YELLOW CORP, ARS, 1994-03-16

YELLOW CORP
ARS, 1994-03-16
TRUCKING (NO LOCAL)

Previous: YELLOW CORP, DEF 14A, 1994-03-16

Next: UNOCAL CORP/DE, DEF 14A, 1994-03-16

<PAGE>

YELLOW CORPORATION
1993 ANNUAL REPORT

CONTENTS

This is Yellow Corporation
1
Letter To Shareholders
2
Serving Our Customers
6
Management's Discussion
and Analysis
14
Financial Summary
18
Consolidated Financial
Statements
20
Notes to Consolidated Financial
Statements
25
Report of Independent Public
Accountants
33
Supplementary Information
34
Senior Officers
35
Directors
36

<PAGE>

THIS IS YELLOW CORPORATION

Yellow Corporation is a transportation holding company serving the less-than-
truckload (LTL) market throughout North America. The corporation's subsidiaries
include:

YELLOW FREIGHT SYSTEM, INC., the largest subsidiary, had operating revenue of
$2.4 billion in 1993. Based in Overland Park, KS, it is the nation's largest
provider of LTL transportation services with direct service to over 35,000
points in all 50 states including the Caribbean, Canada and Mexico. It services
Europe via an alliance with The Royal Frans Maas Group based in The Netherlands.
Yellow Freight's core business -- the consolidation, transportation and
redistribution of freight -- is enhanced by information technology and customer
specific services. The company has 26,300 employees.

PRESTON TRUCKING COMPANY, INC.
is primarily a regional LTL carrier with 70 terminals serving the Northeast and
Upper Midwest markets of the United States. Preston had operating revenue of
$397 million in 1993. Preston employs 5,800 people and its headquarters are in
Preston, MD.

SAIA MOTOR FREIGHT LINE, INC. is a regional LTL carrier based in Houma, LA.
Through its network of 28 terminals, it provides overnight and second-day
service in nine southeastern states, including new intrastate Texas service. In
1993 Saia had operating revenue of $120 million. It employs 1,800 people.

SMALLEY TRANSPORTATION COMPANY
is a regional carrier providing service to customers in Georgia and throughout
Florida. The company has a 13-terminal network and employs 400 people. Smalley
had operating revenue of $39 million in 1993. Its headquarters are in Tampa,
FL.

CSI/REEVES, INC. is in the business of transporting, warehousing and
distributing carpet and related products. In 1993 it had revenue of $28
million. CSI/Reeves is based in Calhoun, GA and employs 300 people.

YELLOW LOGISTICS SERVICES, INC.
offers a full range of integrated logistics management services including:
transportation management, warehousing, information systems, distribution, and
package design and testing. The company specializes in serving the chemical,
retail, computer hardware, electronic and pharmaceutical industries. Yellow
Logistics Services' headquarters are in Overland Park, KS.

YELLOW TECHNOLOGY SERVICES, INC. supports Yellow Corporation and its
subsidiaries -- primarily Yellow Freight System -- with information technology.
It is committed to ensuring that the corporation's information systems
anticipate and meet customers' needs and that the systems are an integral part
of the transportation process. Yellow Technology Services is located in
Overland Park, KS.

While Preston Corporation revenue given in the consolidated results is included
beginning March 1, 1993, the revenue information above is for the full 12 month
period.

<PAGE>

LETTER TO SHAREHOLDERS

Yellow Corporation is a different company today than it was a year ago.
During 1993 we continued our transformation from the owner of a single motor
carrier to a holding corporation of transportation service companies. Our
transformation process actually began in late 1992 when we offered to purchase
Preston Corporation. In February 1993 we successfully completed this
acquisition including its subsidiaries: Preston Trucking Company, Preston, MD;
Saia Motor Freight Line, Houma, LA; Smalley Transportation Company, Tampa, FL;
and CSI/Reeves, Calhoun, GA.

Our desire to broaden our services into regional markets is paired with our
need to streamline processes. We are accomplishing these goals at a time when
the transportation industry is challenged by
ever-increasing customer expectations and intense competition.

PERFORMANCE AMID CHALLENGES

For 1993 Yellow Corporation earnings were $18.8 million, or $0.67 per share,
compared to $29.5 million, or $1.05 per share in 1992. Earnings declined in
1993 largely because of competitive pricing pressures, especially in the first
half of the year. Severe winter weather across the nation in the first quarter,
a one-time $11.2 million after-tax charge in the second quarter for network
development at Yellow Freight System (YFS), our largest subsidiary, and the
enactment of a higher tax rate also contributed to lower profit levels. Preston
Corporation results are included in Yellow Corporation results effective March
1, 1993.
Throughout the year, however, several of our companies displayed the ability
to face industry challenges. YFS demonstrated revenue growth and increased its
tonnage by nearly 5 percent for the year. This is particularly significant
because YFS was able to diversify its services to generate tonnage growth in its
core business, the longhaul LTL market. A 2 percent discount rollback in August
1993 improved revenue yields for YFS, enhancing second half profits and
validating the company's ability to manage costs and work with customers to
assure satisfactory returns.
Overall industry pricing stabilized in the third and fourth quarters.
Motivated by this positive impact, each of our motor carriers will continue to
work toward maintaining a stable pricing environment.
Preston Trucking recorded an operating profit in the second half of the year
and contributed to Yellow Corporation's net income in the fourth quarter.
Preston Trucking accomplished this performance by controlling discounts,
increasing business and reducing costs. Employees at Preston Trucking aided in
restoring company profitability, as those covered under the Teamster contract
approved a wage reduction
of 9 percent which was implemented company-wide on April 1, 1993. Better yield
management and new business resulting from the closing of a major competitor
also contributed significantly to the improved financial performance at Preston
Trucking.
Saia Motor Freight Line reported an operating ratio of 91.6 for 1993 and
positioned itself for growth in its southeast markets.
Smalley Transportation greatly improved its operations while reducing its
losses for the year. Smalley reported an operating profit for each of the last
four months of the year, and posted its first profitable fourth quarter since
1988.
CSI/Reeves reported an improved performance and we expect a profitable year
for that company in 1994.

<PAGE>

PROVIDING EFFICIENT SOLUTIONS

In our industry, as in others, success depends on providing the highest
level of service while controlling costs. This is increasingly challenging
because customers continue to raise service expectations as they work to
streamline manufacturing, consolidate distribution functions and manage
inventories more effectively. These increased expectations are compounded by an
intensely competitive environment and government imposed costs. The solution:
Yellow companies must integrate transportation services, reduce overall
transportation costs and provide value that will allow them to price services to
ensure a fair return.
Yellow Freight System (YFS) is responding by continuing to re-configure its
network of facilities and improving its freight routing process thereby
enhancing freight flow. This multi-year re-engineering effort is resulting in
better use of assets, reduced overhead, improved transit times and lower freight
handling costs. Other re-engineering efforts are being pursued at YFS to gain
information efficiencies which will further improve service throughout its
operations.
With a goal of improving profits, each of our companies strives to reduce
costs while enhancing service. At YFS, for example, sales representatives and
pricing staff work together to formulate appropriate pricing strategies. Often
customers are called upon to provide more specific information about their
transportation needs. This additional information can help YFS create cost-
effective solutions rather than simply increase rates.
Significant cost reduction was noted this year as YFS employees trimmed
workers' compensation expenses by 12 percent through comprehensive training on
safe work habits, transitional work programs, increased communications and
terminal accountability. Preston Trucking made progress in this area as well,
reducing the number of lost-time injuries.

