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.

(Mark One)
[ü]		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
		For the Period ended September 13, 2003.
		OR
[ ]		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the ~~Period~~transition ~~ended~~period ~~June 21,~~from ~~2003~~______ to ______. 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)


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

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


1077 Gorge Boulevard, Akron, OH (Address of principal executive offices)		44310 (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 [ ].

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

The number of shares of common stock ($.01 par value) outstanding as of ~~June~~ 21September 13, 2003 was 1920,~~898~~422,~~002~~417.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
		Roadway Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited)
	Condensed Consolidated Balance Sheets
		Roadway Corporation and Subsidiaries Condensed Statements of Consolidated Income (Unaudited)
	Condensed Statements of Consolidated Income
		Roadway Corporation and Subsidiaries Condensed Statements of Consolidated Income (Unaudited)
	Condensed Statements of Consolidated Income
		Roadway Corporation and Subsidiaries Condensed Statements of Consolidated Cash Flows (Unaudited)
	Condensed Statements of Consolidated Cash Flows
		Roadway Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited)
	Notes to Condensed Consolidated Financial Statements
	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
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 2. Changes in securities and use of proceeds
	Item 5. Other information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 10.20
EX-10.21 Change in Control Severance Agreement
Exhibit 31.1
EX-31.1 Cert for CEO
Exhibit 31.2
EX-31.2 Cert for CFO
Exhibit 32.1
EX-32.1 Cert for CEO
Exhibit 32.2
EX-32.2 Cert for CFO
Exhibit 99.1
EX-99.1 Financial Statements 9-13-03 and 9-7-02
Exhibit 99.2
EX-99.2 Financial Statements 9-13-03 and 9-7-02

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Roadway Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)

			June 21, 2003		December 31, 2002
			September 13, 2003		December 31, 2002
			(in thousands, except share data)
Assets
Current assets:
	Cash and cash equivalents		$	~~125~~132,~~692~~894	$	106,929
	Accounts receivable, including retained interest in securitized receivables, net			~~215~~241,~~055~~975		230,216
	Assets of discontinued operations			—		87,431
	Other current assets			4948,~~541~~125		38,496
Total current assets				~~390~~422,~~288~~994		463,072
Carrier operating property, at cost				1,~~511~~509,~~699~~280		1,515,648
Less allowance for depreciation				1,~~015~~017,~~682~~936		1,006,465
Net carrier operating property				~~496~~491,~~017~~344		509,183
Goodwill, net				~~286~~285,~~181~~874		283,910
Other assets				9183,~~093~~201		79,708
Total assets			$	1,~~263~~283,~~579~~413	$	1,335,873
Liabilities and shareholders’ equity
Current liabilities:
	Accounts payable		$	~~164~~187,~~806~~924	$	193,501
	Salaries and wages			125,~~162~~863		151,464
	Liabilities of discontinued operations			—		32,407
	Other current liabilities			6158,~~889~~951		83,518
Total current liabilities				~~351~~372,~~857~~738		460,890
Long-term liabilities:
	Casualty claims and other			7571,~~505~~584		78,548
	Accrued pension and retiree medical			~~147~~146,~~800~~582		135,053
	Long-term debt			~~270~~248,~~279~~924		273,513
Total long-term liabilities				~~493~~467,~~584~~090		487,114
Shareholders’ equity:
	Common Stock - $.01 par value
		Authorized - 100,000,000 shares
		Issued - 20,556,714 shares		206		206
		Outstanding – 19,898,002 in 2003 and 19,368,590 in 2002
		Outstanding – 20,422,417 in 2003 and 19,368,590 in 2002
	Other shareholders’ equity			~~417~~443,~~932~~379		387,663
Total shareholders’ equity				~~418~~443,~~138~~585		387,869
Total liabilities and shareholders’ equity			$	1,~~263~~283,~~579~~413	$	1,335,873

Note: The balance sheet at December 31, 2002 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.

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

		Twelve Weeks Ended
		(Second Quarter)
		(Third Quarter)
		June 21, 2003			June 15, 2002
		September 13, 2003			September 7, 2002
		(in thousands, except per share data)
Revenue		$	~~741~~751,~~528~~594		$	~~656~~681,~~003~~696
Operating expenses:
	Salaries, wages and benefits		~~468~~477,~~223~~174			~~427~~438,~~273~~017
	Operating supplies and expenses		~~130~~122,~~022~~412			~~107~~108,~~104~~176
	Purchased transportation		7577,~~725~~246			5763,~~775~~850
	Operating taxes and licenses		18,~~688~~515			17,~~481~~966
	Insurance and claims expense		1415,~~529~~133			1316,~~129~~483
	Provision for depreciation		16,~~870~~658			18,~~152~~079
	Net loss on disposal of operating property		30			283
	Net (gain) loss on disposal of operating property		(5,068	)		1,075
Total operating expenses			724,087			641,197
	Compensation and other expense related to the acquisition by Yellow Corporation		24,337			—
Operating income from continuing operations			17,441			14,806
Total operating expenses			746,407			663,646
Other (expense), net			(6,044	)		(6,823	)
Operating income from continuing operations			5,187			18,050
Income from continuing operations before income taxes			11,397			7,983
Interest (expense)			(4,735	)		(5,469	)
Provision for income taxes			4,787			3,347
Other (expense), net			(1,544	)		(1,181	)
Income from continuing operations			6,610			4,636
(Loss) income from continuing operations before income taxes			(1,092	)		11,400
(Loss) income from discontinued operations			(302	)		1,038
Provision for income taxes			2,309			4,944
Net income		$	6,308		$	5,674
(Loss) income from continuing operations			(3,401	)		6,456
Earnings (loss) per share – basic:
Income from discontinued operations			—			480
	Continuing operations	$	0.35		$	0.25
Net (loss) income		$	(3,401	)	$	6,936
	Discontinued operations		(0.02	)		0.05
(Loss) earnings per share – basic:
Total earnings per share – basic		$	0.33		$	0.30
	Continuing operations	$	(0.18	)	$	0.35
Earnings (loss) per share – diluted:
	Discontinued operations		—			0.03
	Continuing operations	$	0.35		$	0.25
Total (loss) earnings per share – basic		$	(0.18	)	$	0.38
	Discontinued operations		(0.02	)		0.05
(Loss) earnings per share – diluted:
Total earnings per share – diluted		$	0.33		$	0.30
	Continuing operations	$	(0.18	)	$	0.33
Average shares outstanding – basic			18,955			18,474
	Discontinued operations		—			0.03
Average shares outstanding – diluted			19,336			18,888
Total (loss) earnings per share – diluted		$	(0.18	)	$	0.36
Average shares outstanding – basic			19,460			18,478
Average shares outstanding – diluted			19,460			18,914
Dividends declared per share		$	0.05		$	0.05

See notes to condensed consolidated financial statements.

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

		Twenty-four Weeks Ended
		Thirty-six Weeks Ended
		(Two Quarters)
		(Three Quarters)
		June 21, 2003			June 15, 2002
		September 13, 2003			September 7, 2002
		(in thousands, except per share data)
Revenue		$	12,~~495~~247,~~598~~192		$	1,~~254~~936,~~970~~666
Operating expenses:
	Salaries, wages and benefits		~~943~~1,~~658~~420,832			~~826~~1,~~437~~264,454
	Operating supplies and expenses		~~260~~382,~~434~~846			~~206~~314,~~313~~489
	Purchased transportation		~~150~~227,~~509~~755			~~109~~173,~~284~~134
	Operating taxes and licenses		3857,~~554~~069			3351,~~045~~011
	Insurance and claims expense		2944,~~641~~774			2441,~~560~~043
	Provision for depreciation		3450,~~169~~827			3654,~~240~~319
	Net loss on disposal of operating property		841			578
	Net (gain) loss on disposal of operating property		(4,227	)		1,653
Total operating expenses			1,457,806			1,236,457
	Compensation and other expense related to the acquisition by Yellow Corporation		24,337			—
Operating income from continuing operations			37,792			18,513
Total operating expenses			2,204,213			1,900,103
Other (expense), net			(12,838	)		(13,647	)
Operating income from continuing operations			42,979			36,563
Income from continuing operations before income taxes			24,954			4,866
Interest (expense)			(14,616	)		(16,406	)
Provision for income taxes			10,481			2,103
Other (expense), net			(4,501	)		(3,891	)
Income from continuing operations			14,473			2,763
Income from continuing operations before income taxes			23,862			16,266
(Loss) income from discontinued operations			(155	)		1,162
Provision for income taxes			12,790			7,047
Net income		$	14,318		$	3,925
Income from continuing operations			11,072			9,219
(Loss) income from discontinued operations			(155	)		1,642
Net income		$	10,917		$	10,861
Earnings (loss) per share – basic:
	Continuing operations	$	0.7758		$	0.1550
	Discontinued operations		(0.01	)		0.0609
Total earnings per share – basic		$	0.7657		$	0.2159
Earnings (loss) per share – diluted:
	Continuing operations	$	0.7658		$	0.1548
	Discontinued operations		(0.01	)		0.0609
Total earnings per share – diluted		$	0.7557		$	0.2157
Average shares outstanding – basic			1819,~~802~~018			18,~~514~~502
Average shares outstanding – diluted			19,~~177~~038			18,~~968~~982
Dividends declared per share		$	0.1015		$	0.1015

See notes to condensed consolidated financial statements.

