##### Table of Contents



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

|                                                                                                                                                           
|-----------------------------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)                                                                                                                                                 
|þ        Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
            For the Period ended June 15, 2002.          
|OR                                                                                                                                                         
|                                                                                                                                                           
|o        Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.            For the transition period from      to      .



Commission file number 000-32821

ROADWAY CORPORATION




(Exact name of registrant as specified in its charter)


|                                                               |  |                                    
|-------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                       |  | 34-1956254                         
|                                                               |  |                                    
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No)

|                                         |  |  |  |           
|---------------------------------------- |  |  |  | ----------
|1077 Gorge Boulevard, Akron, OH          |  |  |  | 44310     
|                                         |  |  |  |           
|(Address of principal executive offices) |  |  |  | (Zip Code)

Registrants telephone number, including
area code (330) 384-1717

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 __ü___        
No. ________

The number of shares of common stock ($.01 par value) outstanding as of July
12, 2002 was 19,336,119.





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TABLE OF CONTENTS



|                               |                                                                                               |                                                             |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | Condensed Consolidated Balance Sheets (Unaudited)          
|                               |                                                                                               | Condensed Statements of
Consolidated Income (Unaudited)    
|                               |                                                                                               | Condensed Statements of Consolidated Cash Flows (Unaudited)
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II  OTHER INFORMATION   
|                               | Item 2. Changes in Securities and Use of Proceeds                                            
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                    
|EX-99.1                       
|EX-99.2                       



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##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1. Financial Statements




Roadway Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)

|                                           |                                                                                          |   |                                   |         |                   |   |           |         | 
|------------------------------------------ | ---------------------------------------------------------------------------------------- | - | --------------------------------- | ------- | ----------------- | - | --------- | ------- | 
|                                           |                                                                                          |   | June 15, 2002                     |         | December 31, 2001
|                                           |                                                                                          |   |                                   |         |                  
|                                           |                                                                                          |   | (in thousands, except share data)
|Assets                                     |                                                                                          |   |                                   |         |                   |   |           |        
|Current assets:                            |                                                                                          |   |                                   |         |                   |   |           |        
|                                           | Cash and cash equivalents                                                                |   | $                                 | 80,871  |                   |   | $         | 122,873 | 
|                                           | Accounts receivable, including retained
interest in securitized receivables,
net         |   |                                   | 194,338 |                   |   |           | 203,175 | 
|                                           | Other current assets                                                                     |   |                                   | 43,715  |                   |   |           | 34,406  | 
|                                           |                                                                                          |   |                                   |         |                   |   |           |        
|Total current assets                       |                                                                                          |   | 318,924                           |         |                   |   | 360,454   |        
|Carrier operating property, at cost        |                                                                                          |   | 1,613,983                         |         |                   |   | 1,621,539 |        
|Less allowance for depreciation            |                                                                                          |   | 1,024,953                         |         |                   |   | 1,013,614 |        
|                                           |                                                                                          |   |                                   |         |                   |   |           |        
|Net carrier operating property             |                                                                                          |   | 589,030                           |         |                   |   | 607,925   |        
|Goodwill, net                              |                                                                                          |   | 268,538                           |         |                   |   | 268,253   |        
|Other assets                               |                                                                                          |   | 69,891                            |         |                   |   | 66,217    |        
|                                           |                                                                                          |   |                                   |         |                   |   |           |        
|Total assets                               |                                                                                          | $ | 1,246,383                         |         |                   | $ | 1,302,849 |        
|                                           |                                                                                          |   |                                   |         |                   |   |           |        
|Liabilities and shareholders equity       |                                                                                          |   |                                   |         |                   |   |           |        
|Current liabilities:                       |                                                                                          |   |                                   |         |                   |   |           |        
|                                           | Accounts payable                                                                         |   | $                                 | 175,614 |                   |   | $         | 216,765 | 
|                                           | Salaries and wages                                                                       |   |                                   | 116,216 |                   |   |           | 122,175 | 
|                                           | Other current liabilities                                                                |   |                                   | 75,531  |                   |   |           | 74,153  | 
|                                           |                                                                                          |   |                                   |         |                   |   |           |        
|Total current liabilities                  |                                                                                          |   | 367,361                           |         |                   |   | 413,093   |        
|Long-term liabilities:                     |                                                                                          |   |                                   |         |                   |   |           |        
|                                           | Casualty claims and other                                                                |   |                                   | 95,329  |                   |   |           | 101,841 | 
|                                           | Accrued pension and retiree medical                                                      |   |                                   | 127,240 |                   |   |           | 121,020 | 
|                                           | Long-term debt                                                                           |   |                                   | 303,800 |                   |   |           | 307,000 | 
|                                           |                                                                                          |   |                                   |         |                   |   |           |        
|Total long-term liabilities                |                                                                                          |   | 526,369                           |         |                   |   | 529,861   |        
|Shareholders equity:                      |                                                                                          |   |                                   |         |                   |   |           |        
|                                           | Common Stock  $.01 par value
Authorized - 100,000,000 shares
Issued - 20,556,714 shares |   |                                   | 206     |                   |   |           | 206     | 
|                                           | Other shareholders equity                                                               |   |                                   | 352,447 |                   |   |           | 359,689 | 
|                                           |                                                                                          |   |                                   |         |                   |   |           |        
|Total shareholders equity                 |                                                                                          |   | 352,653                           |         |                   |   | 359,895   |        
|                                           |                                                                                          |   |                                   |         |                   |   |           |        
|Total liabilities and shareholders equity |                                                                                          | $ | 1,246,383                         |         |                   | $ | 1,302,849 |        
|                                           |                                                                                          |   |                                   |         |                   |   |           |        

Note: The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

The number of shares of common stock outstanding at June 15, 2002 and December
31, 2001 were 19,330,597 and 19,376,814, respectively.

See notes to condensed consolidated financial statements.

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Roadway Corporation and
SubsidiariesCondensed Statements of
Consolidated Income (Unaudited)

|                                     |                                            |   |                                       |         |               |   |         |         | 
|------------------------------------ | ------------------------------------------ | - | ------------------------------------- | ------- | ------------- | - | ------- | ------- | 
|                                     |                                            |   | Twelve Weeks Ended                   
|                                     |                                            |   | (Second Quarter)                     
|                                     |                                            |   | June 15, 2002                         |         | June 16, 2001
|                                     |                                            |   |                                       |         |              
|                                     |                                            |   | (in thousands, except per share data)
|Revenue                              |                                            | $ | 697,149                               |         |               | $ | 642,109 |        
|Operating expenses:                  |                                            |   |                                       |         |               |   |         |        
|                                     | Salaries, wages and benefits               |   |                                       | 439,149 |               |   |         | 412,185 | 
|                                     | Operating supplies and expenses            |   |                                       | 115,436 |               |   |         | 115,925 | 
|                                     | Purchased transportation                   |   |                                       | 70,958  |               |   |         | 63,707  | 
|                                     | Operating taxes and licenses               |   |                                       | 18,312  |               |   |         | 15,948  | 
|                                     | Insurance and claims expense               |   |                                       | 14,777  |               |   |         | 12,087  | 
|                                     | Provision for depreciation                 |   |                                       | 21,851  |               |   |         | 15,678  | 
|                                     | Net loss on disposal of operating property |   |                                       | 180     |               |   |         | 436     | 
|                                     |                                            |   |                                       |         |               |   |         |        
|Total operating expenses             |                                            |   | 680,663                               |         |               |   | 635,966 |        
|Operating income                     |                                            |   | 16,486                                |         |               |   | 6,143   |        
|Other (expense) income, net          |                                            |   | (6,790                                | )       |               |   | 858     |        
|                                     |                                            |   |                                       |         |               |   |         |        
|Income before income taxes           |                                            |   | 9,696                                 |         |               |   | 7,001   |        
|Provision for income taxes           |                                            |   | 4,022                                 |         |               |   | 2,978   |        
|                                     |                                            |   |                                       |         |               |   |         |        
|Net income                           |                                            | $ | 5,674                                 |         |               | $ | 4,023   |        
|                                     |                                            |   |                                       |         |               |   |         |        
|Earnings per share  basic           |                                            | $ | 0.30                                  |         |               | $ | 0.22    |        
|Earnings per share  diluted         |                                            | $ | 0.30                                  |         |               | $ | 0.22    |        
|Average shares outstanding  basic   |                                            |   | 18,474                                |         |               |   | 18,440  |        
|Average shares outstanding  diluted |                                            |   | 18,888                                |         |               |   | 18,901  |        
|Dividends declared per share         |                                            | $ | 0.05                                  |         |               | $ | 0.05    |        

See notes to condensed consolidated financial statements.

