taxes). Net income for 1997 was $52.4 million, or $1.86 basic earnings per share ($1.83 diluted), versus 1996 net income of $1.1 million excluding the special charge. Including the fourth quarter special charge, Yellow Corporation recorded a 1996 net loss of $27.2 million, or $.97 per share. The fourth quarter special charge is discussed further in the notes to the consolidated financial statements. Improved profitability resulted primarily from pricing strength, volume increases, and aggressive cost reduction and productivity strategies. Yellow Freight achieved $145 million in cost savings in 1997 from programs implemented in 1996 and 1997, which are targeted to grow in 1998 to a $180 million run-rate benefit. In 1998, another $50 million in savings from new cost reduction and efficiency programs will extend beyond Yellow Freight and include all the operating subsidiaries. At Yellow Freight, 1997 operating income rose to $82.7 million, more than double the 1996 operating income of $36.1 million, before the special charge. Revenue for 1997 was $2.54 billion, up 7.7 percent from $2.36 billion in 1996. The 1997 operating ratio for Yellow Freight was 96.7 compared with 98.5 in 1996, excluding the special charge. Yellow Freight tonnage and shipments per day during 1997 were up 4.3 percent and 9.7 percent respectively. During the third quarter revenue benefited from a two-week Teamsters strike against UPS which caused a surge in high-cost, smaller shipments. During the fourth quarter, revenue weakened somewhat, due in large part to freight diversion resulting from concerns of some shippers over Yellow Freight's ongoing contract talks with the Teamsters, and the possibility of a strike at contract expiration, March 31, 1998. Yellow Freight reached tentative agreement on a five-year contract in February 1998. During 1997, Yellow Freight revenue per ton was up 4.2 percent due to an improved pricing environment. Cost per ton was up only 2.1 percent as cost reduction, productivity and asset utilization strategies were material factors in offsetting a 3.8 percent (approximately $44 million) increase in Teamster wages and benefits effective April 1, 1997. 4 5 Item 1. Business. (cont.) The 4.2 percent increase in revenue per ton resulted from individually negotiated price increases with contractual customers as well as general rate increases, which apply to customers without contracts. The general rate increases averaged 5.2 percent in January 1997 and 4.9 percent in October 1997. In addition, Yellow Freight maintained a separate fuel surcharge program. Yellow Freight's cost savings in 1997 of $145 million compared to cost savings in 1996 of $75 million. The savings resulted from continuation of programs implemented in 1996, a 1997 change of operations and other 1997 programs. The programs achieved productivity and efficiency gains through best practices and increased use of technology, lower personnel complement, centralized purchasing benefits and other items. The change of operations in April 1997 enabled an increase in the use of rail transportation from 18 percent to approximately 28 percent of over-the-road miles. The increased use of rail lowered operating expenses and improved the company's asset utilization and return on capital. The company is now able to operate with fewer linehaul tractors. Operating results include $5.6 million of costs to implement the change in operations. Yellow Freight salary, wages and employee benefits improved as a percentage of revenue, despite the scheduled union wage increase. The improvement resulted from cost reduction initiatives and increased use of rail transportation. Increased use of rail drove the increase in purchased transportation and contributed to the decline in depreciation and other expenses between years. The average age of owned linehaul units slightly decreased, but the average age of city units slightly increased. Favorable accident experience contributed to the decline in claims and insurance. A rise in cargo loss and damage somewhat offset the favorable impact. Fuel prices generally declined as did fuel surcharge revenue. Saia continued its strong growth with 1997 operating income of $19.6 million, up from $10.8 million in 1996. Saia continued to build lane density in 1997. Revenue for 1997 was $311.2 million, up 17.7 percent from $264.3 million in 1996. Total tonnage increased 10.6 percent, while revenue per ton improved 6.5 percent. Saia's operating ratio for 1997 was 93.7 compared with 95.9 in 1996. Despite the 10.6 percent increase in tonnage, cost per ton increased only 4.0 percent. Saia achieved a nine percent improvement in pick-up and delivery productivity that helped offset higher wage rates. An improved safety program, better accident record and cargo claims prevention program held claims and insurance costs down. Purchased transportation and rentals provided additional capacity to manage business volume surges. Preston Trucking reported 1997 operating income of $0.1 million, compared with a $5.8 million operating loss in 1996. Revenue for 1997 was $450.5 million, up 7.9 percent from $417.6 million in 1996. Preston Trucking focused on pricing discipline, improved marketing and improvements in labor productivity in 1997. Tonnage per day increased 4.5 percent in 5 6 Item 1. Business. (cont.) 1997. Revenue per ton improved 3.9 percent over 1996, while cost per ton increased 2.2 percent over 1996. Results in 1996 were adversely impacted by severe winter weather in the Northeast and upper Midwest and shipper uncertainty regarding a union vote on a company proposal to freeze wages. While operating profit in 1997 was small, it represents the first such profit for Preston Trucking since 1990 and a major improvement over 1996. The success of a recently implemented network reengineering plan and the 1998 Teamster contract renewal negotiations will be key to improving profitability to meaningful and necessary levels. As part of its December 1997 change of operations, Preston Trucking reduced the number of terminals from 69 to 62. The linehaul network redesign was engineered to reduce handlings and achieve other cost reductions and productivity gains. Preston Trucking hopes to achieve net savings of $15 million. Implementation costs were not significant in 1997. Implementation costs, primarily relocation and operating lease payments, are expected to total $1- $2 million in 1998 and be partially offset by gains on excess real estate. Under the wage freeze plan approved by its union employees in 1996, Preston Trucking did not raise union wages on April 1, 1997. Preston Trucking wages are 8.9 percent below full-scale pay levels. Health, welfare and pension benefit costs, however, increased by 8.2 percent on April 1, 1997. Preston Trucking's labor agreement extends until March 31, 1998. WestEx continued its rapid growth during 1997, reporting revenue of $49.0 million, up 48.6 percent from $33.0 million in 1996. WestEx reported a small operating loss for the year and is expected to turn profitable in 1998 as it continues to grow. Corporate earnings also benefited from lower nonoperating expenses. Long-term debt at year-end 1997 was $163.1 million, a reduction from $192.5 million at year-end 1996 and $341.6 million at year-end 1995. Debt reduction programs since year-end 1995 resulted in a reduction in interest expense of $7.5 million between 1996 and 1997. Additionally, other nonoperating items, primarily gains on sales of real estate, contributed to favorable variances of $3.0 million in the fourth quarter and $3.7 million year-to-date. Future Outlook The LTL trucking industry remains highly competitive and the company intends to continue to improve its shareholder returns through aggressive cost management, improved asset utilization and an increased focus on marketing and customer service. While the company has realized large benefits from cost reduction programs in 1996 and 1997, management believes cost reduction programs represent a continuous opportunity for improvement in the future. In 1998 and future years, management plans to extend the programs which have been successful at Yellow Freight to the other operating companies while 6 7 Item 1. Business. (cont.) pursuing new initiatives at Yellow Freight. The 1998 cost reduction initiatives primarily pertain to increased labor productivity at Yellow Freight and Saia, as well as the change of operations at Preston Trucking. Management believes that future earnings growth not only requires cost management programs but also improved revenue. Thus, marketing is a priority at all the subsidiaries. All subsidiaries must be focused on providing high service and value added solutions for customers. Subsidiaries must be focused on targeting profitable growth segments. Yellow Freight, as a member of a group representing a number of major motor carriers in labor contract negotiations, reached a five-year agreement with the Teamsters in February 1998, subject to ratification. Preston Trucking bargains independently. Preston Trucking currently operates under a wage concession agreement with the Teamsters which expires March 31, 1998, and currently provides for an 8.9% reduction from full scale wages. Preston requires a continued substantial reduction in order to effectively compete, the specific terms of which will be subject to separate negotiation and ratification. The success of a recently implemented network reengineering plan and the Teamster contract renewal negotiations will be key to improving Preston Trucking's profitability to meaningful and necessary levels. Saia plans continued revenue growth and margin improvement. Saia will continue to focus on yield management and building density in key markets while implementing cost improvement programs. During 1997 the company trimmed $30.4 million in debt. At year-end 1997 total debt was $166 million. This reduction followed a decline in total debt from $354 million at year-end 1995 to $196 million at year-end 1996. Strong operating cash flows, even after a $27 million reduction in amounts under the asset-backed securitization (ABS) agreement, and proceeds from the disposal of excess real estate, were sufficient to fund capital additions and the debt reduction. Debt reduction was a priority at the company beginning in 1996. Management committed to achieving debt reductions of at least $100 million by year-end 1996. Historically, the company has generated strong cash flows from operating activities. The 1996 decrease in capital spending described above provided the largest source of funding for debt paydown in 1996. A portion of the reduction was also achieved through the 1996 sale of $45 million under the ABS agreement. Additionally, in 1996 the company received a federal income tax refund totaling $45 million and repatriated approximately $23 million from a Canadian subsidiary. Management believes its current financial condition and access to liquidity is adequate for current operations. Additionally, given the debt reductions and the company's access to new sources of capital, management believes the company has increased flexibility to respond to future growth opportunities, possibly including acquisitions. 7 8 Item 1. Business. (cont.) Statements contained herein, that are not purely historical, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the company's expectations, hopes, beliefs and intentions on strategies regarding the future. It is important to note that the company's actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including but not limited to inflation, volatility of expenses, inclement weather, the results of Teamster contract negotiations, competitor pricing activity and a downturn in general economic activity. 8 9 Item 2. Properties. The company's operating subsidiaries each provide their transportation services through separate networks, principally consisting of a fleet of tractors and trailers and real estate terminal facilities. At December 31, 1997, the company operated a total of 546 freight terminals located in 50 states, Puerto Rico, parts of Canada and Mexico. Of this total, 271 were owned terminals and 275 were leased, generally for terms of three years or less. The number of vehicle back-in doors totaled 18,150, of which 13,671 were at owned terminals and 4,479 were at leased terminals. The freight terminals vary in size ranging from one to three doors at small local terminals, to over 300 doors at Yellow Freight's largest consolidation and distribution terminal. Substantially all of the larger terminals, containing the greatest number of doors, are owned. In addition, the company and most of its subsidiaries own and occupy general office buildings in their headquarters city. At December 31, 1997, the company's subsidiaries operated the following number of linehaul units: tractors - 5,402, 27' and 28' trailers - 34,373 and 45' and 48' trailers - 6,667. The company operated the following number of city units: trucks and tractors - 7,838 and trailers - 6,448. The company's facilitates and equipment are adequate to meet current business requirements. The company expects moderate growth in 1997 and has projected no significant changes to its operational capacity. Projected net capital expenditures for 1998 are $164 million, an increase over $88 million in 1997 net capital expenditures. Net capital for both periods pertain primarily to replacement of revenue equipment at all subsidiaries, growth capital at Saia and WestEx, and additional investments in information technology. Item 3. Legal Proceedings. The information set forth under the caption "Commitments and Contingencies" in the Notes to Consolidated Financial Statements on page 45 of the registrant's Annual Report to Shareholders for the year ended December 31, 1997, is incorporated by reference under Item 14 herein. Item 4. Submission of Matters to a Vote of Security Holders. None. 9 10 Executive Officers of the Registrant The names, ages and positions of the executive officers of the company as of March 13, 1998 are listed below. Officers are appointed annually by the Board of Directors at their meeting that immediately follows the annual meeting of shareholders.