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

	Twenty-four Weeks Ended
	Thirty-six Weeks Ended
	(Two Quarters)
	(Three Quarters)
	June 21, 2003			June 15, 2002
	September 13, 2003			September 7, 2002
	(in thousands)
Cash flows from operating activities
Income from continuing operations	$	1411,~~473~~072		$	29,~~763~~219
Depreciation and amortization		3553,~~849~~226			3755,~~175~~565
Other operating adjustments		(3110,~~928~~050	)		(4520,~~756~~654	)
Net cash provided (used) by operating activities		18,394			(5,818	)
Net cash provided by operating activities		54,248			44,130
Cash flows from investing activities
Purchases of carrier operating property		(2237,~~448~~427	)		(2446,~~313~~863	)
Sales of carrier operating property		19,~~721~~516			1,~~869~~934
Business disposal		47,430			—
Business disposal (acquisition)		47,430			(24,191	)
Net cash provided (used) by investing activities		2619,~~703~~519			(2269,~~444~~120	)
Cash flows from financing activities
Dividends paid		(12,~~931~~941	)		(12,~~940~~799	)
Treasury stock activity, net		1,713			(1,383	)
Sale of treasury shares		8,927			994
Transfer from discontinued operation		—			2,500
(Purchase) of treasury shares		(2,203	)		(14,115	)
Long-term (repayments) borrowings		(26,426	)		(2,500	)
Transfer from discontinued operation		—			5,000
Net cash (used) by financing activities		(26,644	)		(3,323	)
Long-term (repayments) borrowings		(51,851	)		(5,000	)
Effect of exchange rate changes on cash		348			(90	)
Net cash (used) by financing activities		(48,068	)		(15,920	)
Net increase (decrease) in cash and cash equivalents from continuing operations		18,801			(31,675	)
Effect of exchange rate changes on cash		305			(200	)
Net (decrease) in cash and cash equivalents from discontinued operations		(38	)		(5,163	)
Net increase (decrease) in cash and cash equivalents from continuing operations		26,004			(41,110	)
Net (decrease) in cash and cash equivalents from discontinued operations		(39	)		(4,080	)
Cash and cash equivalents at beginning of period		106,929			110,432
Cash and cash equivalents at end of period	$	~~125~~132,~~692~~894		$	7365,~~594~~242

The following table shows all non-cash investing and financing activities for the three quarters ended September 13, 2003 and September 7, 2002:


	Thirty-six Weeks Ended
	(Three Quarters)
	September 13, 2003		September 7, 2002

	(in thousands)
Investing activities: Issuance of Note Receivable in connection with the sale of ATS	$	8,000	$	–
Financing activities: Issuance of Treasury shares to fund various employee stock plans	$	20,935	$	13,568

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 twelve and ~~twenty~~thirty-~~four~~six weeks ended ~~June~~September 2113, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002.

~~The~~Roadway ~~Company~~Corporation ~~completed~~ (the ~~required goodwill~~Company) ~~impairment~~operates ~~test~~on ~~under~~13 ~~SFAS~~four-week ~~No.~~accounting ~~142 for all reporting units~~periods ~~effective~~with ~~June~~12 ~~21,~~weeks ~~2003~~in ~~which~~each ~~did~~of ~~not indicate any impairment. The Company expects to perform~~ the ~~required~~first ~~annual~~three ~~goodwill impairment~~quarters ~~assessment~~and on16 weeks ain ~~recurring basis at~~ the ~~end of the second~~fourth quarter ~~each year, or more frequently should any indicators of possible impairment be identified~~.

~~Note~~The ~~2—Accounting~~Company ~~Period~~completed the required transitional goodwill impairment test under SFAS No. 142 for all reporting units effective June 21, 2003 which did not indicate any impairment. The Company expects to perform the required annual goodwill impairment assessment on a recurring basis at the end of the second quarter each year, or more frequently should any indicators of possible impairment be identified.

Roadway ~~Corporation~~recognizes (revenue on the ~~registrant~~date orthat ~~Company)~~freight ~~operates~~is ondelivered 13to ~~four-week~~the ~~accounting~~consignee, ~~periods~~at ~~with~~which ~~12 weeks~~time all services have been rendered. Roadway recognizes revenue on a gross basis since we are the primary obligor in ~~each~~the ofarrangement, even if we use other transportation service providers who act on our behalf, because we are responsible to the ~~first~~customer ~~three~~for ~~quarters~~complete and 16proper shipment, ~~weeks~~including inthe risk of physical loss or damage of the ~~fourth~~goods ~~quarter~~and cargo claims issues. In addition, we retain all credit risk. Related expenses are recognized as incurred.

Note 3—Discontinued operations

On December 26, 2002, the Company entered into an agreement to sell Arnold Transportation Services (ATS) to a management group led by the unit’s president and a private equity firm, for approximately $55,000,000. The ATS business segment was acquired as part of the Company’s purchase of Arnold Industries, Inc. (subsequently renamed Roadway Next Day Corporation) in November 2001, but did not fit the Company’s strategic focus of being a LTL carrier. The transaction was completed on January 23, 2003. The Company did not recognize a significant gain or loss as a result of this transaction.

The Company has reported the ATS results as a discontinued operation in the accompanying financial statements and, unless otherwise stated, the notes to the financial statements for all periods presented exclude the amounts related to this discontinued operation.

Note 42—~~Earnings~~Stock-based ~~per Share~~compensation

~~The~~In ~~following~~December ~~table~~2002, ~~sets~~the ~~forth~~FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure. The Company has adopted the disclosure ~~computation~~provision of ~~basic~~SFAS No. 148 as of December 31, 2002. As permitted under SFAS No. 123, Accounting for Stock-Based Compensation, and ~~diluted~~SFAS ~~earnings~~No. 148, ~~per~~the ~~share:~~Company has elected to follow APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company has issued stock options for which compensation expense is not recognized in the Company’s financial statements because the exercise price of the Company’s employee stock options was equal to the market price of the underlying stock on the date of grant.

		Twelve Weeks Ended						Twenty-four Weeks Ended
		(Second Quarter)						(Two Quarters)
		June 21, 2003				June 15, 2002		June 21, 2003			June 15, 2002
					(in thousands, except per share data)
Income (loss) from:
	Continuing operations	$	6,610			$	4,636	$	14,473		$	2,763
	Discontinued operations		(302	)			1,038		(155	)		1,162
Net income		$	6,308			$	5,674	$	14,318		$	3,925
Weighted-average shares for basic earnings per share			18,955				18,474		18,802			18,514
Management incentive stock plans			381				414		375			454
Weighted-average shares for diluted earnings per share			19,336				18,888		19,177			18,968
Basic earnings (loss) per share from:
	Continuing operations	$	0.35			$	0.25	$	0.77		$	0.15
	Discontinued operations		(0.02	)			0.05		(0.01	)		0.06
Basic earnings per share		$	0.33			$	0.30	$	0.76		$	0.21
Diluted earnings (loss) per share from:
	Continuing operations	$	0.35			$	0.25	$	0.76		$	0.15
	Discontinued operations		(0.02	)			0.05		(0.01	)		0.06
Diluted earnings per share		$	0.33			$	0.30	$	0.75		$	0.21

The following table sets forth the impact of stock based compensation had we elected to follow SFAS 123:


				Twelve weeks ended					Thirty-six weeks ended
				(Third quarter)					(Three quarters)
				Sept 13, 2003			Sept 7, 2002		Sept 13, 2003			Sept 7, 2002

				(in thousands, except per share data)
(Loss) income—as reported from:
	Continuing operations			$	(3,401	)	$	6,456	$	11,072		$	9,219
	Discontinued operations				—			480		(155	)		1,642

Net (loss) income—as reported				$	(3,401	)	$	6,936	$	10,917		$	10,861

Add: Stock-based compensation expense included in reported income from continuing operations, net of tax effects.				$	7,807		$	1,183	$	10,088		$	3,748
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of tax effects.					8,091			1,454		10,807			4,453

(Loss) income—pro forma from:
	Continuing operations				(3,685	)		6,185		10,353			8,514
	Discontinued operations				—			480		(155	)		1,642

			Net (loss) income—pro forma	$	(3,685	)	$	6,665	$	10,198		$	10,156

Basic (loss) earnings per share
	As reported: continuing operations			$	(0.18	)	$	0.35	$	0.58		$	0.50
	As reported: discontinued operations				—			0.03		(0.01	)		0.09

			As reported: total	$	(0.18	)	$	0.38	$	0.57		$	0.59

	Pro forma: continuing operations			$	(0.20	)	$	0.33	$	0.54		$	0.46
	Pro forma: discontinued operations				—			0.03		(0.01	)		0.09

			Pro forma total	$	(0.20	)	$	0.36	$	0.53		$	0.55

Diluted (loss) earnings per share
	As reported: continuing operations			$	(0.18	)	$	0.33	$	0.58		$	0.48
	As reported: discontinued operations				—			0.03		(0.01	)		0.09

			As reported: total	$	(0.18	)	$	0.36	$	0.57		$	0.57

		Pro forma: continuing operations		$	(0.20	)	$	0.32	$	0.54		$	0.44
		Pro forma: discontinued operations			—			0.03		(0.01	)		0.09

			Pro forma: total	$	(0.20	)	$	0.35	$	0.53		$	0.53

Note 53—~~Segment~~Pending ~~information~~acquisition of the Company by Yellow Corporation

~~The~~Roadway ~~Company~~Corporation ~~provides~~announced ~~freight~~on ~~services~~July 8, in2003 ~~two~~that ~~business~~a ~~segments:~~definitive ~~Roadway~~agreement ~~Express~~had ~~(Roadway)~~been ~~and~~signed ~~New~~under ~~Penn~~which ~~Motor~~Yellow ~~Express~~Corporation ~~(New~~would ~~Penn).~~acquire ~~The~~ Roadway ~~segment provides~~for ~~long~~approximately ~~haul~~$966 million, ~~expedited,~~or ~~and~~$48 ~~regional~~per ~~LTL~~share ~~freight~~(based ~~services~~on ina ~~North~~fixed ~~America~~exchange ~~and~~ratio ~~offers~~and ~~services~~a to60-day ~~over~~average ~~100~~price ~~countries~~per ~~worldwide~~share of $24.95 ~~The~~for ~~New~~Yellow ~~Penn~~common ~~segment~~stock ~~provides~~in a ~~regional~~half cash, ~~next-day~~half ~~LTL~~stock ~~freight~~transaction). ~~services~~If ~~primarily~~this intransaction proceeds to the ultimate ~~northeast~~acquisition ~~region~~of Roadway Corporation by Yellow Corporation, Roadway Corporation will no longer exist as a Registrant. Separate disclosure of ~~the~~audited ~~United~~financial ~~States~~statements may be required to satisfy financing requirements by creditors, however, no such reporting requirements have as yet been determined.