EXPANDING OUR SERVICES

Providing diverse transportation services is evidence of the changes at
Yellow Corporation. Yellow Freight System (YFS) has expanded beyond its
traditional longhaul LTL service. In the face of increasing competition, YFS is
offering innovative transportation solutions to meet a variety of customer
needs. Yellow Express Lane Service, a guaranteed expedited service providing a
less expensive alternative to air freight, documented 99.97 percent on-time
service for the year and grew at a healthy rate. Yellow Exhibit Service which
specializes in trade show markets increased revenues 30 percent from last year
and Priority Lane Service reduces transit times by a full day on traditional
three, four and five day lanes. While the average length of haul remains
approximately 1,300 miles, YFS now delivers over 54 percent of its shipments in
three business days or less. These specialized services and transit time
reductions, made possible through various process improvements and re-
engineering, allow YFS to compete in a broader range of markets.
In Canada, YFS has emerged as the leading LTL provider and its service is
enhanced by streamlined customs clearance procedures. In Mexico, YFS currently
operates five terminals and is well positioned to take advantage of the NAFTA
provisions. The company expects continued growth in freight volumes with
origins and destinations in the Caribbean, and south of the Mexican border, as a
result of increased access and modernized customs between the U.S., Canada, and
Mexico. YFS' trans-Atlantic alliance with The Royal Frans Mass Group located in
Europe has exhibited good growth and positive shipper acceptance. This alliance
will further benefit from a new documentation process and expanded consolidation
and de-consolidation points in North America. YFS' international capabilities
will now expand to meet customer needs in markets such as the Pacific Rim and
Latin America.
The Preston Corporation acquisition gave Yellow Corporation a large presence
in the growing regional LTL markets. During 1993, Preston Trucking expanded
with four terminal openings in the Northeast. In 1994, the company will broaden
its service with a new 170-door

<PAGE>

distribution center in Richfield, Ohio slated to open in the second quarter,
rounding out its regional service offerings.
Saia Motor Freight Line opened a 34-door terminal in Nashville in 1993 and
will open additional terminals in Tennessee in 1994 enabling it to provide
comprehensive service throughout that state. Saia will also expand its service
in the $400 million Texas intrastate market in 1994, with several new terminal
additions.
Smalley Transportation currently provides total coverage in the state of
Florida and to points in Georgia, specializing in the distribution of inbound
freight throughout Florida. Smalley made significant progress improving on-time
service from 84 percent in 1992 to 97 percent in 1993.
Yellow Logistics Services (YLS) applies supply-chain management expertise
and PC-based information systems to provide a full range of logistics services
to businesses seeking ways to improve the transportation and distribution of
goods. During 1993, YLS refined its service offerings to target five major
markets: chemical, specialty retailing, computer hardware, electronics, and
pharmaceutical. Diverse industry knowledge, flexible information systems, a
state-of-the-art packaging lab and the natural alliance with our other
subsidiaries position YLS for growth in the expansive contract logistics
industry.

VISION FOR THE FUTURE

While the 1990's have proven more challenging than anyone could have
foreseen, we are optimistic about our future. We believe the employees at the
Yellow Corporation family of companies have the skills, experience and work
ethic to not only compete during these challenging times but to be victorious.
Solid management leadership has been and will continue to be instrumental in
identifying opportunities and making changes to improve profitability at each of
our companies. Simultaneously, corporate leadership is dedicated to preserving
our reputation for the highest quality transportation services and to
positioning Yellow Corporation as a source for total transportation.
Our broad range of experience in the transportation industry has served us
well in the past and will guide us in the future. Over the years we have
developed our employee, technology and financial resources to assure a leading
position in the LTL industry. As we look to the future, we resolve to allocate
our shareholders' capital to those markets and efforts which provide
compensatory returns.
We thank our employees for providing unsurpassed service, our customers for
their support and continued confidence and we commit to our investors a
dedication to enhanced value in 1994 -- and beyond.

GEORGE E. POWELL III
President and Chief Executive Officer

<PAGE>

SOLUTIONS ORIENTED

When Yellow Freight System (YFS) and Goodyear sat down to negotiate a new
contract, they didn't realize they would be transforming their carrier/shipper
relationship. But that's just what happened. They created a contract with
solutions to both companies' needs by cutting costs and increasing efficiencies.
Given the realities of the marketplace, Goodyear recognized it could not pass
along a transportation rate increase to its customers. At the same time,
Goodyear needed improved service to meet changing patterns in tire purchases.
Consumers no longer spend several days shopping for tires; they make their
purchase decisions in a matter of hours. That means Goodyear customers need
timely replenishment of tire inventory.
So rather than focusing on their own interests, YFS and Goodyear worked
together, creating a plan to streamline loading operations and cut operating
costs. As a result, they were able to avoid an increase in transportation costs
and maintain reliable and timely service to Goodyear and its customers.
Working initially with Goodyear's Topeka, KS distribution center, process
improvement teams from both companies found more than $200,000 of cost savings
by reducing pickup costs, increasing work efficiencies, eliminating handling and
improving billing and collection procedures.
Before this new contract, YFS was loading a trailer at the Topeka facility
and then rehandling the tires at two more terminals before delivery to
Goodyear's retail outlets. Each handling added more cost. Today, YFS is more
likely to load directly from Topeka to destination cities, rather than go
through its Kansas City consolidation center. YFS is able to eliminate costly
handling because Goodyear has improved its planning and is providing advanced
information on tonnage and destination. Regularly scheduled pickups at
Goodyear, and improved communications between the two companies mean YFS drivers
don't wait for shipments on the Goodyear dock. As soon as drivers arrive, the
trailer is loaded.
Today eight Goodyear facilities are working with YFS on process improvement
teams to find transportation solutions that draw upon YFS' operational
excellence and Goodyear's commitment to service excellence. The result:
Goodyear customers such as Christopher Reider in Denver realize added value
because YFS has driven down costs while providing Goodyear reliable, more
efficient service. The conclusion: YFS is moving beyond its traditional
transportation services to become an instrumental part of its customers'
operations.
Finding solutions to shipper needs when "it's not business as usual," is a
priority. And while the Goodyear solution was accomplished through operational
flexibility and changes, many transportation solutions can be found through our
companies' advanced technology systems. Today we are particularly responsive to
shippers' information needs. Our companies are keenly aware that the flow of
information is as important to our customers as the movement of their freight.
And as transportation and information needs in our industry continue to evolve,
the Yellow Corporation family of companies is dedicated to finding the right
solutions to benefit our customers.

<PAGE>

EXPERIENCED

Like so many industries today, fundamental regulatory and economic issues
are changing the health care industry. Those changes caused Becton Dickinson, a
leading manufacturer of medical supplies, devices and diagnostic systems, to
redefine its transportation strategy. Their goal -- to reduce total costs,
increase quality of service by reducing its number of carriers and improve
carrier management and control. What Becton Dickinson was looking for was a
carrier to help manage their transportation process. What they found was an
experienced partner with Preston Trucking.
Becton Dickinson had specific transportation requirements. Changes in the
health care industry often require LTL shipments to be delivered in hours rather
than days. Paperwork cannot delay movement of products. Electronic information
systems are essential to guaranteeing schedules, consolidating deliveries and
replenishing inventory automatically. To meet these new demands, Preston
Trucking worked with Becton Dickinson to identify areas for improvement. They
came up with a list of 33 opportunities to improve service and cut costs.
Today Becton Dickinson has entrusted Preston Trucking to place coordinators
at two of its distribution centers. Working on-site, Preston Trucking associate
Anthony Sansone in Indianapolis applies his transportation expertise to
coordinate the shipping process and measure key service and quality areas such
as on-time delivery performance. Anthony knows precisely when trailers need to
be loaded at the Becton Dickinson facility in order to meet dispatch times at
Preston Trucking. And when Becton Dickinson customers call Anthony with
questions or problems they often get their issue resolved with one phone call.
The partnership has proven beneficial for both companies. Preston Trucking
has dedicated equipment to Becton Dickinson and Becton Dickinson has loading
doors at its distribution centers dedicated to Preston Trucking trucks.
Together they have cut transit times, reduced product handling, accomplished
just-in-time loading, lowered costs and earned Becton Dickinson the 1993 LTL
Shipper of the Year Award from the National Small Shipment Traffic Conference.
Experience counts in our highly competitive industry. Our customers know
that when they select a Yellow Corporation company to transport their freight
they are working with an accomplished and capable carrier.

<PAGE>

FLEXIBLE

Making a delivery to a customer without a loading dock can be difficult for
some city drivers, but not for Renee Smith. He's glad to do it, thanks to the
lift gate on the back of the truck he drives for Saia Motor Freight Line. In
fact, each Saia terminal has the flexibility to provide a truck equipped with a
lift gate, an attachment that allows drivers to easily lower large pieces of
freight to street level.
Saia's flexible operations also work for Kmart. The 45 Kmart stores in the
New Orleans area do not use a warehouse to re-sort, load and deliver
merchandise. Instead, Saia receives the freight directly from Kmart's softline
distribution centers and performs the sort and load as an extension of Kmart's
business operations.
Customers needing information about their freight only have to make one
phone call to Saia. The company's new telemarketing center serves as a
centralized customer service center whose operators have access to every
information system in the company. These are just three examples of the
flexibility Saia has incorporated into the way it serves customers.
Flexibility within the transportation process is fast becoming a deciding
factor in carrier selection. Like Saia, our companies are working with
customers to provide more flexible transportation services in an effort to add
value to total costs.
Flexibility has become important to our internal processes as well. For
example, cross-functional teams and open-minded leadership at each Yellow
Corporation company helps foster a "can-do" attitude to meet customer needs.
Flexibility is important throughout the Yellow Corporation family of companies
because transportation is just one part of the total cost of a product.
Providing flexible transportation services is one way we can help control those
costs.