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Roadway Corporation and Subsidiaries
Condensed Statements of Consolidated Income (Unaudited)

|                                     |                                            |   |                                       |         |               |   |           |         | 
|------------------------------------ | ------------------------------------------ | - | ------------------------------------- | ------- | ------------- | - | --------- | ------- | 
|                                     |                                            |   | Twenty-four Weeks Ended              
|                                     |                                            |   | (Two Quarters)                       
|                                     |                                            |   | June 15, 2002                         |         | June 16, 2001
|                                     |                                            |   |                                       |         |              
|                                     |                                            |   | (in thousands, except per share data)
|Revenue                              |                                            | $ | 1,334,317                             |         |               | $ | 1,292,594 |        
|Operating expenses:                  |                                            |   |                                       |         |               |   |           |        
|                                     | Salaries, wages and benefits               |   |                                       | 850,623 |               |   |           | 824,311 | 
|                                     | Operating supplies and expenses            |   |                                       | 222,659 |               |   |           | 229,634 | 
|                                     | Purchased transportation                   |   |                                       | 133,954 |               |   |           | 128,088 | 
|                                     | Operating taxes and licenses               |   |                                       | 34,716  |               |   |           | 33,487  | 
|                                     | Insurance and claims expense               |   |                                       | 27,917  |               |   |           | 25,267  | 
|                                     | Provision for depreciation                 |   |                                       | 43,618  |               |   |           | 30,939  | 
|                                     | Net loss on disposal of operating property |   |                                       | 475     |               |   |           | 622     | 
|                                     |                                            |   |                                       |         |               |   |           |        
|Total operating expenses             |                                            |   | 1,313,962                             |         |               |   | 1,272,348 |        
|                                     |                                            |   |                                       |         |               |   |           |        
|Operating income                     |                                            |   | 20,355                                |         |               |   | 20,246    |        
|Other (expense), net                 |                                            |   | (13,564                               | )       |               |   | (4,571    | )      
|                                     |                                            |   |                                       |         |               |   |           |        
|Income before income taxes           |                                            |   | 6,791                                 |         |               |   | 15,675    |        
|Provision for income taxes           |                                            |   | 2,866                                 |         |               |   | 6,662     |        
|                                     |                                            |   |                                       |         |               |   |           |        
|Net income                           |                                            | $ | 3,925                                 |         |               | $ | 9,013     |        
|                                     |                                            |   |                                       |         |               |   |           |        
|Earnings per share  basic           |                                            | $ | 0.21                                  |         |               | $ | 0.49      |        
|Earnings per share  diluted         |                                            | $ | 0.21                                  |         |               | $ | 0.48      |        
|Average shares outstanding  basic   |                                            |   | 18,514                                |         |               |   | 18,445    |        
|Average shares outstanding  diluted |                                            |   | 18,968                                |         |               |   | 18,905    |        
|Dividends declared per share         |                                            | $ | 0.10                                  |         |               | $ | 0.10      |        

See notes to condensed consolidated financial statements.

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Roadway Corporation and Subsidiaries
Condensed Statements of Consolidated Cash Flows (Unaudited)

|                                                     |  |                         |         |               |  |   |         |  
|---------------------------------------------------- |  | ----------------------- | ------- | ------------- |  | - | ------- | -
|                                                     |  | Twenty-four Weeks Ended
|                                                     |  | (Two Quarters)         
|                                                     |  | June 15, 2002           |         | June 16, 2001
|                                                     |  |                         |         |              
|                                                     |  | (in thousands)         
|Cash flows from operating activities                 |  |                         |         |               |  |   |         |  
|Net income                                           |  | $                       | 3,925   |               |  | $ | 9,013   |  
|Depreciation                                         |  |                         | 43,618  |               |  |   | 30,939  |  
|Other operating adjustments                          |  |                         | (58,433 | )             |  |   | 5,463   |  
|                                                     |  |                         |         |               |  |   |         |  
|Net cash (used) provided by operating activities     |  |                         | (10,890 | )             |  |   | 45,415  |  
|Cash flows from investing activities                 |  |                         |         |               |  |   |         |  
|Purchases of carrier operating property              |  |                         | (27,067 | )             |  |   | (33,358 | )
|Sales of carrier operating property                  |  |                         | 1,869   |               |  |   | 440     |  
|                                                     |  |                         |         |               |  |   |         |  
|Net cash (used) by investing activities              |  |                         | (25,198 | )             |  |   | (32,918 | )
|Cash flows from financing activities                 |  |                         |         |               |  |   |         |  
|Dividends paid                                       |  |                         | (1,940  | )             |  |   | (1,937  | )
|Treasury stock activity, net                         |  |                         | (1,383  | )             |  |   | (337    | )
|Long-term (repayments) borrowings                    |  |                         | (2,500  | )             |  |   |        |  
|                                                     |  |                         |         |               |  |   |         |  
|Net cash (used) by financing activities              |  |                         | (5,823  | )             |  |   | (2,274  | )
|Effect of exchange rate changes on cash              |  |                         | (91     | )             |  |   | 200     |  
|                                                     |  |                         |         |               |  |   |         |  
|Net (decrease) increase in cash and cash equivalents |  |                         | (42,002 | )             |  |   | 10,423  |  
|Cash and cash equivalents at beginning of period     |  |                         | 122,873 |               |  |   | 64,939  |  
|Cash and cash equivalents at end of period           |  | $                       | 80,871  |               |  | $ | 75,362  |  
|                                                     |  |                         |         |               |  |   |         |  

See notes to condensed consolidated financial statements.

Roadway Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the twenty-four
weeks ended June 15, 2002 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Roadway Corporation Annual Report on Form 10-K for the
year ended December 31, 2001.

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Note 2Accounting Period

Roadway Corporation (the registrant or Company) operates on 13 four-week
accounting periods with 12 weeks in each of the first three quarters and 16
weeks in the fourth quarter.

Note 3Business Acquisition

On November 30, 2001, the Company acquired Arnold Industries, Inc. (Arnold),
subsequently named Roadway Next Day Corporation, for cash consideration of
$558,831,000, including direct acquisition costs. Included in the acquired
assets of Arnold was $50,763,000 in cash, which was used to partially finance
the acquisition. Also on November 30, 2001, concurrent with the acquisition of
Arnold, the Company sold Arnolds logistics business (ARLO) to members of the
ARLO management team and Mr. Edward H. Arnold, the former Chairman, President
and Chief Executive Officer of Arnold, for $105,000,000 in cash. The net
acquisition consideration of $403,068,000 was financed with borrowings under a
new credit facility, proceeds from an accounts receivable securitization, the
issuance of $225,000,000 in senior notes, and available cash.

The acquisition of Arnold was accounted for as a purchase business combination
and accordingly, the assets acquired and liabilities assumed were recorded at
their estimated fair values on the acquisition date. The excess of the
purchase price paid over the fair value of the net assets acquired, totaling
approximately $253,532,000, has been recorded as goodwill. The purchase price
allocation reflected in these financial statements for the acquisition is
preliminary and may be adjusted as estimated fair values of assets acquired and
liabilities assumed are finalized. Upon the finalization of the valuation
process, a portion of the amount initially classified as goodwill in the
financial statements may be reclassified to the tangible and identifiable
intangible assets acquired, based on their estimated fair values at the date of
the acquisition.

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS No. 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets arising
from business combinations completed after June 30, 2001. SFAS No. 142
prohibits the amortization of goodwill and intangible assets with indefinite
useful lives. SFAS No. 142 requires that these assets be reviewed for
impairment at least annually. Intangible assets with finite lives will continue
to be amortized over their estimated useful lives. Additionally, SFAS No. 142
requires that goodwill included in the carrying value of equity method
investments no longer be amortized.

The Company adopted the provisions of SFAS No. 142 effective January 1, 2002.
At that date, the carrying value of consolidated goodwill reflected in the
balance sheet amounted to approximately $268.3 million. Had SFAS No. 142 not
been in effect, amortization of goodwill would have reduced net income by
approximately $3.6 million ($0.19 per share-diluted) and $0.6 million ($0.03
per share-diluted) for the two quarters ended June 15, 2002 and the year ended
December 31, 2001, respectively.

The Company performed the transitional impairment test of goodwill and
indefinite lived intangible assets as of January 1, 2002. This assessment
included completing a comparison of the carrying value of goodwill at the
reporting unit level (as defined by SFAS No. 142) to the estimated fair values
of the individual reporting units based on unleveraged, discounted cash flow
valuation models developed by management. Based on the results of the
valuation procedures performed by the Company, the carrying value of goodwill
does not appear to be in excess of fair value at the January 1, 2002
measurement date. Accordingly, no goodwill impairment has been recognized in
the Companys consolidated results of operations for the twelve-week and
twenty-four week periods ended June 15, 2002.

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Note 4Earnings per Share

The following table sets forth the computation of basic and diluted earnings
per share:

|                                                       |  |                    |        |                         |  |                                       |        |               |  |   |        |  |  |   |        | 
|------------------------------------------------------ |  | ------------------ | ------ | ----------------------- |  | ------------------------------------- | ------ | ------------- |  | - | ------ |  |  | - | ------ | 
|                                                       |  | Twelve Weeks Ended |        | Twenty-four Weeks Ended
|                                                       |  | (Second Quarter)   |        | (Two Quarters)         
|                                                       |  | June 15, 2002      |        | June 16, 2001           |  | June 15, 2002                         |        | June 16, 2001
|                                                       |  |                    |        |                         |  |                                       |        |              
|                                                       |  |                    |        |                         |  | (in thousands, except per share data)
|Net income                                             |  | $                  | 5,674  |                         |  | $                                     | 4,023  |               |  | $ | 3,925  |  |  | $ | 9,013  | 
|                                                       |  |                    |        |                         |  |                                       |        |               |  |   |        |  |  |   |        | 
|Weighted-average shares for
basic earnings per share   |  |                    | 18,474 |                         |  |                                       | 18,440 |               |  |   | 18,514 |  |  |   | 18,445 | 
|Management incentive stock plans                       |  |                    | 414    |                         |  |                                       | 461    |               |  |   | 454    |  |  |   | 460    | 
|                                                       |  |                    |        |                         |  |                                       |        |               |  |   |        |  |  |   |        | 
|Weighted-average shares for
diluted earnings per share |  |                    | 18,888 |                         |  |                                       | 18,901 |               |  |   | 18,968 |  |  |   | 18,905 | 
|                                                       |  |                    |        |                         |  |                                       |        |               |  |   |        |  |  |   |        | 
|Earnings per share  basic                             |  | $                  | 0.30   |                         |  | $                                     | 0.22   |               |  | $ | 0.21   |  |  | $ | 0.49   | 
|Earnings per share  diluted                           |  | $                  | 0.30   |                         |  | $                                     | 0.22   |               |  | $ | 0.21   |  |  | $ | 0.48   | 

Note 5Segment information

The Company provides freight services primarily in three business segments:
Roadway Express (Roadway), New Penn Motor Express (New Penn), and Arnold
Transportation Services (ATS). Prior to the acquisition of Arnold in November
2001, the Company operated only in the Roadway segment. The Roadway segment
provides long haul LTL freight services in North America and offers services to
an additional 66 countries worldwide. The acquisition of Arnold added two new
segments, New Penn and ATS. The New Penn segment provides regional, next-day
LTL freight service primarily in the northeast region of the United States.
The ATS segment provides irregular route and dedicated freight services
throughout the eastern, midwestern, and southwestern regions of the United
States.