~~The~~Note ~~Company’s~~4—Discontinued ~~reportable segments are identified based on differences in~~operations ~~products, services, and management structure. The measurement basis of segment~~ ~~profit or loss is operating income. Business segment assets consist primarily~~ ~~of customer receivables, net carrier operating property, and goodwill.~~

		Twelve weeks ended June 21, 2003
		(Second Quarter)
		Roadway Express			New Penn			Total
		(in thousands)
Revenue		$	691,156		$	50,372		$	741,528
Operating expense:
	Salaries, wages & benefits		433,101			32,657			465,758
	Operating supplies		125,734			7,244			132,978
	Purchased transportation		75,276			449			75,725
	Operating license and tax		17,182			1,427			18,609
	Insurance and claims		13,599			684			14,283
	Depreciation		14,472			2,232			16,704
	Net loss (gain) on sale of operating property		(21	)		51			30
Total operating expense			679,343			44,744			724,087
Operating income		$	11,813		$	5,628		$	17,441
Operating ratio			98.3	%		88.8	%		97.6	%
Total assets		$	761,817		$	405,914		$	1,167,731

On December 26, 2002, the Company entered into an agreement to sell Arnold Transportation Services (ATS) to a management group led by the unit’s president and a private equity firm, for approximately $55 million, consisting of $47 million in cash and an $8 million note. The ATS business segment was acquired as part of the Company’s purchase of Arnold Industries, Inc. (subsequently renamed Roadway Next Day Corporation) in November 2001, but did not fit the Company’s strategic focus of being a less-than-truckload (LTL) carrier. The transaction was completed on January 23, 2003. The Company recognized a gain of $150,000, net of tax, as a result of this transaction.

Note 5—Earnings per Share

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


		Twelve Weeks Ended					Thirty-six Weeks Ended
		(Third Quarter)					(Three Quarters)
		Sept 13, 2003			Sept 7, 2002		Sept 13, 2003			Sept 7, 2002

		(in thousands, except per share data)
(Loss) income from:
	Continuing operations	$	(3,401	)	$	6,456	$	11,072		$	9,219
	Discontinued operations		—			480		(155	)		1,642

Net (loss) income		$	(3,401	)	$	6,936	$	10,917		$	10,861

Weighted-average shares for basic earnings per share			19,460			18,478		19,018			18,502
Management incentive stock plans			—			436		20			480

Weighted-average shares for diluted earnings per share			19,460			18,914		19,038			18,982

Basic (loss) earnings per share from:
	Continuing operations	$	(0.18	)	$	0.35	$	0.58		$	0.50
	Discontinued operations		—			0.03		(0.01	)		0.09

Basic earnings per share		$	(0.18	)	$	0.38	$	0.57		$	0.59

Diluted (loss) earnings per share from:
	Continuing operations	$	(0.18	)	$	0.33	$	0.58		$	0.48
	Discontinued operations		—			0.03		(0.01	)		0.09

Diluted (loss) earnings per share		$	(0.18	)	$	0.36	$	0.57		$	0.57

For all periods presented, there were no stock options or other potentially dilutive securities that could potentially dilute basic earnings per share in the future that were not included in the computation of dilutive earnings per share.

Note 56—Segment information ~~(continued)~~

		Twelve weeks ended June 15, 2002
		(Second Quarter)
		Roadway Express			New Penn			Total
		(in thousands)
Revenue		$	606,409		$	49,594		$	656,003
Operating expense:
	Salaries, wages & benefits		392,635			32,722			425,357
	Operating supplies		103,488			5,937			109,425
	Purchased transportation		57,317			458			57,775
	Operating license and tax		16,043			1,383			17,426
	Insurance and claims		11,964			947			12,911
	Depreciation		15,416			2,615			18,031
	Net loss (gain) on sale of operating property		303			(20	)		283
Total operating expense			597,166			44,042			641,208
Operating income		$	9,243		$	5,552		$	14,795
Operating ratio			98.5	%		88.8	%		97.7	%
Total assets		$	713,832		$	336,587		$	1,050,419

The Company provides freight services in two business segments: Roadway Express (Roadway) and New Penn Motor Express (New Penn). The Roadway segment provides long haul, expedited, and regional LTL freight services in North America and offers services to over 100 countries worldwide. The New Penn segment provides regional, next-day ground LTL freight service operating primarily in New England and the Middle Atlantic States.

		Twenty-four weeks ended June 21, 2003
		(Two Quarters)
		Roadway Express			New Penn			Total
		(in thousands)
Revenue		$	1,396,400		$	99,198		$	1,495,598
Operating expense:
	Salaries, wages & benefits		872,539			66,100			938,639
	Operating supplies		251,560			14,911			266,471
	Purchased transportation		149,518			991			150,509
	Operating license and tax		35,561			2,816			38,377
	Insurance and claims		27,494			1,638			29,132
	Depreciation		29,396			4,441			33,837
	Net loss (gain) on sale of operating property		781			60			841
Total operating expense			1,366,849			90,957			1,457,806
Operating income		$	29,551		$	8,241		$	37,792
Operating ratio			97.9	%		91.7	%		97.5	%

The Company’s reportable segments are identified based on differences in products, services, and management structure. Operating income is the primary measure used by our chief operating decision-maker in evaluating segment profit and loss and in allocating resources and evaluating segment performance. Business segment assets consist primarily of customer receivables, net carrier operating property, and goodwill.


		Twelve weeks ended September 13, 2003
		(Third Quarter)

		Roadway Express			New Penn			Total

		(in thousands)

Revenue		$	700,668		$	50,926		$	751,594
Operating expense:
	Salaries, wages & benefits		441,446			33,412			474,858
	Operating supplies		117,826			7,247			125,073
	Purchased transportation		76,729			517			77,246
	Operating license and tax		17,025			1,390			18,415
	Insurance and claims		14,530			527			15,057
	Depreciation		14,250			2,239			16,489
	Net (gain) loss on sale of operating property		(5,069	)		1			(5,068	)
	Compensation and other expense related to the Yellow acquisition		23,374			963			24,337

Total operating expense			700,111			46,296			746,407

Operating income		$	557		$	4,630		$	5,187

Operating ratio			99.9	%		90.9	%		99.3	%
Total assets		$	802,834		$	406,365		$	1,209,199

Note 56—Segment information (continued)

Twenty-four weeks ended June 15, 2002

Twelve weeks ended September 7, 2002

(Two Quarters)

(Third Quarter)

Roadway Express

New Penn

Total

(in thousands)

Revenue

1631,~~159,967~~158

9550,~~003~~538

1681,~~254,970~~696

Operating expense:

Salaries, wages & benefits

~~758~~402,~~970~~918

6333,~~431~~171

~~822~~436,~~401~~089

Operating supplies

~~198~~104,~~987~~540

125,~~051~~929

~~211~~110,~~038~~469

Purchased transportation

~~108~~63,~~443~~318

~~841~~532

~~109~~63,~~284~~850

Operating license and tax

3016,~~231~~512

21,~~742~~420

3217,~~973~~932

Insurance and claims

2215,~~352~~488

~~1,841~~784

2416,~~193~~272

Depreciation

3015,~~685~~507

52,~~305~~452

3517,~~990~~959

Net loss (gain) on sale of operating property

~~649~~1,129

(7154

)

~~578~~1,075

Total operating expense

1619,~~150,317~~412

8644,~~140~~234

1663,~~236,457~~646

Operating income

911,~~650~~746

86,~~863~~304

18,~~513~~050

Operating ratio

9998.21

9087.75

9897.54

Total assets

725,538

366,733

1,092,271

Reconciliation of segment operating income to consolidated operating income from continuing operations before taxes:


		Thirty-six weeks ended September 13, 2003
		(Three Quarters)

		Roadway Express			New Penn			Total

					(in thousands)

Revenue		$	2,097,068		$	150,124		$	2,247,192
Operating expense:
	Salaries, wages & benefits		1,313,985			99,512			1,413,497
	Operating supplies		369,386			22,158			391,544
	Purchased transportation		226,247			1,508			227,755
	Operating license and tax		52,586			4,206			56,792
	Insurance and claims		42,024			2,165			44,189
	Depreciation		43,646			6,680			50,326
	Net (gain) loss on sale of operating property		(4,288	)		61			(4,227	)
	Compensation and other expense related to the Yellow acquisition		23,374			963			24,337

Total operating expense			2,066,960			137,253			2,204,213

Operating income		$	30,108		$	12,871		$	42,979

Operating ratio			98.6	%		91.4	%		98.1	%

	Twelve Weeks Ended						Twenty-four weeks ended
	(Second Quarter)						(Two quarters)
	June 21, 2003			June 15, 2002			June 21, 2003			June 15, 2002
				(in thousands)
Segment operating income from continuing operations	$	17,441		$	14,795		$	37,792		$	18,513
Unallocated corporate income		—			11			—			—
Interest (expense)		(4,779	)		(5,473	)		(9,881	)		(10,937	)
Other (expense), net		(1,265	)		(1,350	)		(2,957	)		(2,710	)
Consolidated income from continuing operations before taxes	$	11,397		$	7,983		$	24,954		$	4,866

Note 56—Segment information (continued)


		Thirty-six weeks ended September 7, 2002
		(Three Quarters)

		Roadway Express			New Penn			Total

		(in thousands)