The terms of each officer of the company designated above are scheduled to expire April 16, 1998. The terms of each officer of the subsidiary companies are scheduled to expire on the date of the next annual meeting of shareholders of that company. No family relationships exist between any of the executive officers named above. 10 11 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. The information set forth under the caption "Common Stock" on page 46 of the registrant's Annual Report to Shareholders for the year ended December 31, 1997, is incorporated by reference under Item 14 herein. Item 6. Selected Financial Data. The information set forth under the caption "Financial Summary" on pages 28 and 29 of the registrant's Annual Report to Shareholders for the year ended December 31, 1997, is incorporated by reference under Item 14 herein. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing on pages 20 through 27 of the registrant's Annual Report to Shareholders for the year ended December 31, 1997, is incorporated by reference under Item 14 herein. Item 8. Financial Statements and Supplementary Data. The financial statements and supplementary information, appearing on pages 30 through 46 of the registrant's Annual Report to Shareholders for the year ended December 31, 1997, are incorporated by reference under Item 14 herein. Item 9. Disagreements on Accounting and Financial Disclosure. None. 11 12 PART III Item 10. Directors and Executive Officers of the Registrant. The information regarding Directors of the registrant has previously been reported in the registrant's definitive proxy statement, filed pursuant to Regulation 14A, and is incorporated by reference. For information with respect to the executive officers of the registrant, see "Executive Officers of the Registrant" at the end of Part I of this report. Item 11. Executive Compensation. This information has previously been reported in the registrant's definitive proxy statement, filed pursuant to Regulation 14A, and is incorporated by reference. The Employment Agreement between A. Maurice Myers, President and Chief Executive Officer, and the company, has previously been filed and is incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. This information has previously been reported in the registrant's definitive proxy statement, filed pursuant to Regulation 14A, and is incorporated by reference. Item 13. Certain Relationships and Related Transactions. This information has previously been reported in the registrant's definitive proxy statement, filed pursuant to Regulation 14A, and is incorporated by reference. 12 13 PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K. (a) (1) Financial Statements The following information appearing in the 1997 Annual Report to Shareholders is incorporated by reference in this Form 10-K Annual Report as Exhibit (13):

With the exception of the aforementioned information, the 1997 Annual Report to Shareholders is not deemed filed as part of this report. Financial statements other than those listed are omitted for the reason that they are not required or are not applicable. The following additional financial data should be read in conjunction with the consolidated financial statements in such 1997 Annual Report to Shareholders. (a) (2) Financial Statement Schedule

Schedules other than those listed are omitted for the reason that they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. (a) (3) Exhibits (13) - 1997 Annual Report to Shareholders. (24) - Consent of Independent Public Accountants. (27) - Financial Data Schedule (for SEC use only). The remaining exhibits required by Item 7 of Regulation S-K are omitted for the reason that they are not applicable or have previously been filed. (b) Reports on Form 8-K The company announced December 16, 1997, that its Board of Directors authorized the repurchase of shares of shares of the company's outstanding common stock with an aggregate purchase price of up to $25 million. 13 14 Report of Independent Public Accountants on Financial Statement Schedule To the Shareholders of Yellow Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Yellow Corporation and Subsidiaries' annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 28, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The Schedule of Valuation and Qualifying Accounts (Schedule II) is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Kansas City, Missouri, January 28, 1998 14 15 Schedule II Yellow Corporation and Subsidiaries Valuation and Qualifying Accounts For the Years Ended December 31, 1997, 1996 and 1995

(1) Primarily uncollectible accounts written off - net of recoveries. Also includes $3.5 million net deductions in 1996 for net fundings under the asset-backed securitization agreement and $2.5 million net additions in 1997 for net reductions in fundings under the asset-backed securitization agreement. 15 16 Signatures Pursuant to the requirements of Section 13 or 15(d) 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 BY: /s/ A. Maurice Myers -------------------------------------- A. Maurice Myers President, Chief Executive Officer and March 24, 1998 Chairman of the Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ H. A. Trucksess, III Senior Vice President - March 24, 1998 - ---------------------------- Finance/Chief Financial H. A. Trucksess, III Officer and Treasurer /s/ Howard M. Dean Director March 24, 1998 - ---------------------------- Howard M. Dean /s/ David H. Hughes Director March 24, 1998 - ---------------------------- David H. Hughes /s/ Cassandra C. Carr Director March 24, 1998 - ---------------------------- Cassandra C. Carr /s/ Carl W. Vogt Director March 24, 1998 - ---------------------------- Carl W. Vogt 16

1 Exhibit (13) Yellow Corporation ------------------ 1997 Annual Report ------------------ to Shareholders --------------- 2 1997 Yellow Corporation Annual Report [COVER PICTURE OF CUSTOMER SERVICE REPRESENTATIVE, TRACTOR-TRAILERS, MOBILE DATA TERMINALS, COMPUTERS, WHEEL, LOGO, GLOBE, ETC.] 3 FORTUNE recognizes success. The magazine's new list of America's Most Admired Companies describes Yellow as "this year's biggest gainer," posting a 31 percent jump in its image score. Innovation. Service. Quality. And Value. Virtues of the admired, and pillars of Yellow. 4 [FULL PAGE PICTURE OF U-TURN SIGN] THE EARNINGS-PER-SHARE U-TURN 5 Yellow Corporation 1997 Revenue Contribution 76% - Yellow Freight System, Inc. 14% - Preston Trucking Company, Inc. 9% - Saia Motor Freight Line, Inc. 1% - WestEx, Inc. Family of Operating Companies 6 SERVICES: PROFILE: YELLOW FREIGHT SYSTEM, INC. National LTL 24,000 employees International LCL / FCL 381 terminals Express LTL 300,000 customers Rail intermodal 8,800 tractors / 35,000 trailers Heavy load / truckload Delivered 8.6 million tons of freight in 1997 Chemical LTL Web address: http://www.yellowfreight.com Trade shows & exhibits Integrated logistics Information technology services PRESTON TRUCKING COMPANY, INC. Regional LTL - Northeast and Upper Midwest 5,700 employees Overnight & second-day delivery 62 terminals Guaranteed expedited service 190,000 customers Canadian service 2,200 tractors / 6,300 trailers Delivered 2.4 million tons of freight in 1997 Web address: http://www.yellowcorp.com/preston/ SAIA MOTOR FREIGHT LINE, INC. Regional LTL - Southeast Overnight 4,300 employees & second-day delivery 72 terminals Guaranteed expedited service 90,000 customers Truckload service 1,900 tractors / 4,700 trailers Caribbean service Delivered 2.2 million tons of freight in 1997 Web address: http://www.saia.com WESTEX, INC. Regional LTL - Southwest 960 employees and California 31 terminals Overnight & second-day delivery 6,000 customers interstate and intrastate 420 tractors / 1,100 trailers Guaranteed expedited service Delivered 304,000 tons of freight in 1997 Maquiladora service from Web address: http://www.westex-inc.com Tijuana to Juarez, Mexico LTL service to Mexico interior Marketing partnerships with third party logistics companies

[PICTURES OF TRACTOR-TRAILERS] -3- 7 TABLE OF CONTENTS 3 Subsidiary Profiles A snapshot of who we are and what we do. 12 Letter to Shareholders Chairman and President A. Maurice Myers reviews 1997 and reports on the future. 20 Management's Discussion and Analysis An in-depth look at comparative year-to-year financial and operating performance. 28 Financial Summary Selected financial data is reported on a five-year comparative basis. 30 Consolidated Financial Statements and Notes Financial results and notes on significant accounting policies and issues affecting financial results. -4- 8 45 Report of Independent Public Accountants A report by Arthur Andersen LLP. 46 Supplementary Information Additional information of interest. 48 Officers A roster of senior officers. 49 Directors A portrait and listing of the board of directors. -5- 9 BALANCE SHEET STRENGTH [PICTURE OF WORKER WITH TRACTOR-TRAILER] "We finished the year with $166 million in total debt outstanding. This comes after reducing total debt in 1996 to $196 million from $354 million at year-end 1995." - -Maury Myers DIVERSITY IS POSSIBLE WITH LOWERED DEBT Flexibility is mandatory. With nearly $190 million of debt slashed over the past two years, our balance sheet is strong. Growth opportunities are again viable. -6- 10 Total Debt / Debt to Capital ~~1995 1996 1997 Debt to capital ratio 46 33 27 Total debt $354 million $196 million $166 million~~

[PICTURES OF CONFERENCE SHOTS AND PLANNERS] [PICTURE OF SERVICE REPRESENTATIVE, INTERNET PAGE COMPUTER, MOBILE DATA TERMINAL] -7- 11 [PICTURE OF EMPLOYEE WITH FORKLIFT AND PRODUCTS ON PALLET] COST REDUCTIONS AND PRODUCTIVITY "Cost efficiency and service efficiency go hand in hand. We will not implement cost cutting programs that diminish our service standards. We are proving that we can do both." - -Maury Myers PEOPLE USING TECHNOLOGY SERVE BETTER We're working smarter and using assets more productively. Technology is aiding our efficiencies. Costs have decreased. Customer satisfaction is on the rise. -8- 12 Cost Reductions 1996 Impact 1997 Impact 1998 Impact 1998 program $50 million 1997 program $55 million $90 million 1996 program $75 million $90 million $90 million Total $75 million $145 million $230 million

[PICTURE OF TRAILER ON INTERMODAL LIFT, DOCK WORKER WITH SCANNER, COMPUTER SCREEN, INTERMODAL RAIL YARD, INTERNET PAGE, PLANNING GROUP ETC.] -9- 13 REVENUE GROWTH [PICTURE OF EMPLOYEE WITH BARREL] "Productivity improvements and cost reductions will not come at the expense of revenue growth and profitability. We will intensify our focus on new growth opportunities." - -Maury Myers REVENUE GROWS WHERE KNOWLEDGE IS PLANTED Market knowledge and sensible industry capacity have stabilized prices. Costs are being managed. Revenue will grow as our capabilities expand. -10- 14 Revenue Growth ~~1995 1996 1997 Revenues $3.06 billion 3.07 billion 3.35 billion Revenue Growth .05% 9%~~

[PICTURE OF TRACTOR-TRAILER, GLOBE, CARGO SHIP, CUSTOMER SERVICE REPRESENTATIVE, ETC.] -11- 15 Chairman's Letter to Shareholders Dear Shareholder, In 1996, we made an important commitment. We told you we were beginning to rebuild the foundation necessary to restore shareholder value. We are now delivering on that commitment. 1997 was a year of real progress. We achieved a breakthrough financial performance, even though we're still not where we want to be. Profitability was up almost 50 fold. The results were built on aggressive cost reductions, pricing leadership, business growth and the tailwind of a strong economy. Yellow Corporation share prices responded to the improved earnings performance. Shareholder Value Built on Cost Management, Growth and a High-Performance Culture. Cost reductions remain at the core of our strategy for returning to acceptable profitability. We're driving down costs through process improvements and more effective use of assets. We are achieving industry best-in-class performance in many key areas. Among its peer group of companies, Yellow Freight now operates with the lowest cost per ton. The carrier has implemented cost reductions totalling $180 million that will benefit Yellow Freight in 1998. Lower costs have been aided by technology and reengineered processes. Cost reduction programs are now being implemented at all operating companies and are scheduled to result in another $50 million in cost savings in 1998. The target for all Yellow Corporation companies is to be the low-cost carrier relative to competition. We benefited from increased volume at all of our operating companies throughout much of 1997. Business grew because of renewed emphasis on marketing strategies. Our focus is to better identify customer needs in profitable market segments, then develop services that establish a unique point of competitive advantage. In terms of revenue, each of our carriers grew in 1997 -- Yellow Freight by 7.7 _______________________________________________________________________________ We achieved a breakthrough financial performance... Profitability was up almost 50 fold... Cost reductions remain at the core of our strategy... Business grew because of renewed emphasis on marketing strategies. -12- 16 percent, Preston Trucking by 7.9 percent, Saia by 17.7 percent and WestEx by 48.6 percent. In our effort to create a high-performance culture, pay for performance was a key. It represented a whole new way