##### Table of Contents



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

(Mark One)

|         |  |                                                                                          
|-------- |  | -----------------------------------------------------------------------------------------
|[
ü
]    |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 
|         |  | For the Period ended September 7, 2002.                                                  
|         |  | OR                                                                                       
|[      ] |  | 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 October 5, 2002 was 19,354,407.





---

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 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                           
|                               | Item 4. Disclosure Controls and Procedures                                                   
|PART II  OTHER INFORMATION   
|                               | Item 2. Changes in securities and use of proceeds                                            
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                    
|CERTIFICATIONS                
|Exhibit 99.1                  
|Exhibit 99.2                  



---



##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1. Financial Statements

Roadway Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)

|                                           |                                                                                  |                                 |           |         |                                   |   |                   |         |     |  | 
|------------------------------------------ | -------------------------------------------------------------------------------- | ------------------------------- | --------- | ------- | --------------------------------- | - | ----------------- | ------- | --- |  | 
|                                           |                                                                                  |                                 |           |         | September 7, 2002                 |   | December 31, 2001
|                                           |                                                                                  |                                 |           |         |                                   |   |                  
|                                           |                                                                                  |                                 |           |         | (in thousands, except share data)
|Assets                                     |                                                                                  |                                 |           |         |                                   |   |                   |        
|Current assets:                            |                                                                                  |                                 |           |         |                                   |   |                   |        
|                                           | Cash and cash equivalents                                                        |                                 | $         | 73,601  |                                   |   | $                 | 122,873 |    
|                                           | Accounts receivable, including retained interest
in securitized receivables, net |                                 |           | 219,398 |                                   |   |                   | 203,175 |    
|                                           | Other current assets                                                             |                                 |           | 39,443  |                                   |   |                   | 34,406  |    
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Total current assets                       |                                                                                  |                                 | 332,442   |         |                                   |   | 360,454           |        
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Carrier operating property, at cost        |                                                                                  |                                 | 1,611,419 |         |                                   |   | 1,621,539         |        
|Less allowance for depreciation            |                                                                                  |                                 | 1,021,738 |         |                                   |   | 1,013,614         |        
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Net carrier operating property             |                                                                                  |                                 | 589,681   |         |                                   |   | 607,925           |        
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Goodwill, net                              |                                                                                  |                                 | 269,328   |         |                                   |   | 268,253           |        
|Other assets                               |                                                                                  |                                 | 74,513    |         |                                   |   | 66,217            |        
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Total assets                               |                                                                                  | $                               | 1,265,964 |         |                                   | $ | 1,302,849         |        
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Liabilities and shareholders equity       |                                                                                  |                                 |           |         |                                   |   |                   |        
|Current liabilities:                       |                                                                                  |                                 |           |         |                                   |   |                   |        
|                                           | Accounts payable                                                                 |                                 | $         | 187,335 |                                   |   | $                 | 216,765 |    
|                                           | Salaries and wages                                                               |                                 |           | 113,682 |                                   |   |                   | 122,175 |    
|                                           | Other current liabilities                                                        |                                 |           | 75,938  |                                   |   |                   | 74,153  |    
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Total current liabilities                  |                                                                                  |                                 | 376,955   |         |                                   |   | 413,093           |        
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Long-term liabilities:                     |                                                                                  |                                 |           |         |                                   |   |                   |        
|                                           | Casualty claims and other                                                        |                                 |           | 98,086  |                                   |   |                   | 101,841 |    
|                                           | Accrued pension and retiree medical                                              |                                 |           | 130,365 |                                   |   |                   | 121,020 |    
|                                           | Long-term debt                                                                   |                                 |           | 300,400 |                                   |   |                   | 307,000 |    
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Total long-term liabilities                |                                                                                  |                                 | 528,851   |         |                                   |   | 529,861           |        
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Shareholders equity:                      |                                                                                  |                                 |           |         |                                   |   |                   |        
|                                           | Common Stock  $.01 par value                                                    |                                 |           |         |                                   |   |                   |         |    
|                                           |                                                                                  | Authorized  100,000,000 shares |           |         |                                   |   |                   |         |     | 
|                                           |                                                                                  | Issued  20,556,714 shares      |           |         | 206                               |   |                   |         | 206 | 
|                                           | Other shareholders equity                                                       |                                 |           | 359,952 |                                   |   |                   | 359,689 |    
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Total shareholders equity                 |                                                                                  |                                 | 360,158   |         |                                   |   | 359,895           |        
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        
|Total liabilities and shareholders equity |                                                                                  | $                               | 1,265,964 |         |                                   | $ | 1,302,849         |        
|                                           |                                                                                  |                                 |           |         |                                   |   |                   |        

The number of shares of common stock outstanding at September 7, 2002 and
December 31, 2001 were 19,360,483 and 19,376,814, respectively.

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.

See notes to condensed consolidated financial statements.

1



---



##### Table of Contents



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

|                                     |                                                   |   |                                       |         |                   |   |         |         |  
|------------------------------------ | ------------------------------------------------- | - | ------------------------------------- | ------- | ----------------- | - | ------- | ------- | -
|                                     |                                                   |   | Twelve Weeks Ended                   
|                                     |                                                   |   | (Third Quarter)                      
|                                     |                                                   |   | September 7, 2002                     |         | September 8, 2001
|                                     |                                                   |   |                                       |         |                  
|                                     |                                                   |   | (in thousands, except per share data)
|Revenue                              |                                                   | $ | 721,309                               |         |                   | $ | 631,657 |        
|Operating expenses:                  |                                                   |   |                                       |         |                   |   |         |        
|                                     | Salaries, wages and benefits                      |   |                                       | 449,736 |                   |   |         | 404,722 |  
|                                     | Operating supplies and expenses                   |   |                                       | 116,484 |                   |   |         | 107,199 |  
|                                     | Purchased transportation                          |   |                                       | 76,288  |                   |   |         | 63,866  |  
|                                     | Operating taxes and licenses                      |   |                                       | 18,803  |                   |   |         | 16,342  |  
|                                     | Insurance and claims expense                      |   |                                       | 18,142  |                   |   |         | 8,777   |  
|                                     | Provision for depreciation                        |   |                                       | 21,876  |                   |   |         | 16,678  |  
|                                     | Net loss (gain) on disposal of operating property |   |                                       | 1,178   |                   |   |         | (88     | )
|                                     |                                                   |   |                                       |         |                   |   |         |        
|Total operating expenses             |                                                   |   | 702,507                               |         |                   |   | 617,496 |        
|                                     |                                                   |   |                                       |         |                   |   |         |        
|Operating income                     |                                                   |   | 18,802                                |         |                   |   | 14,161  |        
|Other (expense) income, net          |                                                   |   | (6,605                                | )       |                   |   | 314     |        
|                                     |                                                   |   |                                       |         |                   |   |         |        
|Income before income taxes           |                                                   |   | 12,197                                |         |                   |   | 14,475  |        
|Provision for income taxes           |                                                   |   | 5,261                                 |         |                   |   | 6,302   |        
|                                     |                                                   |   |                                       |         |                   |   |         |        
|Net income                           |                                                   | $ | 6,936                                 |         |                   | $ | 8,173   |        
|                                     |                                                   |   |                                       |         |                   |   |         |        
|Earnings per share  basic           |                                                   | $ | 0.38                                  |         |                   | $ | 0.44    |        
|Earnings per share  diluted         |                                                   | $ | 0.36                                  |         |                   | $ | 0.43    |        
|Average shares outstanding  basic   |                                                   |   | 18,478                                |         |                   |   | 18,455  |        
|Average shares outstanding  diluted |                                                   |   | 18,914                                |         |                   |   | 18,987  |        
|Dividends declared per share         |                                                   | $ | 0.05                                  |         |                   | $ | 0.05    |        

See notes to condensed consolidated financial statements.