Revenue		$	1,791,125		$	145,541		$	1,936,666
Operating expense:
	Salaries, wages & benefits		1,161,888			96,602			1,258,490
	Operating supplies		303,527			17,980			321,507
	Purchased transportation		171,761			1,373			173,134
	Operating license and tax		46,743			4,162			50,905
	Insurance and claims		37,840			2,625			40,465
	Depreciation		46,192			7,757			53,949
	Net loss (gain) on sale of operating property		1,778			(125	)		1,653

Total operating expense			1,769,729			130,374			1,900,103

Operating income		$	21,396		$	15,167		$	36,563

Operating ratio			98.8	%		89.6	%		98.1	%

Reconciliation of segment operating income to consolidated operating income from continuing operations before taxes:


	Twelve Weeks Ended						Thirty-six weeks ended
	(Third Quarter)						(Three quarters)
	Sept 13, 2003			Sept 7, 2002			Sept 13, 2003			Sept 7, 2002

				(in thousands)

Segment operating income from continuing operations	$	5,187		$	18,050		$	42,979		$	36,563
Unallocated corporate income		–			–			–			–
Interest (expense)		(4,735	)		(5,469	)		(14,616	)		(16,406	)
Other (expense), net		(1,544	)		(1,181	)		(4,501	)		(3,891	)

Consolidated (loss) income from continuing operations before taxes	$	(1,092	)	$	11,400		$	23,862		$	16,266

Note 6—Segment information (continued)

Reconciliation of total segment assets to total consolidated assets:

	June 21, 2003			December 31, 2002
	September 13, 2003			December 31, 2002
	(in thousands)
Total segment assets	$	1,~~167~~209,~~731~~199		$	1,211,584
Unallocated corporate assets		~~103~~101,~~142~~901			41,351
Assets of discontinued operations		—–			87,431
Elimination of intercompany balances		(727,~~294~~687	)		(4,493	)
Consolidated assets	$	1,~~263~~283,~~579~~413		$	1,335,873

Note 67—Comprehensive Income

Comprehensive income differs from net income due to foreign currency translation adjustments and derivative fair value adjustments as shown below:

	Twelve weeks Ended						~~Twenty~~Thirty-~~four~~six weeks ended
	(Second Quarter)						(Two quarters)
	(Third Quarter)						(Three quarters)
	June 21, 2003			June 15, 2002			June 21, 2003		June 15, 2002
	Sept 13, 2003			Sept 7, 2002			Sept 13, 2003		Sept 7, 2002
				(in thousands)
Net income	$	6,308		$	5,674		$	14,318	$	3,925
Net (loss) income	$	(3,401	)	$	6,936		$	10,917	$	10,861
Foreign currency translation adjustments		~~3,089~~(707	)		~~1,122~~(628	)		5,~~776~~069		(56684	)
Derivative fair value adjustment		50–			—158			126		—158
Comprehensive income	$	9,447		$	6,796		$	20,220	$	3,869
Comprehensive (loss) income	$	(4,108	)	$	6,466		$	16,112	$	10,335

Note 78—~~Contingent Matter~~Goodwill

~~The~~At ~~Company’s~~December 31, ~~former~~2002 ~~parent~~and isSeptember 13, ~~currently~~2003, ~~under~~the ~~examination~~Company’s bygoodwill ~~the Internal~~included ~~Revenue~~$269 million ~~Service~~recorded ~~for~~in ~~tax~~connection ~~years~~with ~~1994~~our ~~and~~acquisition ~~1995~~of Arnold Industries Inc., ~~years~~renamed ~~prior~~Roadway toNext ~~the~~Day ~~spin-off~~Corporation, ofon ~~the Company~~November 30, 2001. The ~~IRS~~Company initially ~~has~~recognized ~~proposed~~goodwill ~~substantial~~in ~~adjustments~~the ~~for~~amount ~~these~~of ~~tax~~$254 million ~~years~~at ~~for~~December 31, ~~multi-employer~~2001. ~~pension~~The ~~plan~~preliminary ~~deductions.~~purchase ~~The~~price ~~IRS~~allocation isbetween ~~challenging~~New ~~the~~Penn ~~timing,~~Motor ~~not~~Express ~~the~~(New ~~validity~~Penn) ofand ~~these~~Arnold ~~deductions.~~Transportation ~~The~~Services ~~Company~~(ATS) was isexpected ~~unable~~ to ~~predict~~be ~~the~~adjusted ~~ultimate~~as ~~outcome~~estimated offair ~~this~~values ~~matter;~~of ~~however,~~assets ~~its~~acquired ~~former~~and ~~parent~~liabilities ~~intends~~assumed towere ~~vigorously~~finalized ~~contest~~during ~~these proposed adjustments~~2002.

~~Under~~The apreliminary ~~tax~~allocation ~~sharing~~of ~~agreement~~goodwill ~~entered~~was ~~into~~calculated bybased on the ~~Company and its former parent~~historic atbook ~~the~~values ~~time~~ of ~~the spin-off~~assets, ~~the~~liabilities ~~Company~~assumed, isand ~~obligated~~an toestimated ~~reimburse~~purchase ~~the former~~price ~~parent~~allocation for ~~any~~the ~~additional~~entity. ~~taxes~~During ~~and~~2002, ~~interest~~various ~~that~~adjustments ~~relate~~were made to the ~~Company’s~~ ~~business~~preliminary ~~prior~~purchase toprice ~~the~~that ~~spin-off.~~included ~~The~~direct ~~amount~~acquisition ~~and~~costs, ~~timing~~ finalization of ~~such~~a ~~payments~~third-party ~~is dependent~~appraisal ~~on the ultimate resolution~~ of the ~~former~~assets, ~~parent’s~~an ~~disputes~~analysis ~~with~~of ~~the~~existing tax ~~IRS~~liabilities, and the ~~determination~~pending ofsale ~~the nature and extent~~ of ~~the obligations under the tax sharing agreement~~ATS. OnThe ~~January 16,~~third-party ~~2003,~~property ~~the Company made a $14,000,000~~appraisal ~~payment~~resulted toin ~~its former parent under~~ the ~~tax~~write-down ~~sharing~~of ~~agreement~~carrier ~~for~~operating ~~taxes~~property ~~and interest~~values ~~related~~due to ~~certain of~~ the depressed ~~proposed~~used ~~adjustments~~equipment ~~for tax years 1994 and 1995~~market.

WeThe ~~estimate~~final ~~the~~valuation ~~range~~ of ~~the~~ATS ~~remaining~~was ~~payments~~based ~~that~~on ~~may be due to~~ the ~~former parent~~sales toprice beof $055 million, negotiated toon ~~$16~~October 2,~~000,000~~ in2002 ~~additional~~between ~~taxes~~that ~~and~~unit’s $0president, toa ~~$10,000,000~~private inequity ~~related interest~~firm, ~~net~~and ofthe ~~tax benefit~~Company. The ~~Company~~price ~~has~~is ~~established~~consistent ~~certain reserves~~ with ~~respect~~actual tomarket ~~these proposed adjustments. There can be no~~valuations ~~assurance,~~from ~~however,~~other ~~that~~interested ~~the~~potential ~~amount~~purchasers orobtained ~~timing~~in ~~of any liability of~~ the ~~Company to~~fall ~~the former parent will not have a material adverse effect on the Company’s results~~ of ~~operations and financial position~~2002.

1011

Note 8—~~Subsequent~~Goodwill ~~event~~(continued)

OnNo ~~July 8,~~indicator ~~2003,~~of impairment in the ~~Company~~value ~~announced~~of ATS existed from the ~~signing~~date of purchase athrough ~~definitive~~the ~~agreement~~final sale. There was no change in operational ~~under~~performance ~~which~~during ~~Yellow~~2002 ~~Corporation~~that would ~~acquire~~have ~~Roadway~~caused ~~for~~us ~~approximately~~to ~~$966 million,~~modify orthe ~~$48~~value ~~per~~of ~~share~~ATS. Despite ~~See~~declining ~~the~~overall ~~Company’s~~economic ~~8-K~~market ~~filed~~conditions onin ~~July 8,~~2002 ~~2003~~compared ~~for~~to 2001, ~~further~~ATS’ ~~information~~operating revenue and ~~details~~operating income remained constant.

The sale of ATS, while not contemplated at the time of acquisition, was negotiated within one year of the purchase, and was accordingly deemed the most reasonable fair value of the ATS entity. In addition, the allocation of goodwill primarily to New Penn was considered appropriate, as the entity originally sought in the acquisition of Arnold Industries, Inc. was New Penn. The acquisition presented Roadway with a strategic opportunity to build upon and extend its transportation services. New Penn, the less-than-truckload business unit, has historically had one of the lowest (best) operating ratios in the industry. The operating ratio is calculated as operating expenses divided by revenue.

The goodwill allocation between the Roadway Next Day Corporation entities at December 31, 2001 and December 31, 2002 is as follows (in thousands):


	New Penn		ATS		Roadway Next Day		Total

Preliminary	$	187,576	$	65,956		—	$	253,532
Final	$	268,894		—	$	199	$	269,093

The following table shows all the changes to goodwill during 2002 (in thousands). There have been no changes to goodwill since December 31, 2002.


Goodwill, December 31, 2001	$	253,532
Additional direct transaction costs		998
Net write-down of assets to appraisal value		21,837
Reclassification to intangible assets		(5,630	)
Tax accrual adjustment		(1,644	)

Goodwill, December 31, 2002	$	269,093

Note 9—Intangible assets other than goodwill

The following table shows the identifiable intangible assets other than goodwill, and indicates which assets are subject to amortization and the life assigned to them. These assets are recorded on the books of the New Penn segment. The estimated aggregate amortization expense is $654,000 in the next fiscal year and $154,000 in each of the fours years thereafter.