of thinking about compensation. The strategy focused on our noncontract employees in high-impact areas of sales and operations. Our total 1997 performance compensation at Yellow companies was $25.9 million. Going forward, pay for performance will continue to create powerful incentives to do whatever it takes to build a stronger company. There is no doubt that pay for performance was a key factor in producing the financial and operational results we achieved. Financial Performance Reflects Confidence and Strength. We reported 1997 net income of $52.4 million, or $1.86 basic earnings per share. This is compared to 1996 net income of $1.1 million, excluding a $28.3 million (after tax) nonrecurring special charge taken in the 1996 fourth quarter. Consolidated operating revenue for 1997 was $3.35 billion, up 9.0 percent from $3.07 billion in 1996. Three important factors produced these results: (1) cost reductions; (2) pricing leadership, and; (3) increased business volume. We continued to strengthen our balance sheet, trimming a total of $30.4 million in debt during 1997. As a result, interest expense was reduced $7.5 million from 1996. We finished the year with $166 million in total debt outstanding. This comes after reducing total debt in 1996 to $196 million from $354 million at year-end 1995. Our strong balance sheet gives us improved flexibility to respond quickly to expansion and growth opportunities as conditions warrant. Our net capital expenditures totaled $88 million in 1997. We expect 1998 capital expenditures to total $164 million and be focused mainly on trucks and trailers and on information technology systems that help us communicate better with our customers. We will also be acquiring and expanding terminal facilities at our Saia subsidiary, consistent with its rapid growth. _______________________________________________________________________________ In our effort to create a high-performance culture, pay for performance was a key... We reported 1997 net income of $52.4 million, or $1.86 basic earnings per share... Our strong balance sheet gives us improved flexibility. -13- 17 Yellow Freight System Leads the Way. In 1997, Yellow Freight reasserted its position as the preeminent national less-than-truckload (LTL) carrier in North America. It was an impressive performance in terms of both improved revenue per ton -- up 4.2 percent -- and cost per ton that rose only 2.1 percent. The cost reduction and efficiency programs offset a 3.8 percent increase in Teamster wages and benefits that went into effect on April 1, 1997. Operating revenue for 1997 was $2.54 billion, up 7.7 percent from $2.36 billion in 1996. The operating ratio for the year was 96.7, versus 98.5 before a fourth quarter 1996 special charge. Yellow Freight demonstrated that excellent results can be achieved when it fully leverages its enormous operating capacity. With 381 terminals throughout all 50 states, Canada and Mexico, we are positioned well in balancing freight hauling and handling capacity against demands of the marketplace. Reaching a 5-year agreement with the International Brotherhood of Teamsters in February, a full seven weeks ahead of contract expiration, comforted shippers and solidified the relationship between carrier and union employees. The contract gives employees the job security they sought in negotiations and a satisfactory increase in income and benefits. While wages and benefits are substantially higher than at nonunion competition, Yellow Freight believes it can compete effectively with superior efficiency. Productivity and asset utilization improved through programs that implement and sustain best practices in dock and pickup and delivery operations. Improved service to customers is the result. Cost reductions are important but improved service is equally important. There are no trade offs. Cost efficiency and service efficiency go hand in hand. We will not implement cost cutting programs that diminish our service standards. We are proving that we can do both. The effort continues in 1998 and will expand into other processes. Employees are making it happen by accepting new accountabilities for their work. Early in 1997, we implemented a massive change of operations that allowed us to double our sleeper team operations and utilize the railroads for a greater ______________________________________________________________________________ The cost reduction and efficiency programs offset a 3.8 percent increase in Teamster wages and benefits... Productivity and asset utilization improved through programs that implement and sustain best practices. -14- 18 percentage of our shipments. By year-end, we were placing approximately 28 percent of our total over-the-road mileage on the rail, up from about 18 percent before the change. Using sleeper teams and intermodal rail created a more cost effective way to move our customers' products. As the railroads correct their highly publicized service problems, intermodal will become an even more important advantage. The focus on cost is balanced by a concerted effort to price our service more astutely. We are increasingly successful in realizing appropriate value for our services. Yellow Freight was the first major carrier to announce a pricing increase in 1997. The October 15 implementation broke with past tradition of year-end increases in an effort to establish a more beneficial pricing cycle for both shippers and carriers. After an extended period in which the market undervalued LTL transportation services, pricing is now moving toward more rational levels. Another significant part of the story at Yellow Freight is the smart use of information technology -- computers and sophisticated communications systems. Technology differentiates us from the competition. Major shippers are seeking transportation partners who can meet their demands for time definite appointments, responsive shipment tracking, accurate invoicing and highly flexible service. Technology innovation puts Yellow Freight in a position to earn a larger share of their business. Much of the technology investment to date at Yellow Freight has been centered around our Customer Satisfaction Centers. We now have nearly 400 highly trained customer satisfaction representatives backed by communications systems that allow them to take most of our calls for shipment pickups in addition to a number of other critical service functions. The Customer Satisfaction Centers are proving to be valuable sales and service facilities. Global focus is another point of competitive difference for Yellow Freight. Today's emphasis on international partnerships is putting a premium on transportation services that span oceans and borders. While international business contributed about $100 million in 1997 revenues, that amount is projected to grow to $200 million by the year 2000. _______________________________________________________________________________ Using sleeper teams and intermodal rail created a cost-effective way to move our customers' products... We are increasingly successful in realizing appropriate value for our services... Technology differentiates us from the competition. -15- 19 Regional Portfolio Meets Growing Market Demand. A key strategic objective for Yellow Corporation is to maintain a diverse portfolio of transportation service companies, each with competitive advantages in their respective market niches. Our regional operating companies -- Preston Trucking Company, Saia Motor Freight Line and WestEx -- are helping us fulfill that strategic objective through their focus on overnight and second-day service. Regional LTL transportation service will remain a high-growth market for the foreseeable future due to a continuing shift in the way products are distributed and manufactured. Our regional carriers are positioned to profit from this trend. Saia is now one of the country's top regional carriers, posting 16 to 18 percent average annual growth rates in recent years. Saia finished 1997 with revenue of $311.2 million, up nearly 18 percent from 1996 revenue of $264.3 million. The operating ratio was 93.7, a significant improvement from the 1996 ratio of 95.9. As the top line has grown at Saia, our focus has shifted to the bottom line. We are pleased with the margin improvements at Saia and expect further progress in 1998 thanks to implementation of productivity initiatives that have proven successful at Yellow Freight. Productivity Initiatives Also are Being Implemented at Preston Trucking and WestEx. In 1997, Preston Trucking experienced its first profitable year since 1990. Operating income during 1997 was $0.1 million, compared with a $5.8 million operating loss in 1996. Revenue was $450.5 million, compared with $417.6 million in 1996. In 1998, Preston Trucking will continue to focus on productivity and better utilization of assets in its drive for meaningful and necessary profitability. WestEx is one of the country's fastest growing regional carriers, recording revenue of $49.0 million, up from $33.0 million in 1996. Operating income was essentially break-even. WestEx has expanded rapidly in California, Colorado and the _______________________________________________________________________________ A key strategic objective for Yellow Corporation is to maintain a diverse portfolio of transportation service companies... Regional LTL transportation services will remain a high-growth market for the foreseeable future... We are pleased with the margin growth at Saia and expect further progress in 1998. -16- 20 Southwest since it was acquired in 1994. While the expansion will continue, the focus will now expand to include margin improvement and service enhancements through partnerships and alliances with other carriers. Market Focus Sets New Performance Expectations. All the operating companies are developing services that help our customers satisfy their customers. Flawless execution and exceptional service are the order of business today. Timely pickups and deliveries, customized and highly flexible service and accurate documentation are only a few of the demands we must meet. There are plenty of options available to our customers if we don't execute the way they expect. Yellow Freight is introducing new value-added services. Innovations such as freight protection services, credit card payment and service guarantees will set new performance expectations in our industry. At Preston Trucking, a new program called Preston Plus gives frequent shippers a premium service package that includes incentives for greater business volume. Saia is unveiling similar marketing concepts including customized, expedited service tailored to customers in specific industries. Our technology investment is making us better. It is giving us information that allows us to deploy new market intelligence systems and target more profitable market segments. And finally, we are rolling out aggressive new incentive compensation plans that reward increased profitable sales at each of our companies. The Outlook is Bright. We are creating a high-performance culture at all the Yellow Corporation companies. It is characterized by compensation and other reward systems that direct our attention to the customer and his or her needs. We proved in 1997 that pay for performance works. That philosophy will expand further in 1998 with programs that _______________________________________________________________________________ All the operating companies are developing services that help our customers satisfy their customers... Innovations such as freight protection services, credit card payment and service guarantees will set new performance expectations in our industry. -17- 21 nurture an entrepreneurial environment and focus our employees on satisfying customer needs and improving returns for our shareholders. We will continue to hold the line on our cost structure in the belief that it is an important competitive advantage. We hope to widen further the low cost advantage enjoyed by Yellow Freight among its peer group companies. Productivity improvements and cost reductions will not come at the expense of revenue growth and profitability. We will concentrate efforts on new growth opportunities. We will also consider growth through acquisition. Our improved balance sheet increases our flexibility to be opportunistic. As shareholders, you should know that your workforce is proud and determined -- dedicated to making the extraordinary seem ordinary. They accomplished much in the past year and even better things lie ahead. Last year, we noted that the rigors of competition and the marketplace were redefining our industry. Today, that picture is well defined. We know what it takes to thrive and prosper. It takes a portfolio of companies with sharp market focus. It takes revenue and profit growth. It takes services that create competitive advantage. And it takes a high-performance culture that rewards team and individual contributions. All these factors create shareholder value. And that remains our top priority for 1998 and beyond. Sincerely, A. Maurice Myers Chairman of the Board President and Chief Executive Officer Yellow Corporation [PICTURE OF A. MAURICE MYERS] -18- 22 TABLE OF CONTENTS 20 Management's Discussion and Analysis An in-depth look at comparative year-to-year financial and operating performance. 28 Financial Summary Selected financial data is reported on a five-year comparative basis. 