2



---



##### Table of Contents



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

|                                     |                                            |   |                                       |           |                   |   |           |           | 
|------------------------------------ | ------------------------------------------ | - | ------------------------------------- | --------- | ----------------- | - | --------- | --------- | 
|                                     |                                            |   | Thirty-six Weeks Ended               
|                                     |                                            |   | (Three Quarters)                     
|                                     |                                            |   | September 7, 2002                     |           | September 8, 2001
|                                     |                                            |   |                                       |           |                  
|                                     |                                            |   | (in thousands, except per share data)
|Revenue                              |                                            | $ | 2,055,626                             |           |                   | $ | 1,924,251 |          
|Operating expenses:                  |                                            |   |                                       |           |                   |   |           |          
|                                     | Salaries, wages and benefits               |   |                                       | 1,300,359 |                   |   |           | 1,229,033 | 
|                                     | Operating supplies and expenses            |   |                                       | 339,143   |                   |   |           | 336,833   | 
|                                     | Purchased transportation                   |   |                                       | 210,242   |                   |   |           | 191,954   | 
|                                     | Operating taxes and licenses               |   |                                       | 53,519    |                   |   |           | 49,829    | 
|                                     | Insurance and claims expense               |   |                                       | 46,059    |                   |   |           | 34,044    | 
|                                     | Provision for depreciation                 |   |                                       | 65,494    |                   |   |           | 47,617    | 
|                                     | Net loss on disposal of operating property |   |                                       | 1,653     |                   |   |           | 534       | 
|                                     |                                            |   |                                       |           |                   |   |           |          
|Total operating expenses             |                                            |   | 2,016,469                             |           |                   |   | 1,889,844 |          
|                                     |                                            |   |                                       |           |                   |   |           |          
|Operating income                     |                                            |   | 39,157                                |           |                   |   | 34,407    |          
|Other (expense), net                 |                                            |   | (20,169                               | )         |                   |   | (4,257    | )        
|                                     |                                            |   |                                       |           |                   |   |           |          
|Income before income taxes           |                                            |   | 18,988                                |           |                   |   | 30,150    |          
|Provision for income taxes           |                                            |   | 8,127                                 |           |                   |   | 12,964    |          
|                                     |                                            |   |                                       |           |                   |   |           |          
|Net income                           |                                            | $ | 10,861                                |           |                   | $ | 17,186    |          
|                                     |                                            |   |                                       |           |                   |   |           |          
|Earnings per share  basic           |                                            | $ | 0.59                                  |           |                   | $ | 0.93      |          
|Earnings per share  diluted         |                                            | $ | 0.57                                  |           |                   | $ | 0.91      |          
|Average shares outstanding  basic   |                                            |   | 18,502                                |           |                   |   | 18,449    |          
|Average shares outstanding  diluted |                                            |   | 18,982                                |           |                   |   | 18,938    |          
|Dividends declared per share         |                                            | $ | 0.15                                  |           |                   | $ | 0.15      |          

See notes to condensed consolidated financial statements.

3



---



##### Table of Contents



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

|                                                     |  |                        |         |                   |  |   |         |  
|---------------------------------------------------- |  | ---------------------- | ------- | ----------------- |  | - | ------- | -
|                                                     |  | Thirty-six Weeks Ended
|                                                     |  | (Three Quarters)      
|                                                     |  | September 7, 2002      |         | September 8, 2001
|                                                     |  |                        |         |                  
|                                                     |  | (in thousands)        
|Cash flows from operating activities                 |  |                        |         |                   |  |   |         |  
|Net income                                           |  | $                      | 10,861  |                   |  | $ | 17,186  |  
|Depreciation                                         |  |                        | 65,494  |                   |  |   | 47,617  |  
|Other operating adjustments                          |  |                        | (43,982 | )                 |  |   | 132     |  
|                                                     |  |                        |         |                   |  |   |         |  
|Net cash provided by operating activities            |  |                        | 32,373  |                   |  |   | 64,935  |  
|                                                     |  |                        |         |                   |  |   |         |  
|Cash flows from investing activities                 |  |                        |         |                   |  |   |         |  
|Business acquisitions, net of cash acquired          |  |                        | (24,192 | )                 |  |   |        |  
|Purchases of carrier operating property              |  |                        | (51,231 | )                 |  |   | (46,305 | )
|Sales of carrier operating property                  |  |                        | 2,328   |                   |  |   | 2,445   |  
|                                                     |  |                        |         |                   |  |   |         |  
|Net cash (used) by investing activities              |  |                        | (73,095 | )                 |  |   | (43,860 | )
|                                                     |  |                        |         |                   |  |   |         |  
|Cash flows from financing activities                 |  |                        |         |                   |  |   |         |  
|Dividends paid                                       |  |                        | (2,908  | )                 |  |   | (2,906  | )
|Treasury stock activity, net                         |  |                        | (442    | )                 |  |   | (709    | )
|Long-term (repayments) borrowings                    |  |                        | (5,000  | )                 |  |   |        |  
|                                                     |  |                        |         |                   |  |   |         |  
|Net cash (used) by financing activities              |  |                        | (8,350  | )                 |  |   | (3,615  | )
|                                                     |  |                        |         |                   |  |   |         |  
|Effect of exchange rate changes on cash              |  |                        | (200    | )                 |  |   | 155     |  
|                                                     |  |                        |         |                   |  |   |         |  
|Net (decrease) increase in cash and cash equivalents |  |                        | (49,272 | )                 |  |   | 17,615  |  
|Cash and cash equivalents at beginning of period     |  |                        | 122,873 |                   |  |   | 64,939  |  
|                                                     |  |                        |         |                   |  |   |         |  
|Cash and cash equivalents at end of period           |  | $                      | 73,601  |                   |  | $ | 82,554  |  
|                                                     |  |                        |         |                   |  |   |         |  

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 thirty-six
weeks ended September 7, 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.

4



---



##### Table of Contents



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
$559,821,000, including direct acquisition costs as of September 7, 2002.
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 $81,798,000 in cash, net of $23,212,000 in tax. The net acquisition
consideration of $427,260,000 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 $254,512,000, 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 $5.3 million ($0.28 per share-diluted) and $0.6 million ($0.03
per share-diluted) for the three quarters ended September 7, 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
thirty-six week periods ended September 7, 2002.

5



---



##### Table of Contents



Note 4-Earnings per Share

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

|                                                       |  |                                       |        |                        |  |               |        |               |  |   |        |  |  |   |        | 
|------------------------------------------------------ |  | ------------------------------------- | ------ | ---------------------- |  | ------------- | ------ | ------------- |  | - | ------ |  |  | - | ------ | 
|                                                       |  | Twelve Weeks Ended                    |        | Thirty-six Weeks Ended
|                                                       |  | (Third Quarter)                       |        | (Three Quarters)      
|                                                       |  |                                       |        |                       
|                                                       |  | Sept. 7, 2002                         |        | Sept. 8, 2001          |  | Sept. 7, 2002 |        | Sept. 8, 2001
|                                                       |  |                                       |        |                        |  |               |        |              
|                                                       |  | (in thousands, except per share data)
|Net income                                             |  | $                                     | 6,936  |                        |  | $             | 8,173  |               |  | $ | 10,861 |  |  | $ | 17,186 | 
|                                                       |  |                                       |        |                        |  |               |        |               |  |   |        |  |  |   |        | 
|Weighted-average shares for
basic earnings per share   |  |                                       | 18,478 |                        |  |               | 18,455 |               |  |   | 18,502 |  |  |   | 18,449 | 
|Management incentive stock
plans                       |  |                                       | 436    |                        |  |               | 532    |               |  |   | 480    |  |  |   | 489    | 
|                                                       |  |                                       |        |                        |  |               |        |               |  |   |        |  |  |   |        | 
|Weighted-average shares for
diluted earnings per share |  |                                       | 18,914 |                        |  |               | 18,987 |               |  |   | 18,982 |  |  |   | 18,938 | 
|                                                       |  |                                       |        |                        |  |               |        |               |  |   |        |  |  |   |        | 
|Earnings per share  basic                             |  | $                                     | 0.38   |                        |  | $             | 0.44   |               |  | $ | 0.59   |  |  | $ | 0.93   | 
|Earnings per share  diluted                           |  | $                                     | 0.36   |                        |  | $             | 0.43   |               |  | $ | 0.57   |  |  | $ | 0.91   | 

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 September 7, 2002
|                        |                                               |   | (Third Quarter)                     
|                        |                                               |   | Roadway Express                      |         | New Penn |   | ATS    |        | Segment Total
|                        |                                               |   |                                      |         |          |   |        |        |              
|                        |                                               |   | (in thousands)                      
|Revenue                 |                                               | $ | 631,158                              |         |          | $ | 50,538 |        |               | $ | 39,613 |        |  | $ | 721,309 |        
|Operating expense:      |                                               |   |                                      |         |          |   |        |        |               |   |        |        |  |   |         |        
|                        | Salaries, wages & benefits                    |   |                                      | 402,918 |          |   |        | 33,171 |               |   |        | 11,719 |  |   |         | 447,808 | 
|                        | Operating supplies                            |   |                                      | 104,540 |          |   |        | 5,929  |               |   |        | 8,308  |  |   |         | 118,777 | 
|                        | Purchased transportation                      |   |                                      | 63,318  |          |   |        | 532    |               |   |        | 12,439 |  |   |         | 76,289  | 
|                        | Operating license and tax                     |   |                                      | 16,512  |          |   |        | 1,420  |               |   |        | 836    |  |   |         | 18,768  | 
|                        | Insurance and claims                          |   |                                      | 15,488  |          |   |        | 784    |               |   |        | 1,659  |  |   |         | 17,931  | 
|                        | Depreciation                                  |   |                                      | 15,507  |          |   |        | 2,452  |               |   |        | 3,797  |  |   |         | 21,756  | 
|                        | Net loss (gain) on sale
of operating property |   |                                      | 1,129   |          |   |        | (54    | )             |   |        | 103    |  |   |         | 1,178   | 
|                        |                                               |   |                                      |         |          |   |        |        |               |   |        |        |  |   |         |        
|Total operating expense |                                               |   | 619,412                              |         |          |   | 44,234 |        |               |   | 38,861 |        |  |   | 702,507 |        
|                        |                                               |   |                                      |         |          |   |        |        |               |   |        |        |  |   |         |        
|Operating income        |                                               | $ | 11,746                               |         |          | $ | 6,304  |        |               | $ | 752    |        |  | $ | 18,802  |        
|                        |                                               |   |                                      |         |          |   |        |        |               |   |        |        |  |   |         |        
|                        |                                               |   |                                      |         |          |   |        |        |               |   |        |        |  |   |         |        
|Operating ratio         |                                               |   | 98.1                                 | %       |          |   | 87.5   | %      |               |   | 98.1   | %      |  |   | 97.4    | %      