As of September 13, 2003:


					Expense
					recognized
			Accumulated		through three
Description	Gross amount		amortization		quarters		Life

Customer contracts	$	770,000	$	260,615	$	106,615	5 years
Purchased customer list		3,000,000		2,346,500		346,500	3 years
Trade names		2,750,000		—		—	indefinite

Total	$	6,520,000	$	2,607,115	$	453,115

Note 9—Intangible assets other than goodwill (continued)

As of December 31, 2002:


					Expense
					recognized
			Accumulated		through four
Description	Gross amount		amortization		quarters		Life

Customer contracts	$	770,000	$	154,000	$	154,000	5 years
Purchased customer list		3,000,000		2,000,000		2,000,000	3 years
Trade names		2,750,000		—		—	indefinite

Total	$	6,520,000	$	2,154,000	$	2,154,000

Note 10—Contingent Matter

The Company’s former parent, Caliber System, Inc., formerly known as Roadway Services, Inc (which was subsequently acquired by FDX Corporation, a wholly owned subsidiary of FedEx Corporation), 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 multi-employer 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 on January 2, 1996 (the date of the spin-off) the Company is obligated to reimburse the former parent for any additional taxes and interest that 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. On January 16, 2003, the Company made a $14 million payment to its former parent under the tax sharing agreement for taxes and interest related to certain of the proposed adjustments for tax years 1994 and 1995.

We estimate the range of the remaining payments that may be due to the former parent to be $0 to $16 million in additional taxes and $0 to $11 million in related interest, net of tax benefit. The Company has established a $16 million deferred tax liability and certain other 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.

Note 11—Impact of the acquisition-related charges

We are presenting this schedule to provide additional information for comparability to prior year operating results. This presentation should not be construed as a better measurement than the income statements as defined by generally accepted accounting principles. The following tables show the charges related to the pending acquisition of Roadway Corporation by Yellow Corporation, and their impact on operating income, operating ratio, income taxes, and earnings per share. These charges resulted primarily from the vesting of restricted stock awards, other compensation expense and transaction costs. The Company’s effective tax rate has increased from 42.0% to 53.6% as a result of the non-deductibility of these acquisition-related costs.


			Twelve Weeks Ended September 13, 2003
			(Third quarter)

						Acquisition
			As reported			Charges			As adjusted

Roadway Corporation
Revenue			$	751,594		$	—		$	751,594
Operating expenses				746,407			(24,337	)		722,070

Operating Income				5,187			24,337			29,524
Other (expense), net				(6,279	)		—			(6,279	)

Pretax (loss) income				(1,092	)		24,337			23,245
Income tax expense				2,309			7,454			9,763

Net (loss) income			$	(3,401	)	$	16,883		$	13,482

(Loss) earnings per share (diluted)			$	(0.18	)	$	0.89		$	0.71
Operating ratio				99.3	%					96.1	%

	Roadway Express
Revenue			$	700,668		$	—		$	700,668
Operating expenses				700,111			(23,374	)		676,737

Operating income			$	557		$	23,374		$	23,931

Operating ratio				99.9	%					96.6	%

		New Penn
Revenue			$	50,926		$	—		$	$50,926
Operating expenses				46,296			(963	)		45,333

Operating income			$	4,630		$	963		$	5,593

Operating ratio				90.9	%					89.0	%

Note 11—Impact of the acquisition-related charges (continued)


			Thirty-six Weeks Ended September 13, 2003
			(Three Quarters)

						Acquisition
			As reported			Charges			As adjusted

Roadway Corporation
Revenue			$	2,247,192		$	—		$	2,247,192
Operating expenses				2,204,213			(24,337	)		2,179,876

Operating income				42,979			24,337			67,316
Other (expense), net				(19,117	)		—			(19,117	)

Pretax income				23,862			24,337			48,199
Income tax expense				12,790			7,454			20,244

Operating income from continuing operations				11,072			16,883			27,955
(Loss) from discontinued operations				(155	)		—			(155	)

Net income			$	10,917		$	16,883		$	27,800

Earnings per share (diluted)			$	0.57		$	0.89		$	1.46
Operating ratio				98.1	%					97.0	%
	Roadway Express
Revenue			$	2,097,068		$	—		$	2,097,068
Operating expenses				2,066,960			(23,374	)		2,043,586

Operating income			$	30,108		$	23,374		$	53,482

Operating ratio				98.6	%					97.4	%
		New Penn
Revenue			$	150,124		$	—		$	150,124
Operating expenses				137,253			(963	)		136,290

Operating income			$	12,871		$	963		$	13,834

Operating ratio				91.4	%					90.8	%

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

Consolidated results of operations for the ~~second~~third quarter ended ~~June~~September 2113, ~~2003~~ 2003 compared to the ~~second~~third quarter ended ~~June~~September 217, 2002

Consolidated revenue was $~~742~~752 million in the current quarter, a 1310% increase from ~~second~~third quarter 2002. This increase was primarily due to increased revenue at Roadway Express following the shutdown in September 2002 of Consolidated Freightways (CF), a major competitor. Operating expenses grew ~~by nearly the same amount~~12.5%, and the operating ratio (operating expenses as a percentage of revenue) ~~improved~~ ~~by 0.~~deteriorated 1.9 points to 9799.63%, compared to last year’s 97.74%. ~~The~~Operating ~~Company’s~~income from ~~consolidated~~continuing ~~operating~~operations ~~income~~declined ~~was~~to $175.42 million compared to $1418.81 million in the prior year quarter. In the ~~second~~current quarter, we recorded $24.3 million of compensation and other expense related to the Company’s pending acquisition by Yellow Corporation. The compensation expenses related to accelerated vesting of stock and other compensation under various Roadway benefit plans triggered by the pending acquisition. The other non-compensation expenses related to transaction fees paid by the Company. Excluding these charges, consolidated operating income from continuing operations would have been $29.5 million, a 64% increase over the third quarter of 2002, and the operating ratio would have improved to 96.1% compared to 97.4% in the third quarter of 2002 (see Note 11). This increase in operating income isfrom ~~solely~~continuing operations and improvement in the operating ratio is attributable to the improved performance of Roadway Express. The net other expense of $61.05 million is primarily composed of financing ~~interest~~fees of $0.8 million and amortization of ~~financing~~ debt costs of $0.6 million associated with the acquisition of Roadway Next Day in 2001. The Company had a net ~~income~~loss of $6.3.4 million or $0.3318 per share (diluted), for the current quarter, compared to a net income of $56.79 million, or $0.3036 per share (diluted) in the same quarter last year.

The Company’s effective tax rate ~~for~~differs from the ~~second~~Federal ~~quarter~~statutory rate due to the impact of state taxes, taxes on foreign operations, and non-deductible operating expenses. The effective tax rate for the first three quarters of 2003 ~~was~~increased 42to 53.06%, compared to 41 43.93% in the ~~second~~same ~~quarter~~period oflast ~~2002.~~year, ~~This~~and ~~tax~~up from ~~rate~~42% ~~differs~~through ~~from~~two ~~the~~quarters ~~Federal statutory~~of ~~rate~~2003. This increase is due to the impact of ~~state taxes, taxes on foreign operations,~~ ~~and~~the ~~non~~acquisition-~~deductible~~related ~~operating~~ expenses discussed above.

Consolidated results of operations for the ~~two~~three quarters ended ~~June~~September 2113, ~~2003~~ 2003 compared to the ~~two~~three quarters ended ~~June~~September 157, 2002

Consolidated revenue was $~~1,496~~2.2 ~~million~~billion in the first ~~two~~three quarters, a 1916% increase from the first ~~two~~three quarters of 2002. This increase was primarily ~~due~~ due to increased revenue at Roadway Express following the shutdown in September 2002 of ~~Consolidated Freightways, a major competitor~~CF. In addition, Roadway’s first ~~two~~three quarters of this year contained four ~~121~~more working days ~~compared~~than ~~to 117 working days~~ in last year’s first ~~two~~three quarters. Operating expenses grew by ~~17.9~~16%, and the operating ratio (was flat compared to last year’s 98.1%. Excluding the acquisition-related expenses discussed above, the operating expenses aswould ahave ~~percentage~~increased ofonly ~~revenue)~~14.7%, ~~improved~~and bythe operating ratio ~~1.0~~would ~~points~~have improved to 97.50%, ~~compared~~from to last year’s 98.51%. The Company’s ~~consolidated~~ consolidated operating income from continuing operations was $~~37.8~~43 million, an increase of 18% compared to ~~$18.5 million~~the infirst three quarters of 2002. ~~This~~Excluding the acquisition-related expenses, operating income would have increased 84% (see note 11). This increase in operating income isfrom continuing operations is solely attributable to the improved performance of Roadway Express. The net other expense of $124.85 million is primarily composed of ~~interest~~financing ~~and~~fees ~~amortization~~ of ~~financing costs~~$2.5 million ~~The~~and ~~Company~~amortization ~~had~~of ~~net income~~debt costs of $142.3 million orassociated ~~$0.75~~with ~~per~~the acquisition ~~share~~of ~~(diluted),~~Roadway ~~for~~Next ~~the~~Day ~~first~~in ~~two quarters~~2001. ofThe ~~2003,~~Company ~~compared~~had ~~to a~~ net income of $310.9 million, or $0.2157 per share (diluted) in, for the first three quarters of 2003, unchanged from prior year.

InThe ~~January~~Company’s ~~2003~~effective tax rate differs from the Federal statutory rate due to the impact of state taxes, wetaxes ~~sold~~on ~~ATS~~foreign operations, and non-deductible operating expenses. The effective tax rate for the ~~truckload~~first ~~subsidiary~~three quarters of 2003 ~~Roadway~~increased ~~Next~~to ~~Day Corporation~~53.6%, ~~for~~compared ~~$55 million~~to 43.3% ~~ATS~~in ~~has~~the ~~been~~same ~~accounted~~period ~~for~~last asyear, aand ~~discontinued~~up ~~operation~~from ~~for~~42% ~~all~~through ~~periods~~two ~~presented~~quarters of 2003. This increase is due to the impact of the acquisition-related expenses discussed above.