The Companys reportable segments are identified based on differences in
products, services, and management structure. The measurement basis of segment
profit or loss is operating income. Business segment assets consist primarily
of customer receivables, net carrier operating property, and goodwill.

|                        |                                               |   |                                  |         |          |   |                  |        |               |   |        |        |   |   |         |         | 
|----------------------- | --------------------------------------------- | - | -------------------------------- | ------- | -------- | - | ---------------- | ------ | ------------- | - | ------ | ------ | - | - | ------- | ------- | 
|                        |                                               |   | Twelve weeks ended June 15, 2002
|                        |                                               |   |                                  |         |          |   | (Second Quarter) |        |               |   |       
|                        |                                               |   | Roadway Express                  |         | New Penn |   | ATS              |        | Segment Total
|                        |                                               |   |                                  |         |          |   |                  |        |              
|                        |                                               |   |                                  |         |          |   | (in thousands)   |        |               |   |       
|Revenue                 |                                               | $ | 606,409                          |         |          | $ | 49,594           |        |               | $ | 41,146 |        |   | $ | 697,149 |        
|Operating expense:      |                                               |   |                                  |         |          |   |                  |        |               |   |        |        |   |   |         |        
|                        | Salaries, wages & benefits                    |   |                                  | 392,635 |          |   |                  | 32,722 |               |   |        | 11,876 |   |   |         | 437,233 | 
|                        | Operating supplies                            |   |                                  | 103,488 |          |   |                  | 5,937  |               |   |        | 8,332  |   |   |         | 117,757 | 
|                        | Purchased transportation                      |   |                                  | 57,317  |          |   |                  | 458    |               |   |        | 13,183 |   |   |         | 70,958  | 
|                        | Operating license and tax                     |   |                                  | 16,043  |          |   |                  | 1,384  |               |   |        | 831    |   |   |         | 18,258  | 
|                        | Insurance and claims                          |   |                                  | 11,964  |          |   |                  | 947    |               |   |        | 1,648  |   |   |         | 14,559  | 
|                        | Depreciation                                  |   |                                  | 15,416  |          |   |                  | 2,615  |               |   |        | 3,699  |   |   |         | 21,730  | 
|                        | Net loss (gain) on sale
of operating property |   |                                  | 303     |          |   |                  | (21    | )             |   |        | (103   | ) |   |         | 179     | 
|                        |                                               |   |                                  |         |          |   |                  |        |               |   |        |        |   |   |         |        
|Total operating expense |                                               |   | 597,166                          |         |          |   | 44,042           |        |               |   | 39,466 |        |   |   | 680,674 |        
|                        |                                               |   |                                  |         |          |   |                  |        |               |   |        |        |   |   |         |        
|Operating income        |                                               | $ | 9,243                            |         |          | $ | 5,552            |        |               | $ | 1,680  |        |   | $ | 16,475  |        
|                        |                                               |   |                                  |         |          |   |                  |        |               |   |        |        |   |   |         |        

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Note 5Segment information (continued)

Reconciliation of segment operating income to consolidated income before taxes:

|                                     |  |                |        |  
|------------------------------------ |  | -------------- | ------ | -
|                                     |  | (in thousands)
|Segment operating income             |  | $              | 16,475 |  
|Unallocated corporate income         |  |                | 11     |  
|Interest (expense)                   |  |                | (5,477 | )
|Other (expense), net                 |  |                | (1,313 | )
|                                     |  |                |        |  
|Consolidated net income before taxes |  | $              | 9,696  |  
|                                     |  |                |        |  

|                        |                                               |   |                                       |         |          |   |         |        |               |   |         |        |   |   |           |         | 
|----------------------- | --------------------------------------------- | - | ------------------------------------- | ------- | -------- | - | ------- | ------ | ------------- | - | ------- | ------ | - | - | --------- | ------- | 
|                        |                                               |   | Twenty-four weeks ended June 15, 2002
|                        |                                               |   | (Two Quarters)                       
|                        |                                               |   | Roadway Express                       |         | New Penn |   | ATS     |        | Segment Total
|                        |                                               |   |                                       |         |          |   |         |        |              
|                        |                                               |   | (in thousands)                       
|Revenue                 |                                               | $ | 1,159,967                             |         |          | $ | 95,003  |        |               | $ | 79,347  |        |   | $ | 1,334,317 |        
|Operating expense:      |                                               |   |                                       |         |          |   |         |        |               |   |         |        |   |   |           |        
|                        | Salaries, wages & benefits                    |   |                                       | 758,970 |          |   |         | 63,431 |               |   |         | 24,186 |   |   |           | 846,587 | 
|                        | Operating supplies                            |   |                                       | 198,987 |          |   |         | 12,051 |               |   |         | 16,346 |   |   |           | 227,384 | 
|                        | Purchased transportation                      |   |                                       | 108,443 |          |   |         | 841    |               |   |         | 24,670 |   |   |           | 133,954 | 
|                        | Operating license and tax                     |   |                                       | 30,231  |          |   |         | 2,742  |               |   |         | 1,671  |   |   |           | 34,644  | 
|                        | Insurance and claims                          |   |                                       | 22,352  |          |   |         | 1,841  |               |   |         | 3,357  |   |   |           | 27,550  | 
|                        | Depreciation                                  |   |                                       | 30,685  |          |   |         | 5,305  |               |   |         | 7,377  |   |   |           | 43,367  | 
|                        | Net loss (gain) on sale
of operating property |   |                                       | 649     |          |   |         | (71    | )             |   |         | (102   | ) |   |           | 476     | 
|                        |                                               |   |                                       |         |          |   |         |        |               |   |         |        |   |   |           |        
|Total operating expense |                                               |   | 1,150,317                             |         |          |   | 86,140  |        |               |   | 77,505  |        |   |   | 1,313,962 |        
|                        |                                               |   |                                       |         |          |   |         |        |               |   |         |        |   |   |           |        
|Operating income        |                                               | $ | 9,650                                 |         |          | $ | 8,863   |        |               | $ | 1,842   |        |   | $ | 20,355    |        
|                        |                                               |   |                                       |         |          |   |         |        |               |   |         |        |   |   |           |        
|Total assets            |                                               | $ | 713,832                               |         |          | $ | 336,587 |        |               | $ | 180,792 |        |   | $ | 1,231,211 |        

Reconciliation of segment operating income to consolidated income before taxes:

|                                     |  |                |         |  
|------------------------------------ |  | -------------- | ------- | -
|                                     |  | (in thousands)
|Segment operating income             |  | $              | 20,355  |  
|Unallocated corporate income         |  |                |        |  
|Interest (expense)                   |  |                | (10,941 | )
|Other (expense), net                 |  |                | (2,623  | )
|                                     |  |                |         |  
|Consolidated net income before taxes |  | $              | 6,791   |  
|                                     |  |                |         |  

7



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##### Table of Contents



Note 5Segment information (continued)

Reconciliation of total segment assets to total consolidated assets at June 15, 2002:

|                                     |  |                |           |  
|------------------------------------ |  | -------------- | --------- | -
|                                     |  | (in thousands)
|Total segment assets                 |  | $              | 1,231,211 |  
|Unallocated corporate assets         |  |                | 60,739    |  
|Elimination of intercompany balances |  |                | (45,567   | )
|                                     |  |                |           |  
|Consolidated assets                  |  | $              | 1,246,383 |  
|                                     |  |                |           |  

Note 6Comprehensive Income

Comprehensive income differs from net income due to foreign currency
translation adjustments as shown below:

|                                         |  |                    |       |                         |  |                |       |               |  |   |       |   |  |   |       | 
|---------------------------------------- |  | ------------------ | ----- | ----------------------- |  | -------------- | ----- | ------------- |  | - | ----- | - |  | - | ----- | 
|                                         |  | Twelve Weeks Ended |       | Twenty-four Weeks Ended
|                                         |  | (Second Quarter)   |       | (Two Quarters)         
|                                         |  | June 15, 2002      |       | June 16, 2001           |  | June 15, 2002  |       | June 16, 2001
|                                         |  |                    |       |                         |  |                |       |              
|                                         |  |                    |       |                         |  | (in thousands) |       |               |  |  
|Net income                               |  | $                  | 5,674 |                         |  | $              | 4,023 |               |  | $ | 3,925 |   |  | $ | 9,013 | 
|Foreign currency
translation
adjustments |  |                    | 1,122 |                         |  |                | 1,529 |               |  |   | (56   | ) |  |   | 565   | 
|                                         |  |                    |       |                         |  |                |       |               |  |   |       |   |  |   |       | 
|Comprehensive income                     |  | $                  | 6,796 |                         |  | $              | 5,552 |               |  | $ | 3,869 |   |  | $ | 9,578 | 
|                                         |  |                    |       |                         |  |                |       |               |  |   |       |   |  |   |       | 

Note 7Contingent Matter

The Companys former parent is currently under examination by the Internal
Revenue Service for tax years 1994 and 1995, years prior to the spin-off of the
Company. The IRS has proposed substantial adjustments for these tax years for
multiemployer pension plan deductions. The IRS is challenging the timing, not
the validity of these deductions. The Company is unable to predict the
ultimate outcome of this matter, however, its former parent intends to
vigorously contest these proposed adjustments.

Under a tax sharing agreement entered into by the Company and its former parent
at the time of the spin-off, the Company is obligated to reimburse the former
parent for any additional taxes and interest which relate to the Companys
business prior to the spin-off. The amount and timing of such payments, if
any, is dependent on the ultimate resolution of the former parents disputes
with the IRS and the determination of the nature and extent of the obligations
under the tax sharing agreement. The Company has established certain reserves
with respect to these proposed adjustments. There can be no assurance,
however, that the amount or timing of any liability of the Company to the
former parent will not have a material adverse effect on the Companys results
of operations and financial position.

8



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##### Table of Contents



Note 8Guarantor and Non-Guarantor Subsidiaries

The credit facility borrowings and the senior notes issued in connection with
the acquisition of Arnold are secured by a first-priority perfected lien on all
of the capital stock of the Companys direct subsidiaries. They are also
supported by guarantees provided by all of the Companys material subsidiaries,
which are wholly owned. These guarantees are full and unconditional, joint and
several.