6



---



##### Table of Contents



Note 5-Segment information (continued)

Reconciliation of segment operating income to consolidated income before taxes:

|                                     |  |                |        |  
|------------------------------------ |  | -------------- | ------ | -
|                                     |  | (in thousands)
|Segment operating income             |  | $              | 18,802 |  
|Unallocated corporate income         |  |                |       |  
|Interest (expense)                   |  |                | (5,474 | )
|Other (expense), net                 |  |                | (1,131 | )
|                                     |  |                |        |  
|Consolidated net income before taxes |  | $              | 12,197 |  
|                                     |  |                |        |  

|                        |                                               |   |                                          |           |          |   |         |        |               |   |         |        |  |   |           |           | 
|----------------------- | --------------------------------------------- | - | ---------------------------------------- | --------- | -------- | - | ------- | ------ | ------------- | - | ------- | ------ |  | - | --------- | --------- | 
|                        |                                               |   | Thirty-six weeks ended September 7, 2002
|                        |                                               |   | (Three Quarters)                        
|                        |                                               |   | Roadway Express                          |           | New Penn |   | ATS     |        | Segment Total
|                        |                                               |   |                                          |           |          |   |         |        |              
|                        |                                               |   | (in thousands)                          
|Revenue                 |                                               | $ | 1,791,125                                |           |          | $ | 145,541 |        |               | $ | 118,960 |        |  | $ | 2,055,626 |          
|Operating expense:      |                                               |   |                                          |           |          |   |         |        |               |   |         |        |  |   |           |          
|                        | Salaries, wages & benefits                    |   |                                          | 1,161,888 |          |   |         | 96,602 |               |   |         | 35,905 |  |   |           | 1,294,395 | 
|                        | Operating supplies                            |   |                                          | 303,527   |          |   |         | 17,980 |               |   |         | 24,654 |  |   |           | 346,161   | 
|                        | Purchased transportation                      |   |                                          | 171,761   |          |   |         | 1,373  |               |   |         | 37,109 |  |   |           | 210,243   | 
|                        | Operating license and tax                     |   |                                          | 46,743    |          |   |         | 4,162  |               |   |         | 2,507  |  |   |           | 53,412    | 
|                        | Insurance and claims                          |   |                                          | 37,840    |          |   |         | 2,625  |               |   |         | 5,016  |  |   |           | 45,481    | 
|                        | Depreciation                                  |   |                                          | 46,192    |          |   |         | 7,757  |               |   |         | 11,175 |  |   |           | 65,124    | 
|                        | Net loss (gain) on sale
of operating property |   |                                          | 1,778     |          |   |         | (125   | )             |   |         |       |  |   |           | 1,653     | 
|                        |                                               |   |                                          |           |          |   |         |        |               |   |         |        |  |   |           |          
|Total operating expense |                                               |   | 1,769,729                                |           |          |   | 130,374 |        |               |   | 116,366 |        |  |   | 2,016,469 |          
|                        |                                               |   |                                          |           |          |   |         |        |               |   |         |        |  |   |           |          
|Operating income        |                                               | $ | 21,396                                   |           |          | $ | 15,167  |        |               | $ | 2,594   |        |  | $ | 39,157    |          
|                        |                                               |   |                                          |           |          |   |         |        |               |   |         |        |  |   |           |          
|                        |                                               |   |                                          |           |          |   |         |        |               |   |         |        |  |   |           |          
|Operating ratio         |                                               |   | 98.8                                     | %         |          |   | 89.6    | %      |               |   | 97.8    | %      |  |   | 98.1      | %        
|                        |                                               |   |                                          |           |          |   |         |        |               |   |         |        |  |   |           |          
|Total assets            |                                               | $ | 725,538                                  |           |          | $ | 366,733 |        |               | $ | 153,312 |        |  | $ | 1,245,583 |          

Reconciliation of segment operating income to consolidated income before taxes:

|                                     |  |                |         |  
|------------------------------------ |  | -------------- | ------- | -
|                                     |  | (in thousands)
|Segment operating income             |  | $              | 39,157  |  
|Unallocated corporate income         |  |                |        |  
|Interest (expense)                   |  |                | (16,414 | )
|Other (expense), net                 |  |                | (3,755  | )
|                                     |  |                |         |  
|Consolidated net income before taxes |  | $              | 18,988  |  
|                                     |  |                |         |  

7



---



##### Table of Contents



Note 5-Segment information (continued)

Reconciliation of total segment assets to total consolidated assets at September 7, 2002:

|                                     |  |                |           |  
|------------------------------------ |  | -------------- | --------- | -
|                                     |  | (in thousands)
|Total segment assets                 |  | $              | 1,245,583 |  
|Unallocated corporate assets         |  |                | 36,104    |  
|Elimination of intercompany balances |  |                | (15,723   | )
|                                     |  |                |           |  
|Consolidated assets                  |  | $              | 1,265,964 |  
|                                     |  |                |           |  

Note 6-Comprehensive Income

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

|                                         |  |                    |       |                        |  |               |       |               |  |   |        |   |  |   |        | 
|---------------------------------------- |  | ------------------ | ----- | ---------------------- |  | ------------- | ----- | ------------- |  | - | ------ | - |  | - | ------ | 
|                                         |  | Twelve Weeks Ended |       | Thirty-six Weeks Ended
|                                         |  | (Third Quarter)    |       | (Three Quarters)      
|                                         |  |                    |       |                       
|                                         |  | Sept. 7, 2002      |       | Sept. 8, 2001          |  | Sept. 7, 2002 |       | Sept. 8, 2001
|                                         |  |                    |       |                        |  |               |       |              
|                                         |  | (in thousands)    
|Net income                               |  | $                  | 6,936 |                        |  | $             | 8,173 |               |  | $ | 10,861 |   |  | $ | 17,186 | 
|Foreign currency
translation
adjustments |  |                    | (470  | )                      |  |               | (471  | )             |  |   | (526   | ) |  |   | 93     | 
|                                         |  |                    |       |                        |  |               |       |               |  |   |        |   |  |   |        | 
|Comprehensive income                     |  | $                  | 6,466 |                        |  | $             | 7,702 |               |  | $ | 10,335 |   |  | $ | 17,279 | 
|                                         |  |                    |       |                        |  |               |       |               |  |   |        |   |  |   |        | 

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 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. We estimate the possible range of the payments that may
be due to the former parent to be approximately $7 million to $23 million in
additional taxes plus $4 million to $13 million in related interest, net of tax
benefit. 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