30 Consolidated Financial Statements and Notes Financial results and notes on significant accounting policies and issues affecting financial results. 45 Report of Independent Public Accountants A report by Arthur Andersen LLP. 48 Officers A roster of senior officers. 46 Supplementary Information Additional information of interest. 49 Directors A portrait and listing of the board of directors. -19- 23 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations 1997 vs. 1996 Operating revenue for Yellow Corporation (the company) totaled $3.35 billion in 1997, up 9.0 percent from $3.07 billion in 1996. Operating income for the year was $98.7 million, more than triple the $32.6 million recorded in 1996, excluding a special charge. The fourth quarter 1996 special charge pertained to restructuring of Yellow Freight System, Inc. (Yellow Freight) and was $46.1 million before income taxes ($28.3 million after income taxes). Net income for 1997 was $52.4 million, or $1.86 basic earnings per share ($1.83 diluted), versus 1996 net income of $1.1 million excluding the special charge. Including the fourth quarter special charge, Yellow Corporation recorded a 1996 net loss of $27.2 million, or $.97 per share. The fourth quarter special charge is discussed further in the notes to the consolidated financial statements. Improved profitability resulted primarily from pricing strength, volume increases, and aggressive cost reduction and productivity strategies. Yellow Freight achieved $145 million in cost savings in 1997 from programs implemented in 1996 and 1997, which are targeted to grow in 1998 to a $180 million run-rate benefit. In 1998, another $50 million in savings from new cost reduction and efficiency programs will extend beyond Yellow Freight and include all the operating subsidiaries. At Yellow Freight, 1997 operating income rose to $82.7 million, more than double the 1996 operating income of $36.1 million, before the special charge. Revenue for 1997 was $2.54 billion, up 7.7 percent from $2.36 billion in 1996. The 1997 operating ratio for Yellow Freight was 96.7 compared with 98.5 in 1996, excluding the special charge. Yellow Freight tonnage and shipments per day during 1997 were up 4.3 percent and 9.7 percent respectively. During the third quarter revenue benefited from a two-week Teamsters strike against UPS which caused a surge in high-cost, smaller shipments. During the fourth quarter, revenue weakened somewhat, due in large part to freight diversion resulting from concerns of some shippers over Yellow Freight's ongoing contract talks with the Teamsters, and the possibility of a strike at contract expiration, March 31, 1998. Yellow Freight reached tentative agreement on a five-year contract in February 1998. During 1997, Yellow Freight revenue per ton was up 4.2 percent due to an improved pricing environment. Cost per ton was up only 2.1 percent as cost reduction, productivity and asset utilization strategies were material factors in offsetting a 3.8 percent (approximately $44 million) increase in Teamster wages and benefits effective April 1, 1997. The 4.2 percent increase in revenue per ton resulted from individually negotiated price increases with contractual customers as well as general rate increases, which apply to customers without contracts. The general rate increases averaged 5.2 percent in January 1997 and 4.9 percent in October 1997. In addition, Yellow Freight maintained a separate fuel surcharge program. Yellow Freight's cost savings in 1997 of $145 million compared to cost savings in 1996 of $75 million. The savings resulted from continuation of programs implemented in 1996, a 1997 change of operations and other 1997 programs. The programs achieved productivity and efficiency gains through best practices and increased use of technology, lower personnel complement, centralized purchasing benefits and other items. The change of operations in April 1997, enabled an increase in the use of rail transportation from 18 percent to approximately 28 percent of over-the-road miles. The increased use of rail lowered operating expenses and improved the company's asset utilization and return on capital. The company is now able to operate with fewer linehaul tractors. Operating results include $5.6 million of costs to implement the change in operations. Yellow Freight salary, wages and employee benefits improved as a percentage of revenue, despite the -20- 24 scheduled union wage increase. The improvement resulted from cost reduction initiatives and increased use of rail transportation. Increased use of rail drove the increase in purchased transportation and contributed to the decline in depreciation and other expenses between years. The average age of owned linehaul units slightly decreased, but the average age of city units slightly increased. Favorable accident experience contributed to the decline in claims and insurance. A rise in cargo loss and damage somewhat offset the favorable impact. Fuel prices generally declined as did fuel surcharge revenue. Saia Motor Freight Line, Inc. (Saia) continued its strong growth with 1997 operating income of $19.6 million, up from $10.8 million in 1996. Saia continued to build lane density in 1997. Revenue for 1997 was $311.2 million, up 17.7 percent from $264.3 million in 1996. Total tonnage increased 10.6 percent, while revenue per ton improved 6.5 percent. Saia's operating ratio for 1997 was 93.7 compared with 95.9 in 1996. Despite the 10.6 percent increase in tonnage, cost per ton increased only 4.0 percent. Saia achieved a nine percent improvement in pick-up and delivery productivity that helped offset higher wage rates. An improved safety program, better accident record and cargo claims prevention program held claims and insurance costs down. Purchased transportation and rentals provided additional capacity to manage business volume surges. Preston Trucking Company, Inc. (Preston Trucking) reported 1997 operating income of $0.1 million, compared with a $5.8 million operating loss in 1996. Revenue for 1997 was $450.5 million, up 7.9 percent from $417.6 million in 1996. Preston Trucking focused on pricing discipline, improved marketing and improvements in labor productivity in 1997. Tonnage per day increased 4.5 percent in 1997. Revenue per ton improved 3.9 percent over 1996, while cost per ton increased 2.2 percent over 1996. Results in 1996 were adversely impacted by severe winter weather in the Northeast and upper Midwest and shipper uncertainty regarding a union vote on a company proposal to freeze wages. While operating profit in 1997 was small, it represents the first such profit for Preston Trucking since 1990 and a major improvement over 1996. The success of a recently implemented network reengineering plan and the 1998 Teamster contract renewal negotiations will be key to improving profitability to meaningful and necessary levels. As part of its December 1997 change of operations, Preston Trucking reduced the number of terminals from 69 to 62. The linehaul network redesign was engineered to reduce handlings and achieve other cost reductions and productivity gains. Preston Trucking hopes to achieve net savings of $15 million. Implementation costs were not significant in 1997. Implementation costs, primarily relocation and operating lease payments, are expected to total $1- $2 million in 1998 and be partially offset by gains on excess real estate. Under the wage freeze plan approved by its union employees in 1996, Preston Trucking did not raise union wages on April 1, 1997. Preston Trucking wages are 8.9 percent below full-scale pay levels. Health, welfare and pension benefit costs, however, increased by 8.2 percent on April 1, 1997. Preston Trucking's labor agreement extends until March 31, 1998. WestEx, Inc. (WestEx) continued its rapid growth during 1997, reporting revenue of $49.0 million, up 48.6 percent from $33.0 million in 1996. WestEx reported a small operating loss for the year and is expected to turn profitable in 1998 as it continues to grow. Corporate earnings also benefited from lower nonoperating expenses. Long-term debt at year-end 1997 was $163.1 million, a reduction from $192.5 million at year-end 1996 and $341.6 million at year-end 1995. Debt reduction programs since year-end 1995 resulted in a reduction in interest expense of $7.5 million between 1996 and 1997. Additionally, -21- 25 other nonoperating items, primarily gains on sales of real estate, contributed to favorable variances of $3.0 million in the fourth quarter and $3.7 million year-to-date. 1996 vs. 1995 Operating revenue in 1996 totaled $3.07 billion for the company, essentially unchanged from the $3.06 billion in 1995. The company recorded a net loss of $27.2 million, or $.97 per share, which included a $46.1 million special charge ($28.3 million after taxes) incurred by Yellow Freight, the company's largest subsidiary. The charge included the write down of certain nonoperating real estate and computer software assets, an early retirement program, the reduction of a company car program and other organizational design impacts, primarily severance. Excluding the special charge, the company had 1996 net income of $1.1 million compared to a net loss of $30.1 million in 1995. Management and organizational changes designed to sharpen customer focus and improve profitability at Yellow Freight preceded the special charge. Over a four-month period nearly every facet of the organization was thoroughly examined. In early December 1996 Yellow Freight announced it was restructuring. Overall the organizational design changes established the foundation for additional service improvements and cost reductions in all phases of Yellow Freight's future performance. The notes to the consolidated financial statements describe the charge further. Yellow Freight's revenue was $2.36 billion, down 0.3 percent from 1995. The operating ratio, before the special charge impact, improved from 100.1 in 1995 to 98.5. Including the special charge, the operating ratio was 100.4. Tonnage declined by 2.8 percent while revenue per ton increased by 2.4 percent. The tonnage decline was due to market forces and Yellow Freight's efforts to improve pricing stability. In January 1996, Yellow Freight implemented a general rate increase averaging 5.8 percent which applied to its customers who do not have term contracts. The 1996 revenue per ton improvement would have been greater but the intense price discounting experienced in the second half of 1995 resulted in the January 1996 rate increase being calculated on a depressed rate base. Revenue at Yellow Freight also increased from a fuel surcharge program implemented in September 1996 to offset higher fuel costs. Yellow Freight's less-than-truckload (LTL) revenue per hundredweight in the fourth quarter of 1996 was 4.7 percent higher than the fourth quarter of 1995. Benefiting from aggressive cost reduction programs, operating expenses for Yellow Freight on a per ton basis were up only 0.6 percent in 1996. This was in spite of higher fuel costs throughout the year, severe winter weather experienced in the first quarter and a 3.8 percent increase on April 1 in union wages and benefits. Higher productivity, including an improvement in load average, helped moderate other increases in operating costs. The improvement in load average was especially evident when compared to the last half of 1995. Load average trended down significantly in that period due to the transit time improvement program implemented in the third quarter of 1995. As this program was adjusted, the downtrend in load average was reversed and by the end of the second quarter of 1996 had substantially improved to levels being achieved prior to the program. A series of focused cost reduction initiatives were begun at the end of 1995 which included employee reductions, general and administrative expense cutbacks, the implementation of a "best practices" program and a variety of other initiatives. The best practices program involves the use of those procedures being practiced at the most successful terminals throughout the network. During 1996 these programs achieved a targeted $75 million in cost reductions and benefited future years by a greater amount. -22- 26 During 1996 price increases in fuel cost Yellow Freight about $15 million. A fuel hedging program and the fuel surcharge offset these additional costs. Preston Trucking had operating revenue of $418 million in 1996, a 1.5 percent increase over the $411 million recorded in 1995. The operating ratio for Preston Trucking in 1996 was 101.4, the same as in the prior year. Preston Trucking was adversely impacted by the severe winter weather in the first quarter of 1996 because of the concentration of its business in the Northeast and upper Midwest. In addition, first quarter results suffered from shipper uncertainty regarding a union vote on a company proposal to freeze wages, which at that time were already 5.0 percent below full contract rates. In February, union members approved the wage proposal enabling Preston Trucking to avoid a 1.8 percent wage increase scheduled to be effective April 1, 1996, thus increasing the discount from full rates to 6.8 percent. Health, welfare and pension costs for union employees were not frozen and increased 9.0 percent on April 1, 1996. In the second quarter, a new management team took