<PAGE>

RESPONSIVE

Getting products shipped from multiple suppliers -- including international
manufacturers -- to their destinations, on time, takes coordination. Thanks to
programs developed by Yellow Logistics Services (YLS) this process has
dramatically improved for retailers, manufacturers and other businesses across
the country. YLS offers the convenience of a single source capable of
administering most transportation management functions, including inbound
delivery of parts and materials from vendors and outbound shipments of finished
products to customers. For example, one retail customer was spending a standard
two or three weeks getting through international customs and domestic
distribution centers. YLS managed that time down to four and a half days.
Here's how it worked.
YLS contracted with service companies to quickly move shipments from the
port to a cross-dock operation. From there the freight is sorted and reloaded
on trucks bound for the retailer's distribution centers. YLS also arranged for
the consolidation of domestic products, and set up a warehousing facility for
both domestic and imported merchandise.
YLS calls upon sister motor carrier companies like Smalley Transportation to
pick up the domestic merchandise from manufacturers. Then with guaranteed
deliveries to the warehouse, close communications and advanced information
systems, Smalley helps the warehouse effectively plan truckload deliveries bound
for the retailer's warehouses located across the country. Arrangements such as
vendors calling Smalley directly, and Smalley's EDI system notifying the
retailer of shipments enroute help the retailer control costs and better manage
inventories.
Responding to multiple transportation needs, YLS has helped the retailer
eliminate costly air freight charges during peak retail seasons, while improving
service and communications with its vendors.
Throughout Yellow Corporation we are not only responsive to our customers
but also to issues affecting people and places. As environmental concerns
continue to mount, Yellow is quickly answering the need to safeguard our
communities. For example, Yellow Freight System's proactive tank management
program has evaluated the condition of its underground fuel storage tanks and
has identified which tanks need to be replaced, upgraded or removed. YFS began
this process on its own. The federal government will mandate such safeguards in
1998.
Through comprehensive and customized training our employees are qualified to
provide safe transportation of hazardous materials and chemical freight. And
the YLS packaging lab helps shippers meet the hazardous material packaging
requirements for United Nations certification. Another YLS service, package
optimization, can reduce the amount of packaging materials by up to 20 percent
which ultimately reduces packaging waste destined for our overburdened
landfills.
Yellow Corporation has a history of being responsive to its employees and to
the communities we serve. When natural disasters hit our country last year, our
employees were quick to volunteer their services, and many of our companies
provided transportation for emergency relief supplies to the flooded Midwest.

A responsive attitude toward business and community is our guide as we work
toward meeting customer expectations and adding value to the transportation
process. And the value we bring to our shipping customers will in turn bring
value to our shareholders.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIN AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Operating revenue for Yellow Corporation (the company) totaled $2.86 billion
in 1993, $2.26 billion in 1992 and $2.34 billion in 1991. A significant portion
of the increase in the company's 1993 revenue is attributable to the March 1,
1993 acquisition of Preston Corporation (Preston). Preston's major operating
subsidiaries, Preston Trucking Company, Inc. (Preston Trucking) and Saia Motor
Freight Line, Inc. (Saia) had operating revenue of $338 million and $102
million, respectively, for the ten months ended December 31, 1993. Yellow
Freight System, Inc. (Yellow Freight), the company's primary operating
subsidiary had revenue of $2.36 billion in 1993, up 4.2% from 1992. The
components of the change in the company's operating revenue for the three years
ended December 31, 1993 follow:

1993 1992 1991
<S> <C> <C> <C>
Rate increases 4.0% 4.8% 5.0%
Number of shipments 2.8 (8.1) (1.1)
Other (2.5) (.2) (2.1)
Acquisition of Preston 21.9 - -
Total 26.2% (3.5)% 1.8%

</TABLE>

Yellow Freight increased total tonnage 4.9% in 1993 compared to 1992. Total
tonnage decreased 5.5% in 1992 compared to 1991 and increased 1.6% in 1991 over
1990. The tonnage growth in 1993 reflects strong improvement in the last half
of the year. Total tonnage in 1993, however, was essentially the same as 1990.
This is due to the growth in the economy during that period, offset by Yellow
Freight's commitment to improving account profitability and resisting
discounting. Yellow Freight expects moderate tonnage growth in 1994.

1993 vs. 1992

Net income for 1993 was $18.8 million, or $.67 per share, compared to 1992
net income of $29.5 million, or $1.05 per share. Earnings for 1993 reflect an
$11.2 million, or $.40 per share, charge for network development at Yellow
Freight as well as a reduction of $1.6 million, or $.06 per share, from the
impact of the statutory increase in the U.S. federal tax rate on the company's
deferred tax liabilities. Net income for 1992 was reduced $11.5 million, or
$.41 per share, due to a change in the company's revenue recognition policy.
Earnings declined in 1993 largely because of competitive pricing pressures,
especially in the first half of the year, and severe winter weather across the
nation in the first quarter. The operations of the Preston subsidiaries had a
small negative impact on earnings in 1993 although they showed steady
improvement during the year and contributed $.02 per share to fourth quarter
earnings.
The company's operating ratio was 98.1 in 1993 compared to 96.3 in 1992.
Purchased transportation increased as a percentage of revenue due to increased
use of rail transportation and the Preston subsidiaries' heavier usage of
purchased transportation. Salaries, wages and employees' benefits decreased as
a percent of revenue despite wage and benefit increases of approximately 3%
effective April 1 for employees who are members of the International Brotherhood
of Teamsters (Teamsters). This is due to a wage reduction of 9% effective April
1 for employees of Preston Trucking, a small decrease in the total number of
employees and a reduction in workers' compensation expense. Due to moderate
capital expenditures during the last three years and more efficient use of
equipment, depreciation expense also decreased as a percent of revenue. This
resulted in higher equipment maintenance costs which negated a portion of the
depreciation expense savings. The

<PAGE>

network development charge negatively impacted the operating ratio by 0.6. This
charge of $18.0 million before taxes was recorded to accrue for the cost of
terminal consolidation and realignment to improve customer service and reduce
costs. These network improvements are part of an ongoing plan to enhance
competitiveness by reducing freight handling and increasing freight flow
flexibility.
Interest expense increased $5.5 million primarily due to increased debt
levels related to the Preston acquisition. Other nonoperating expenses
decreased $4.3 million due to gains on facility sales, lower levels of losses
related to equipment sales and less expense related to nonoperating facilities.

1992 vs. 1991

Net income for 1992, before the impact of the accounting change discussed
below, was $41.0 million, or $1.46 per share, compared to 1991 net income of
$26.7 million, or $.95 per share. Yellow Freight was able to retain most of its
January 1, 1992 rate increase, a key ingredient in improving profitability
during 1992. The company's operating ratio for 1992 improved to 96.3 from 97.6
in 1991 despite decreased revenue and tonnage. The improvement in costs came
primarily in the area of operating expenses and supplies. Fuel expense
decreased as a result of declining prices and fewer miles operated. General
operating expenses also decreased significantly in a number of key areas as a
result of continued cost control efforts and decreased operating volume.
Increased efficiencies and decreased operating volume resulted in lower employee
levels. Additionally, workers' compensation costs were reduced in 1992. These
reductions allowed total salaries, wages and employees' benefits expense to
remain constant as a percentage of revenue from 1991 to 1992 despite a 3.5%
increase in labor costs on April 1 under the Teamsters' agreement.
During the first quarter of 1992, the company recorded a nonoperating charge
of $11.5 million, or $.41 per share, to after tax earnings, reducing full year
net income to $1.05 per share. This charge, which had no impact on cash flow,
is the cumulative effect of a change in revenue recognition policy. The company
changed its revenue recognition method in response to a January 1992 consensus
by the Emerging Issues Task Force of the Financial Accounting Standards Board.
Since January 1, 1992, revenue has been recognized on a percentage completion
basis while expenses are recognized as incurred.