---



##### 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
September 7, 2002

|                                                                                 |                                            |   |               |     |              |   |              |       |               |   |              |    |  |   |      |        |   |   |       |       | 
|-------------------------------------------------------------------------------- | ------------------------------------------ | - | ------------- | --- | ------------ | - | ------------ | ----- | ------------- | - | ------------ | -- |  | - | ---- | ------ | - | - | ----- | ----- | 
|                                                                                 |                                            |   |               |     |              |   | Guarantor    |       | Non-Guarantor |   |              |    |  |   |      |        |  
|                                                                                 |                                            |   | Parent        |     | Subsidiaries |   | Subsidiaries |       | Eliminations  |   | Consolidated
|                                                                                 |                                            |   |               |     |              |   |              |       |               |   |             
|                                                                                 |                                            |   | (in millions)
|Cash and cash equivalents                                                        |                                            | $ | 4             |     |              | $ | 64           |       |               | $ | 6            |    |  | $ |     |        |   | $ | 74    |      
|Accounts receivable, including retained
interest in securitized receivables, net |                                            |   |              |     |              |   | 203          |       |               |   | 16           |    |  |   |     |        |   |   | 219   |      
|Due from affiliates                                                              |                                            |   | 14            |     |              |   | 356          |       |               |   |             |    |  |   | (370 | )      |   |   |      |      
|Prepaid expenses and supplies                                                    |                                            |   |              |     |              |   | 21           |       |               |   |             |    |  |   |     |        |   |   | 21    |      
|Deferred income taxes                                                            |                                            |   |              |     |              |   | 18           |       |               |   |             |    |  |   |     |        |   |   | 18    |      
|                                                                                 |                                            |   |               |     |              |   |              |       |               |   |              |    |  |   |      |        |   |   |       |      
|                                                                                 | Total current assets                       |   |               | 18  |              |   |              | 662   |               |   |              | 22 |  |   |      | (370   | ) |   |       | 332   | 
|Carrier operating property, at cost                                              |                                            |   |              |     |              |   | 1,583        |       |               |   | 28           |    |  |   |     |        |   |   | 1,611 |      
|Less allowance for depreciation                                                  |                                            |   |              |     |              |   | 1,006        |       |               |   | 15           |    |  |   |     |        |   |   | 1,021 |      
|                                                                                 |                                            |   |               |     |              |   |              |       |               |   |              |    |  |   |      |        |   |   |       |      
|                                                                                 | Net carrier operating property             |   |               |    |              |   |              | 577   |               |   |              | 13 |  |   |      |       |   |   |       | 590   | 
|Goodwill, net                                                                    |                                            |   |              |     |              |   | 255          |       |               |   | 15           |    |  |   |     |        |   |   | 270   |      
|Investment in subsidiaries                                                       |                                            |   | 658           |     |              |   | (1           | )     |               |   |             |    |  |   | (657 | )      |   |   |      |      
|Deferred income taxes                                                            |                                            |   | 3             |     |              |   | 36           |       |               |   |             |    |  |   |     |        |   |   | 39    |      
|Long-term assets                                                                 |                                            |   | 10            |     |              |   | 25           |       |               |   |             |    |  |   |     |        |   |   | 35    |      
|                                                                                 |                                            |   |               |     |              |   |              |       |               |   |              |    |  |   |      |        |   |   |       |      
|                                                                                 | Total assets                               |   | $             | 689 |              |   | $            | 1,554 |               |   | $            | 50 |  |   | $    | (1,027 | ) |   | $     | 1,266 | 
|                                                                                 |                                            |   |               |     |              |   |              |       |               |   |              |    |  |   |      |        |   |   |       |      
|Accounts payable                                                                 |                                            | $ | (2            | )   |              | $ | 180          |       |               | $ | 9            |    |  | $ |     |        |   | $ | 187   |      
|Due to affiliates                                                                |                                            |   | 326           |     |              |   | 5            |       |               |   | 39           |    |  |   | (370 | )      |   |   |      |      
|Salaries and wages                                                               |                                            |   |              |     |              |   | 112          |       |               |   | 2            |    |  |   |     |        |   |   | 114   |      
|Current portion of long-term debt                                                |                                            |   |              |     |              |   | 20           |       |               |   |             |    |  |   |     |        |   |   | 20    |      
|Freight and casualty claims payable                                              |                                            |   |              |     |              |   | 55           |       |               |   | 1            |    |  |   |     |        |   |   | 56    |      
|                                                                                 |                                            |   |               |     |              |   |              |       |               |   |              |    |  |   |      |        |   |   |       |      
|                                                                                 | Total current liabilities                  |   |               | 324 |              |   |              | 372   |               |   |              | 51 |  |   |      | (370   | ) |   |       | 377   | 
|Casualty claims and other                                                        |                                            |   | 5             |     |              |   | 94           |       |               |   |             |    |  |   |     |        |   |   | 99    |      
|Long-term debt                                                                   |                                            |   |              |     |              |   | 300          |       |               |   |             |    |  |   |     |        |   |   | 300   |      
|Accrued pension and retiree medical                                              |                                            |   |              |     |              |   | 130          |       |               |   |             |    |  |   |     |        |   |   | 130   |      
|Total shareholders equity                                                       |                                            |   | 360           |     |              |   | 658          |       |               |   | (1           | )  |  |   | (657 | )      |   |   | 360   |      
|                                                                                 |                                            |   |               |     |              |   |              |       |               |   |              |    |  |   |      |        |   |   |       |      
|                                                                                 | Total liabilities and shareholders equity |   | $             | 689 |              |   | $            | 1,554 |               |   | $            | 50 |  |   | $    | (1,027 | ) |   | $     | 1,266 | 
|                                                                                 |                                            |   |               |     |              |   |              |       |               |   |              |    |  |   |      |        |   |   |       |      

9



---



##### 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                                                        |                                            |   |              |     |              |   | 102          |       |               |   |             |    |  |   |     |        |   |   | 102   |      
|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



---



##### Table of Contents



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

Condensed Consolidating Statements of Income
Twelve Weeks Ended September 7, 2002

|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |  |   |     |     | 
|--------------------------- | ------------------------------------------ | ------ | ------------- | ------------ | - | ------------ | --------- | ------------ | ------------- | ------------ | -- | -- |  | - | --- | -- |  | - | --- | --- | 
|                            |                                            |        |               |              |   |              | Guarantor |              | Non-Guarantor |              |    |    |  |   |     |    | 
|(Third Quarter)             |                                            | Parent |               | Subsidiaries |   | Subsidiaries |           | Eliminations |               | Consolidated
|                            |                                            |        |               |              |   |              |           |              |               |             
|                            |                                            |        | (in millions)
|Revenue                     |                                            | $      |              |              |   | $            | 694       |              |               | $            | 28 |    |  | $ |    |    |  | $ | 722 |    
|Operating expenses:         |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |  |   |     |    
|                            | Salaries, wages and benefits               |        |               | 1            |   |              |           | 440          |               |              |    | 9  |  |   |     |   |  |   |     | 450 | 
|                            | Operating supplies and expenses            |        |               | (1           | ) |              |           | 112          |               |              |    | 6  |  |   |     |   |  |   |     | 117 | 
|                            | Purchased transportation                   |        |               |             |   |              |           | 66           |               |              |    | 10 |  |   |     |   |  |   |     | 76  | 
|                            | Operating taxes and licenses               |        |               |             |   |              |           | 18           |               |              |    |   |  |   |     |   |  |   |     | 18  | 
|                            | Insurance and claims expenses              |        |               |             |   |              |           | 17           |               |              |    | 1  |  |   |     |   |  |   |     | 18  | 
|                            | Provision for depreciation                 |        |               |             |   |              |           | 21           |               |              |    | 1  |  |   |     |   |  |   |     | 22  | 
|                            | Net loss on disposal of
operating property |        |               |             |   |              |           | 2            |               |              |    |   |  |   |     |   |  |   |     | 2   | 
|                            | Results of affiliates                      |        |               | (12          | ) |              |           | (1           | )             |              |    |   |  |   |     | 13 |  |   |     |    | 
|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |  |   |     |    
|Total operating expenses    |                                            |        | (12           | )            |   |              | 675       |              |               |              | 27 |    |  |   | 13  |    |  |   | 703 |    
|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |  |   |     |    
|Operating income            |                                            |        | 12            |              |   |              | 19        |              |               |              | 1  |    |  |   | (13 | )  |  |   | 19  |    
|Other (expense) income, net |                                            |        | (1            | )            |   |              | (7        | )            |               |              | 1  |    |  |   |    |    |  |   | (7  | )  
|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |  |   |     |    
|Income before income taxes  |                                            |        | 11            |              |   |              | 12        |              |               |              | 2  |    |  |   | (13 | )  |  |   | 12  |    
|Provision for income taxes  |                                            |        | 4             |              |   |              |          |              |               |              | 1  |    |  |   |    |    |  |   | 5   |    
|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |  |   |     |    
|Net income                  |                                            | $      | 7             |              |   | $            | 12        |              |               | $            | 1  |    |  | $ | (13 | )  |  | $ | 7   |    
|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |  |   |     |    