over at Preston Trucking. As the year progressed Preston Trucking's results improved and were stronger than comparable 1995 periods. Preston Trucking recorded an operating ratio of 99.4 in the second half of the year, a 3.7 point improvement over the ratio in the last half of 1995. Nonunion employee turnover, which had been a significant problem, also improved dramatically to more reasonable levels. Preston Trucking's revenue per ton improved 3.0 percent in 1996 over 1995. The improvement largely occurred in the second half of the year due to specific rate actions and programs to improve revenue quality. Preston Trucking implemented a fuel surcharge in June and a general rate increase that averaged 5.2 percent in late November. LTL revenue per ton was up 6.6 percent in the fourth quarter of 1996 compared to the fourth quarter of 1995. Preston Trucking was also able to offset higher fuel costs through a combination of a fuel hedging program and the fuel surcharge. Saia grew at double-digit rates in 1996 recording revenue of $264 million compared to 1995 revenue of $210 million, an increase of 26.1 percent. Total tonnage increased by 17.4 percent with LTL tonnage up 24.6 percent and truckload tonnage up 1.9 percent. The higher revenue and tonnage resulted from the full year impact of Saia's significant growth in geographical coverage during 1994 and 1995 as well as an overall improvement in lane density. Saia also benefited from a 7.4 percent improvement in revenue per ton partially due to a 2.4 percent increase in LTL revenue per hundredweight as well as a higher concentration of LTL freight in the freight mix. Saia's operating ratio improved to 95.9 compared to 96.3 in 1995. The improved yield was partially offset by higher salaries and wages that went from 58.8 percent of revenue to 59.8 percent of revenue in 1996 due to wage increases and a higher mix of LTL freight. Higher fuel cost and increases in claims and insurance expense were offset by lower purchased transportation expense that declined due to the purchase of additional equipment and better asset utilization. WestEx the company's only other operating subsidiary, continued to enjoy rapid growth, almost doubling its annual revenue to $33 million in 1996. Corporate interest expense declined from $23.4 million to $21.0 million primarily due to lower borrowing levels. 1995 vs. 1994 Operating revenue for Yellow Corporation totaled $3.06 billion in 1995, up 6.6 percent from $2.87 billion in 1994. The increase in revenue primarily resulted from the recovery of lost revenue due to the 24-day labor strike in 1994 by the International Brotherhood of Teamsters (Teamsters) against Yellow Freight. Excluding the impact of the strike, operating revenue increased only nominally due to other volume gains being substantially offset by lower prices. The -23- 27 lower prices resulted from competitive discounting and industry overcapacity. The company had a net loss of $30.1 million, or $1.07 per share in 1995, compared to the strike-induced net loss of $7.9 million, or $.28 per share, in 1994. The 1995 loss resulted from the deterioration in prices and a variety of cost increases. The cost increases in general involved the following areas: annual labor cost increases; increased expenses resulting from service enhancements; corporate development costs including business expansions at Saia and WestEx; and certain nonrecurring costs. Yellow Freight's revenue was $2.36 billion in 1995, an increase of 6.4 percent over 1994. Yellow Freight experienced deterioration in its operating ratio from 99.2 in 1994 to 100.1 in 1995. Tonnage increased 7.7 percent, demonstrating the recovery of business from the strike-impacted 1994 levels, although rate increases were more than offset by price discounting with LTL revenue per hundredweight declining by 1.5% in 1995. On April 1, 1995, union wages and benefits increased approximately 3.2 percent. In addition, Yellow Freight incurred higher expenses in the third and fourth quarters when it implemented a transit time improvement program. For 1995 compared to 1994, transit times improved by approximately one day, resulting in higher costs associated with a 5.7 percent lower load average and a 14.0 percent increase in total linehaul miles. Some cost savings were obtained by an increase in direct loadings that reduced rehandlings by 8.7 percent. Additional savings were achieved through an increased use of rail transportation from 13.1 percent of total miles in 1994 to 17.5 percent in 1995, and the elimination of forced overtime for dockworkers, both provisions of the 1994 labor contract. Through reengineering and the use of new technology, Yellow Freight began achieving administrative cost reductions in 1995 by consolidating customer service and cashiering functions from its individual terminals into two centralized locations. Preston Trucking had revenue of $411 million, a decrease of 1.3 percent from 1994. Preston Trucking's operating ratio in 1995 was 101.4 compared to 101.3 in 1994. The 1994 performance was subject to severe winter weather, impacts from the second quarter strike, including benefits from an early return to work, and shipper uncertainty concerning a wage reduction process, all of which did not recur in 1995. However, 1995 was subject to severe industry-wide price discounting as well as a relatively greater labor cost increase. Improved productivity, positive cargo claims experience and reductions in purchased transportation expense contributed to offsetting the higher wage and benefit costs. Saia revenue grew 17.7 percent to $210 million due to geographical expansions in several states in 1994 and 1995. Saia's operating ratio increased to 96.3 in 1995 from 93.5 in 1994. Saia was impacted by industry price discounting, but increased wages and the impacts of the expansions primarily caused the margin deterioration. The deregulation of intrastate markets in January 1995 also increased competition in Louisiana and Texas, where Saia held operating rights advantages. This was partially offset by new access for Saia in various other states' intrastate markets. The remaining operating entities of the company comprised less than 3 percent of consolidated 1995 revenue and include Yellow Logistics Services, Inc. (Yellow Logistics), CSI/ Reeves, Inc. (CSI), WestEx and the Yellow Corporation holding company. During 1995, Yellow Logistics was realigned and CSI was sold. WestEx expanded from its traditional Arizona and New Mexico market into California. Corporate interest expense increased from $18.4 million in 1994 to $23.4 million in 1995 due to increased debt levels, primarily resulting from lower net income, increased working capital requirements, and capital expenditures. Accounts receivable days outstanding increased at Yellow Freight due to both -24- 28 market forces and transition implementation issues related to a new system for customer billing and stating. The fourth quarter 1995 results included a nonrecurring charge of $6.6 million after taxes, or $.23 per share, pertaining to implementation of cost reduction programs, the realignment of Yellow Logistics and other expenses primarily related to severance costs. FINANCIAL CONDITION The company's liquidity needs arise primarily from capital investment in new equipment and information technology, and funding working capital requirements. Working capital increased from a negative $34 million at year-end 1996 to a negative $22 million at year-end 1997. The company can operate with negative working capital because of the quick turnover of its accounts receivable and its ready access to sources of short-term liquidity. To ensure short-term liquidity, the company maintains capacity under a bank credit agreement and an asset-backed securitization (ABS) agreement involving Yellow Freight's accounts receivable. The $300 million bank credit agreement expires in September 2001. This facility is also used to provide letters of credit. Approximately $227 million remained available under the facility at year-end 1997 versus $145 million available under the predecessor $200 million facility at year-end 1996. Capacity of $132 million remained available under the ABS agreement at year-end 1997 versus $105 million available at year-end 1996. Access to the ABS agreement, however, is dependent on the company having adequate eligible receivables, as defined under the agreement, available for sale. The agreement permits the sale of accounts receivable to a wholly owned special purpose corporation, which in turn, sells an undivided interest to a third party affiliate of the bank. Funds raised by this method are less expensive to the company than issuing commercial paper. Finally, the company also expects to continue to have access to the commercial paper market and to short-term unsecured bank credit lines. Projected net capital expenditures for 1998 are $164 million, an increase over $88 million in 1997 net capital expenditures. Net capital for both periods pertain primarily to replacement of revenue equipment at all subsidiaries, growth capital at Saia and WestEx, and additional investments in information technology. Net capital expenditures in 1996 totaled only $46 million, down from $140 million in 1995. Actual and projected net capital expenditures are summarized below (in millions):
Actual Actual Actual Projected 1998 1997 1996 1995 Land and structures: Additions $22 $12 $11 $13 Sales (15) (26) (10) (16) Revenue equipment 105 81 26 74 Technology and other 52 21 19 69 Total $164 $88 $46 $140
-25- 29 During 1997 the company trimmed $30.4 million in debt. At year-end 1997 total debt was $166 million. This reduction followed a decline in total debt from $354 million at year-end 1995 to $196 million at year-end 1996. Strong operating cash flows, even after a $27 million reduction in amounts under the ABS agreement, and proceeds from the disposal of excess real estate, were sufficient to fund capital additions and the debt reduction. Debt reduction was a priority at the company beginning in 1996. Management committed to achieving debt reductions of at least $100 million by year-end 1996. Historically, the company has generated strong cash flows from operating activities. The 1996 decrease in capital spending described above provided the largest source of funding for debt paydown in 1996. A portion of the reduction was also achieved through the 1996 sale of $45 million under the ABS agreement. Additionally, in 1996 the company received a federal income tax refund totaling $45 million and repatriated approximately $23 million from a Canadian subsidiary. Management believes its current financial condition and access to liquidity is adequate for current operations. Additionally, given the debt reductions and the company's access to new sources of capital, management believes the company has increased flexibility to respond to future growth opportunities, possibly including acquisitions. OTHER The company has developed a plan to ensure its information systems are compliant with the requirements to process transactions in the year 2000. The company is also communicating with customers, suppliers and others to coordinate year 2000 conversion. The majority of the Company's internal systems have been, or are in the process of being, replaced or modified to be fully compliant. Currently, management believes the modifications of existing systems, and the replacement of other systems, will be largely complete by the end of 1998. The remaining costs of modifications expected to be expensed are currently estimated at $8 - $10 million. The company periodically uses heating oil instruments, currently swaps and option agreements, to manage a portion of its exposure to fluctuations in diesel prices. These programs are discussed further in the notes to consolidated financial statements. Since September 1996, the company has reduced its reliance on these programs due to implementation of a fuel surcharge program that adjusts revenue for increases above a defined market benchmark. The company initiated a "pay for performance" incentive compensation plan that rewards employees based on operating income and return on capital goals. Consolidated results include pay for performance accruals for nonunion employees of $25.9 million of which approximately $18.6 million pertains to Yellow Freight. Comparable performance incentive accruals for the 1996 period were $2.2 million. In 1997, the company granted options on 1.4 million shares, after an initial grant of 1.5 million shares in 1996 under a newly adopted stock option program. As of December 31, 1997, approximately 170 key management personnel hold options on shares. Management believes the program better aligns compensation to shareholder performance. As summarized in the notes to the consolidated financial statements, currently options are outstanding on approximately 2.4 million shares at an average exercise price of $17.75 per share. Yellow Corporation announced December 16, 1997, that its Board of Directors authorized the repurchase of shares of the Company's outstanding common stock with an aggregate purchase price of up to $25 million. Through January 31, 1998, 520,500 shares had been repurchased for $11.8 million at an average price of $22.75 per share. -26- 30 The effective income tax rate was 41.2 percent in 1997, (20.8) percent in 1996 and (33.1) percent in 1995. The