1991 vs. 1990

Net income for 1991 was $26.7 million, or $.95 per share, compared to 1990
net income of $65.3 million, or $2.31 per share. Profitability was adversely
affected by weak economic conditions, industry-wide price discounting and a
decrease in shipments handled. The revenue retained from rate increases after
discounting was not sufficient to cover increases in operating expenses. Total
operating expenses increased as a percentage of revenue primarily in the area of
salaries, wages and employees' benefits. Labor costs increased approximately
4.5% on April 1, 1991 in accordance with the Teamsters' labor agreement.
Employees' benefits increased mainly as a result of higher workers' compensation
costs. Operating taxes and licenses also increased as a percentage of revenue
compared to 1990. This was due primarily to higher fuel and use taxes,
reflecting the 5.0 cents per gallon increase in the diesel fuel excise tax.

PRICING

Pricing is critical to improving profit levels in 1994. A two percent
discount rollback implemented in August 1993 at Yellow Freight contributed to
improved revenue yields in the second half of the year. The company is
encouraged by the more stable pricing environment in the second half of the year
and its subsidiaries are continuing to work toward improved account
profitability and maintaining pricing stability. The Yellow operating companies
have

<PAGE>

implemented rate increases of between four and five percent during the first
quarter of 1994 to cover increases in operating costs. The full impact of these
increases is not realized immediately as a result of pricing which is on a
contract basis and can only be increased when the contract is renewed or
renegotiated.

COSTS

The current labor agreement with the Teamsters expires March 31, 1994. In
the second quarter of 1993, Yellow Freight reaffiliated with Trucking
Management, Inc. (TMI), a multi-employer bargaining group representing the
trucking industry in labor contract negotiations. Preston Trucking is also a
member of TMI. TMI is currently negotiating the renewal of this contract. An
agreement that allows greater operational flexibility and the opportunity to
reduce costs is necessary to allow Yellow Freight and Preston Trucking to better
compete in the marketplace. In addition, Preston Trucking's wage reduction
expires March 31, 1994. Preston Trucking feels it is essential to continue this
wage reduction in the near future to maintain its progress toward restoring
profitability. Extension of the wage reduction requires a contract provision
allowing the reduction and approval of Preston's Teamster employees.
During 1993, Yellow Freight began an extensive network development process
by consolidating and realigning terminals to improve customer service and reduce
costs. A charge of $18.0 million before taxes was accrued for the costs to
close certain facilities and dispose of excess property. This network
development will result in better use of assets, reduced overhead, improved
transit times and lower freight handling costs without reducing customer
service.
In 1992, Yellow Freight realigned part of its linehaul route system,
particularly in the western United States, to reduce costs. Efficiencies were
gained through new linehaul routes, increased use of triple trailers and the
introduction of two-driver teams, which allow the reduction of transit times on
certain routes.
The federal requirement for low sulfur fuel went into effect in October 1993
resulting in higher fuel costs. Additionally, a 4.3 cents per gallon increase
in the diesel fuel excise tax went into effect in October 1993. These items
increased fuel costs somewhat in the last quarter of the year and will continue
to do so in the future.

SERVICE/GROWTH

Yellow Freight's revenue growth was moderate in 1993 as compared to 1992.
Growth was due to increased tonnage, which grew faster than the Industrial
Production Index, and contributions from new services started in 1992. Yellow
Freight expects moderate revenue growth in 1994. A service which reduces
transit times by a full day on traditional three, four and five day lanes
experienced good revenue growth in 1993. A guaranteed expedited service that
provides shippers an economical alternative to air freight in selected markets
experienced a healthy revenue growth rate in 1993 and operated at a very high
on-time service ratio. The Canadian and Mexican markets continued to provide
good growth for Yellow Freight in 1993. This growth is expected to continue in
1994, partly as a result of NAFTA's simplified trade provisions between those
countries and the United States. Service to and from Western Europe, through an
alliance with The Royal Frans Maas Group of The Netherlands is expected to grow
in 1994 as a result of expanded consolidation and deconsolidation points in
North America and improvements in streamlining documentation processing.
Preston Trucking continued to experience declines in both revenue and
tonnage after the acquisition by the company, but benefited in June 1993 from
the bankruptcy of a major competitor in the Northeast. Preston Trucking opened
four new terminals and increased their revenue and tonnage during the last half
of the year. They expect continued revenue growth in 1994 and are planning to
broaden service with a new distribution center in Ohio.

<PAGE>

The company expects to benefit from Saia's expansion into Texas and
Tennessee as well as their introduction of intrastate service in Texas.
Combined with Saia's strong market position and profitable operations, revenue
growth in 1994 is expected to be much improved.

WORKERS' COMPENSATION

During 1993, further progress was made in reducing workers' compensation
costs at Yellow Freight. Continuation of programs and methods initiated in 1992
to control these costs resulted in additional cost reductions in 1993. Yellow
Freight uses training on safe work habits, transitional work programs and
terminal accountability to help manage these costs. This is the second
consecutive year that employee injuries and workers' compensation costs have
been reduced.

OTHER

During 1993, the company saw the conclusion of a six-year old antitrust case
brought by Lifschultz Fast Freight against Yellow Freight and two other motor
carriers. In June, the Federal District Court's decision dismissing the case
was affirmed by the U.S. Court of Appeals. In December, the United States
Supreme Court denied the Petition to Review the dismissal of the case by the
U.S. Court of Appeals.
In November 1992, the Financial Accounting Standards Board issued its
Statement No. 112, Employers' Accounting for Postemployment Benefits related to
benefits provided former or inactive employees before retirement. The company
intends to adopt this Standard in 1994. This noncash charge will not have a
material impact on the financial condition or results of operations of the
company.
In 1991, the company adopted the Financial Accounting Standards Board's
Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions. The adoption did not have a material impact on either financial
position or results of operations. The notes to consolidated financial
statements contain the disclosures related to this standard.
The effective income tax rate was 46.8% in 1993, 37.2% in 1992 and 33.9% in
1991. The increase in 1993 was due primarily to the impact of a higher U.S.
federal tax rate on the company's deferred tax liabilities. The notes to
consolidated financial statements contain an analysis of the income tax
provision.

FINANCIAL CONDITION

Working capital increased $18 million during 1993, resulting in a $37
million positive working capital position at December 31, 1993. The company's
total debt level at December 31, 1993 increased $92 million compared to that of
December 31, 1992, primarily due to the acquisition of Preston. Preston's total
debt at the date of acquisition was $135 million, of which $78 million was
repaid with funds advanced to Preston by the company. The funds advanced were
financed through commercial paper borrowings.
Revisions to the medium-term note program in 1993 provided for increased
amounts outstanding and longer maturity periods. During the last six months of
1993, $37 million was borrowed under the medium-term note program, primarily to
replace commercial paper borrowings. Modest capital expenditures and good cash
flow from operations in 1993 enabled the company to further reduce commercial
paper borrowings to $25 million at December 31, 1993. The company maintains
credit availability under a $100 million credit agreement to support the
commercial paper program and provide additional borrowing capacity.
During the last three years, capital expenditures were financed primarily
with internally-generated funds. Actual and projected capital expenditures are
summarized below (in millions):

<PAGE>

Projected Actual
1994 1993 1992 1991
<S> <C> <C> <C> <C>
Land and structures $30 $12 $16 $41
Revenue equipment 90 34 49 34
Other operating property 55 21 14 30
Total $175 $67 $79 $105

</TABLE>

Projected facility expenditures will target expansion of existing locations
and the construction or purchase of new locations to improve efficiency and
enter new markets in selected areas. Equipment expenditures are expected to
consist primarily of replacement units with some expansion units at certain of
the subsidiaries. Revenue equipment replacement units are expected to be
approximately 70% higher than in the last three years. Other property
expenditures are primarily for improving efficiency through technological
enhancements and advanced information systems. It is anticipated that 1994
capital expenditures will be primarily financed through internally-generated
funds.
The company's cash dividends paid to shareholders have been $.94 per share
($26 million) in each of the last three years.