Twelve Weeks Ended September 8, 2001

|                                     |                                            |        |               |              |   |              |           |              |               |              |    |   |  |   |     |    |   |   |     |     | 
|------------------------------------ | ------------------------------------------ | ------ | ------------- | ------------ | - | ------------ | --------- | ------------ | ------------- | ------------ | -- | - |  | - | --- | -- | - | - | --- | --- | 
|                                     |                                            |        |               |              |   |              | Guarantor |              | Non-Guarantor |              |    |   |  |   |     |    |  
|(Third Quarter)                      |                                            | Parent |               | Subsidiaries |   | Subsidiaries |           | Eliminations |               | Consolidated
|                                     |                                            |        |               |              |   |              |           |              |               |             
|                                     |                                            |        | (in millions)
|Revenue                              |                                            | $      |              |              |   | $            | 604       |              |               | $            | 27 |   |  | $ |    |    |   | $ | 631 |    
|Operating expenses:                  |                                            |        |               |              |   |              |           |              |               |              |    |   |  |   |     |    |   |   |     |    
|                                     | Salaries, wages and benefits               |        |               | 1            |   |              |           | 395          |               |              |    | 9 |  |   |     |   |   |   |     | 405 | 
|                                     | Operating supplies and expenses            |        |               |             |   |              |           | 101          |               |              |    | 7 |  |   |     | (1 | ) |   |     | 107 | 
|                                     | Purchased transportation                   |        |               |             |   |              |           | 54           |               |              |    | 9 |  |   |     | 1  |   |   |     | 64  | 
|                                     | Operating taxes and licenses               |        |               |             |   |              |           | 16           |               |              |    |  |  |   |     |   |   |   |     | 16  | 
|                                     | Insurance and claims expenses              |        |               |             |   |              |           | 8            |               |              |    | 1 |  |   |     |   |   |   |     | 9   | 
|                                     | Provision for depreciation                 |        |               |             |   |              |           | 16           |               |              |    |  |  |   |     |   |   |   |     | 16  | 
|                                     | Net loss on disposal of
operating property |        |               |             |   |              |           |             |               |              |    |  |  |   |     |   |   |   |     |    | 
|                                     | Results of affiliates                      |        |               | (9           | ) |              |           | (1           | )             |              |    |  |  |   |     | 10 |   |   |     |    | 
|                                     |                                            |        |               |              |   |              |           |              |               |              |    |   |  |   |     |    |   |   |     |    
|Total operating expenses             |                                            |        | (8            | )            |   |              | 589       |              |               |              | 26 |   |  |   | 10  |    |   |   | 617 |    
|                                     |                                            |        |               |              |   |              |           |              |               |              |    |   |  |   |     |    |   |   |     |    
|Operating income                     |                                            |        | 8             |              |   |              | 15        |              |               |              | 1  |   |  |   | (10 | )  |   |   | 14  |    
|Other income (expense), net          |                                            |        |              |              |   |              | 1         |              |               |              | (1 | ) |  |   |    |    |   |   |    |    
|                                     |                                            |        |               |              |   |              |           |              |               |              |    |   |  |   |     |    |   |   |     |    
|Income before income taxes           |                                            |        | 8             |              |   |              | 16        |              |               |              |   |   |  |   | (10 | )  |   |   | 14  |    
|Provision (benefit) for income taxes |                                            |        |              |              |   |              | 7         |              |               |              | (1 | ) |  |   |    |    |   |   | 6   |    
|                                     |                                            |        |               |              |   |              |           |              |               |              |    |   |  |   |     |    |   |   |     |    
|Net income                           |                                            | $      | 8             |              |   | $            | 9         |              |               | $            | 1  |   |  | $ | (10 | )  |   | $ | 8   |    
|                                     |                                            |        |               |              |   |              |           |              |               |              |    |   |  |   |     |    |   |   |     |    

11



---



##### Table of Contents



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

Condensed Consolidating Statements of Income
Thirty-six Weeks Ended September 7, 2002

|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |       | 
|--------------------------- | ------------------------------------------ | ------ | ------------- | ------------ | - | ------------ | --------- | ------------ | ------------- | ------------ | -- | -- |  | - | --- | -- | - | - | ----- | ----- | 
|                            |                                            |        |               |              |   |              | Guarantor |              | Non-Guarantor |              |    |    |  |   |     |    |  
|(Three Quarters)            |                                            | Parent |               | Subsidiaries |   | Subsidiaries |           | Eliminations |               | Consolidated
|                            |                                            |        |               |              |   |              |           |              |               |             
|                            |                                            |        | (in millions)
|Revenue                     |                                            | $      |              |              |   | $            | 1,975     |              |               | $            | 82 |    |  | $ | (1  | )  |   | $ | 2,056 |      
|Operating expenses:         |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      
|                            | Salaries, wages and benefits               |        |               | 4            |   |              |           | 1,271        |               |              |    | 26 |  |   |     |   |   |   |       | 1,301 | 
|                            | Operating supplies and expenses            |        |               | (4           | ) |              |           | 325          |               |              |    | 19 |  |   |     | (1 | ) |   |       | 339   | 
|                            | Purchased transportation                   |        |               |             |   |              |           | 183          |               |              |    | 27 |  |   |     |   |   |   |       | 210   | 
|                            | Operating taxes and licenses               |        |               |             |   |              |           | 52           |               |              |    | 1  |  |   |     |   |   |   |       | 53    | 
|                            | Insurance and claims expenses              |        |               |             |   |              |           | 45           |               |              |    | 1  |  |   |     |   |   |   |       | 46    | 
|                            | Provision for depreciation                 |        |               |             |   |              |           | 63           |               |              |    | 3  |  |   |     |   |   |   |       | 66    | 
|                            | Net loss on disposal of
operating property |        |               |             |   |              |           | 2            |               |              |    |   |  |   |     |   |   |   |       | 2     | 
|                            | Results of affiliates                      |        |               | (12          | ) |              |           | (3           | )             |              |    |   |  |   |     | 15 |   |   |       |      | 
|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      
|Total operating expenses    |                                            |        | (12           | )            |   |              | 1,938     |              |               |              | 77 |    |  |   | 14  |    |   |   | 2,017 |      
|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      
|Operating income            |                                            |        | 12            |              |   |              | 37        |              |               |              | 5  |    |  |   | (15 | )  |   |   | 39    |      
|Other (expense) income, net |                                            |        | (1            | )            |   |              | (20       | )            |               |              | 1  |    |  |   |    |    |   |   | (20   | )    
|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      
|Income before income taxes  |                                            |        | 11            |              |   |              | 17        |              |               |              | 6  |    |  |   | (15 | )  |   |   | 19    |      
|Provision for income taxes  |                                            |        |              |              |   |              | 5         |              |               |              | 3  |    |  |   |    |    |   |   | 8     |      
|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      
|Net income                  |                                            | $      | 11            |              |   | $            | 12        |              |               | $            | 3  |    |  | $ | (15 | )  |   | $ | 11    |      
|                            |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      

Thirty-six Weeks Ended September 8, 2001

|                                  |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |       | 
|--------------------------------- | ------------------------------------------ | ------ | ------------- | ------------ | - | ------------ | --------- | ------------ | ------------- | ------------ | -- | -- |  | - | --- | -- | - | - | ----- | ----- | 
|                                  |                                            |        |               |              |   |              | Guarantor |              | Non-Guarantor |              |    |    |  |   |     |    |  
|(Three Quarters)                  |                                            | Parent |               | Subsidiaries |   | Subsidiaries |           | Eliminations |               | Consolidated
|                                  |                                            |        |               |              |   |              |           |              |               |             
|                                  |                                            |        | (in millions)
|Revenue                           |                                            | $      |              |              |   | $            | 1,844     |              |               | $            | 81 |    |  | $ | (1  | )  |   | $ | 1,924 |      
|Operating expenses:               |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      
|                                  | Salaries, wages and benefits               |        |               | 1            |   |              |           | 1,200        |               |              |    | 28 |  |   |     |   |   |   |       | 1,229 | 
|                                  | Operating supplies and expenses            |        |               |             |   |              |           | 317          |               |              |    | 21 |  |   |     | (1 | ) |   |       | 337   | 
|                                  | Purchased transportation                   |        |               |             |   |              |           | 164          |               |              |    | 28 |  |   |     |   |   |   |       | 192   | 
|                                  | Operating taxes and licenses               |        |               |             |   |              |           | 49           |               |              |    | 1  |  |   |     |   |   |   |       | 50    | 
|                                  | Insurance and claims expenses              |        |               |             |   |              |           | 33           |               |              |    | 1  |  |   |     |   |   |   |       | 34    | 
|                                  | Provision for depreciation                 |        |               |             |   |              |           | 45           |               |              |    | 2  |  |   |     |   |   |   |       | 47    | 
|                                  | Net loss on disposal of
operating property |        |               |             |   |              |           | 1            |               |              |    |   |  |   |     |   |   |   |       | 1     | 
|                                  | Results of affiliates                      |        |               | (18          | ) |              |           | 2            |               |              |    |   |  |   |     | 16 |   |   |       |      | 
|                                  |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      
|Total operating expenses          |                                            |        | (17           | )            |   |              | 1,811     |              |               |              | 81 |    |  |   | 15  |    |   |   | 1,890 |      
|                                  |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      
|Operating income                  |                                            |        | 17            |              |   |              | 33        |              |               |              |   |    |  |   | (16 | )  |   |   | 34    |      
|Other (expenses), net             |                                            |        |              |              |   |              | (2        | )            |               |              | (2 | )  |  |   |    |    |   |   | (4    | )    
|                                  |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      
|Income (loss) before income taxes |                                            |        | 17            |              |   |              | 31        |              |               |              | (2 | )  |  |   | (16 | )  |   |   | 30    |      
|Provision for income taxes        |                                            |        |              |              |   |              | 13        |              |               |              |   |    |  |   |    |    |   |   | 13    |      
|                                  |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      
|Net income (loss)                 |                                            | $      | 17            |              |   | $            | 18        |              |               | $            | (2 | )  |  | $ | (16 | )  |   | $ | 17    |      
|                                  |                                            |        |               |              |   |              |           |              |               |              |    |    |  |   |     |    |   |   |       |      