notes to consolidated financial statements contain an analysis of the income tax provision and the effective tax rate. The 1996 income tax benefit was offset by a $3.1 million charge resulting from a $23 million cash dividend from Canadian operations used to pay down debt. OUTLOOK The LTL trucking industry remains highly competitive and the company intends to continue to improve its shareholder returns through aggressive cost management, improved asset utilization and an increased focus on marketing and customer service. While the company has realized large benefits from cost reduction programs in 1996 and 1997, management believes cost reduction programs represent a continuous opportunity for improvement in the future. In 1998 and future years, management plans to extend the programs which have been successful at Yellow Freight to the other operating companies while pursuing new initiatives at Yellow Freight. The 1998 cost reduction initiatives primarily pertain to increased labor productivity at Yellow Freight and Saia, as well as the change of operations at Preston Trucking. Management believes that future earnings growth not only requires cost management programs but also improved revenue. Thus, marketing is a priority at all the subsidiaries. All subsidiaries must be focused on providing high service and value added solutions for customers. Subsidiaries must be focused on targeting profitable growth segments. Yellow Freight, as a member of a group representing a number of major motor carriers in labor contract negotiations, reached a five-year agreement with the Teamsters in February 1998, subject to ratification. Preston Trucking bargains independently. Preston Trucking currently operates under a wage concession agreement with the Teamsters which expires March 31, 1998, and currently provides for an 8.9% reduction from full scale wages. Preston requires a continued substantial reduction in order to effectively compete, the specific terms of which will be subject to separate negotiation and ratification. The success of a recently implemented network reengineering plan and the Teamster contract renewal negotiations will be key to improving Preston Trucking's profitability to meaningful and necessary levels. Saia plans continued revenue growth and margin improvement. Saia will continue to focus on yield management and building density in key markets while implementing cost improvement programs. FORWARD LOOKING STATEMENTS Statements contained in and preceding management's discussion and analysis, that are not purely historical, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the company's expectations, hopes, beliefs and intentions on strategies regarding the future. It is important to note that the company's actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including but not limited to inflation, volatility of expenses, inclement weather, the results of Teamster contract negotiations, competitor pricing activity and a downturn in general economic activity. -27- 31 FINANCIAL SUMMARY Yellow Corporation and Subsidiaries (amounts in thousands except per share data)
1997 1996 1995 1994 1993 For the Year: (a) (b) (c) Operating revenue $3,348,868 $3,072,550 $3,056,640 $2,867,492 $2,856,505 Income (loss) from operations 98,731 (13,515) (21,588) 11,011 53,893 Depreciation 119,018 130,098 135,265 133,970 132,371 Interest expense 13,546 21,036 23,395 18,433 17,668 Income (loss) before income taxes 89,165 (34,301) (45,021) (3,375) 35,358 Income (loss) before extraordinary item 52,435 (27,180) (30,122) (3,848) 18,801 Net income (loss) 52,435 (27,180) (30,122) (7,906) 18,801 Net cash from operating activities 116,686 197,521 44,166 157,448 138,802 Capital expenditures, net 87,505 46,358 140,254 150,940 66,786 at year-end: Net property and equipment 786,309 812,690 921,848 918,101 892,600 Total assets 1,270,812 1,227,807 1,434,897 1,307,221 1,265,654 Long-term debt 163,080 192,492 341,648 240,019 214,176 Total debt 165,705 196,153 353,573 247,760 226,503 Shareholders' equity 445,851 395,700 422,677 460,843 486,453 Measurements: Basic per share data: Income (loss) before extraordinary item 1.86 (.97) (1.07) (.14) .67 Net income (loss) 1.86 (.97) (1.07) (.28) .67 Cash dividends per share - - .47 .94 .94 Shareholders' equity per share 15.86 14.08 15.04 16.40 17.31 Debt to capital ratio 27 33 46 35 32 Return on average shareholders' equity 12.5% (6.6)% (6.8)% (1.7)% 3.9% Market price range: High 34 1/8 16 3/8 24 3/8 30 1/4 29 7/8 Low 14 1/8 10 1/4 11 7/8 16 3/4 16 7/8 Average number of employees 34,400 34,100 34,700 33,400 35,000
(a) 1996 results include a special charge of $28.3 million after taxes resulting from the write down of certain nonoperating real estate and computer software assets, an early retirement program, the reduction of a company car program and other organizational design impacts, primarily severance. (b) 1994 results include the effect of a 24-day Teamster strike at Yellow Freight System. (c) 1993 amounts include the operating results of Preston Corporation effective March 1, 1993. The 1993 results also include a network development charge of $11.2 million after taxes and a charge of $1.6 million to reflect the impact of a higher tax rate on the company's deferred tax liabilities. -28 and 29- 32 CONSOLIDATED BALANCE SHEETS Yellow Corporation and Subsidiaries December 31, 1997 and 1996 (amounts in thousands except per share data)
Assets 1997 1996 CURRENT ASSETS: Cash $19,793 $24,800 Accounts receivable, less allowances of $15,800 and $13,819 349,999 280,758 Fuel and operating supplies 16,528 15,426 Refundable income taxes 9,569 6,150 Prepaid expenses 62,872 62,874 Total current assets 458,761 390,008 PROPERTY AND EQUIPMENT: Land 120,713 120,172 Structures 576,636 607,104 Revenue equipment 991,439 963,442 Technology equipment and software 154,084 141,165 Other 137,452 133,915 1,980,324 1,965,798 Less - Accumulated depreciation 1,194,015 1,153,108 Net property and equipment 786,309 812,690 OTHER ASSETS 25,742 25,109 $1,270,812 $1,227,807
The notes to consolidated financial statements are an integral part of these balance sheets. -30- 33
Liabilities and Shareholders' Equity 1997 1996 CURRENT LIABILITIES: Checks outstanding $80,852 $75,250 Accounts payable 85,601 76,288 Wages, vacations, and employees' benefits 164,982 132,255 Deferred income taxes 25,745 17,658 Claims and insurance accruals 82,532 79,541 Other current and accrued liabilities 38,498 39,052 Current maturities of long-term debt 2,625 3,661 Total current liabilities 480,835 423,705 OTHER LIABILITIES: Long-term debt 163,080 192,492 Deferred income taxes 30,341 31,555 Claims, insurance and other 150,705 184,355 Total other liabilities 344,126 408,402 SHAREHOLDERS' EQUITY: Series A $10 Preferred stock, $1 par value- authorized 750 shares - - Preferred stock, $1 par value- authorized 4,250 shares - - Common stock, $1 par value-authorized 120,000 shares, issued 29,289 and 28,863 shares 29,289 28,863 Capital surplus 13,868 6,745 Retained earnings 429,700 377,712 Treasury stock, at cost (1,172 and 752 shares) (27,006) (17,620) Total shareholders' equity 445,851 395,700 $1,270,812 $1,227,807
-31- 34 STATEMENTS OF CONSOLIDATED OPERATIONS Yellow Corporation and Subsidiaries for the years ended December 31 (amounts in thousands except per share data)
1997 1996 1995 OPERATING REVENUE $3,348,868 $3,072,550 $3,056,640 OPERATING EXPENSES: Salaries, wages and employees' benefits 2,160,654 2,040,950 2,051,277 Operating expenses and supplies 493,465 472,413 473,356 Operating taxes and licenses 113,022 113,942 115,120 Claims and insurance 74,118 74,931 70,376 Communications and utilities 42,019 42,740 44,412 Depreciation 119,018 130,098 135,265 Purchased transportation 247,841 164,853 188,422 Special charge - 46,138 - Total operating expenses 3,250,137 3,086,065 3,078,228 INCOME (LOSS) FROM OPERATIONS 98,731 (13,515) (21,588) NONOPERATING (INCOME) EXPENSES: Interest expense 13,546 21,036 23,395 Interest income (1,217) (2,287) (2,100) Other, net (2,763) 2,037 2,138 Nonoperating expenses, net 9,566 20,786 23,433 INCOME (LOSS) BEFORE INCOME TAXES 89,165 (34,301) (45,021) INCOME TAX PROVISION (BENEFIT) 36,730 (7,121) (14,899) NET INCOME (LOSS) $52,435 $(27,180) $(30,122) AVERAGE COMMON SHARES OUTSTANDING 28,267 28,110 28,106 BASIC EARNINGS (LOSS) PER COMMON SHARE $1.86 $(.97) $(1.07) DILUTED EARNINGS (LOSS) PER COMMON SHARE $1.83 $(.97) $(1.07)
The notes to consolidated financial statements are an integral part of these statements. -32- 35 STATEMENTS OF CONSOLIDATED CASH FLOWS Yellow Corporation and Subsidiaries for the years ended December 31 (amounts in thousands)
1997 1996 1995 OPERATING ACTIVITIES: Net income (loss) $52,435 $(27,180) $(30,122) Noncash items included in net income (loss): Depreciation 119,018 130,098 135,265 Special charge - 46,138 - Deferred income tax provision (benefit) 7,509 (26,481) 29,641 Changes in assets and liabilities, net: Accounts receivable (42,241) (1,944) (34,064) Accounts receivable securitizations, net (27,000) 45,000 - Accounts payable and checks outstanding 14,915 (3,115) 40,273 Other working capital items 30,647 30,661 (82,593) Claims, insurance and other (33,650) (245) (3,437) Other, net (4,947) 4,589 (10,797) Net cash from operating activities 116,686 197,521 44,166 INVESTING ACTIVITIES: Acquisition of property and equipment (118,189) (58,384) (163,426) Proceeds from disposal of property and equipment 30,684 12,026 23,172 Purchases of short-term investments - (1,684) (7,759) Proceeds from maturities of short-term investments - 7,098 9,650 Other, net - - 5,106 Net cash used in investing activities (87,505) (40,944) (133,257) FINANCING ACTIVITIES: Unsecured bank credit lines, net - (9,000) 9,000 Commercial paper, net (11,832) (116,627) 69,510 Proceeds from issuance of long-term debt - - 56,497 Repayment of long-term debt (18,644) (32,011) (24,457) Proceeds from exercise of stock options, net 4,983 - - Treasury stock purchases (8,695) - (1) Cash dividends - - (13,210) Net cash from (used in) financing activities (34,188) (157,638) 97,339 NET INCREASE (DECREASE) IN CASH (5,007) (1,061) 8,248 CASH, BEGINNING OF YEAR 24,800 25,861 17,613 CASH, END OF YEAR $19,793 $24,800 $25,861 Supplemental cash flow information: Income taxes paid (received), net $30,345 $(23,508) $10,793 Interest paid $12,274 $20,642 $21,018
The notes to consolidated financial statements are an integral part of these statements. -33- 36 STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY Yellow Corporation and Subsidiaries (amounts in thousands except per share data)
Shares Held Common Capital Retained by Stock Treasury Stock Surplus Earnings Sharing Plan Stock BALANCE, DECEMBER 31, 1994 $28,858 $6,678 $447,887 $(4,961) $(17,619) Net loss - - (30,122) - - Cash dividends, $.47 per share - - (13,210) - - Reduction of Stock Sharing Plan debt guarantee - - - 4,961 - Other - - 206 - (1) BALANCE, DECEMBER 31, 1995 28,858 6,678 404,761 - (17,620) Net loss - - (27,180) - - Other 5 67 131 - - BALANCE, DECEMBER 31, 1996 28,863 6,745 377,712 - (17,620) Net income - - 52,435 - - Exercise of stock options, including tax benefits 421 7,031 - - - Treasury stock purchases - - - - (9,386) Other 5 92 (447) - - BALANCE, DECEMBER 31, 1997 $29,289 $13,868 $429,700 $- $(27,006)
The notes to consolidated financial statements are an integral part of these statements. -34- 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Yellow Corporation and Subsidiaries PRINCIPLES OF CONSOLIDATION AND SUMMARY OF ACCOUNTING POLICIES The accompanying consolidated financial statements include the accounts of Yellow Corporation and its wholly-owned subsidiaries (the company). All significant intercompany accounts and transactions have been eliminated in consolidation. Management makes estimates and assumptions which affect the amounts reported in the financial statements and footnotes. Actual results could differ from those estimates. The company provides transportation services primarily to the less-than-truckload (LTL) market throughout North America. Principal operating subsidiaries are Yellow Freight System, Inc. (Yellow Freight), Preston Trucking Company, Inc. (Preston Trucking) and Saia Motor Freight Line, Inc. (Saia). Major accounting policies and practices used in the preparation of the accompanying financial statements not covered in other notes to consolidated financial statements are as follows: - - Cash includes demand deposits and highly liquid investments purchased with original maturities of three months or less. All other investments, with maturities less than one year, are classified as short-term investments and are stated at cost which approximates market. - - Fuel is carried at average cost. The company uses heating oil instruments to manage a portion of its exposure to fluctuating diesel prices. Currently under the heating oil swap and option agreements the company receives or makes payments based on the difference between a fixed and a variable price for heating oil. These agreements provide protection from rising fuel prices, but limit the ability to benefit from price decreases below the purchase price of the agreement. At December 31, 1997, the company had agreements on 45.8 million gallons at a fixed cost averaging $.59 per gallon over the next 12 months, representing 29% of total anticipated annual fuel usage. At December 31, 1996, the company had agreements on 31.4 million gallons at a fixed cost averaging $.54 per gallon over the next 11 months, representing 20% of total anticipated annual fuel usage. Based on quoted market prices, the fair value of the hedge position at December 31, 1997 and 1996, was $0.4 million below and $3.1 million above its purchase price. Gains and losses on the agreements are recognized as a component of fuel expense when the corresponding fuel is purchased. Hedge instruments are recorded at cost in fuel and operating supplies. This accounting is used for instruments designated as a hedge of anticipated fuel transactions. The effectiveness of the hedge is periodically evaluated. If the hedge is not highly effective or if the anticipated transaction is subsequently determined unlikely to occur, the unrealized gains and or losses accumulated are recognized immediately in earnings. - - Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on the following service lives:
Years Structures 10 - 40 Revenue equipment 3 - 13 Technology equipment and software 2 - 5 Other 3 - 10
- - Maintenance and repairs are charged to operations currently; replacements and improvements are capitalized. When revenue equipment is traded, the basis of the new equipment is reduced when necessary, if the trade-in allowance exceeds the basis of the old equipment. The gain or loss for all other dispositions is reflected in other nonoperating (income) expense. - - The company's investment in technology equipment and software consists primarily of advanced customer service and freight management communications equipment and related software. -35- 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Yellow Corporation and Subsidiaries continued Principles of Consolidation and Summary of Accounting Policies Continued - - Claims and insurance accruals, both current and long-term, reflect the estimated cost of claims for workers' compensation, cargo loss and damage, and bodily injury and property damage not covered by insurance. These costs are included in claims and insurance expense except for workers' compensation which is included in employees' benefits expense. Reserves for workers' compensation are based upon actuarial analyses prepared by independent actuaries and are discounted to present value using a risk-free rate. The risk-free rate is the U.S. Treasury rate for maturities that match the expected pay-out of workers' compensation liabilities. The process of determining reserve requirements utilizes historical trends and involves an evaluation of claim frequency, severity and other factors. The effect of future inflation for both medical costs and lost wages is implicitly considered in the actuarial analyses. Adjustments to previously established reserves are included in operating results. At December 31, 1997 and 1996, estimated future payments for workers' compensation claims aggregated $144.5 million and $156.5 million. The present value of these estimated future payments was $124.5 million at December 31, 1997, and $130.0 million at December 31, 1996. - - Revenue is recognized on a percentage completion basis while expenses are recognized as incurred. - - The exercise of stock options under the company's various stock option plans gives rise to compensation included in the taxable income of the stock recipient and deducted by the company for federal and state income tax purposes. The compensation results from increases in the fair value of the company's common stock after the date of grant. The compensation is not recognized in expense in the accompanying financial statements. The related tax benefits increase capital surplus. - - Certain reclassifications have been made to the prior year consolidated financial statements to conform with current presentation. DEBT AND FINANCING At December 31, debt consisted of the following (in thousands):
1997 1996 Medium term notes $114,000 $125,000 Commercial paper - 11,832 Industrial development bonds 23,850 26,600 Capital leases and other 3,946 7,113 Subordinated debentures 23,909 25,608 Total debt 165,705 196,153 Current maturities 2,625 3,661 Long-term debt $163,080 $192,492
-36- 39 Debt and Financing Continued The company has a four year $300 million unsecured credit agreement with a group of banks which expires September 24, 2001. The agreement may be used for short-term borrowings or for the issuance of standby letters of credit. Interest on borrowings is based, at the company's option, at a fixed increment over the London interbank offered rate or the agent bank's base rate. Under the terms of the agreement the company must maintain a minimum consolidated tangible net worth and total debt must be no greater than a specified ratio of earnings before interest, income taxes, depreciation and amortization, as defined. At December 31, 1997 and 1996, the company was in compliance with all terms of this credit agreement and its predecessor. At December 31, 1997, there were no borrowings outstanding, but $73 million of letters of credit had been issued under the agreement. There were no borrowings under this credit agreement or its predecessor in 1996. In 1996, the company entered into a $150 million, three year accounts receivable sales agreement with a major bank. The agreement involves the sale of accounts receivable to a wholly owned, special purpose corporation (SPC). The SPC in turn sells an undivided interest in a revolving pool of eligible receivables as funding is required. Under terms of the agreement, the SPC's assets are available to satisfy its obligations prior to any distribution to its shareholders. The company maintains responsibility for processing and collecting all receivables. Accounts receivable at December 31, 1997 and 1996, are net of $18.0 million and $45.0 million of receivables sold. Other, net nonoperating expense includes $2.5 million and $1.2 million of costs associated with this agreement in 1997 and 1996. The company maintains financing flexibility under the credit agreement and the accounts receivable sales agreement. Medium term notes and commercial paper maturing within one year, and intended to be refinanced, are classified as long-term. At December 31, 1997, no commercial paper was outstanding. The weighted average interest rate on commercial paper outstanding at December 31, 1996 was 6.0%. Medium term notes have scheduled maturities through 2008 with interest rates ranging from 5.7% to 9.3%. The company has loan guarantees, mortgages and lease contracts in connection with the issuance of industrial development bonds used to acquire, construct or expand terminal facilities. Interest rates on some issues are variable. Rates on these bonds and other debt currently range from 4.0% to 10.2%, with principal payments due through 2014. The subordinated debentures have an interest rate of 7.0% and are due in installments from 1998 to 2011. The principal maturities of long-term debt for the next five years follow: 1998 - $2,625,000, 1999 - $2,838,500, 2000 - $30,969,500, 2001 -$8,482,500, 2002 - $23,477,500. Based on the borrowing rates currently available to the company for debt with similar terms and remaining maturities, the fair value of total debt at December 31, 1997 and 1996, was approximately $169 million and $193 million. -37- 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Yellow Corporation and Subsidiaries continued EMPLOYEE BENEFITS Certain subsidiaries provide defined benefit pension plans for employees not covered by collective bargaining agreements (approximately 30% of total employees). The benefits are based on years of service and the employees' final average earnings. The company's funding policy is to contribute the minimum required tax-deductible contribution for the year. The plans' assets consist primarily of U.S. Government and corporate fixed income securities and U.S. equities. The pension benefit obligation increased by $12.9 million in 1996 as the result of 130 employees electing an early retirement program described in the Special Charge note. The following tables set forth the plans' funded status and components of net pension cost (in thousands):
1997 1996 Funded status at December 31: Actuarial present value of benefits at current salary levels and service rendered to date: Vested benefits $199,307 $179,196 Non-vested benefits 1,059 1,178 Accumulated benefit obligation 200,366 180,374 Effect of anticipated future salary increases 25,821 24,127 Projected benefit obligation 226,187 204,501 Plan assets at fair value 194,464 169,188 Plan assets less than projected benefit obligation (31,723) (35,313) Unrecognized net gain (17,992) (4,240) Unrecognized initial net asset being amortized over 17 years (13,283) (15,670) Pension cost accrued, not funded $(62,998) $(55,223)

1997 1996 1995 Net pension cost: Service cost - benefits earned during the period $8,561 $9,469 $7,412 Interest cost on projected benefit obligation 15,413 13,478 12,429 Actual return on plan assets (33,092) (20,669) (27,205) Amortization of unrecognized net assets (2,372) (1,965) (2,420) Net deferral 20,387 9,188 16,550 Net pension cost $8,897 $9,501 $6,766 Assumptions used in the accounting at December 31: Discount rate 7.3% 7.5% 7.5% Rate of increase in compensation levels 4.0% 4.0% 5.0% Expected rate of return on assets 9.0% 9.0% 9.0%
-38- 41 Employee Benefits Continued The company contributes to multi-employer health, welfare and pension plans for employees covered by collective bargaining agreements (approximately 70% of total employees). The health and welfare plans provide health care and disability benefits to active employees and retirees. The pension plans provide defined benefits to retired participants. The company charged to expense and contributed the following amounts to these plans (in thousands):
1997 1996 1995 Health and welfare $169,665 $166,124 $160,512 Pension 171,518 152,440 142,906 Total $341,183 $318,564 $303,418
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. This potential unfunded pension liability 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 condition and results of operations. The company's unionized subsidiaries have no intention of taking any action that would subject the company to obligations under the legislation. The company had a Stock Sharing Plan for employees of participating domestic affiliates not covered by collective bargaining agreements. In 1995 this plan merged into another company defined contribution plan. Certain subsidiaries also sponsor defined contribution plans, primarily for employees not covered by collective bargaining agreements. The plans principally consist of noncontributory profit sharing plans and contributory 401(k) savings plans. Company contributions to the profit sharing plans are discretionary and are determined annually by the Board of Directors of each participating company. Contributions for each of the three years in the period ended December 31, 1997, were not material to the operations of the company. The company and its operating subsidiaries each provide annual performance incentive awards to nonunion employees which are based primarily on actual operating results achieved compared to targeted operating results. Operating results in 1997 and 1996 include performance incentive accruals for nonunion employees of $25.9 million and $2.2 million. Performance incentive awards for a year are primarily paid in the first quarter of the following year. STOCK OPTIONS The company has reserved 3.6 million shares of its common stock for issuance to key management personnel of the company and its operating subsidiaries under three stock option plans. The plans permit three types of awards: grants of nonqualified stock options, grants of stock options -39- 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Yellow Corporation and Subsidiaries continued Stock Options Continued coupled with a grant of stock appreciation rights and grants of restricted stock awards. In addition, the company has reserved 100,000 shares of its common stock for issuance to its Board of Directors. Under the plans, the exercise price of each option equals the market price of the company's common stock on the date of grant and the options expire ten years from the date of grant. The options vest ratably, generally over a period of four years. The company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its plans. Had compensation costs been recognized in accordance with Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation, the company would have reported (unaudited pro forma) a $50.4 million net income in 1997 and a $28.0 million net loss in 1996. Basic earnings per share (unaudited pro forma) would have been $1.78 and $1.00 in 1997 and 1996. The unaudited pro forma calculations, were estimated using the Black-Scholes option-pricing model with the following weighted average assumptions.
1997 1996 Dividend yield -% .5% Expected volatility 36.6% 31.9% Risk-free interest rate 6.1% 6.3% Expected option life (years) 3 5 Fair value per option $6.98 $4.69
At December 31, 1997 options on 49,760 shares were exercisable. No options were exercisable at December 31, 1996. The weighted average remaining contract life at December 31, 1997 and 1996 was 9.0 years and 9.5 years. There were no options granted in 1995 and there were no options outstanding at December 31, 1995. A summary of activity in the company's stock option plans is presented below.