<PAGE>

FINANCIAL SUMMARY
Yellow Corporation and Subsidiaries
(Amounts in thousands expect per share data)

1993(a) 1992 1991 1990
<S> <C> <C> <C> <C>
FOR THE YEAR:
Operating revenue $2,856,505 $2,262,676 $2,344,143 $2,302,421
Income from operations 53,893 82,814 56,907 119,774
Depreciation 132,371 118,419 124,687 128,134
Interest expense 17,668 12,150 14,159 15,763
Income before income taxes 35,358 65,393 40,348 101,905
Income before extraordinary items and
cumulative effect of accounting changes
18,801 41,040 26,654 65,319
Net income 18,801 29,540 26,654 65,319
Net cash from operating activities 138,802 139,438 146,954 219,463
Net operating property additions 66,786 78,651 104,668 162,316

AT YEAR-END:
Net operating property 855,870 775,080 816,174 836,599
Total assets 1,265,654 1,061,012 1,097,771 1,116,005
Total debt 226,503 134,077 156,707 174,169
Shareholders' equity 486,453 485,496 475,869 468,944

MEASUREMENTS:
Per share data:
Income before extraordinary items and
cumulative effect of accounting changes
.67 1.46 .95 2.31
Net income .67 1.05 .95 2.31
Cash dividends .94 .94 .94 .82
Shareholders' equity 17.31 17.28 16.94 16.70
Total debt as a % of total capitalization
31.8% 21.6% 24.8% 27.1%
Return on average shareholders' equity
3.9% 6.1% 5.6% 14.4%
Market price range:
High 297/8 323/8 331/2 311/4
Low 167/8 213/4 233/4 183/4
Average number of employees 35,000 26,800 28,700 28,900

<FN>

(a) - 1993 amounts include the operating results of Preston Corporation effective
March 1, 1993. The 1993 results also include a network development charge of
$11.2 million after taxes ($.40 per share) and a charge of $1.6 million
($.06 per share) to reflect the impact of a higher tax rate on the company's
deferred tax liabilities.

</TABLE>

<PAGE>

1989(b) 1988 1987 1986(c) 1985 1984 1983
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR:
Operating revenue $ 2,219,755 $2,016,466 $1,759,992 $1,713,731 $1,530,313 $1,380,042 $1,089,015
Income from operations 48,041 117,786 78,089 135,619 106,424 77,274 86,430
Depreciation 123,268 108,353 98,982 86,850 75,771 59,125 45,801
Interest expense 15,452 12,254 9,172 7,441 10,290 6,160 4,988
Income before income taxes 26,533 104,997 64,360 123,259 95,493 72,907 83,908
Income before extraordinary items and
cumulative effect of accounting changes
18,585 68,962 41,284 67,084 55,536 44,103 49,185
Net income 47,785 68,962 41,284 69,719 55,536 44,103 49,185
Net cash from operating activities 179,481 204,943 140,163 169,745 156,153 120,430 133,051
Net operating property additions 182,232 180,587 152,684 176,622 143,842 193,599 55,265

AT YEAR-END:
Net operating property 803,402 748,613 676,869 623,019 533,703 466,210 332,180
Total assets 1,081,665 1,020,724 923,867 862,359 747,904 666,380 564,531
Total debt 192,067 174,223 144,189 112,253 82,961 82,600 53,167
Shareholders' equity 438,588 408,986 392,923 376,370 321,871 280,070 249,576

MEASUREMENTS:
Per share data:
Income before extraordinary items and
cumulative effect of accounting changes
.65 2.40 1.44 2.35 1.95 1.55 1.73
Net income 1.66 2.40 1.44 2.44 1.95 1.55 1.73
Cash dividends .73 .66 .62 .58 .52 .48 .44
Shareholders' equity 15.24 14.21 13.82 13.14 11.27 9.84 8.77
Total debt as a % of total capitalization
30.5% 29.9% 26.8% 23.0% 20.5% 22.8% 17.6%
Return on average shareholders' equity
11.3% 17.2% 10.7% 20.0% 18.5% 16.7% 21.3%
Market price range:
High 327/8 34 421/2 411/8 291/2 225/8 241/8
Low 237/8 237/8 207/8 271/2 157/8 113/4 95/16
Average number of employees 29,200 27,200 25,500 23,400 20,750 19,550 15,550

<FN>
(b) - 1989 results include an increase in reserves for workers' compensation and other reserves of $27.7 million after taxes
($.96 per share).

</TABLE>

<PAGE>

CONSOLIDATED BALANCE SHEETS
Yellow Corporation and Subsidiaries
December 31, 1993 and 1992
(Amounts in thousands except share data)

ASSETS
1993 1992
<S> <C> <C>
CURRENT ASSETS:
Cash $13,937 $19,016
Short-term investments 6,777 13,284
Accounts receivable, less allowances
of $10,674 and $8,558, respectively 276,223 188,316
Tires on equipment 36,730 28,699
Fuel and operating supplies 19,183 12,945
Deferred income taxes 9,024 -
Other current assets 17,519 11,707
Total current assets 379,393 273,967

OPERATING PROPERTY:
Land 154,264 133,691
Structures 604,759 542,042
Revenue equipment 838,171 756,227
Other operating property 168,798 142,210
1,765,992 1,574,170
Less - Accumulated depreciation 910,122 799,090
Net operating property 855,870 775,080

OTHER ASSETS 30,391 11,965
$1,265,654 $1,061,012

</TABLE>

The notes to consolidated financial statements are an integral part of these
balance sheets.

<PAGE>

LIABILITIES AND SHAREHOLDERS' EQUITY
1993 1992
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $71,580 $45,294
Wages, vacations and employees' benefits 117,723 100,768
Accrued income taxes -
Payable currently 6,044 2,774
Deferred - 3,720
Claims and insurance accruals 86,804 53,736
Other current and accrued liabilities 48,006 37,904
Current maturities of long-term debt 12,327 11,050
Total current liabilities 342,484 255,246

OTHER LIABILITIES:
Long-term debt 214,176 123,027
Deferred income taxes 58,911 72,812
Claims, insurance and other 163,630 124,431
Total other liabilities 436,717 320,270

SHAREHOLDERS' EQUITY:
Series A $10 Preferred stock, $1 par value -
authorized 750,000 shares, none issued - -
Preferred stock, $1 par value - authorized
4,250,000 shares, none issued - -
Common stock, $1 par value - authorized 120,000,000 shares,
issued 28,849,837 and 28,846,017 shares, respectively 28,850 28,846
Capital surplus 6,469 6,248
Retained earnings 483,586 492,196
Shares held by Stock Sharing Plan (14,880) (24,350)
Treasury stock, at cost (749,489 and 743,869 shares, respectively)
(17,572) (17,444)
Total shareholders' equity 486,453 485,496
$1,265,654 $1,061,012

</TABLE>

<PAGE>

STATEMENTS OF CONSOLIDATED INCOME
Yellow Corporation and Subsidiaries
For the Years Ended December 31
(Amounts in thousands except per share data)

1993 1992 1991
<S> <C> <C> <C>
OPERATING REVENUE $2,856,505 $2,262,676 $2,344,143

OPERATING EXPENSES:
Salaries, wages and employees' benefits 1,919,197 1,540,175 1,592,594
Operating expenses and supplies 410,679 314,202 350,111
Operating taxes and licenses 104,588 83,903 85,056
Claims and insurance 70,206 52,051 57,052
Communications and utilities 38,643 30,994 32,037
Depreciation 132,371 118,419 124,687
Purchased transportation 108,928 40,118 45,699
Network development 18,000 - -
Total operating expenses 2,802,612 2,179,862 2,287,236

INCOME FROM OPERATIONS 53,893 82,814 56,907

NONOPERATING (INCOME) EXPENSES:
Interest expense 17,668 12,150 14,159
Interest income (1,446) (1,310) (1,617)
Other, net 2,313 6,581 4,017
Nonoperating expenses, net 18,535 17,421 16,559

INCOME BEFORE INCOME TAXES 35,358 65,393 40,348
PROVISION FOR INCOME TAXES 16,557 24,353 13,694
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 18,801 41,040 26,654
CUMULATIVE EFFECT OF CHANGE
IN REVENUE RECOGNITION - (11,500) -
NET INCOME $18,801 $29,540 $26,654

AVERAGE COMMON SHARES OUTSTANDING 28,105 28,093 28,090

EARNINGS PER SHARE:
Income before cumulative effect of accounting change $.67 $1.46 $.95
Cumulative effect of change in revenue recognition - (.41) -
Net income $.67 $1.05 $.95

</TABLE>

The notes to consolidated financial statements are an integral part of these
statements.