12



---



##### Table of Contents



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

Condensed Consolidating Statement of Cash Flows
Thirty-six Weeks Ended September 7, 2002

|                                                     |                                                  |        |               |              |   |              |           |              |               |              |    |    |   |   |   |   |  |   |     |     |  
|---------------------------------------------------- | ------------------------------------------------ | ------ | ------------- | ------------ | - | ------------ | --------- | ------------ | ------------- | ------------ | -- | -- | - | - | - | - |  | - | --- | --- | -
|                                                     |                                                  |        |               |              |   |              | Guarantor |              | Non-Guarantor |              |    |    |   |   |   |   | 
|(Three Quarters)                                     |                                                  | Parent |               | Subsidiaries |   | Subsidiaries |           | Eliminations |               | Consolidated
|                                                     |                                                  |        |               |              |   |              |           |              |               |             
|                                                     |                                                  |        | (in millions)
|Net cash (used) provided by operating
activities     |                                                  | $      | (46)          |              |   | $            | 70        |              |               | $            | 8  |    |   | $ |  |   |  | $ | 32  |    
|Cash flows from investing activities                 |                                                  |        |               |              |   |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|Purchases of carrier operating property, net         |                                                  |        |              |              |   |              | (48       | )            |               |              | (3 | )  |   |   |  |   |  |   | (51 | )  
|Sales of carrier operating property                  |                                                  |        |              |              |   |              | 2         |              |               |              |   |    |   |   |  |   |  |   | 2   |    
|Business acquisitions, net of cash                   |                                                  |        | (24           | )            |   |              |          |              |               |              |   |    |   |   |  |   |  |   | (24 | )  
|                                                     |                                                  |        |               |              |   |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|                                                     | Net cash (used) in investing activities          |        |               | (24          | ) |              |           | (46          | )             |              |    | (3 | ) |   |   |  |  |   |     | (73 | )
|Cash flows from financing activities                 |                                                  |        |               |              |   |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|Dividends received (paid)                            |                                                  |        | 44            |              |   |              | (47       | )            |               |              |   |    |   |   |  |   |  |   | (3  | )  
|Accounts receivable securitization                   |                                                  |        |              |              |   |              |          |              |               |              |   |    |   |   |  |   |  |   |    |    
|Treasury stock activitynet                          |                                                  |        |              |              |   |              |          |              |               |              |   |    |   |   |  |   |  |   |    |    
|Debt issuance costs                                  |                                                  |        |              |              |   |              |          |              |               |              |   |    |   |   |  |   |  |   |    |    
|Long-term borrowings (repayment)                     |                                                  |        | (5            | )            |   |              |          |              |               |              |   |    |   |   |  |   |  |   | (5  | )  
|                                                     |                                                  |        |               |              |   |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|                                                     | Net cash provided (used) in financing
activities |        |               | 39           |   |              |           | (47          | )             |              |    |   |   |   |   |  |  |   |     | (8  | )
|Effect of exchange rate changes on cash              |                                                  |        |              |              |   |              |          |              |               |              |   |    |   |   |  |   |  |   |    |    
|                                                     |                                                  |        |               |              |   |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|Net (decrease) increase in cash and cash
equivalents |                                                  |        | (31           | )            |   |              | (23       | )            |               |              | 5  |    |   |   |  |   |  |   | (49 | )  
|Cash and cash equivalents at beginning
of year       |                                                  |        | 35            |              |   |              | 87        |              |               |              | 1  |    |   |   |  |   |  |   | 123 |    
|                                                     |                                                  |        |               |              |   |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|Cash and cash equivalents at end of year             |                                                  | $      | 4             |              |   | $            | 64        |              |               | $            | 6  |    |   | $ |  |   |  | $ | 74  |    
|                                                     |                                                  |        |               |              |   |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    

Thirty-six Weeks Ended September 8, 2001

|                                               |                                         |        |               |              |  |              |           |              |               |              |    |    |   |   |   |   |  |   |     |     |  
|---------------------------------------------- | --------------------------------------- | ------ | ------------- | ------------ |  | ------------ | --------- | ------------ | ------------- | ------------ | -- | -- | - | - | - | - |  | - | --- | --- | -
|                                               |                                         |        |               |              |  |              | Guarantor |              | Non-Guarantor |              |    |    |   |   |   |   | 
|(Three Quarters)                               |                                         | Parent |               | Subsidiaries |  | Subsidiaries |           | Eliminations |               | Consolidated
|                                               |                                         |        |               |              |  |              |           |              |               |             
|                                               |                                         |        | (in millions)
|Net cash provided by operating activities      |                                         | $      |              |              |  | $            | 62        |              |               | $            | 3  |    |   | $ |  |   |  | $ | 65  |    
|Cash flows from investing activities           |                                         |        |               |              |  |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|Purchases of carrier operating property, net   |                                         |        |              |              |  |              | (44       | )            |               |              | (2 | )  |   |   |  |   |  |   | (46 | )  
|Sales of carrier operating property            |                                         |        |              |              |  |              | 2         |              |               |              | 1  |    |   |   |  |   |  |   | 3   |    
|Business acquisitions                          |                                         |        |              |              |  |              |          |              |               |              |   |    |   |   |  |   |  |   |    |    
|                                               |                                         |        |               |              |  |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|                                               | Net cash (used) in investing activities |        |               |             |  |              |           | (42          | )             |              |    | (1 | ) |   |   |  |  |   |     | (43 | )
|Cash flows from financing activities           |                                         |        |               |              |  |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|Dividends paid                                 |                                         |        |              |              |  |              | (3        | )            |               |              |   |    |   |   |  |   |  |   | (3  | )  
|Treasury stock activitynet                    |                                         |        |              |              |  |              | (1        | )            |               |              |   |    |   |   |  |   |  |   | (1  | )  
|                                               |                                         |        |               |              |  |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|                                               | Net cash (used) in financing activities |        |               |             |  |              |           | (4           | )             |              |    |   |   |   |   |  |  |   |     | (4  | )
|Effect of exchange rate changes on cash        |                                         |        |              |              |  |              |          |              |               |              |   |    |   |   |  |   |  |   |    |    
|                                               |                                         |        |               |              |  |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|Net increase in cash and cash equivalents      |                                         |        |              |              |  |              | 16        |              |               |              | 2  |    |   |   |  |   |  |   | 18  |    
|Cash and cash equivalents at
beginning of year |                                         |        |              |              |  |              | 61        |              |               |              | 4  |    |   |   |  |   |  |   | 65  |    
|                                               |                                         |        |               |              |  |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    
|Cash and cash equivalents at end of year       |                                         | $      |              |              |  | $            | 77        |              |               | $            | 6  |    |   | $ |  |   |  | $ | 83  |    
|                                               |                                         |        |               |              |  |              |           |              |               |              |    |    |   |   |   |   |  |   |     |    

13



---



##### 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 September 7, 2002 and
December 31, 2001 also include New Penn and ATS.

Consolidated results of operations for the third quarter ended September 7,
2002 compared to the third quarter ended September 8, 2001

Consolidated revenue was $721 million in the current quarter, a 14.2% increase
from third quarter 2001, solely due to the inclusion of the results of New Penn
and ATS. Operating expenses grew by 13.8%, and the operating ratio (operating
expenses divided by revenue) improved by 0.4 points to 97.4, compared to last
years 97.8. The Companys consolidated operating income was $18.8 million, an
increase of 32.8% from last year. The increase in operating income is solely
attributable to the inclusion of the results of New Penn and ATS. Operating
income at Roadway Express (Roadway) decreased 20.8% compared to the third
quarter of 2001. The net other expense of $6.6 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 $6.9 million or $0.36
per share (diluted), for the second quarter ended September 7, 2002, compared
to net income of $8.2 million, or $0.43 per share (diluted) in the same quarter
last year.

The effective tax rate for the third quarter of 2002 was 43.1%, compared to the
43.5% rate in the third 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 three quarters ended September 7,
2002 compared to the three quarters ended September 8, 2001

Consolidated revenue was $2.1 billion in the current year-to-date period, a
6.8% increase from the same period last year, due to the inclusion of the
results of New Penn and ATS, offset by reduced business levels at Roadway
Express. Operating expenses grew by 6.7%, and the operating ratio of 98.1 was
down slightly compared to 98.2 in 2001. The Companys consolidated operating
income was $39.2 million, an increase of 13.8% over last year. The increase in
operating income is solely attributable to the inclusion of the results of New
Penn and ATS. Operating income at Roadway decreased 39.0% compared to the same
period last year. The net other expense of $20.2 million is primarily composed
of interest expense of $16.4 million arising from the financing associated with
the Arnold acquisition. The Company had net income of $10.9 million or $0.57
per share (diluted), for the year-to-date period, compared to net income of
$17.2 million, or $0.91 per share (diluted) in the comparable period of 2001.

The effective tax rate for the three quarters ended September 7, 2002 was
42.8%, compared to the 43.0% rate in the three quarters ended September 8,
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.