~~Contract~~In ~~negotiations~~January ~~with~~2003, we sold ATS, the ~~Teamsters~~truckload ~~were~~subsidiary ~~successfully~~of ~~concluded~~Roadway inNext ~~early~~Day ~~February 2003~~Corporation, ~~well~~for in$55 million, ~~advance~~consisting of ~~the March~~$47 ~~31,~~million ~~2003~~in ~~expiration~~cash ~~date.~~and ~~The~~an $8 ~~Teamsters~~million ~~ratified~~note. ~~this~~ATS ~~new~~has ~~five-year~~been ~~contract~~accounted onfor ~~March 28,~~as ~~2003~~a discontinued operation for all periods presented.

~~The effective tax rate for the first two quarters of 2003 was 42.0%, compared~~16 ~~to 43.2% in the first two quarters of 2002. 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.~~

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

Roadway Express, Inc.

Results of operations for the ~~second~~third quarter ended ~~June~~September 2113, 2003 compared to to the ~~second~~third quarter ended ~~June~~September 157, 2002

Roadway ~~delivered~~Express ~~1.8 million tons of freight in the current quarter, an increase of 11.2% compared to the prior year’s second quarter. This improvement~~ is ~~primarily~~a ~~due to the shutdown of Consolidated Freightways, and we expect that positive tonnage comparisons will continue through the third quarter of 2003. Less~~less-than-truckload (LTL) ~~tons~~carrier, ~~were~~and upall ~~11.8%~~of ~~while~~our ~~truckload~~services ~~tons~~take ~~were~~place upwithin ~~8.4%.~~our ~~Net~~LTL ~~revenue~~network ~~per~~of ~~ton~~371 ~~was~~terminals ~~$388.18,~~(68% upCompany-owned; ~~2.5~~32% leased) ~~compared~~located tothroughout the ~~same~~ ~~quarter~~United ~~last year~~States, ~~with~~Canada ~~LTL up 1.9%~~ and ~~truckload~~Mexico, upwhich ~~5.6%.~~are ~~Without the~~all ~~revenue~~operated ~~increase~~by ~~relating~~Roadway toExpress. ~~the~~All ~~fuel~~of ~~surcharge,~~the ~~freight~~services ~~rates~~constitute ~~were~~movement upof ~~1.2%~~goods ~~compared~~and toinformation ~~the~~through ~~second~~our ~~quarter~~network of ~~2002~~terminals. ~~During~~The ~~the~~operations ~~second~~of ~~quarter, Roadway~~the ~~began~~network toare ~~experience~~evaluated aas ~~shift~~one inbusiness ~~its~~by ~~freight mix, where~~ the ~~company~~chief ~~saw~~operating ~~some loss~~decision-maker, ofwith ~~higher-yielding~~multiple ~~time~~services co-~~critical~~mingled ~~freight.~~and Inhandled ~~addition,~~simultaneously. anRoadway ~~increase in the~~Express’ ~~average~~primary ~~shipment~~service ~~size~~offerings ~~and~~include anational ~~decrease~~LTL, inregional ~~the~~LTL, ~~average~~truckload ~~length-of-haul both~~and ~~contributed~~specialized toservices. ~~lower~~These ~~revenue~~services ~~rates.~~often Tooverlap ~~offset~~in ~~this~~multiple ~~revenue~~categories. Specialized ~~yield decline~~services, ~~Roadway~~ ~~announced~~which aconsist ~~rate~~of ~~increase~~International ofCanada, ~~5.9%~~International Mexico, ~~effective~~International ~~July 13~~Ocean, ~~2003.~~Domestic ~~The continued~~Ocean, ~~economic~~Time-Critical ~~sluggishness~~Service, ~~has~~Air Service, ~~lead~~Exhibition toService ~~increased~~and ~~pricing~~Non-Freezable ~~pressures~~Service, ~~especially~~ inis the ~~regional~~fastest ~~markets~~growing service. AIt ~~variable~~accounted ~~rate~~for ~~fuel~~approximately ~~surcharge averaged 3.1~~16% of ~~revenue~~Roadway Express’ total revenue in the current quarter, ~~compared~~and toincreased ~~1.8~~13% ofover ~~revenue in~~ the ~~prior-year~~ third quarter. ~~Total~~of ~~operating expenses increased by 13~~2002.~~8%, while revenue~~ ~~increased~~Shipments ~~14.0%,~~identified ~~leading to an improvement~~ in the ~~operating~~different ~~ratio~~service toofferings ~~98.3%,~~are handled ~~compared~~simultaneously toat athe ~~98.5%~~same interminals, by the same ~~quarter~~employees ~~last~~and ~~year~~with the same equipment.

~~Salaries,~~Roadway ~~wages,~~delivered ~~and~~1.8 million ~~benefits~~tons ~~as a percentage~~ of ~~revenue~~freight ~~decreased to 62.7%~~ in the current quarter, ~~from 64~~6.84% higher inthan ~~the~~last ~~second~~year’s third quarter. ofThis ~~2002.~~tonnage ~~Both~~increase ~~direct~~coupled ~~and~~with a ~~indirect~~4.3% ~~wages~~increase ~~reflected~~in ~~this~~revenue ~~improvement,~~per ~~which~~ton ~~was~~led ~~attributable~~ to ~~efficiencies~~ ~~realized~~an ~~because~~11% ~~of the~~ increase in ~~freight~~revenue, ~~volume~~to $701 million. ~~Included~~The ~~in the~~tonnage ~~benefit~~improvement ~~expense~~is ~~was~~primarily adue ~~$3.6 million~~to ~~increase~~the inshutdown ~~cost~~of ~~associated~~CF ~~with~~at the ~~Company-sponsored~~beginning ~~pension~~of ~~plan,~~our ~~and~~fourth aquarter $2in 2002.~~7 million~~ ~~increase~~Net inrevenue ~~variable~~per ~~pay~~ton was $396.86, up ~~related~~4.3% compared to ~~performance.~~the ~~Operating~~same ~~supplies~~quarter ~~and~~last ~~expenses~~year. ~~increased~~A ~~slightly~~variable torate fuel surcharge ~~18.~~averaged 2.9% of revenue, upin ~~from~~the ~~17.~~current quarter compared to 1.8% inof revenue in the prior -year quarter,. asWithout ~~favorable variances~~the ~~due~~revenue increase relating to the ~~growth~~fuel surcharge, in freight ~~volume~~rates were ~~more~~up ~~than~~3.2% ~~offset~~compared byto ~~higher fuel~~the ~~prices~~third ~~and~~quarter ~~increases~~of 2002. This improvement in ~~terminal~~freight rates is due to contractual rate adjustments and Roadway’s ~~administrative~~rate ~~costs~~increase effective July 13, 2003. The ~~growth~~continued economic sluggishness has lead to increased pricing pressures, especially in the ~~purchased~~regional ~~transportation~~markets. asTotal aoperating ~~percent~~expenses ofincreased ~~revenue~~by ~~was~~13%, ~~primarily~~while ~~due~~revenue increased 11%, leading to a deterioration in the 24operating ratio to 99.9%, ~~increase~~compared ofto ~~linehaul~~a ~~miles~~98.1% ~~run~~in on the ~~railroads.~~same Wequarter ~~also~~last ~~saw~~year. ~~expense~~Roadway ~~increases~~Express was charged with $23.3 million of the acquisition-related charges discussed above, which lead to ~~air~~the ~~service~~poor ~~provided.~~operating ~~Depreciation~~ratio ~~expense~~in ~~declined~~the ascurrent aquarter. ~~percent~~Excluding ofthese ~~revenue~~charges, ~~because~~operating weexpenses ~~were~~would ~~able~~have toincreased ~~handle~~only 9.3%, and the ~~significant~~operating ratio ~~growth~~would inhave ~~tonnage~~improved ~~using existing~~to ~~capacity~~96.6%.

~~The~~We ~~following~~expect ~~table~~that ispositive atonnage ~~comparison~~comparisons ofwill ~~operating~~not ~~statistics~~continue ~~for~~through the ~~second~~ fourth quarter of 2003, because the fourth quarter of 2002 includes the benefit we derived from the shutdown of CF, and our fourth quarter this year will have four fewer business days than the fourth quarter of 2002:.

	Twelve Weeks Ended
	(Second Quarter)				Percentage
	June 21, 2003		June 15, 2002		change
LTL tons		1,467,657		1,312,943		11.8	%
Truckload tons		312,853		288,494		8.4	%
Total tons		1,780,510		1,601,437		11.2	%
LTL shipments		3,095,453		2,770,619		11.7	%
Truckload shipments		38,315		34,799		10.1	%
Total shipments		3,133,768		2,805,418		11.7	%
Revenue per LTL ton	$	436.33	$	428.11		1.9	%
Revenue per truckload ton	$	162.27	$	153.63		5.6	%
Total revenue per ton	$	388.18	$	378.67		2.5	%

Salaries, wages, and benefits as a percentage of revenue decreased to 63.0% in the current quarter, from 63.8% in the third quarter of 2002. Both direct and indirect wages reflected this improvement, which was attributable to efficiencies realized because of the increase in freight volume. Included in the benefit expense was a $3.6 million increase in cost associated with the Company-sponsored pension plan, and a $8.3 million increase in variable pay related to performance. Operating supplies and expenses increased slightly to 16.8% of revenue, up from 16.6% in the prior year quarter, as favorable variances due to the growth in freight volume and cost controls were more than offset by higher fuel prices and increases in certain administrative costs. The growth in purchased transportation as a percent of revenue was primarily due to the 13% increase of linehaul miles run on the railroads and other intermodal services. Reductions in public liability insurance expense were offset by increases in cargo claims expense. Depreciation expense declined as a percent of revenue because we were able to handle the significant growth in tonnage using existing capacity.