<PAGE>

STATEMENTS OF CONSOLIDATED CASH FLOWS
Yellow Corporation and Subsidiaries
For the Years Ended December 31
(Amounts in thousands)

1993 1992 1991
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $18,801 $29,540 $26,654
Noncash items included in income:
Depreciation 132,371 118,419 124,687
Network development 18,000 - -
Deferred income taxes (10,819) (14,345) (11,808)
(Increase) decrease in accounts receivable (27,095) 12,137 1,099
Increase (decrease) in accounts payable 1,113 (3,859) (7,939)
Net increase (decrease) from change in other working
capital items affecting operating activities 9,139 (10,630) 17,271
Other, net (2,708) 8,176 (3,010)
Net cash from operating activities 138,802 139,438 146,954

INVESTING ACTIVITIES:
Acquisition of operating property (76,886) (86,248) (110,497)
Proceeds from disposal of operating property 10,100 7,597 5,829
Purchases of short-term investments (8,086) (16,740) (18,278)
Proceeds from maturities of short-term investments 14,693 11,341 10,393
Purchase of Preston Corporation, net of cash acquired (23,898) - -
Net cash used in investing activities (84,077) (84,050) (112,553)

FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 37,250 - 30,500
Repayment of long-term debt (95,553) (3,241) (28,887)
Commercial paper borrowings, net 24,968 (11,498) (12,988)
Cash dividends paid to shareholders (26,405) (26,380) (26,358)
Other, net (64) (88) (111)
Net cash used in financing activities (59,804) (41,207) (37,844)

NET INCREASE (DECREASE) IN CASH (5,079) 14,181 (3,443)
CASH, BEGINNING OF YEAR 19,016 4,835 8,278
CASH, END OF YEAR $13,937 $19,016 $4,835

SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $25,354 $45,523 $29,946
Interest paid $17,715 $12,301 $14,012

</TABLE>

The notes to consolidated financial statements are an integral part of these
statements.

<PAGE>

STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Yellow Corporation and Subsidiaries
(Amounts in thousands except share data)

Shares
Held by
Stock
Common Capital Retained Sharing Treasury
Stock Surplus Earnings Plan Stock
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1990
$ 28,813 $5,039 $490,273 $(38,328) $(16,853)
Net income - - 26,654 - -
Cash dividends, $.94 per share
- - (26,358) - -
Exercise of stock options, 3,000 shares
3 57 - - -
Amortization of unearned compensation
- 595 - - -
Reduction of Stock Sharing Plan debt guarantee
- - - 6,087 -
Purchase of treasury stock - - - - (171)
Foreign equity translation adjustment
- - 58 - -
BALANCE, DECEMBER 31, 1991 28,816 5,691 490,627 (32,241) (17,024)
Net income - - 29,540 - -
Cash dividends, $.94 per share - - (26,380) - -
Exercise of stock options, 21,300 shares
21 311 - - -
Restricted stock awards, 8,886 shares
9 (9) - - -
Amortization of unearned compensation
- 255 - - -
Reduction of Stock Sharing Plan debt guarantee
- - - 7,891 -
Purchase of treasury stock
- - - - (420)
Foreign equity translation adjustment
- - (1,591) - -
BALANCE, DECEMBER 31, 1992
28,846 6,248 492,196 (24,350) (17,444)
Net income - - 18,801 - -
Cash dividends, $.94 per share - - (26,405) - -
Exercise of stock options, 3,820 shares
4 60 - - -
Amortization of unearned compensation
- 161 - - -
Reduction of Stock Sharing Plan debt guarantee
- - - 9,470 -
Purchase of treasury stock - - - - (128)
Foreign equity translation adjustment
- - (1,006) - -
BALANCE, DECEMBER 31, 1993
$28,850 $6,469 $483,586 $(14,880) $(17,572)

</TABLE>

The notes to consolidated financial statements are an integral part of these
statements.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRINCIPLES OF CONSOLIDATION AND SUMMARY OF ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Yellow Corporation (formerly Yellow Freight System, Inc. of Delaware) and its
wholly-owned subsidiaries (the company). All significant intercompany accounts
and transactions have been eliminated in consolidation. The company provides
transportation services to the less-than-truckload (LTL) market throughout North
America.
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:

- - Fuel, operating supplies and operating property are carried
at cost.

- - Depreciation is computed using the straight-line method based on the
following service lives:

Years
<S> <C>
Structures 10-40
Revenue equipment 5-10
Other operating property 2-10

</TABLE>

- - 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 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 cost of tires on equipment is amortized over the estimated tire lives.

- - 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. 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, if
required, are included in operating results. At December 31, 1993 and 1992,
estimated future payments for these claims aggregated $162.1 million and $129.8
million, respectively. The present value of these estimated future payments was
$142.3 million at December 31, 1993 and $110.6 million at December 31, 1992,
discounted using a rate of 5.5% for 1993 and 7.0% for 1992.

- - 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.

- - Since January 1, 1992, revenue has been recognized on a percentage completion
basis while expenses are recognized as incurred. The company changed its
revenue recognition method in response to a January 1992 consensus by the
Emerging Issues Task Force of the Financial Accounting Standards Board. Prior
to 1992, revenue was recognized when a shipment was picked up.

<PAGE>

- - In the second quarter of 1993, the company's primary subsidiary, Yellow
Freight System, Inc., began an extensive multi-year network development process
by consolidating and realigning terminals to improve customer service and reduce
costs. A restructuring charge of $18.0 million before taxes, or $11.2 million
after taxes ($.40 per share) was accrued for the costs to close certain
facilities and dispose of excess property.

- - Certain reclassifications have been made to the prior year consolidated
financial statements to conform with current presentation.

ACQUISITION
In February 1993, the company acquired the stock of Preston Corporation
(Preston) for $25.3 million, including related expenses. Preston is the holding
company for three regional less-than-truckload (LTL) carriers serving the
Northeast, Upper Midwest and Southeast United States. Preston's total debt at
the date of acquistion was $135.0 million, of which $78.1 million was repaid
with funds advanced to Preston by the com-pany. The acquisition was accounted
for by the purchase method and, accordingly the company has recorded fair values
at the date of acquisition of $246.3 million for assets acquired and $232.4
million for liabilities assumed. The $11.4 million excess of the purchase price
over net assets acquired is included with other long-term assets and is being
amortized over 20 years using the straight-line method.
The 1993 financial statements include the results of Preston effective March
1, 1993. Assuming the acquisition of Preston had occurred on January 1, 1992,
the company's unaudited results of operations are as follows (in thousands,
except per share data) for the twelve months ended December 31:

1993 1992
<S> <C> <C>
Operating revenue $2,943,613 $2,843,768
Income before cumulative effect of accounting change
12,739 31,047
Net income 11,634 18,710

Earnings per share:
Income before cumulative effect of accounting change $.45 $1.11
Net income .41 .67

</TABLE>

The unaudited pro forma results are not necessarily indicative of what would
have occurred if the acquisition had been consummated at the beginning of each
year, nor are they necessarily indicative of future results.

SERIES A $10 PREFERRED STOCK AND RIGHTS
Each share of the company's common stock carries with it one preferred stock
purchase right. Under certain circumstances, each right may be exercised to
purchase 1/100th of a share of Series A $10 Preferred stock at an exercise price
of $120, subject to adjustment. The rights, which are nonvoting, expire on
December 8, 1996 and may be redeemed by the company at a price of $.05 per right
at any time prior to ten days after public announcement of the acquisition of
20% or more of the outstanding common stock.
If a person acquires 20% of the company's voting stock or if certain other
transactions occur, each right not owned by a 20% shareholder will entitle the
holder to purchase at the exercise price a number of shares of the common stock
of the company or, depending on the nature of the transaction, the stock of an
acquiring company, having a market value equal to twice the exercise price of
such right.
Dividends and voting rights on each 1/100th share of the Series A $10
Preferred stock will be equal to that of one share of common stock.