The following condensed consolidating financial statements set forth the
Companys balance sheets, statements of income, and statements of cash flows
for the same time periods as the financial statements presented in Item 1
above. In the following schedules Parent Company refers to Roadway
Corporation, Guarantor Subsidiaries refers to non-minor domestic
subsidiaries, and Non-guarantor subsidiaries refers to foreign and minor
domestic subsidiaries and Eliminations represent the adjustments necessary to
(a) eliminate intercompany transactions and (b) eliminate the investments in
the Companys subsidiaries.

|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |       | 
|-------------------------------------------------------------------------------- | ------------------------------------------ | ------ | --- | ------------ |  | ------------ | ----- | ------------- |  | ------------ | ------------- | -- |  | - | ---- | ------ | - | - | ----- | ----- | 
|Condensed Consolidating Balance Sheets                                           |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|June
15, 2002                                                                    |                                            |        |     |              |  | Guarantor    |       | Non-Guarantor |  |              |               |    |  |   |      |       
|                                                                                 |                                            | Parent |     | Subsidiaries |  | Subsidiaries |       | Eliminations  |  | Consolidated
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |              
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              | (in millions) |    |  |   |     
|Cash and cash equivalents                                                        |                                            | $      | 9   |              |  | $            | 67    |               |  | $            | 5             |    |  | $ |     |        |   | $ | 81    |      
|Accounts receivable, including retained
interest in securitized receivables, net |                                            |        |    |              |  |              | 179   |               |  |              | 15            |    |  |   |     |        |   |   | 194   |      
|Due from affiliates                                                              |                                            |        | 35  |              |  |              | 361   |               |  |              |              |    |  |   | (396 | )      |   |   |      |      
|Prepaid expenses and supplies                                                    |                                            |        |    |              |  |              | 27    |               |  |              |              |    |  |   |     |        |   |   | 27    |      
|Deferred income taxes                                                            |                                            |        |    |              |  |              | 17    |               |  |              |              |    |  |   |     |        |   |   | 17    |      
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|                                                                                 | Total current assets                       |        |     | 44           |  |              |       | 651           |  |              |               | 20 |  |   |      | (396   | ) |   |       | 319   | 
|Carrier operating property, at cost                                              |                                            |        |    |              |  |              | 1,587 |               |  |              | 27            |    |  |   |     |        |   |   | 1,614 |      
|Less allowance for depreciation                                                  |                                            |        |    |              |  |              | 1,011 |               |  |              | 14            |    |  |   |     |        |   |   | 1,025 |      
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|                                                                                 | Net carrier operating property             |        |     |             |  |              |       | 576           |  |              |               | 13 |  |   |      |       |   |   |       | 589   | 
|Goodwill, net                                                                    |                                            |        |    |              |  |              | 253   |               |  |              | 15            |    |  |   |     |        |   |   | 268   |      
|Investment in subsidiaries                                                       |                                            |        | 629 |              |  |              | (2    | )             |  |              |              |    |  |   | (627 | )      |   |   |      |      
|Deferred income taxes                                                            |                                            |        |    |              |  |              | 34    |               |  |              |              |    |  |   |     |        |   |   | 34    |      
|Long-term assets                                                                 |                                            |        | 11  |              |  |              | 25    |               |  |              |              |    |  |   |     |        |   |   | 36    |      
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|                                                                                 | Total assets                               |        | $   | 684          |  |              | $     | 1,537         |  |              | $             | 48 |  |   | $    | (1,023 | ) |   | $     | 1,246 | 
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|Accounts payable                                                                 |                                            | $      | (1  | )            |  | $            | 168   |               |  | $            | 8             |    |  | $ |     |        |   | $ | 175   |      
|Due to affiliates                                                                |                                            |        | 332 |              |  |              | 25    |               |  |              | 39            |    |  |   | (396 | )      |   |   |      |      
|Salaries and wages                                                               |                                            |        |    |              |  |              | 114   |               |  |              | 2             |    |  |   |     |        |   |   | 116   |      
|Current portion of long-term debt                                                |                                            |        |    |              |  |              | 19    |               |  |              |              |    |  |   |     |        |   |   | 19    |      
|Freight and casualty claims payable                                              |                                            |        |    |              |  |              | 56    |               |  |              | 1             |    |  |   |     |        |   |   | 57    |      
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|                                                                                 | Total current liabilities                  |        |     | 331          |  |              |       | 382           |  |              |               | 50 |  |   |      | (396   | ) |   |       | 367   | 
|Casualty claims and other                                                        |                                            |        |    |              |  |              | 61    |               |  |              |              |    |  |   |     |        |   |   | 61    |      
|Deferred income taxes                                                            |                                            |        |    |              |  |              | 34    |               |  |              |              |    |  |   |     |        |   |   | 34    |      
|Long-term debt                                                                   |                                            |        |    |              |  |              | 304   |               |  |              |              |    |  |   |     |        |   |   | 304   |      
|Accrued pension and retiree medical                                              |                                            |        |    |              |  |              | 127   |               |  |              |              |    |  |   |     |        |   |   | 127   |      
|Total shareholders equity                                                       |                                            |        | 353 |              |  |              | 629   |               |  |              | (2            | )  |  |   | (627 | )      |   |   | 353   |      
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|                                                                                 | Total liabilities and shareholders equity |        | $   | 684          |  |              | $     | 1,537         |  |              | $             | 48 |  |   | $    | (1,023 | ) |   | $     | 1,246 | 
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      

9



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##### Table of Contents



Note 8Guarantor and Non-Guarantor Subsidiaries (continued)

|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |       | 
|-------------------------------------------------------------------------------- | ------------------------------------------ | ------ | --- | ------------ |  | ------------ | ----- | ------------- |  | ------------ | ------------- | -- |  | - | ---- | ------ | - | - | ----- | ----- | 
|Condensed Consolidating Balance Sheets                                           |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|December 31, 2001                                                                |                                            |        |     |              |  | Guarantor    |       | Non-Guarantor |  |              |               |    |  |   |      |       
|                                                                                 |                                            | Parent |     | Subsidiaries |  | Subsidiaries |       | Eliminations  |  | Consolidated
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |              
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              | (in millions) |    |  |   |     
|Cash and cash equivalents                                                        |                                            | $      | 35  |              |  | $            | 87    |               |  | $            | 1             |    |  | $ |     |        |   | $ | 123   |      
|Accounts receivable, including retained
interest in securitized receivables, net |                                            |        | 1   |              |  |              | 187   |               |  |              | 15            |    |  |   |     |        |   |   | 203   |      
|Due from affiliates                                                              |                                            |        | 11  |              |  |              | 369   |               |  |              | 1             |    |  |   | (381 | )      |   |   |      |      
|Prepaid expenses and supplies                                                    |                                            |        |    |              |  |              | 16    |               |  |              |              |    |  |   |     |        |   |   | 16    |      
|Deferred income taxes                                                            |                                            |        |    |              |  |              | 19    |               |  |              |              |    |  |   |     |        |   |   | 19    |      
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|                                                                                 | Total current assets                       |        |     | 47           |  |              |       | 678           |  |              |               | 17 |  |   |      | (381   | ) |   |       | 361   | 
|Carrier operating property, at cost                                              |                                            |        |    |              |  |              | 1,596 |               |  |              | 26            |    |  |   |     |        |   |   | 1,622 |      
|Less allowance for depreciation                                                  |                                            |        |    |              |  |              | 1,001 |               |  |              | 13            |    |  |   |     |        |   |   | 1,014 |      
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|                                                                                 | Net carrier operating property             |        |     |             |  |              |       | 595           |  |              |               | 13 |  |   |      |       |   |   |       | 608   | 
|Goodwill, net                                                                    |                                            |        |    |              |  |              | 253   |               |  |              | 15            |    |  |   |     |        |   |   | 268   |      
|Investment in subsidiaries                                                       |                                            |        | 662 |              |  |              | (4    | )             |  |              |              |    |  |   | (658 | )      |   |   |      |      
|Deferred income taxes                                                            |                                            |        |    |              |  |              | 31    |               |  |              |              |    |  |   |     |        |   |   | 31    |      
|Long-term assets                                                                 |                                            |        | 10  |              |  |              | 25    |               |  |              |              |    |  |   |     |        |   |   | 35    |      
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|                                                                                 | Total assets                               |        | $   | 719          |  |              | $     | 1,578         |  |              | $             | 45 |  |   | $    | (1,039 | ) |   | $     | 1,303 | 
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|Accounts payable                                                                 |                                            | $      | 15  |              |  | $            | 193   |               |  | $            | 9             |    |  | $ |     |        |   | $ | 217   |      
|Due to affiliates                                                                |                                            |        | 344 |              |  |              | 1     |               |  |              | 36            |    |  |   | (381 | )      |   |   |      |      
|Salaries and wages                                                               |                                            |        |    |              |  |              | 119   |               |  |              | 3             |    |  |   |     |        |   |   | 122   |      
|Current portion of long-term debt                                                |                                            |        |    |              |  |              | 18    |               |  |              |              |    |  |   |     |        |   |   | 18    |      
|Freight and casualty claims payable                                              |                                            |        |    |              |  |              | 55    |               |  |              | 1             |    |  |   |     |        |   |   | 56    |      
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|                                                                                 | Total current liabilities                  |        |     | 359          |  |              |       | 386           |  |              |               | 49 |  |   |      | (381   | ) |   |       | 413   | 
|Casualty claims and other                                                        |                                            |        |    |              |  |              | 66    |               |  |              |              |    |  |   |     |        |   |   | 66    |      
|Deferred income taxes                                                            |                                            |        |    |              |  |              | 36    |               |  |              |              |    |  |   |     |        |   |   | 36    |      
|Long-term debt                                                                   |                                            |        |    |              |  |              | 307   |               |  |              |              |    |  |   |     |        |   |   | 307   |      
|Accrued pension and retiree medical                                              |                                            |        |    |              |  |              | 121   |               |  |              |              |    |  |   |     |        |   |   | 121   |      
|Total shareholders equity                                                       |                                            |        | 360 |              |  |              | 662   |               |  |              | (4            | )  |  |   | (658 | )      |   |   | 360   |      
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      
|                                                                                 | Total liabilities and shareholders equity |        | $   | 719          |  |              | $     | 1,578         |  |              | $             | 45 |  |   | $    | (1,039 | ) |   | $     | 1,303 | 
|                                                                                 |                                            |        |     |              |  |              |       |               |  |              |               |    |  |   |      |        |   |   |       |      