Roadway Express, Inc.

The chapter 11 bankruptcy protection filing and the abrupt cessation of
operations on September 2, 2002 by Consolidated Freightways, one of Roadways
major competitors, had virtually no impact on Roadways revenue in the third
quarter. Roadway recognizes revenue upon delivery of freight, and most
shipments are delivered three to five days after pickup. Despite the economic
downturn experienced by Roadway since the third quarter of 2000, Roadway had
not made radical changes to its infrastructure that would impair customer
service capability or prevent it from taking advantage of an economic upturn.
Going forward, the additional freight available to the remaining LTL carriers
is expected to significantly improve Roadways operations. The removal of the
excess capacity from the marketplace will strengthen Roadways position, and
should improve industry rate levels. Roadway has absorbed this freight in our
system, which we expect will allow us to take advantage of our existing
infrastructure and improve profitability beginning in the fourth quarter.

14



---



##### Table of Contents



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

Results of operations for the third quarter ended September 7, 2002 compared to
the third quarter ended September 8, 2001

Roadway delivered 1.7 million tons of freight in the current quarter, down 1.7%
compared to the prior year quarter. Less-than-truckload (LTL) tons were down
2.7% while truckload tons were up 2.6%. Tonnage declines were attributable to
reduced business levels in the national economy. Net revenue per ton was
$380.37, up 1.7% compared to the same quarter last year, with LTL up 2.4% and
truckload up 0.2%. Base revenue levels were impacted by freight mix changes,
the general rate increase on August 20, 2001, a general rate increase of
approximately 5.9% on August 4, 2002, and continuing adjustments in contract
rates. 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 2.6% of
revenue in the prior-year quarter. Without the revenue reduction relating to
the fuel surcharge, freight rates were up 2.4% compared to the third quarter of
2001. Total operating expenses increased by $2.6 million, or 0.4%, while the
Companys revenue was flat, leading to a deterioration in the operating ratio
to 98.1, compared to a 97.7 in the same quarter last year.

Salaries, wages, and benefits as a percentage of revenue decreased to 63.8%,
down from 64.0% in the third quarter of 2001. This decrease is primarily
attributable to reduced variable pay associated with the Companys performance.
Operating supplies and expenses declined to 16.6% of revenue, down from 17.0%
in the prior year quarter, primarily due to reduced fuel prices and reduced
maintenance costs arising from fleet replacement in recent years. The increase
in insurance and claims expense is due to higher accruals relating to the
severity of some accidents during the third quarter of 2002. This increase is
magnified compared to the third quarter of 2001 when Roadway experienced
favorable adjustments to loss accruals. The net effect was a 1.1% increase in
total operating expenses as a percent of revenue. The reduction of other
operating expenses in line with revenue reductions is the result of cost
controls and Roadways efforts to make its cost structure more variable.

Results of operations for the three quarters ended September 7, 2002 compared
to the three quarters ended September 8, 2001

Roadway delivered 4.7 million tons of freight in the first three quarters of
2002, down 8.7% compared to the prior year. LTL tons were down 8.4% and
truckload tons were down 9.9%. 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
progressive improvements in daily tonnage levels. The tonnage recovery could
be characterized as slow but steady. The economic recovery slowed during the
third quarter and this negatively affected business levels, particularly in LTL
tonnage. Net revenue per ton was $378.82, up 1.9% compared to the prior year
period. The variable rate fuel surcharge averaged 1.6% of revenue during the
first three quarters of 2002, compared to 3.0% of revenue in the same period of
2001. Without the revenue reduction relating to the reduced fuel surcharge,
freight rates were up 3.3% compared to the first three quarters of 2001. The
operating ratio deteriorated to 98.8, from 98.2 in the same period last year.

Salaries, wages, and benefits as a percentage of revenue increased to 64.9%, up
from 63.9% in the first three quarters of 2001. This increase is attributable
to driver wages and benefits, and pension benefit costs, which were partially
offset by a reduction of variable pay associated with the Companys
performance. Due to the business level reductions which started in the second
half of 2000 when the economic downturn began, Roadways hourly workforce was
reduced by 16%, and the number of exempt positions was reduced by 12% during
the quarter. 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.

All other operating expenses were nearly flat or down as a percentage of
revenue, except for insurance and claims expense, which was up 0.3% of revenue,
as a result of the property damage and public liability claims experience
mentioned in the third quarter discussions above.

15



---



##### Table of Contents



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

The following table is a comparison of operating statistics for the third
quarter and thirty-six weeks ended for 2002 and 2001:

|                          |  |                    |           |                        |  |               |           |               |  |   |           |  |  |   |           | 
|------------------------- |  | ------------------ | --------- | ---------------------- |  | ------------- | --------- | ------------- |  | - | --------- |  |  | - | --------- | 
|                          |  | Twelve Weeks Ended |           | Thirty-six Weeks Ended
|                          |  | (Third Quarter)    |           | (Three Quarters)      
|                          |  |                    |           |                       
|                          |  | Sept. 7, 2002      |           | Sept. 8, 2001          |  | Sept. 7, 2002 |           | Sept. 8, 2001
|                          |  |                    |           |                        |  |               |           |              
|LTL tons                  |  |                    | 1,347,193 |                        |  |               | 1,384,338 |               |  |   | 3,866,001 |  |  |   | 4,219,346 | 
|Truckload tons            |  |                    | 312,130   |                        |  |               | 304,191   |               |  |   | 862,135   |  |  |   | 957,109   | 
|                          |  |                    |           |                        |  |               |           |               |  |   |           |  |  |   |           | 
|Total tons                |  |                    | 1,659,323 |                        |  |               | 1,688,529 |               |  |   | 4,728,136 |  |  |   | 5,176,455 | 
|                          |  |                    |           |                        |  |               |           |               |  |   |           |  |  |   |           | 
|LTL shipments             |  |                    | 2,810,263 |                        |  |               | 2,953,019 |               |  |   | 8,151,571 |  |  |   | 9,047,468 | 
|Truckload shipments       |  |                    | 37,585    |                        |  |               | 36,865    |               |  |   | 104,486   |  |  |   | 115,561   | 
|                          |  |                    |           |                        |  |               |           |               |  |   |           |  |  |   |           | 
|Total shipments           |  |                    | 2,847,848 |                        |  |               | 2,989,884 |               |  |   | 8,256,057 |  |  |   | 9,163,029 | 
|                          |  |                    |           |                        |  |               |           |               |  |   |           |  |  |   |           | 
|Revenue per LTL ton       |  | $                  | 432.20    |                        |  | $             | 421.94    |               |  | $ | 428.85    |  |  | $ | 420.81    | 
|Revenue per truckload ton |  | $                  | 156.68    |                        |  | $             | 156.30    |               |  | $ | 154.49    |  |  | $ | 155.39    | 
|Total revenue per ton     |  | $                  | 380.37    |                        |  | $             | 374.09    |               |  | $ | 378.82    |  |  | $ | 371.73    | 

New Penn Motor Express

Revenue was $50.5 million for the third quarter and $145.5 million for the
first three quarters of 2002. Daily tonnage levels were 13% lower than last
years pre-acquisition business levels in January due to the economic downturn.
Following the February 2002 closing of a significant competitor in the
northeast, New Penns daily business levels improved. Third quarter business
levels showed slight improvements over 2001, with stable rate levels. New Penn
implemented a general rate increase of approximately 5.9% effective August 4,
2002. The operating ratio for New Penn was 87.5 and 89.6 for the third quarter
and thirty-six weeks ended September 7, 2002, respectively.

The following table shows the operating statistics for the third quarter and
thirty-six weeks ended 2002:

|                          |  |                 |         |                  |  |   |           | 
|------------------------- |  | --------------- | ------- | ---------------- |  | - | --------- | 
|                          |  | Twelve          |         | Thirty-six      
|                          |  | Weeks Ended     |         | Weeks Ended     
|                          |  | (Third Quarter) |         | (Three Quarters)
|                          |  | Sept. 7, 2002   |         | Sept. 7, 2002   
|                          |  |                 |         |                 
|LTL tons                  |  |                 | 195,791 |                  |  |   | 566,946   | 
|Truckload tons            |  |                 | 29,651  |                  |  |   | 81,499    | 
|                          |  |                 |         |                  |  |   |           | 
|Total tons                |  |                 | 225,442 |                  |  |   | 648,445   | 
|                          |  |                 |         |                  |  |   |           | 
|LTL shipments             |  |                 | 432,803 |                  |  |   | 1,256,504 | 
|Truckload shipments       |  |                 | 3,653   |                  |  |   | 10,136    | 
|                          |  |                 |         |                  |  |   |           | 
|Total shipments           |  |                 | 436,456 |                  |  |   | 1,266,640 | 
|                          |  |                 |         |                  |  |   |           | 
|Revenue per LTL ton       |  | $               | 242.01  |                  |  | $ | 241.43    | 
|Revenue per truckload ton |  | $               | 106.36  |                  |  | $ | 106.28    | 
|Total revenue per ton     |  | $               | 224.17  |                  |  | $ | 224.45    | 

16



---



##### Table of Contents



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

ATS

Revenue during the current quarter was $39.6 million, and was $119.0 million
for the first three quarters of 2002. Revenue levels were virtually flat with
the pre-acquisition levels of last year. Operating income was $0.8 million for
the third quarter, and $2.5 million for the three quarters ended September 7,
2002. The operating ratio was 98.1 and 97.8 for the third quarter and
thirty-six weeks ended September 7, 2002, respectively.