<PAGE>

DEBT

At December 31, long-term debt consisted of the following (in thousands):

1993 1992
<S> <C> <C>
Commercial paper $24,968 $-
Medium-term notes 111,250 84,000
Stock Sharing Plan debt guarantee 14,880 24,350
Industrial development bonds 32,883 24,795
Capital leases and other 17,583 932
Subordinated debentures 24,939 -
Total debt 226,503 134,077
Less - current maturities 12,327 11,050
Total long-term debt $214,176 $123,027

</TABLE>

The company has a five year $100 million credit agreement with a group of
banks which expires May 31, 1997. Interest is based, at the company's option,
on competitive bidding among the banks, at a fixed increment over the London
interbank offered rate, or at the agent bank's base rate. There are no
compensating balances required but a facility fee is charged. There were no
borrowings under this agreement in 1993 or in 1992 nor were there borrowings in
1992 under a predecessor agreement.
The company maintains credit availability under the credit agreement to
support the commercial paper program and provide additional borrowing capacity.
Accordingly, commercial paper and medium-term notes maturing within one year,
and intended to be refinanced, are classified as long-term. The weighted
average interest rate on commercial paper outstanding at December 31, 1993 was
3.5%. Medium-term notes have scheduled maturities through 2008 with interest
rates ranging from 5.7% to 9.7% per annum.
The company has guaranteed the debt of the Stock Sharing Plan (see Employee
Benefits). This debt bears interest at a rate of 7.9% and is payable by the
Stock Sharing Plan in installments through 1995.
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 and
rates currently range from 2.5% to 8.0% per annum, with principal payments due
through 2016.
Certain of the Preston subsidiaries lease operating equipment under capital
leases with scheduled maturities through 1998 and interest rates ranging from
9.0% to 9.9% per annum.
The subordinated debentures have an interest rate of 7% and are due in
installments from 1997 to 2011.
The aggregate amounts of principal maturities of long-term debt (excluding
commercial paper and medium-term notes due within one year) for the next five
years are as follows: 1994 - $12,327,000, 1995 - $29,066,000, 1996 -
$26,902,000, 1997 - $14,752,000, 1998 - $4,103,000.
The company has short-term unsecured credit lines with domestic and foreign
banks totaling $130 million. There are no compensating balance requirements or
fees associated with these credit lines and the lines can be cancelled by either
the banks or the company at any time. There were no borrowings outstanding
under these lines at December 31, 1993 or 1992.
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, 1993 and 1992 is approximately $234 million and $142 million, respectively.

<PAGE>

INCOME TAXES

The company accounts for income taxes in accordance with the liability method
as specified in the Financial Accounting Standards Board's Statement No. 109,
Accounting for Income Taxes. Deferred income taxes are determined based upon
the difference between the book and the tax basis of the company's assets and
liabilities. Deferred taxes are 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):

1993 1992
<S> <C> <C>
Depreciation $123,787 $116,422
Prepaids 17,345 13,341
Deferred revenue 8,806 8,788
Other 6,067 5,593
Gross liabilities 156,005 144,144

Claims and insurance (81,577) (57,206)
NOL and AMT credit carryovers (5,856) -
Bad debts (4,797) (3,884)
Employee benefits (4,358) (1,014)
Other (9,530) (5,508)
Gross assets (106,118) (67,612)
Net liability $49,887 $76,532

</TABLE>

The provision for income taxes is computed based on the following amounts of
income before income taxes (in thousands):

1993 1992 1991
<S> <C> <C> <C>
Domestic $31,175 $62,553 $36,611
Foreign 4,183 2,840 3,737
Total income before income taxes $35,358 $65,393 $0,348

</TABLE>

The provision for income taxes consists of the following (in thousands):

1993 1992 1991
<S> <C> <C> <C>
Current tax expense:
U.S. federal $21,407 $32,701 $22,836
State 4,814 4,768 2,503
Foreign 2,216 2,211 1,980
Total current 28,437 39,680 27,319
Deferred tax expense:
U.S. federal (9,214) (11,408) (9,825)
State (3,244) (2,131) (1,728)
Foreign - (806) (255)
Change in U.S. federal tax rate 1,639 - -
Total deferred (10,819) (14,345) (11,808)
Investment tax credit amortization (1,061) (982) (1,817)
Total provision $16,557 $24,353 $13,694

</TABLE>

<PAGE>

A reconciliation between the federal statutory and effective income tax rates
follows:

1993 1992 1991
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 34.0% 34.0%
Amortization of investment tax credits (3.0) (1.5) (4.5)
State income taxes, net 2.9 2.7 1.3
Change in U.S. federal tax rate 4.6 - -
Foreign tax rate differential 2.1 .7 1.1
Nondeductible business expenses 3.8 1.4 2.7
Other, net 1.4 (.1) (.7)
Effective tax rate 46.8% 37.2% 33.9%

</TABLE>

At December 31, 1993, the company had net operating loss (NOL) carryovers for
income tax purposes in the amount of $9.2 million. These NOLs relate to Preston
prior to acquisition by the company and may only be utilized in future years
through 2007 to offset taxable income of Preston. The company also has
alternative minimum tax (AMT) credit carryovers related to pre-acquisition years
of Preston in the amount of $2.0 million which may be utilized against the
future tax liability of Preston. Internal Revenue Code provisions limit the
amount of these NOL and AMT credit carryovers that may be utilized in any given
year.

<PAGE>

EMPLOYEE BENEFITS

Certain affiliates provide funded defined benefit pension
plans for employees not covered by collective bargaining agreements. 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 following tables set forth the plans' funded status and components of net
pension cost (in thousands):

<S> <C> <C>
Funded status at December 31: 1993 1992
Actuarial present value of benefits at current salary levels and service rendered to date:
Vested benefits $120,843 $91,867
Non-vested benefits 2,422 1,908
Accumulated benefit obligation 123,265 93,775
Effect of anticipated future salary increases 23,449 32,182
Projected benefit obligation 146,714 125,957
Plan assets at fair value, primarily U.S. Government agency bonds
122,092 115,777
Plan assets less than projected benefit obligation (24,622) (10,180)
Unrecognized net loss 17,188 7,954
Unrecognized initial net asset being amortized over 17 years
(22,833) (25,220)
Pension cost accrued, not funded $(30,267) $(27,446)

Net pension cost: 1993 1992 1991
Service cost - benefits earned during the period $6,919 $8,072 $7,419
Interest cost on projected benefit obligation 9,954 10,018 7,975
Actual return on plan assets (8,177) (8,333) (13,128)
Amortization of unrecognized net assets (2,393) (2,251) (2,393)
Net deferral (1,683) (800) 4,508
Net pension cost $4,620 $6,706 $4,381

Assumptions used in the accounting at December 31: 1993 1992 1991
Discount rate 7.5% 8.5% 8.5%
Rate of increase in compensation levels 5.5% 7.8% 7.8%
Expected rate of return on assets 9.0% 9.0% 9.0%

</TABLE>

The company contributes to multi-employer health, welfare and pension plans
for employees covered by collective bargaining agreements. 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):

1993 1992 1991
<S> <C> <C> <C>
Health and welfare $138,448 $112,370 $06,989
Pension 126,449 104,560 106,590
Total $264,897 $216,930 $213,579

</TABLE>

The company has a Stock Sharing Plan for employees of participating domestic
affiliates not covered by collective bargaining agreements. The Stock Sharing
Plan used proceeds of a

<PAGE>

bank loan to purchase shares of the company's common stock. The loan is
guaranteed by the company and the outstanding balance is reflected in the
financial statements as long-term debt (see Debt) and as a reduction in
shareholders' equity. The company's contribution to the Stock Sharing Plan is
determined annually by the Board of Directors. These contributions combined
with plan earnings must be sufficient to meet the plan's debt service
requirements. Expense is recorded as funds are contributed or committed to be
contributed. Shares are allocated in accordance with the principal and interest
method as defined by the Internal Revenue Code. Expenses and dividends related
to the Stock Sharing Plan were (in thousands):

1993 1992 1991
<S> <C> <C> <C>
Employees' benefits expense $- $7,185 $5,714
Interest expense 1,746 2,417 2,927
Total expense $1,746 $9,602 $8,641

Dividends $1,532 $1,591 $1,616

</TABLE>

Certain affiliates 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, 1993 were not material to the operations of the company.
In November 1992, the Financial Accounting Standards Board issued its Statement
No. 112, Employers' Accounting for Postemployment Benefits related to benefits
provided former or inactive employees before retirement. The company intends to
adopt this Standard in 1994. This noncash charge will not have a material
impact on the financial condition or results of operations of the company.