10



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##### Table of Contents



Note 8Guarantor and
Non-Guarantor Subsidiaries (continued)

|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |     | 
|-------------------------------------------- | ------------------------------------------ | --------- | -- | ------------- | - | ------------ | --- | ------------- | - | ------------ | ------------- | -- |  | - | -- | -- | - | - | --- | --- | 
|Condensed Consolidating Statements of Income |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |   
|Twelve Weeks Ended June 15, 2002             |                                            | Guarantor |    | Non-Guarantor |   |              |     |               |   |              |               |   
|(Second Quarter)                             |                                            | Parent    |    | Subsidiaries  |   | Subsidiaries |     | Eliminations  |   | Consolidated
|                                             |                                            |           |    |               |   |              |     |               |   |             
|                                             |                                            |           |    |               |   |              |     |               |   |              | (in
millions) |    |  |   |    |    |   |   |    
|Revenue                                      |                                            | $         |   |               |   | $            | 668 |               |   | $            | 30            |    |  | $ | (1 | )  |   | $ | 697 |    
|                                            
|                                            
|                                            
|                                            
|Operating expenses:                          |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|                                            
|                                            
|                                            
|                                            
|                                             | Salaries, wages and benefits               |           |    | 1             |   |              |     | 430           |   |              |               | 9  |  |   |    |   |   |   |     | 440 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Operating supplies and expenses            |           |    | (1            | ) |              |     | 110           |   |              |               | 7  |  |   |    | (1 | ) |   |     | 115 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Purchased transportation                   |           |    |              |   |              |     | 62            |   |              |               | 9  |  |   |    |   |   |   |     | 71  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Operating taxes and licenses               |           |    |              |   |              |     | 18            |   |              |               |   |  |   |    |   |   |   |     | 18  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Insurance and claims expenses              |           |    |              |   |              |     | 15            |   |              |               |   |  |   |    |   |   |   |     | 15  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Provision for depreciation                 |           |    |              |   |              |     | 21            |   |              |               | 1  |  |   |    |   |   |   |     | 22  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Net loss on disposal of
operating property |           |    |              |   |              |     |              |   |              |               |   |  |   |    |   |   |   |     |    | 
|                                            
|                                            
|                                            
|                                            
|                                             | Results of affiliates                      |           |    | (4            | ) |              |     | (2            | ) |              |               |   |  |   |    | 6  |   |   |     |    | 
|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|Total operating expenses                     |                                            |           | (4 | )             |   |              | 654 |               |   |              | 26            |    |  |   | 5  |    |   |   | 681 |    
|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|Operating income                             |                                            |           | 4  |               |   |              | 14  |               |   |              | 4             |    |  |   | (6 | )  |   |   | 16  |    
|                                            
|                                            
|                                            
|                                            
|Other (expenses), net                        |                                            |           |   |               |   |              | (6  | )             |   |              |              |    |  |   |   |    |   |   | (6  | )  
|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|Income before income taxes                   |                                            |           | 4  |               |   |              | 8   |               |   |              | 4             |    |  |   | (6 | )  |   |   | 10  |    
|                                            
|                                            
|                                            
|                                            
|(Benefit) provision for income taxes         |                                            |           | (2 | )             |   |              | 4   |               |   |              | 2             |    |  |   |   |    |   |   | 4   |    
|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|Net income                                   |                                            | $         | 6  |               |   | $            | 4   |               |   | $            | 2             |    |  | $ | (6 | )  |   | $ | 6   |    
|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|Twelve Weeks Ended June 16, 2002             |                                            |           |    |               |   | Guarantor    |     | Non-Guarantor |   |              |               |    |  |   |    |   
|(Second Quarter)                             |                                            | Parent    |    | Subsidiaries  |   | Subsidiaries |     | Eliminations  |   | Consolidated
|                                             |                                            |           |    |               |   |              |     |               |   |             
|                                             |                                            |           |    |               |   |              |     |               |   |              | (in
millions) |    |  |   |    |    |   |   |    
|Revenue                                      |                                            | $         |   |               |   | $            | 615 |               |   | $            | 28            |    |  | $ |   |    |   | $ | 643 |    
|                                            
|                                            
|                                            
|                                            
|Operating expenses:                          |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|                                            
|                                            
|                                            
|                                            
|                                             | Salaries, wages and benefits               |           |    |              |   |              |     | 403           |   |              |               | 9  |  |   |    |   |   |   |     | 412 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Operating supplies and expenses            |           |    |              |   |              |     | 109           |   |              |               | 7  |  |   |    |   |   |   |     | 116 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Purchased transportation                   |           |    |              |   |              |     | 54            |   |              |               | 10 |  |   |    |   |   |   |     | 64  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Operating taxes and licenses               |           |    |              |   |              |     | 16            |   |              |               |   |  |   |    |   |   |   |     | 16  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Insurance and claims expenses              |           |    |              |   |              |     | 12            |   |              |               |   |  |   |    |   |   |   |     | 12  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Provision for depreciation                 |           |    |              |   |              |     | 15            |   |              |               | 1  |  |   |    |   |   |   |     | 16  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Net loss on disposal of
operating property |           |    |              |   |              |     | 1             |   |              |               |   |  |   |    |   |   |   |     | 1   | 
|                                            
|                                            
|                                            
|                                            
|                                             | Results of affiliates                      |           |    |              |   |              |     |              |   |              |               |   |  |   |    |   |   |   |     |    | 
|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|Total operating expenses                     |                                            |           |   |               |   |              | 610 |               |   |              | 27            |    |  |   |   |    |   |   | 637 |    
|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|Operating income                             |                                            |           |   |               |   |              | 5   |               |   |              | 1             |    |  |   |   |    |   |   | 6   |    
|                                            
|                                            
|                                            
|                                            
|Other income, net                            |                                            |           |   |               |   |              | 1   |               |   |              |              |    |  |   |   |    |   |   | 1   |    
|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|Income before income taxes                   |                                            |           |   |               |   |              | 6   |               |   |              | 1             |    |  |   |   |    |   |   | 7   |    
|                                            
|                                            
|                                            
|                                            
|Provision for income taxes                   |                                            |           |   |               |   |              | 2   |               |   |              | 1             |    |  |   |   |    |   |   | 3   |    
|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    
|Net income                                   |                                            | $         |   |               |   | $            | 4   |               |   | $            |              |    |  | $ |   |    |   | $ | 4   |    
|                                             |                                            |           |    |               |   |              |     |               |   |              |               |    |  |   |    |    |   |   |     |    

11



---



##### Table of Contents



Note 8Guarantor and
Non-Guarantor Subsidiaries (continued)