1217

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

~~Results~~In the third quarter of 2003, Roadway Express’ international services generated $2.8 million pretax income. Roadway Express’ international services include effective data and shipment management resulting in timely border crossing and customs clearance. The relative growth in profitability of these international operations ~~for~~in recent years compared to domestic operations has been achieved primarily through the ~~two~~management ~~quarters~~of ~~ended~~the ~~June 21~~mix and yield, ~~2003~~and ~~compared~~to a lesser extent cost control, of the freight actually carried to, from, or within Canada. The Canadian component of these international services predominate. In the current ~~two~~quarter ~~quarters~~Canadian ~~ended~~freight ~~June 15,~~mix shift resulted from international Canada freight revenue growth of 11% compared to the third quarter of 2002, while the extremely competitive domestic Canadian freight declined slightly.

~~Roadway~~The ~~delivered~~following ~~3.5 million~~table ~~tons~~is ofa ~~freight~~comparison ~~in the first two quarters, an increase~~ of ~~15.0%~~operating ~~compared~~statistics tofor the ~~prior year. This improvement is primarily~~third ~~due~~quarter ~~to the shutdown~~ of ~~Consolidated Freightways, as discussed above. Less-than-truckload (LTL) tons were up 16.2% while truckload tons were up 9.7%. There were four more working days in the first two quarters of~~ 2003 ~~compared to the same period last year. Net revenue per ton was $395.66, up 4.7% compared to the same two quarters last year, with LTL up 3.8%~~ and ~~truckload up 8.0%. Without the revenue increase relating to the fuel surcharge, freight rates were up 2.4% compared to the first two quarters of~~ 2002~~. The variable~~: ~~rate fuel surcharge averaged 3.6% of revenue in the two quarters ended June 21,~~ ~~compared to 1.3% of revenue in the prior-year period. Total operating expenses~~ ~~increased by 18.8%, while revenue increased 20.4%, leading to an improvement in the operating ratio to 97.9%, compared to a 99.2% in the first two quarters last year.~~

The changes in operating expenses that are discussed above in the results of operations for the second quarter 2003 also apply to the two quarters ended June 21.


	Twelve Weeks Ended
	(Third Quarter)				Percentage
	Sept 13, 2003		Sept 7, 2002		change

LTL tons		1,458,899		1,347,193		8.3	%
Truckload tons		306,635		312,130		(1.8	)%

Total tons		1,765,534		1,659,323		6.4	%
LTL shipments		3,027,865		2,810,263		7.7	%
Truckload shipments		37,826		37,585		0.6	%

Total shipments		3,065,691		2,847,848		7.6	%
Revenue per LTL ton	$	444.31	$	432.20		2.8	%
Revenue per truckload ton	$	171.07	$	156.68		9.2	%
Total revenue per ton	$	396.86	$	380.37		4.3	%

~~The~~Results ~~following~~of ~~table~~operations isfor athe ~~comparison~~three ofquarters ~~operating~~ended ~~statistics~~September 13, ~~for~~2003 compared to the ~~first~~three ~~two~~ quarters ofended ~~2003~~September 7, ~~and~~ 2002:

	Twenty-four Weeks Ended
	(Two Quarters)				Percentage
	June 21, 2003		June 15, 2002		change
LTL tons		2,925,884		2,518,808		16.2	%
Truckload tons		603,379		550,005		9.7	%
Total tons		3,529,263		3,068,813		15.0	%
LTL shipments		6,195,819		5,341,308		16.0	%
Truckload shipments		74,619		66,901		11.5	%
Total shipments		6,270,438		5,408,209		15.9	%
Revenue per LTL ton	$	443.12	$	427.06		3.8	%
Revenue per truckload ton	$	165.55	$	153.25		8.0	%
Total revenue per ton	$	395.66	$	377.99		4.7	%

Roadway delivered 5.3 million tons of freight in the first three quarters, an increase of 12.0% compared to the same period in the prior year. This improvement is primarily due to the shutdown of CF, as discussed above. There were four more working days in the first three quarters of 2003 compared to the same period last year. Net revenue per ton was $396.06, up 4.6% compared to the same three quarters last year. The variable rate fuel surcharge averaged 3.3% of revenue in the three quarters ended September 13, 2003 compared to 1.5% of revenue in the prior-year period. Without the revenue increase relating to the fuel surcharge, freight rates were up 2.7% compared to the first three quarters of 2002. Total operating expenses increased by 16.8%, while revenue increased 17.1%, leading to an improvement in the operating ratio to 98.6%, compared to a 98.8% in the first three quarters last year. As discussed above, Roadway Express was charged with $23.3 million of the acquisition-related charges. Excluding these charges, operating expenses would have increased 15.5%, and the operating ratio would have improved to 97.4%.

Through the first three quarters of 2003, Roadway Express’ international services generated $8.7 million pretax income. International Canadian freight revenue grew 19% compared to three quarters of 2002, while the extremely competitive domestic Canada freight grew by 7%.

The changes in operating expenses that are discussed above in the results of operations for the third quarter 2003 also apply to the three quarters ended September 13, 2003.

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 first three quarters of 2003 and 2002:


	Thirty-six Weeks Ended
	(Three Quarters)				Percentage
	Sept 13, 2003		Sept 7, 2002		change

LTL tons		4,384,783		3,866,001		13.4	%
Truckload tons		910,013		862,135		5.6	%

Total tons		5,294,796		4,728,136		12.0	%
LTL shipments		9,223,684		8,151,571		13.2	%
Truckload shipments		112,445		104,486		7.6	%

Total shipments		9,336,129		8,256,057		13.1	%
Revenue per LTL ton	$	443.52	$	428.85		3.4	%
Revenue per truckload ton	$	167.41	$	154.49		8.4	%
Total revenue per ton	$	396.06	$	378.82		4.6	%

New Penn Motor Express

Results of operations for the ~~second~~third quarter ended ~~June~~September 2113, 2003 compared to to the ~~second~~third quarter ended ~~June~~September 157, 2002

Revenue was $5051 million for the ~~second~~third quarter of 2003, up 10.68% from ~~second~~the third quarter of 2002,. ~~while~~Tonnage ~~tonnage~~ was 1.2.5% lower and freight rates were 3.3% higher. The slow economic recovery and the highly competitive Northeast market prevented New Penn from showing year-over-year tonnage improvements. New Penn did not benefit from the shutdown of CF since CF did not operate in the next-day market. The operating ratio for New Penn was 88 90.89% in the second quarter of 2003, ~~unchanged~~compared ~~from~~to 87.5% in last year’s ~~second~~third quarter. New Penn was charged with $963,000 of the previously discussed acquisition-related charges. Excluding these charges, the operating ratio would have been 89.0%. All expenses except operating supplies were flat or lower as a percentage of revenue compared to the prior year quarter. Operating supplies were up due to fuel costs, tolls, and administrative expenses.

1319

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

The following table shows the operating statistics for the ~~second~~third quarter of 2003 and 2002:

Twelve Weeks Ended

(Second Quarter)

Percentage

(Third Quarter)

Percentage

June 21, 2003

June 15, 2002

change

Sept 13, 2003

Sept 7, 2002

change

LTL tons

190,~~472~~771

~~193~~195,~~891~~791

(12.86

Truckload tons

2829,~~783~~052

2729,~~935~~651

3(2.0

Total tons

219,~~255~~823

~~221~~225,~~826~~442

(1.2.5

LTL shipments

~~431~~430,~~608~~019

~~428~~432,~~547~~803

(0.76

Truckload shipments

3,~~486~~601

3,~~459~~653

0(1.84

Total shipments

~~435~~433,~~094~~620

~~432~~436,~~006~~456

(0.76

Revenue per LTL ton

~~248~~250.2586

~~240~~242.5401

3.27

Revenue per truckload ton

~~107~~105.2662

~~105~~106.8136

1(0.47

Total revenue per ton

~~229~~231.7467

~~223~~224.5717

23.83

Results of operations for the ~~two~~three quarters ended ~~June~~September 2113, 2003 compared to the ~~two~~ three quarters ended ~~June~~September 157, 2002

Revenue was $99150 million for the first ~~two~~three quarters of 2003, up 43.41% from the same period in 2002, while tonnage was up 20.68%. The first ~~two~~three quarters this year had four more working days than the same period in 2002, so tonnage on a daily basis has declined slightly. The unusually harsh winter in the Northeast, combined with the slow economic recovery and the highly competitive market, prevented New Penn from showing year-over-year tonnage improvements on a daily basis. New Penn did not benefit from the shutdown of ~~Consolidated Freightways~~CF since ~~Consolidated~~CF did not operate in the next-day market. The operating ratio for New Penn was 91.74% in the first ~~two~~three quarters of 2003, a deterioration from last year’s 89.6%. Excluding the acquisition-related charges, the operating ratio would have been 90.78%. The changes in operating expenses that are discussed above in the results of operations for the third quarter 2003 also apply to the three quarters ended September 13, 2003.