<PAGE>

STOCK OPTION INCENTIVE PLAN

The company has reserved 800,000 shares of its common stock for issuance to
key employees under a stock option incentive plan adopted in 1992 ("1992 plan").
This plan permits three types of awards: grants of stock options, both
qualified and nonqualified, grants of stock options coupled with a grant of
stock appreciation rights, and grants of restricted stock awards. At December
31, 1993, 791,114 shares were available for future grants. The company also has
outstanding options from a 1983 stock option incentive plan ("1983 plan").
Since April 22, 1992, the expiration date of this plan, no shares have been
available for grant.
All stock options are granted with an exercise price equal to the fair market
value of the company's common stock at the date of grant. All options are
exercisable in whole or in part beginning one year and ending not later than ten
years from the date of grant. Those stock options that are coupled with a grant
of stock appreciation rights can be exercised in the form of either a stock
option or stock appreciation right at the election of the recipient.
Compensation expense is recorded for stock appreciation rights based on the
excess of the market price of the company's common stock over the price at date
of grant. At December 31, 1993, there were 31,795 options outstanding under
the 1983 plan exercisable at prices ranging from $14.38 to $ 30.50 per share
aggregating $695,000. There were no options outstanding under the 1992 plan
at December 31, 1993.
Restricted stock awarded to key employees is held in the possession of the
company until all restrictions lapse. The restrictions, which prohibit sale or
transfer of the shares, lapse at a fixed percent of the total award each year
commencing one year after the date of grant provided the recipient continues to
be employed by the company or certain other conditions are met. Compensation
expense is recorded as restrictions lapse on restricted stock awards. The
difference between the market value of the common stock and the amounts charged
to expense is recorded as unearned compensation and is presented as a separate
reduction of shareholders' equity. The number of restricted shares granted was
0 in 1993, 8,886 in 1992, and 0 in 1991. Distribution of restricted shares was
12,825 in 1993, 23,355 in 1992, and 23,354 in 1991. Total compensation expense
under the plan was $175,000 in 1993, $281,000 in 1992 and $642,000 in 1991.

COMMITMENTS AND CONTINGENCIES

The company leases certain terminals and equipment under operating lease
agreements. At December 31, 1993, the company was committed under
noncancellable lease agreements requiring minimum annual rentals aggregating
$70,495,000 payable as follows: 1994 - $26,284,000, 1995 - $17,285,000, 1996 -
$11,274,000, 1997 - $6,629,000, 1998 - $4,202,000 and thereafter, $4,821,000.
Projected 1994 capital expenditures are $175 million, of which $68 million are
committed at December 31, 1993.
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.

<PAGE>

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, 1993
and 1992, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1993. 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, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, the
Company changed its method of revenue recognition in 1992.

ARTHUR ANDERSEN & CO.

Kansas City, Missouri
January 31, 1994

<PAGE>

SUPPLEMENTARY INFORMATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Amounts in thousands except per share data)

First Second Third Fourth
1993 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Operating revenue $602,220 $732,901 $761,706 $759,678
Income from operations 1,757 2,887* 25,634 23,615
Net income (loss) (1,749) (1,886)* 10,468** 11,968
Earnings (loss) per share (.06) (.07)* .37** .43

1992
Operating revenue $566,036 $566,177 $571,287 $559,176
Income from operations 25,272 20,493 21,821 15,228
Income before cumulative effect of accounting change
13,063 9,956 11,558 6,463
Net Income 1,563 9,956 11,558 6,463
Earnings per share:
Income before cumulative effect of accounting change
.47 .35 .41 .23
Net income .06 .35 .41 .23

<FN>

Note: 1993 amounts include the operating results of Preston Corporation effective March 1, 1993.
*Includes network development charge of $18.0 million, $11.2 million after taxes ($.40 per share).
**Includes charge for the tax rate change of $1.6 million ($.06 per share).

</TABLE>

COMMON STOCK

Yellow Corporation's stock is held by approximately 3,200 shareholders of
record. The company's only class of stock outstanding is common stock, traded in
over-the-counter markets. Trading activity averaged about 168,000 shares per day
during the year, up from 122,000 shares per day in 1992. Prices are quoted by
the National Association of Securities Dealers Automatic Quotation System
National Market (NASDAQ-NMS) under the symbol YELL.

Quarter Ended
Dividends Dividends
Per Per
1993 High Low Share 1992 High Low Share
<S> <C> <C> <C> <C> <C> <C> <C>
March 31 29 7/8 22 1/4 $.235 March 31 32 3/8 25 1/2 $.235
June 30 24 1/4 16 7/8 .235 June 30 32 3/8 23 1/2 .235
September 30 24 7/8 17 1/8 .235 September 30 27 1/4 21 3/4 .235
December 31 25 7/8 22 3/8 .235 December 31 29 3/4 22 5/8 .235
$.940 $.940

</TABLE>

<PAGE>

SENIOR OFFICERS

YELLOW CORPORATION
George E. Powell III
President and Chief Executive Officer

Robert W. Burdick
Senior Vice President - Corporate Development and Public Affairs

William F. Martin, Jr.
Senior Vice President - Legal/Corporate Secretary

YELLOW FREIGHT SYSTEM, INC.
M. Reid Armstrong
President

Robert L. Bostick
Senior Vice President - Operations

J. Kevin Grimsley
Senior Vice President - Marketing and Sales

Gail A. Parris
Senior Vice President - Administration

PRESTON TRUCKING COMPANY, INC.
Leo H. Suggs
President

David W. Elson
Senior Vice President - Operations and Sales

SAIA MOTOR FREIGHT LINE, INC.
Louis P. Saia, Jr.
President

Lyndon J. Saia
Executive Vice President

SMALLEY TRANSPORTATION COMPANY
Jimmy D. Crisp
President

CSI/REEVES, INC.
Thor N. Edman, Jr.
President

YELLOW LOGISTICS SERVICES, INC.
Robert G. Olterman
General Manager

YELLOW TECHNOLOGY SERVICES, INC.
William F. Martin, Jr.
President

<PAGE>

BOARD OF DIRECTORS
YELLOW CORPORATION

George E. Powell, Jr.
Director since 1952
Chairman of the Board of the Company

M. Reid Armstrong
Director since 1992
President of Yellow Freight System, Inc.

Klaus E. Agthe
Director since 1984
Director, VIAG North American

+Thomas M. Bloch
Director since 1991
President and Chief Executive Officer of H&R Block, Inc.

Howard M. Dean
Director since 1987
Chairman and Chief Executive Officer of Dean Foods Company

+Charles A. Duboc
Director since 1980
Retired President of The Penryn Corporation

David H. Hughes
Director since 1973
Retired Vice Chairman of Hallmark Cards, Inc.

+John C. McKelvey
Director since 1977
President and Chief Executive Officer of Midwest Research Institute

George E. Powell III
Director since 1984
President and Chief Executive Officer of the Company

William F. Martin, Jr.
Secretary to the Board

+ Member, Audit Committee

<PAGE>

CORPORATE
INFORMATION

YELLOW CORPORATION
10777 Barkley, P.O. Box 7563
Overland Park, Kansas 66207
(913) 967-4300

INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co.,
Kansas City, Missouri

TRANSFER AGENT AND REGISTRAR
Mellon Securities Trust Company
Shareholder Relations Department P.O. Box 305
Pittsburgh, Pennsylvania 15230
(800) 526-0801

ANNUAL MEETING
The annual meeting of the shareholders will be held on
April 21, 1994 at 9:30 a.m., at the Holiday Inn Kansas City / Lenexa
12601 W. 95th Street
Lenexa, Kansas 66215-3895

10-K REPORT
A copy of the company's 1993 report to the Securities and
Exchange Commission on Form 10-K may be obtained after
April 1 by writing to the Treasurer, Yellow Corporation
P.O. Box 7563,
Overland Park, Kansas 66207.

YELLOW CORPORATION
10777 Barkley
P.O. Box 7563
Overland Park, Kansas 66207

<PAGE>

APPENDIX TO YELLOW CORPORATION 1993 ANNUAL REPORT

1. The back of Page 1 contains a photograph of interstate highway overpasses.

2. Page 3 contains a small inset photograph of interstate highway overpasses.

3. Page 5 contains a small inset photograph of George E. Powell III, President
and Chief Executive Officer.

4. The bottom of Page 6 contains a small inset photograph of a Goodyear tire.

5. Page 7 consists of a photograph of a Yellow Freight System driver and a
Goodyear manager.

6. The bottom of Page 8 contains a small inset photograph of a clipboard.

7. Page 9 consists of a photograph of a Preston Trucking Company employee.

8 The bottom of Page 10 contains a small inset photograph of a pair of work
gloves.

9. Page 11 consists of a photograph of a Saia Motor Freight Line driver.

10. Page 12 contains a small inset photograph of a personal computer.

11. Page 13 consists of a photograph of a Smalley Transportation Company dock
supervisor and an employee of Yellow Logistics Service.

12. The chart on Page 14 of operating revenue is overlaid against a small inset
photograph of interstate highway overpasses.

13. The chart on Page 15 of net income is overlaid against a small inset
photograph of interstate highway overpasses.