Exercise Price Shares Weighted (thousands) Average Range Outstanding at December 31, 1995 - $- $- Granted 1,520 12.24 11.63- 14.00 Exercised - - - Cancelled (10) 12.25 12.25- 12.25 Outstanding at December 31, 1996 1,510 12.24 11.63- 14.00 Granted 1,386 21.73 14.38- 27.00 Exercised (421) 12.10 11.63- 20.63 Cancelled (100) 13.56 12.25- 24.05 Outstanding at December 31, 1997 2,375 17.75 11.63- 27.00
-40- 43 SPECIAL CHARGE In the fourth quarter of 1996, the company's Yellow Freight subsidiary recorded a special charge of $46.1 million, or $28.3 million after taxes. The charge was the result of management and organizational changes designed to sharpen customer focus and improve profitability by reducing operating expenses. As part of these changes Yellow Freight was restructured into five geographic business units designed to decentralize responsibility for critical business processes. A summary of the major components of the charge and subsequent activity follows (amounts in thousands):
Year Ended December 31, 1997 1996 Favorable Paid or Ending Charge Revisions Utilized Balance Write down nonoperating real estate $16,548 $960 $10,348 $5,240 Write off computer software 8,359 - 8,359 - Early retirement program 13,731 - 13,731 - Company car program reduction 3,600 - 3,600 - Severance and organization design 3,900 - 3,716 184 Total charge before taxes $46,138 $960 $39,754 $5,424
As part of the charge a total of 13 parcels of real estate were written down to their estimated fair values, as determined by independent appraisal, less selling costs. Marketing efforts continue on this nonoperating real estate. During 1997 five parcels written down in the charge to $10.2 million were sold for $11.2 million, utilizing a portion of the write down. The write off of computer software related to a portion of the freight management project that was determined to be impaired. In 1996, an early retirement program was announced that offered unreduced retirement benefits to employees over age 55 with at least 20 years of service. The early retirement program charges primarily represent the $12.9 million increase in the pension benefit obligation resulting when 130 employees elected this program. All company car reduction program costs were paid in cash in the first quarter of 1997. The severance and organization design costs related primarily to the layoff of 70 managerial and general office employees. Severance payments are expected to continue through the first quarter of 1998. Revisions to estimates in 1997 were reflected in 1997 nonoperating income. -41- 44 Income Taxes The company accounts for income taxes in accordance with the liability method. Deferred income taxes are determined based upon the difference between the book and the tax basis of the company's assets and liabilities. Deferred taxes are provided at the enacted tax rates expected to be in effect when these differences reverse. Deferred tax liabilities (assets) are comprised of the following at December 31 (in thousands):
1997 1996 Depreciation $92,542 $111,608 Prepaids 15,108 17,711 Employee benefits 38,201 32,842 Revenue 35,835 19,188 Other 6,924 9,511 Gross liabilities 188,610 190,860 Claims and insurance (74,751) (81,261) Bad debts (5,504) (10,995) NOL and AMT credit carryforwards (3,770) (9,492) Employee Benefits (19,428) (20,341) Revenue (17,617) (10,901) Other (11,454) (8,657) Gross assets (132,524) (141,647) Net liability $56,086 $49,213
A reconciliation between income taxes at the federal statutory rate (35%) and the consolidated provision (benefit) follows:
1997 1996 1995 Provision (benefit) at federal statutory rate $31,208 $(12,005) $(15,757) State income taxes, net 2,751 (1,352) (1,592) Nondeductible business expenses 2,594 2,431 3,103 Foreign tax rate differential 599 688 1,082 Repatriation of Canadian earnings, net 400 3,169 - Other, net (822) (52) (1,735) Income tax provision (benefit) $36,730 $(7,121) $(14,899) Effective tax rate 41.2% (20.8)% (33.1)%
-42- 45 Income Taxes Continued The income tax provision (benefit) consists of the following (in thousands):
1997 1996 1995 Current: U.S. federal $21,895 $8,639 $(40,370) State 4,976 7,588 (7,094) Foreign 2,350 3,133 2,924 Current income tax provision (benefit) 29,221 19,360 (44,540) Deferred: U.S. federal 8,253 (16,715) 24,703 State (744) (9,668) 4,645 Foreign - (98) 293 Deferred income tax provision (benefit) 7,509 (26,481) 29,641 Income tax provision (benefit) $36,730 $(7,121) $(14,899) Based on the income (loss) before income taxes: Domestic $84,162 $(41,007) $(51,120) Foreign 5,003 6,706 6,099 Income (loss) before income taxes $89,165 $(34,301) $(45,021)
EARNINGS PER COMMON SHARE The following reconciles basic to diluted earnings per share (amounts in thousands except per share data):
Average Earnings Earnings Incremental (Loss) (Loss) Shares Per Share 1997 Basic $52,435 28,267 $1.86 Effect of dilutive options - 428 (.03) Diluted $52,435 28,695 $1.83 1996 Basic $(27,180) 28,110 $(.97) Effect of dilutive options - 34 - Diluted $(27,180) 28,144 $(.97)
-43- 46 Earnings Per Common Share Continued There were no options outstanding in 1995. The impacts of certain options were excluded from the calculation of diluted earnings per share because average exercise prices were greater than the average market price of common shares. Data regarding those options is summarized below:
1997 1996 ~~Weighted average shares outstanding (in thousands) 331 76 Weighted average exercise price $24 1/4 $13 3/8~~
BUSINESS SEGMENTS The following table summarizes the company's operations by business segment (in thousands):
Corporate, NE SE Other and National Regional Regional Eliminations Consolidated 1997 Operating revenue $2,538,219 $450,454 $311,167 $49,028 $3,348,868 Income (loss) from operations 82,728 54 19,600 (3,651) 98,731 Identifiable assets 959,034 161,947 180,994 (31,163) 1,270,812 Capital expenditures, net 38,942 7,939 26,742 13,882 87,505 Depreciation 81,842 10,793 14,980 11,403 119,018 1996 Operating revenue $2,357,674 $417,558 $264,318 $33,000 $3,072,550 Income (loss) from operations (10,017) (5,766) 10,830 (8,562) (13,515) Identifiable assets 930,681 155,351 159,116 (17,341) 1,227,807 Capital expenditures, net 15,859 3,193 21,953 5,353 46,358 Depreciation 94,468 11,349 14,180 10,101 130,098 1995 Operating revenue $2,363,583 $411,238 $209,623 $72,196 $3,056,640 Income (loss) from operations (1,729) (5,952) 7,805 (21,712) (21,588) Identifiable assets 1,073,132 165,261 146,144 50,360 1,434,897 Capital expenditures, net 74,938 19,646 28,185 17,485 140,254 Depreciation 103,020 11,629 11,858 8,758 135,265
-44- 47 COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES The company leases certain terminals and equipment. At December 31, 1997, the company was committed under noncancelable lease agreements requiring minimum annual rentals payable as follows: 1998 - $27.3 million, 1999 - $20.1 million, 2000 - $9.8 million, 2001 - $3.8 million, 2002 - $2.7 million and thereafter, $8.8 million. Projected 1998 net capital expenditures are $164 million, of which $24 million was committed at December 31, 1997. Various claims and legal actions are pending against the company. It is the opinion of management that these matters will have no significant impact upon the financial condition or results of operations of the company. In December 1997, the company's Board of Directors authorized the repurchase of shares of the company's outstanding common stock with an aggregate purchase price of up to $25 million. During December 1997, the company repurchased 420,500 shares for $9.4 million. Through January 31, 1998, 520,500 shares had been repurchased for $11.8 million at an average price of $22.75 per share. The current labor agreement with the Teamsters expires March 31, 1998. Yellow Freight, as a member of a group representing a number of major motor carriers in labor contract negotiations, reached a five-year agreement with the Teamsters in February 1998, subject to ratification. Preston Trucking bargains independently. Preston Trucking currently operates under a wage concession agreement with the Teamsters which expires March 31, 1998, and currently provides for an 8.9 percent reduction from full scale wages. Preston Trucking requires a continued substantial reduction in order to effectively compete, the specific terms of which will be subject to separate negotiation and ratification. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Yellow Corporation: We have audited the accompanying consolidated balance sheets of Yellow Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing standards. 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 financial statements referred to above present fairly, in all material respects, the financial position of Yellow Corporation and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Kansas City, Missouri January 28, 1998 -45- 48 SUPPLEMENTARY INFORMATION Yellow Corporation and Subsidiaries QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Amounts in thousands except per share data)
First Second Third Fourth Quarter Quarter Quarter Quarter 1997 (a) Operating revenue $785,144 $844,437 $882,187 $837,100 Income from operations 15,172 27,075 36,491 19,993 Net income 6,501 13,975 20,058 11,901 Basic earnings per share .23 .50 .71 .42 1996 (b) (c) Operating revenue $741,678 $759,285 $790,444 $781,143 Income (loss) from operations (8,151) 8,414 24,095 (37,873) Net income (loss) (14,251) 2,019 8,939 (23,887) Basic earnings (loss) per share (.51) .07 .32 (.85)
(a) Includes $5.6 million of before-tax costs to implement a change of operations. (b) Includes a nonrecurring charge to the income tax provision of $6.7 million related to a dividend from Canadian operations. Also includes the effect of unusually severe winter weather which caused business disruptions and higher operating expenses. (c) Includes a special charge of $28.3 million after taxes resulting from the write down of certain nonoperating real estate and computer software assets, an early retirement program, the reduction of a company car program and other organizational design impacts, primarily severance. Also includes a $3.5 million foreign tax credit benefit. COMMON STOCK Yellow Corporation's stock is held by approximately 2,900 shareholders of record. The company's only class of stock outstanding is common stock, traded in over-the-counter markets. Trading activity averaged about 306,000 shares per day during the year, up from 195,000 shares per day in 1996. Prices are quoted by the National Association of Securities Dealers Automatic Quotation National Market System (NASDAQ-NMS) under the symbol YELL. The company's quarterly dividend was suspended on July 20, 1995 and has not been reinstated as of December 31, 1997. The high and low prices at which Yellow Corporation common stock traded for each calendar quarter in 1997 and 1996 follow:
High Low 1997 March 31 19 14 1/8 June 30 24 3/8 17 1/4 September 30 34 1/8 22 December 31 33 3/8 21 1996 March 31 13 5/8 10 1/4 June 30 13 3/4 10 3/4 September 30 14 1/8 12 1/8 December 31 16 3/8 11 5/8
-46- 49 The Future Our focus is on the possible. On fanatical service, on cutting-edge technology and exemplary employee efforts. These are the ingredients that strengthen an image, build security and deliver shareholder value. -47- 50 [LOGO] Senior officers Yellow Corporation A. Maurice Myers Chairman of the Board, President and Chief Executive Officer William F. Martin, Jr. Senior Vice President Legal/Corporate Secretary H.A. Trucksess, III Senior Vice President Finance/Chief Financial Officer and Treasurer Samuel A. Woodward Senior Vice President Operations and Planning Yellow Freight System, Inc. William D. Zollars President Preston Trucking Company, Inc. David J. Letke President Saia Motor Freight Line, Inc. Jimmy D. Crisp President WestEx, Inc. Frank E. Myers President Yellow Services, Inc. Thomas L. Smith President -48- 51 Board of Directors Yellow Corporation A. Maurice Myers Director since 1996 Chairman of the Board President and Chief Executive Officer of the Company Klaus E. Agthe Director since 1984 Retired Director and North American Liaison of the VIAG Group Cassandra C. Carr Director since 1997 Senior Executive Vice President of Human Resources of SBC Communications, Inc. Howard M. Dean* Director since 1987 Chairman and Chief Executive Officer of Dean Foods Company David H. Hughes* Director since 1973 Retired Vice Chairman of Hallmark Cards, Inc. Ronald T. Lemay Director since 1994 Vice Chairman, President and Chief Operating Officer of Sprint Corporation John C. McKelvey Director since 1977 President and Chief Executive Officer of Midwest Research Institute William L. Trubeck* Director since 1994 Senior Vice President-Finance and Chief Financial Officer of International MultiFoods, Inc. Carl W. Vogt* Director since 1996 Senior Partner of Fulbright & Jaworski, L.L.P. William F. Martin, Jr. Secretary to the Board *Member, Audit Committee [PICTURE OF BOARD OF DIRECTORS] Left to right: William L. Trubeck, John C. McKelvey, Ronald T. LeMay, Cassandra C. Carr, Carl W. Vogt, A. Maurice Myers, Howard M. Dean and Klaus E. Agthe. Not pictured; David H. Hughes. -49- 52 Yellow Corporation P.O. Box 7563 Overland Park, KS 66207 913.696.6100 http://www.yellowcorp.com Independent Public Accountants Arthur Andersen LLP Kansas City, MO Transfer Agent and Registrar ChaseMellon Shareholder Services, L.L.C. P.O. Box 3315 So. Hackensack, NJ 17606 800.851.9677 http://www.chasemellon.com Annual Meeting April 16 at 9:30 A.M. Kansas City Marriott Downtown 200 West 12th Street Kansas City, MO 64105 10-K Report Please write to: Treasurer, Yellow Corporation or see our web site -50- 53 [LOGO] P.O. Box 7563 o Overland Park, KS 66207 o http://www.yellowcorp.com Printed in the U.S.A. #505

1 Exhibit (24) Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into the company's previously filed Form S-8 Registration Statements, File No. 33-47946 and 333-16697. ARTHUR ANDERSEN LLP Kansas City, Missouri, March 24, 1998

5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 19,793 0 349,999 15,800 0 458,761 1,980,324 1,194,015 1,270,812 480,835 163,080 0 0 29,289 416,562 1,270,812 0 3,348,868 0 3,250,137 0 0 13,546 89,165 36,730 52,435 0 0 0 52,435 1.86 1.83