The following table shows the operating statistics for the third quarter and
thirty-six weeks ended 2002:

|                                             |  |                 |       |                  |  |   |       | 
|-------------------------------------------- |  | --------------- | ----- | ---------------- |  | - | ----- | 
|                                             |  | Twelve          |       | Thirty-six      
|                                             |  | Weeks Ended     |       | Weeks Ended     
|                                             |  | (Third Quarter) |       | (Three Quarters)
|                                             |  | Sept. 7, 2002   |       | Sept. 7, 2002   
|                                             |  |                 |       |                 
|Revenue per tractor per week                 |  | $               | 2,636 |                  |  | $ | 2,540 | 
|Average number of tractors during the period |  |                 | 1,252 |                  |  |   | 1,301 | 

Liquidity and capital resources

At the end of the quarter, cash and marketable securities amounted to $74
million, a $49 million decrease from year-end 2001. During the 36 weeks ended
September 7, 2002, cash provided by operating activities was $32.4 million, as
compared to $64.9 million in 2001. The decrease in cash provided by operating
activities was due to lower net income and other operating adjustments,
including a $16 million increase in accounts receivable, reflecting revenue
growth since year-end 2001, $12 million for the purchase of Arnold shares
presented for redemption, and a $9 million purchase of Company stock to fund
stock plans. The $24 million use of cash for investing activities was
primarily for payment of income taxes related to the sale of ARLO.

Capital expenditures were $51.2 million and $46.3 million for the 36 weeks
ended September 7, 2002 and September 8, 2001, respectively. Capital
expenditures are financed primarily through internally generated funds. Future
expenditures are expected to be financed in a similar manner, except for
planned replacement of Roadways linehaul tractors through operating lease
arrangements. Gross capital expenditures of $85 million are expected for 2002
with $105 million to $115 million planned for 2003. The capital expenditures
are primarily designated for revenue equipment, facilities, and information
systems.

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.

The credit facility consists of a five-year, $215 million senior revolving
credit facility with a $165 million sublimit for letters of credit, and a
five-year $175 million senior term loan. On August 6, 2002, the Company
completed Amendment 1 to the credit agreement which increased the size of the
revolving credit facility from $150 million to $215 million and increased the
sublimit for letters of credit from $100 million to $165 million. This
amendment was effected to allow for adequate letters of credit availability to
meet insurance requirements. As of September 7, 2002, there were no amounts
outstanding under the revolving credit facility, but availability had been
reduced by $102 million as a result of the issuance of letters of credit,
primarily related to casualty claims. The term loan balance was reduced by $75
million in the fourth quarter of 2001, using the after-tax proceeds from the
sale of ARLO. As of September 7, 2002, $95 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 accrued interest at the rate of
3.89% as of September 7, 2002.

17



---



##### Table of Contents



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

The Company also issued $225 million of 81⁄4% senior notes due December 1,
2008 in connection with the Arnold acquisition. Interest is due semi-annually
on 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 September 7, 2002, there were no amounts outstanding on this
facility.

At September 7, 2002, the Company had outstanding debt of $320 million, $19.6
million of which is classified as current on the September 7, 2002 balance
sheet. Remaining borrowing capacity of $123 million was available under the
arrangements described above at September 7, 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 September 7, 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 subsidiary of
Roadway, without recourse, to an unrelated third party financial conduit. At
September 7, 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.

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

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.

Other matters

Under the terms of the Companys current contract with the Teamsters, which
extends through March 31, 2003, wage and benefit increases approximating 2.0%
were effective April 1, 2002 with another increase of approximately 2.1%
effective August 1, 2002, designated for benefits. 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 generally limited to $3 million.
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.

18



---



##### Table of Contents



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

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.

While most of the information provided herein is historical, some of the
comments made are forward looking statements within the meaning of the Private
Securities Litigation Reform Act with respect to the outlook for expectations
for revenue, earnings or other future financial or business performance,
strategies, expectations and goals. All statements that are not historical
statements of fact are forward-looking statements and are subject to numerous
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied in the forward-looking statements.
Forward-looking statements include all comments relating to our beliefs and
expectations as to future events and trends affecting our business, results of
operations and financial condition. We intend for the words believes,
anticipates, expects, intends, plans, continues, projects, and
similar expressions to identify forward-looking statements. The risks and
uncertainties include, among others, variable factors such as capacity and rate
levels in the motor freight industry; fuel prices; the impact of competition;
the state of the national economy; the success of our operating plans,
including our ability to manage growth and control costs; labor relations
matters, including the timely settlement of our upcoming National Master
Freight Agreement negotiations; and, uncertainties concerning the impact
terrorist activities may have on the economy and the motor freight industry.
We have based these forward-looking statements on managements analysis about
future events only as of the date of this press release. We undertake no
obligation to publicly revise these forward-looking statements to reflect
events or circumstances that arise after the date of this press release. These
forward-looking statements are subject to risks, uncertainties and assumptions
about us and our subsidiaries. In addition to the disclosure contained in this
document, you should carefully review the risks and uncertainties contained in
other documents Roadway Corporation files from time to time with the Securities
and Exchange Commission. Those documents are accessible on the SECs website
at www.sec.gov and through our website at www.roadwaycorp.com.




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 $16 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 September 7, 2002 is a
liability of approximately $393,000, 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.

19



---



##### Table of Contents






Item 4. Disclosure Controls and Procedures

Under the supervision and with the participation of the Companys Chairman and
Chief Executive Officer, and Executive Vice President and Chief Financial
Officer (its principal executive officer and principal financial officer),
management has evaluated the effectiveness of the design and operation of the
Companys disclosure controls and procedures within 90 days of the filing date
of this quarterly report. Based on that evaluation, the Chairman and Chief
Executive Officer, and Executive Vice President and Chief Financial Officer
have concluded that these disclosure controls and procedures are effective.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of the
evaluation.




PART II  OTHER INFORMATION




Item 2. Changes in securities and use of proceeds

The Company maintains a Union Stock Plan. Participation in the Union Stock
Plan is involuntary, and the plan is noncontributory. Shares of Common Stock
are awarded to participants in the Union Stock Plan as a bonus based on
operating margin, accident and injury record, and attendance. During the
first, second, and third quarters of 2002, the Company issued a total of 181
shares of Common Stock to participants in connection with adjustments under the
plan. The Company has concluded that the award of a Common Stock bonus under
the Union Stock Plan does not involve a sale of a security and thus is not
subject to registration under the Securities Act of 1933, as amended.




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 and thirty-six weeks ended September
7, 2002 and September 8, 2001.                                                                     
|99.2        |  | Condensed Consolidated Financial Statements of Roadway Next Day
Corporation for the quarter and thirty-six weeks ended September 7, 2002
(Successor Period), and the three months and nine months ended September
30, 2001 (Predecessor Period)

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

|                        |  |                                                                      
|----------------------- |  | ---------------------------------------------------------------------
|Filing Date of Form 8-K |  | Description                                                          
|                        |  |                                                                      
|August 13, 2002         |  | Officer certification of financial statements and related information

20



---



##### Table of Contents






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: October 21, 2002 |  | By: /s/ J. Dawson Cunningham                                              
|                       |  | J. Dawson Cunningham, Executive Vice President
and Chief Financial Officer
|                      
|Date: October 21, 2002 |  | By: /s/ John G. Coleman
John G. Coleman, Controller                       

21



---



##### Table of Contents






CERTIFICATIONS

Chief Executive Officer
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael W. Wickham, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Roadway Corporation;

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

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

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

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

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

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

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
the registrants board of directors (or persons performing the equivalent
function):

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

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

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

|                       |  |                                                                              
|---------------------- |  | -----------------------------------------------------------------------------
|Date: October 21, 2002 |  | /s/ Michael W. WickhamMichael W. Wickham
Chairman and Chief Executive Officer

22



---



##### Table of Contents



Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, J. Dawson Cunningham, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Roadway Corporation;

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

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

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

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

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

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

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
the registrants board of directors (or persons performing the equivalent
function):

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

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

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

|      |  |                  |  |                                                                                                  
|----- |  | ---------------- |  | -------------------------------------------------------------------------------------------------
|Date: |  | October 21, 2002 |  | /s/ J. Dawson CunninghamJ. Dawson Cunningham
Executive Vice President and
Chief Financial Officer

23