|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |     | 
|-------------------------------------------- | ------------------------------------------ | --------- | -- | ------------- | - | ------------ | ------------- | ------------ | ------------ | ------------ | ------------- | -- |  | - | -- | -- | - | - | ----- | --- | 
|Condensed Consolidating Statements of Income |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |   
|Twenty-four Weeks Ended June 15, 2002        |                                            | Guarantor |    | Non-Guarantor |   |              |               |              |              |              |               |   
|(Two Quarters)                               |                                            | Parent    |    | Subsidiaries  |   | Subsidiaries |               | Eliminations | Consolidated
|                                             |                                            |           |    |               |   |              |               |              |             
|                                             |                                            |           |    |               |   |              | (in
millions) |              |              |              |               |    |  |   |   
|Revenue                                      |                                            | $         |   |               |   | $            | 1,281         |              |              | $            | 54            |    |  | $ | (1 | )  |   | $ | 1,334 |    
|                                            
|                                            
|                                            
|                                            
|Operating expenses:                          |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|                                            
|                                            
|                                            
|                                            
|                                             | Salaries, wages and benefits               |           |    | 3             |   |              |               | 831          |              |              |               | 17 |  |   |    |   |   |   |       | 851 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Operating supplies and expenses            |           |    | (3            | ) |              |               | 213          |              |              |               | 13 |  |   |    | (1 | ) |   |       | 222 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Purchased transportation                   |           |    |              |   |              |               | 117          |              |              |               | 17 |  |   |    |   |   |   |       | 134 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Operating taxes and licenses               |           |    |              |   |              |               | 34           |              |              |               | 1  |  |   |    |   |   |   |       | 35  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Insurance and claims expenses              |           |    |              |   |              |               | 28           |              |              |               |   |  |   |    |   |   |   |       | 28  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Provision for depreciation                 |           |    |              |   |              |               | 42           |              |              |               | 2  |  |   |    |   |   |   |       | 44  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Net loss on disposal of
operating property |           |    |              |   |              |               |             |              |              |               |   |  |   |    |   |   |   |       |    | 
|                                            
|                                            
|                                            
|                                            
|                                             | Results of affiliates                      |           |    |              |   |              |               | (2           | )            |              |               |   |  |   |    | 2  |   |   |       |    | 
|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|Total operating expenses                     |                                            |           |   |               |   |              | 1,263         |              |              |              | 50            |    |  |   | 1  |    |   |   | 1,314 |    
|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|Operating income                             |                                            |           |   |               |   |              | 18            |              |              |              | 4             |    |  |   | (2 | )  |   |   | 20    |    
|                                            
|                                            
|                                            
|                                            
|Other (expenses), net                        |                                            |           |   |               |   |              | (13           | )            |              |              |              |    |  |   |   |    |   |   | (13   | )  
|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|Income before income taxes                   |                                            |           |   |               |   |              | 5             |              |              |              | 4             |    |  |   | (2 | )  |   |   | 7     |    
|                                            
|                                            
|                                            
|                                            
|(Benefit) provision for income taxes         |                                            |           | (4 | )             |   |              | 5             |              |              |              | 2             |    |  |   |   |    |   |   | 3     |    
|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|Net income                                   |                                            | $         | 4  |               |   | $            |              |              |              | $            | 2             |    |  | $ | (2 | )  |   | $ | 4     |    
|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|Twenty-four Weeks Ended June 16, 2001        |                                            | Guarantor |    | Non-Guarantor |   |              |               |              |              |              |               |   
|(Two Quarters)                               |                                            | Parent    |    | Subsidiaries  |   | Subsidiaries |               | Eliminations |              | Consolidated
|                                             |                                            |           |    |               |   |              |               |              |              |             
|                                             |                                            |           |    |               |   |              |               |              |              |              | (in
millions) |    |  |   |    |    |   |   |      
|Revenue                                      |                                            | $         |   |               |   | $            | 1,240         |              |              | $            | 54            |    |  | $ | (1 | )  |   | $ | 1,293 |    
|                                            
|                                            
|                                            
|                                            
|Operating expenses:                          |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|                                            
|                                            
|                                            
|                                            
|                                             | Salaries, wages and benefits               |           |    |              |   |              |               | 805          |              |              |               | 19 |  |   |    |   |   |   |       | 824 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Operating supplies and expenses            |           |    |              |   |              |               | 216          |              |              |               | 14 |  |   |    |   |   |   |       | 230 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Purchased transportation                   |           |    |              |   |              |               | 110          |              |              |               | 19 |  |   |    | (1 | ) |   |       | 128 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Operating taxes and licenses               |           |    |              |   |              |               | 33           |              |              |               | 1  |  |   |    |   |   |   |       | 34  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Insurance and claims expenses              |           |    |              |   |              |               | 25           |              |              |               |   |  |   |    |   |   |   |       | 25  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Provision for depreciation                 |           |    |              |   |              |               | 29           |              |              |               | 2  |  |   |    |   |   |   |       | 31  | 
|                                            
|                                            
|                                            
|                                            
|                                             | Net loss on disposal of
operating property |           |    |              |   |              |               | 1            |              |              |               |   |  |   |    |   |   |   |       | 1   | 
|                                            
|                                            
|                                            
|                                            
|                                             | Results of affiliates                      |           |    |              |   |              |               | 3            |              |              |               |   |  |   |    | (3 | ) |   |       |    | 
|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|Total operating expenses                     |                                            |           |   |               |   |              | 1,222         |              |              |              | 55            |    |  |   | (4 | )  |   |   | 1,273 |    
|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|Operating income (loss)                      |                                            |           |   |               |   |              | 18            |              |              |              | (1            | )  |  |   | 3  |    |   |   | 20    |    
|                                            
|                                            
|                                            
|                                            
|Other (expenses), net                        |                                            |           |   |               |   |              | (3            | )            |              |              | (1            | )  |  |   |   |    |   |   | (4    | )  
|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|Income (loss) before income taxes            |                                            |           |   |               |   |              | 15            |              |              |              | (2            | )  |  |   | 3  |    |   |   | 16    |    
|                                            
|                                            
|                                            
|                                            
|Provision for income taxes                   |                                            |           |   |               |   |              | 6             |              |              |              | 1             |    |  |   |   |    |   |   | 7     |    
|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    
|Net income (loss)                            |                                            | $         |   |               |   | $            | 9             |              |              | $            | (3            | )  |  | $ | 3  |    |   | $ | 9     |    
|                                             |                                            |           |    |               |   |              |               |              |              |              |               |    |  |   |    |    |   |   |       |    

12



---



##### Table of Contents



Note 8Guarantor and
Non-Guarantor Subsidiaries (continued)

|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |     |   | 
|--------------------------------------------------------------------------------- | ------------------------------------------------ | --------- | --- | ------------- |  | ------------ | --- | ------------ | - | ------------ | -- | ------------- | - | - | - | - |  | - | --- | --- | - | 
|Condensed Consolidating Statement of Cash Flows                                   |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |  
|Twenty-four Weeks Ended June 15, 2002                                             |                                                  | Guarantor |     | Non-Guarantor |  |              |     |              |   |              |    |              
|(Two Quarters)                                                                    |                                                  | Parent    |     | Subsidiaries  |  | Subsidiaries |     | Eliminations |   | Consolidated
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |             
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    | (in
millions) |   |   |   |   |  |   |     |    
|Net cash (used) provided by operating
activities                                  |                                                  | $         | (62 | )             |  | $            | 46  |              |   | $            | 5  |               |   | $ |  |   |  | $ | (11 | )  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cash
flows from investing activities
Purchases of carrier operating property, net |                                                  |           |    |               |  |              | (24 | )            |   |              | (1 | )             |   |   |  |   |  |   | (25 | )  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Business acquisitions                                                             |                                                  |           |    |               |  |              |    |              |   |              |   |               |   |   |  |   |  |   |    |    
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |    
|                                                                                  | Net cash (used) in investing activities          |           |     |              |  |              |     | (24          | ) |              |    | (1            | ) |   |   |  |  |   |     | (25 | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cash
flows from financing activities
Dividends received (paid)                    |                                                  |           | 40  |               |  |              | (42 | )            |   |              |   |               |   |   |  |   |  |   | (2  | )  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Accounts receivable securitization                                                |                                                  |           |    |               |  |              |    |              |   |              |   |               |   |   |  |   |  |   |    |    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Treasury stock activitynet                                                       |                                                  |           | (1  | )             |  |              |    |              |   |              |   |               |   |   |  |   |  |   | (1  | )  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Debt issuance costs                                                               |                                                  |           |    |               |  |              |    |              |   |              |   |               |   |   |  |   |  |   |    |    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Long-term borrowings (repayment)                                                  |                                                  |           | (3  | )             |  |              |    |              |   |              |   |               |   |   |  |   |  |   | (3  | )  
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |    
|                                                                                  | Net cash provided (used) in financing
activities |           |     | 36            |  |              |     | (42          | ) |              |    |              |   |   |   |  |  |   |     | (6  | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Effect of exchange rate changes on cash                                           |                                                  |           |    |               |  |              |    |              |   |              |    |               |   |   |   |   |  |   |    |    
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |    
|Net (decrease) increase in cash and cash
equivalents                              |                                                  |           | (26 | )             |  |              | (20 | )            |   |              | 4  |               |   |   |  |   |  |   | (42 | )  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cash and cash equivalents at beginning
of year                                    |                                                  |           | 35  |               |  |              | 87  |              |   |              | 1  |               |   |   |  |   |  |   | 123 |    
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |    
|Cash and cash equivalents at end of year                                          |                                                  | $         | 9   |               |  | $            | 67  |              |   | $            | 5  |               |   | $ |  |   |  | $ | 81  |    
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |    
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |    
|Twenty-four Weeks Ended June 15, 2001                                             |                                                  | Guarantor |     | Non-Guarantor |  |              |     |              |   |              |    |              
|(Two Quarters)                                                                    |                                                  | Parent    |     | Subsidiaries  |  | Subsidiaries |     | Eliminations |   | Consolidated
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |             
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    | (in
millions) |   |   |   |   |  |   |     |    
|Net cash provided by operating activities                                         |                                                  | $         |    |               |  | $            | 42  |              |   | $            | 3  |               |   | $ |  |   |  | $ | 45  |    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cash
flows from investing activities
Purchases of carrier operating property, net |                                                  |           |    |               |  |              | (31 | )            |   |              | (2 | )             |   |   |  |   |  |   | (33 | )  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Business
acquisitions                                                             |                                                  |           |    |               |  |              |    |              |   |              |   |               |   |   |  |   |  |   |    |    
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |    
|                                                                                  | Net cash (used) in investing activities          |           |     |              |  |              |     | (31          | ) |              |    | (2            | ) |   |   |  |  |   |     | (33 | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cash
flows from financing activities
Dividends paid                               |                                                  |           |    |               |  |              | (2  | )            |   |              |   |               |   |   |  |   |  |   | (2  | )  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Treasury stock activitynet                                                       |                                                  |           |    |               |  |              |    |              |   |              |   |               |   |   |  |   |  |   |    |    
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |    
|                                                                                  | Net cash (used) in financing activities          |           |     |              |  |              |     | (2           | ) |              |    |              |   |   |   |  |  |   |     | (2  | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Effect of exchange rate changes on cash                                           |                                                  |           |    |               |  |              |    |              |   |              |   |               |   |   |  |   |  |   |    |    
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |    
|Net increase in cash and cash equivalents                                         |                                                  |           |    |               |  |              | 9   |              |   |              | 1  |               |   |   |  |   |  |   | 10  |    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cash and cash equivalents at
beginning of year                                    |                                                  |           |    |               |  |              | 61  |              |   |              | 4  |               |   |   |  |   |  |   | 65  |    
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |    
|Cash and cash equivalents at end of year                                          |                                                  | $         |    |               |  | $            | 70  |              |   | $            | 5  |               |   | $ |  |   |  | $ | 75  |    
|                                                                                  |                                                  |           |     |               |  |              |     |              |   |              |    |               |   |   |   |   |  |   |     |    

13



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##### Table of Contents






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

The Condensed Statements of Consolidated Income and Consolidated Cash Flows
include the results of operations for New Penn Motor Express (New Penn) and
Arnold Transportation Services (ATS) for all periods subsequent to their
acquisition through the purchase of Arnold Industries (Arnold) on November 30,
2001. The Condensed Consolidated Balance Sheets at June 15, 2002 and December
31, 2001 also include New Penn and ATS.

Consolidated results of operations for the second quarter ended June 15, 2002
compared to the second quarter ended June 16, 2001

Consolidated revenue was $697 million in the current quarter, an 8.6% increase
from second quarter 2001. Operating expenses grew by 7.0%, and the operating
ratio improved by 1.4 points to 97.6, compared to last years 99.0. The
Companys consolidated operating income was $16.5 million, an increase of 168%
from last year. Operating income at Roadway Express (Roadway) increased 50%,
with the remainder attributable to the inclusion of the results of New Penn and
ATS. The net other expense of $6.8 million is primarily composed of interest
expense of $5.5 million arising from the financing associated with the Arnold
acquisition. The Company had net income of $5.7 million or $0.30 per share
(diluted), for the second quarter ended June 15, 2002, compared to income of
$4.0 million, or $0.22 per share (diluted) in the same quarter last year.

The effective tax rate for the second quarter of 2002 was 41.5%, compared to the
42.5% rate in the first quarter of 2001. This tax rate differs from the Federal
statutory rate due to the impact of state taxes, taxes on foreign operations,
and non-deductible operating expenses.

Consolidated results of operations for the two quarters ended June 15, 2002
compared to the two quarters ended June 16, 2001

Consolidated revenue was $1.3 billion in the current year-to-date period, a 3.2%
increase from the same period last year. Operating expenses grew by 3.3%, and
the operating ratio of 98.5 was up slightly compared to 98.4 in 2001. The
Companys consolidated operating income was $20.4 million, nearly unchanged from
a year ago, although the current year results include New Penn and ATS. The net
other expense of $13.6 million is primarily composed of interest expense of
$10.9 million arising from the financing associated with the Arnold acquisition.
The Company had net income of $3.9 million or $0.21 per share (diluted), for the
year-to-date period, compared to net income of $9.0 million, or $0.48 per share
(diluted) in the same year-to-date period of 2001. Second quarter results
exceeded the year-to-date results because of the loss in the first quarter,
brought on by the severe tonnage decline at our largest subsidiary, Roadway
Express, during January of 2002, when daily tonnage levels were 18% below
January 2001 levels. In addition, during the first quarter, interest and other
non-operating expenses exceeded the combined operating incomes of Roadway
Express, New Penn, and ATS.

The effective tax rate for the two quarters ended June 15, 2002 was 42.2%,
compared to the 42.5% rate in the two quarters ended June 15, 2001. This tax
rate differs from the Federal statutory rate due to the impact of state taxes,
taxes on foreign operations, and non-deductible operating expenses.

Liquidity and capital resources

At the end of the quarter, cash and marketable securities amounted to $81
million, a $42 million decrease from year-end 2001. Major components of the use
of cash were an $18 million tax payment primarily arising from the sale of
Arnolds logistics operations (ARLO), $11 million for the purchase of Arnold
shares presented for redemption, net capital expenditures of $25 million, and a
$9 million purchase of Company stock to fund restricted stock plans.

The Company was debt free until the acquisition of Arnold in November 2001. The
acquisition was financed with borrowings under a new credit facility, proceeds
from an accounts receivable securitization, the issuance of $225 million in
senior notes, and available cash.

14



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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)

The credit facility consists of a five-year, $150 million senior revolving
credit facility with a $100 million sublimit for letters of credit, and a
five-year $175 million senior term loan. As of June 15, 2002, there were no
amounts outstanding under the revolving credit facility, but availability had
been reduced by $74 million as a result of the issuance of letters of credit,
primarily related to casualty claims. The term loan was initially drawn in full
to partially fund the acquisition of Arnold. After-tax proceeds of $75 million
from the sale of ARLO were used to pay down borrowings on this facility in the
fourth quarter of 2001. As of June 15, 2002, $97.5 million was outstanding under
the term loan facility, with quarterly installments ranging from $2.5 million in
2002 to $7.5 million in 2006. The term loan facility accrued interest at the
rate of 3.89% as of June 15, 2002.

Under the accounts receivable securitization arrangement, Roadway can finance up
to $200 million of its domestic accounts receivable. Under this arrangement,
undivided interests in Roadways domestic accounts receivable are sold through a
special purpose entity (SPE), a wholly owned consolidated subsidiary of Roadway,
without recourse, to an unrelated third party financial conduit. At June 15,
2002, undivided interests in the accounts receivable pool aggregating $100
million were sold under this arrangement, leaving an additional $100 million
available.

The arrangement provides that new Roadway accounts receivable are immediately
sold to the SPE. Roadway, through its SPE, retains the risk of credit loss on
the receivables. The conduit has collection rights to recover payments from the
receivables in the designated pool and Roadway retains collection and
administrative responsibilities for the undivided interests in the pool.

The Company also issued $225 million of 8 1/4% senior notes due December 1, 2008
in connection with the Arnold acquisition. Interest is due semi-annually June 1
and December 1.

The Companys Canadian subsidiary also has a $10 million credit facility
available for borrowing under a secured revolving line of credit and bankers
acceptances. At June 15, 2002, there were no amounts outstanding on this
facility.

At June 15, 2002, the Company had outstanding debt of $322.5 million, $18.7
million of which is classified as current on the June 15, 2002 balance sheet.
Remaining borrowing capacity of $186 million was available under the
arrangements described above at June 15, 2002.

The financing arrangements include covenants that require the Company to comply
with certain financial ratios, including leverage and fixed-charge coverage
ratios, and maintenance of a minimum level of tangible net worth. The Company
was in compliance with all covenants as of June 15, 2002.

Management intends to promptly extinguish the outstanding debt as available cash
flows permit, which will position the Company for other qualified acquisition
opportunities.

Both Roadway and New Penn have planned to implement general rate increases of
approximately 5.9% effective August 4, 2002.

Capital expenditures are financed primarily through internally generated funds.
Future expenditures are expected to be financed in a similar manner, except for
a planned replacement in 2002 of 15% of Roadways linehaul tractors through
operating lease arrangements. In addition to these leases, capital expenditures
of $95 million are planned for 2002. The capital expenditures are primarily
designated for revenue equipment, facilities, and information systems.
Management believes that cash flows from operations and current financing
sources will be sufficient to support its working capital needs, projected
capital expenditures, dividends to shareholders, and anticipated expenditures
for other corporate purposes during 2002.

15



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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)

Under the terms of the Companys current contract with the Teamsters, which
extends through March 31, 2003, wage and benefit increases approximating 2% were
effective April 1, 2002. The current contract also allows for an increase in the
amount of the Companys contribution to the union health and welfare plans
effective August 1, 2002. At present, the amount of such increase has not been
determined. The Company and the Teamsters have had ongoing discussions under
auspices of the current contract. Both parties recognize the benefits in the
marketplace of an early contractual agreement, and are making efforts to
accomplish this task. The Companys intent is to settle the new contract earlier
than the previous contract, which was settled seven weeks prior to its
expiration date.

Reserves for casualty claims represent managements estimates of claims for
property damage and public liability and workers compensation. The Company
manages casualty claims with assistance of a third party administrator (TPA)
along with oversight by a major risk management provider. The Company is
self-insured for these claims with retention limits that have varied over the
years from $20,000 to $3,000,000. The Company and its TPAs closely monitor the
liability balances by using actual adjuster evaluations of each claim and a
statistical benchmarking database for analysis of reserve accuracy.

The Company receives notices from the Environmental Protection Agency from time
to time identifying it as a potentially responsible party under the
Comprehensive Environmental Response Compensation and Liability Act for various
Superfund sites. The Company believes that its obligation with regard to these
sites is not significant.

Roadway Express, Inc.
Results of operations for the second quarter ended June 15, 2002 compared to the
second quarter ended June 16, 2001

Roadway delivered 1.6 million tons of freight in the current quarter, down 8.1%
compared to the prior year quarter. Less-than-truckload (LTL) tons were down
7.1% and truckload tons were down 12.4%. Tonnage declines were attributable to
reduced business levels in the national economy. Net revenue per ton was
$378.67, up 2.7% compared to the same quarter last year. The improvement in
revenue per ton was due to the general rate increase during the third quarter of
2001, continuing adjustments in contract rates, and freight mix changes. The
industrys pricing environment continues to remain stable, which mitigates some
of the impact of the reduced tonnage. A variable rate fuel surcharge averaged
1.9% of revenue in the current quarter compared to 3.0% of revenue in the
prior-year quarter. Without the revenue reduction relating to the fuel
surcharge, freight rates were up 3.8% compared to the second quarter of 2001.
Total operating expenses were down $38.8 million, or 6.1%, reflecting the
reduced tonnage level. The operating ratio improved to 98.5, compared to a 99.0
in the same quarter last year.

Salaries, wages, and benefits as a percentage of revenue increased to 64.7%, up
from 64.2% in the second quarter of 2001. This increase is attributable to the
Company-sponsored pension plan, reflecting the broad decline in the stock market
resulting in the elimination of the over-funded status of the plan during 2001.

Operating supplies and expenses declined to 17% of revenue, down from 18% in the
prior year quarter, primarily due to reduced fuel prices and reduced maintenance
costs arising from fleet replacement in recent years. The reduction in purchased
transportation expense reflects the decreased use of railroads in linehaul
service, as rail miles declined to 23.8% of linehaul miles compared to 24.4% in
the second quarter last year. The reduction of operating expenses in line with
revenue reductions is the result of cost controls and Roadways efforts to make
its cost structure more variable.

16



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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)

Results of operations for the two quarters ended June 15, 2002 compared to the
two quarters ended June 16, 2001

Roadway delivered 3.1 million tons of freight in the first two quarters of 2002,
down 12.0% compared to the prior year. LTL tons were down 11.2% and truckload
tons were down 15.8%. Tonnage declines were attributable to reduced business
levels in the national economy. Daily tonnage levels in January 2002 were 18%
below those in January 2001. Each month after January showed improvements in
daily tonnage levels, and the improvements in 2002 were larger than in the
comparable periods of 2001. The tonnage recovery could be characterized as slow
but steady. Net revenue per ton was $377.99, up 2.0% compared to the prior year
period. A variable rate fuel surcharge averaged 1.4% of revenue during the first
two quarters of 2002, compared to 3.2% of revenue in the same period of 2001.
Without the revenue reduction relating to the fuel surcharge, freight rates were
up 3.8% compared to the first two quarters of 2001. The operating ratio
deteriorated to 99.2, from 98.4 in the same period last year.

Salaries, wages, and benefits as a percentage of revenue increased to 65.4%, up
from 63.8% in the first two quarters of 2001. This increase is attributable to
administrative wages, driver wages and benefits, and pension benefit costs. Due
to the business level reductions which started in the second half of 2000 when
the economic downturn began, approximately 18% of Roadways hourly work force is
currently on layoff, and the number of exempt positions has been reduced by 11%.
Despite these significant reductions in staff, reduced business levels,
particularly in the first quarter of 2002, resulted in the increase in salaries,
wages, and benefits as a percentage of revenue. Roadway has not made radical
changes to its infrastructure that would cut customer service capability or
prevent it from taking advantage of an economic upturn.

All other operating expenses were flat or down as a percentage of revenue,
except for depreciation expense, which was up less than 0.3% of revenue. The
reduction of operating expenses in line with revenue reductions is the result of
cost controls and Roadways efforts to make its cost structure more variable.

The following table is a comparison of operating statistics for the first two
quarters of 2002 and 2001:

|                          |  |                    |           |                         |  |               |           |               |  |   |           |  |  |   |           | 
|------------------------- |  | ------------------ | --------- | ----------------------- |  | ------------- | --------- | ------------- |  | - | --------- |  |  | - | --------- | 
|                          |  | Twelve Weeks Ended |           | Twenty-four Weeks Ended
|                          |  | (Second Quarter)   |           | (Two Quarters)         
|                          |  | June 15, 2002      |           | June 16, 2001           |  | June 15, 2002 |           | June 16, 2001
|                          |  |                    |           |                         |  |               |           |              
|LTL tons                  |  |                    | 1,312,943 |                         |  |               | 1,412,585 |               |  |   | 2,518,808 |  |  |   | 2,835,008 | 
|                         
|                         
|                         
|                         
|Truckload tons            |  |                    | 288,494   |                         |  |               | 329,228   |               |  |   | 550,005   |  |  |   | 652,918   | 
|                          |  |                    |           |                         |  |               |           |               |  |   |           |  |  |   |           | 
|Total tons                |  |                    | 1,601,437 |                         |  |               | 1,741,813 |               |  |   | 3,068,813 |  |  |   | 3,487,926 | 
|                         
|                         
|                         
|                         
|LTL shipments             |  |                    | 2,770,619 |                         |  |               | 3,035,344 |               |  |   | 5,341,308 |  |  |   | 6,094,449 | 
|                         
|                         
|                         
|                         
|Truckload shipments       |  |                    | 34,799    |                         |  |               | 39,457    |               |  |   | 66,901    |  |  |   | 78,696    | 
|                          |  |                    |           |                         |  |               |           |               |  |   |           |  |  |   |           | 
|Total shipments           |  |                    | 2,805,418 |                         |  |               | 3,074,801 |               |  |   | 5,408,209 |  |  |   | 6,173,145 | 
|                         
|                         
|                         
|                         
|Revenue per LTL ton       |  | $                  | 428.11    |                         |  | $             | 419.34    |               |  | $ | 427.06    |  |  | $ | 420.25    | 
|                         
|                         
|                         
|                         
|Revenue per truckload ton |  | $                  | 153.63    |                         |  | $             | 151.12    |               |  | $ | 153.25    |  |  | $ | 154.97    | 

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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)

New Penn Motor Express

Revenue was $50 million for the second quarter and $95 million for the first two
quarters of 2002. Daily tonnage levels were 13% lower than last years
pre-acquisition business levels at the beginning of the first quarter due to the
economic downturn. Following the February 2002 closing of a significant
competitor in the northeast, New Penns daily business levels improved to
approximate those of a year ago by the end of the second quarter. The operating
ratio for New Penn for the second quarter was 88.8 and was 90.7 for the first
two quarters of 2002.

The following table shows the operating statistics for the first two quarters of
2002:

|                          |  |                  |         |                |  |   |         | 
|------------------------- |  | ---------------- | ------- | -------------- |  | - | ------- | 
|                          |  | Twelve           |         | Twenty-four   
|                          |  | Weeks Ended      |         | Weeks Ended   
|                          |  | (Second Quarter) |         | (Two Quarters)
|                          |  | June 15, 2002    |         | June 15, 2002 
|                          |  |                  |         |               
|LTL tons                  |  |                  | 193,891 |                |  |   | 371,155 | 
|                         
|                         
|                         
|                         
|Truckload tons            |  |                  | 27,935  |                |  |   | 51,848  | 
|                          |  |                  |         |                |  |   |         | 
|Total tons                |  |                  | 221,826 |                |  |   | 423,003 | 
|                         
|                         
|                         
|                         
|LTL shipments             |  |                  | 428,547 |                |  |   | 823,701 | 
|                         
|                         
|                         
|                         
|Truckload shipments       |  |                  | 3,459   |                |  |   | 6,483   | 
|                          |  |                  |         |                |  |   |         | 
|Total shipments           |  |                  | 432,006 |                |  |   | 830,184 | 
|                         
|                         
|                         
|                         
|Revenue per LTL ton       |  | $                | 240.54  |                |  | $ | 241.13  | 
|                         
|                         
|                         
|                         
|Revenue per truckload ton |  | $                | 105.81  |                |  | $ | 106.24  | 

ATS

Revenue during the current quarter was $41 million, and was $79 million for the
first two quarters of 2002. These revenue levels are slightly above the
pre-acquisition levels of last year. Operating income was $1.7 million for the
second quarter, and $1.8 million for the first two quarters. The operating ratio
in the second quarter was 95.9, and was 97.7 in the first two quarters.

The following table shows the operating statistics for the first two quarters of
2002:

|                                             |  |                  |       |                |  |   |       | 
|-------------------------------------------- |  | ---------------- | ----- | -------------- |  | - | ----- | 
|                                             |  | Twelve           |       | Twenty-four   
|                                             |  | Weeks Ended      |       | Weeks Ended   
|                                             |  | (Second Quarter) |       | (Two Quarters)
|                                             |  | June 15, 2002    |       | June 15, 2002 
|                                             |  |                  |       |               
|Revenue per tractor per week                 |  | $                | 2,576 |                |  | $ | 2,569 | 
|                                            
|                                            
|                                            
|                                            
|Average number of tractors during the period |  |                  | 1,331 |                |  |   | 1,325 | 

18



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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)

While most of the information provided herein is historical, some of the
comments made are forward-looking statements intended to qualify for the safe
harbor from liability under the Private Securities Litigation Reform Act of
1995. All statements that are not historical statements of fact are
forward-looking statements for purposes of these provisions and are subject to
numerous risks and uncertainties that could cause Roadway Corporations actual
performance to differ from that expressed or implied in the forward-looking
statements. The risks and uncertainties include variable factors such as
capacity and rate levels in the motor freight industry, fuel prices, the state
of the national economy, the success of the Corporations operating plans, and
uncertainties concerning the impact recent terrorist activities may have on the
economy and the motor freight industry. These forward-looking statements reflect
managements analysis of future events only as of the date of this report.
Roadway Corporation undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. In addition to the disclosure contained herein, readers should
carefully review risks and uncertainties contained in other documents Roadway
Corporation files from time to time with the Securities and Exchange Commission.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

Roadway has interest rate swap agreements with major commercial banks to fix the
interest rate of its trailer leases from previous variable interest rates
principally based on LIBOR. The value of the leases upon which the payments are
based was not changed. The agreements, which expire from 2002 to 2004, fix
Roadways interest costs at rates varying from 5.62% to 6.59% on leases with a
notional amount of $22 million, and prevent the Companys earnings from being
directly affected by changes in interest rates related to the trailer leases.
The fair value of Roadways interest rate swaps at June 15, 2002 is a liability
of approximately $433,000, net of income taxes, and has been determined using
proprietary financial models developed by the lending institutions which are
counterparties to the swap arrangements.

The Company may incur economic losses due to adverse changes in foreign currency
exchange rates, primarily with fluctuations in the Canadian dollar and Mexican
peso. A 10% adverse change in foreign currency exchange rates would have no
material impact on future cash flows and earnings of the Company.

Fuel price increases are mitigated by a variable rate fuel surcharge when the
national average diesel fuel price exceeds $1.10 per gallon. This surcharge has
been in place at varying rates since the third quarter of 1999, and was
discussed above.

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##### Table of Contents






PART II  OTHER INFORMATION




Item 2. Changes in Securities
and Use of Proceeds

(c)  On June 23, 2002, the Company granted 2,000 shares of common stock, par
value $0.01 per share, to each of its non-employee directors pursuant to the
Roadway Corporation Non-Employee directors Equity and Deferred Compensation
Plan as a component of each directors annual retainer. These transactions were
exempt from the registration provisions of the Securities Act of 1933 pursuant
to Section 4(2) of such Act for transactions not involving a public offering
based on the fact that the shares were issued to accredited investors.




Item 6. Exhibits and Reports on Form 8-K

|            |  |                                                                                                                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |                                                                                                                                                                                            
|            |  |                                                                                                                                                                                            
|99.1        |  | Condensed Consolidated Financial Statements of Roadway Express, Inc. and Subsidiaries for the quarters ended June 15,
2002 and June 16, 2001.                                              
|           
|           
|           
|           
|99.2        |  | Condensed Consolidated Financial Statements of Roadway Next Day Corporation for the quarter ended June 15, 2002
(Successor Period) and the quarter ended June 30, 2001 (Predecessor Period)

(b)  List of the Current Reports on Form 8-K that were filed in the second
quarter of 2002:

|                        |  |                                                                                                                                                                            
|----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Filing Date of Form 8-K |  | Description                                                                                                                                                                
|                        |  |                                                                                                                                                                            
|May 24, 2002            |  | Press release
announcing that the Company filed a shelf registration statement for the potential offering
of up to $250 million of common stock and senior debt securities.




SIGNATURES

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

|                    |  |  |                     |                                                                                                          
|------------------- |  |  | ------------------- | ---------------------------------------------------------------------------------------------------------
|                    |  |  | ROADWAY CORPORATION
|                   
|Date: July 18, 2002 |  |  | By:                 | /s/ J. Dawson CunninghamJ. Dawson Cunningham, Executive Vice President
       and Chief Financial Officer
|                   
|Date: July 18, 2002 |  |  | By:                 | /s/ John G. ColemanJohn G. Coleman,
Controller                                                           
|

20