The following table shows the operating statistics for the first ~~two~~three quarters of 2003 and 2002:

	Twenty-four Weeks Ended
	Thirty-six Weeks Ended
	(Two Quarters)				Percentage
	(Three Quarters)				Percentage
	June 21, 2003		June 15, 2002		change
	Sept 13, 2003		Sept 7, 2002		change
LTL tons		~~376~~566,~~150~~921		~~371~~566,~~155~~946		10.30	%
Truckload tons		5786,~~671~~723		5181,~~848~~499		116.24	%
Total tons		~~433~~653,~~821~~644		~~423~~648,~~003~~445		20.68	%
LTL shipments		~~853~~1,~~344~~283,363		~~823~~1,~~701~~256,504		32.61	%
Truckload shipments		710,~~038~~639		610,~~483~~136		85.60	%
Total shipments		~~860~~1,~~382~~294,002		~~830~~1,~~184~~266,640		32.62	%
Revenue per LTL ton	$	~~247~~248.2345	$	241.1343		2.59	%
Revenue per truckload ton	$	~~107~~106.5692	$	106.2428		10.36	%
Total revenue per ton	$	~~228~~229.6667	$	224.5945		12.83	%

1420

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

Liquidity and capital resources

At the end of the current quarter, cash and ~~marketable~~cash ~~securities~~equivalents amounted to $~~126~~133 million, a $1926 million increase from year-end 2002. During the first ~~two~~three quarters, cash provided by operating activities was $~~18.4~~54 million, as compared to ~~the~~ to $~~5.8~~44 million ~~use of cash~~ in the first ~~quarter~~three quarters of 2002. ~~Two~~In ~~major~~the ~~items in~~first ~~2002~~quarter ~~contributed~~of to2003, cash ~~the~~proceeds ~~use~~ of ~~cash:~~ $2947 million ~~related~~were toreceived for the ~~Roadway~~sale ~~Next Day~~of ~~acquisition~~ATS. During 2002, cash ~~and~~payments of $924 million ~~for~~were ~~the~~related ~~purchase~~to ofthe ~~stock~~Roadway toNext ~~fund~~Day ~~employee stock plans~~acquisition. Cash outlays for the acquisition were completed in 2002. Beginning in 2003, existing treasury shares were used to fund certain employee stock plans, so additional share purchases for treasury have not been necessary.

Capital expenditures ~~were $22.5 million during the first two quarters, which was in line with last year. Capital expenditures~~ are financed primarily through internally generated funds. Future expenditures are expected to be financed in a similar manner, along with planned replacements through operating lease arrangements. Gross capital expenditures of $9570 to $~~105~~80 million are expected for the entire year of 2003. The capital expenditures are primarily designated for revenue equipment, facilities, and information systems.

The Company’s 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. As of ~~June~~September 2113, 2003, there ~~were~~ were no amounts outstanding under the revolving credit facility, but ~~availability~~ availability had been reduced by $~~128~~141 million as a result of the issuance of letters of credit, primarily related to casualty claims. As of ~~June~~September 2113, 2003, $5630 million was outstanding under the senior term loan facility, with ~~quarterly~~ quarterly installments ranging from $21.54 million in 2003 to $42.98 million in 2006. Management intends to repay the entire balance by year-end 2003. The ~~senior~~ senior term loan accrued interest at the rate of 2.96% as of ~~June~~September 2113, 2003.

On January 23, 2003, the sale of ATS was completed for $55 million, consisting of $47 million in cash and an $8 million note. The sale of ATS resulted in a mandatory prepayment of $24 million on the senior term loan.

The Company’s $225 million of 818-1/4% senior notes are due December 1, 2008. 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 ~~June~~September 2113, 2003, there were no amounts outstanding on this facility.

At ~~June~~September 2113, 2003, the Company had outstanding debt of $~~281~~255 million, $106.54 million of which is classified as current on the balance sheet. Remaining borrowing capacity of $9784 million is currently available under the arrangements described above.

The financing arrangements include covenants that require the Company to comply with certain financial ratios, including leverage and fixed-charge coverage ratios, and maintenance of a minimum level of tangible net worth. The Company was in compliance with all covenants as of ~~June~~September 2113, 2003.

Management believes that cash flows from operations and current financing sources will be sufficient to support working capital needs, projected capital expenditures, dividends to shareholders, and anticipated expenditures for other corporate purposes.

1521

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

The following table shows aggregated information about contractual obligations and commercial commitments as of September 13, 2003.


	Payments due by periods
	(in thousands)

Contractual Obligations	Total		Less than 1 year		1 - 3 years		4-5 years		After 5 years

Senior-Term Debt	$	10,985	$	2,615	$	6,277	$	2,093	$	—
8.25% Senior Notes		225,000								225,000
Operating Leases		116,812		40,456		45,005		18,939		12,412
Interest Rate Swap Agreements⁽¹⁾		6,471		6,471		—		—		—
Asset backed securitization		100,000		—		100,000		—		—

Total contractual cash obligations	$	459,268	$	49,542	$	151,282	$	21,032	$	237,412

⁽¹⁾ Notional amount plus balloon payment.

The investment performance of the Company’s pension plan assets caused a 15.8% decline in 2002 and a 16.8% increase through the first three quarters of 2003, excluding additional contributions by the Company or distributions to retirees. The poor investment performance in 2002 has resulted in a requirement to fund the pension plan. In 2003, the Company has contributed $8 million to the plan. In 2004 and beyond, we anticipate funding requirements at amounts roughly comparable to the periodic pension expense recognized. As discussed in the results of operations above, the decline in the pension plan assets has caused an increase in pension expense in 2003.

The Company has a pension administration committee composed of certain members of senior management and employs an outside consultant to ensure proper allocation and investment of pension assets. The investment strategy of the administration committee is to maintain proper allocation of assets to ensure maximum returns at an acceptable level of risk. Upon identifying an under-performing fund manager or material differences between the model and actual portfolio allocation, the committee has taken and will continue to take the necessary steps to rebalance the portfolio and attempt to minimize risk in a manner consistent with its fiduciary obligations.

There have been no significant changes to the pension plan documents or employee groups that have resulted in increased pension expense. Deterioration of plan assets has occurred due to general market conditions.

Off Balance Sheet Arrangements

Roadway can finance up to $200 million of its domestic accounts receivable under the accounts receivable securitization arrangement, which has a three-year term expiring November 2004. 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 ~~June~~September 2113, 2003, ~~undivided~~ undivided interests in the accounts receivable pool aggregating $100 million were sold under this arrangement, leaving an additional $100 million available. ~~This~~ This arrangement allowed Roadway Express to immediately use the $100 million to be collected on accounts receivable at an effective rate of 2.64% during the ~~second~~ third quarter of 2003.

~~The arrangement provides that new Roadway accounts receivable are immediately~~22 ~~sold through 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 designated accounts receivable and Roadway retains collection and administrative responsibilities for all accounts receivable.

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

The arrangement provides that new Roadway accounts receivable are immediately sold through the SPE. The receivables are sold through Roadway Funding (a special purpose entity) to a financial conduit and used as collateral for issuing 30 day commercial paper, up to $200 million. The commercial paper must be secured at all times by open receivables. Since receivables are incurred and collected on a daily basis as Roadway delivers freight, it is necessary to continually sell Roadway’s receivables. As such, on a cumulative basis, Roadway sold $2.0 billion and $1.7 billion of receivables through the third quarter in 2003 and 2002, respectively, which is representative of all eligible receivables generated through ongoing operations during the first three quarters of each year. Receivables sold under this accounts receivable securitization facility are sold without recourse. The Company does not provide indemnification for receivables that are not collected or paid on account of the obligor’s insolvency, bankruptcy, or financial inability to pay. The Company does however retain the risk of credit loss resulting from dilution in the ordinary course of business, such as, billing errors and cargo claims for damages. The Company effectively retains the risk of credit losses on receivables because only the most current receivables are sold to the SPE. The conduit has collection rights to recover payments from the designated accounts receivable and Roadway retains collection and administrative responsibilities for all accounts receivable.

The accounts receivable are sold at a discount from the face amount to pay investor yield (LIBOR) on the undivided interests sold to the conduit, for utilization fees (0.25% of the undivided interest sold), and for program fees (0.50% of the total commitment). The discount from the face amount for accounts receivable sold by Roadway Express was directly offset by a gain on allowance for accounts receivable discounts upon the consolidation of the SPE.

Other matters

Under the terms of the Company’s current contract with the Teamsters, which extends through March 31, 2008, wage increases approximating 1.7% of wages and benefits were effective April 1, 2003 with another increase of approximately 2.0%, which ~~will~~was be effective August 1, 2003, designated for benefits.

~~Reserves~~Accruals 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 TPA closely monitor the liability balances by using actual adjuster evaluations of each claim and a statistical benchmarking database for analysis of ~~reserve~~accrual accuracy.

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

OnRoadway ~~July 8~~Corporation maintains accruals for certain casualty claims relating to ATS. At year-end 2002, ~~2003~~these accruals, ~~the~~covering ~~Company~~approximately ~~announced~~150 ~~the~~claims, totaled ~~signing~~$2,084,000, consisting of a$1,140,000 ~~definitive~~related ~~agreement~~to workers’ compensation ~~under~~and ~~which~~$944,000 ~~Yellow~~related ~~Corporation~~to ~~would~~property ~~acquire~~damage ~~Roadway~~and ~~for~~public ~~approximately~~liability. ~~$966~~The total case ~~million~~detail accrual was $1,752,000 orwith another $48332,000 ~~per~~provision ~~share~~for case development. ~~See~~This amount represents less than 2% of the ~~Company’s~~total ~~8-K~~accruals ~~filed~~for casualty onclaims ~~July~~and is immaterial to the Company. As of September 813, 2003, the total remaining accrual balance for these claims was $1,201,000 or 58% of ~~further~~the ~~information~~year-end ~~and~~2002 ~~details~~total. This is a normal progression of payments. Although an expected resolution date cannot be determined due to the specifics involved in each individual case, our expectation based on experience is that this balance will continue to decrease over the next year.

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

While most of the information provided herein is historical, some of the comments made are forward -looking statements 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,; ~~and,~~ uncertainties concerning the impact terrorist activities may have on on the economy and the motor freight industry; and the timely completion of Yellow Corporation’s plan to acquire Roadway Corporation and its subsidiaries. We have based these forward-looking statements on management’s analysis about future events only as of the date of this ~~filing~~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 ~~filing~~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~~Web site at www.sec.gov and through our ~~website~~Web site at www.roadwaycorp.com.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Roadway has interest rate swap agreements with major commercial banks that fix the interest rate payable on its trailer leases, which are otherwise variable, and principally based on LIBOR. The value of the leases upon which the payments are based was not changed due to these agreements. The agreements, which expire ~~from~~during ~~2003 to~~ 2004, fix Roadway’s interest costs at ~~rates varying from~~ 5.62% ~~to 5.89%~~ on leases with a notional amount of $101.07 million, and prevent the Company’s earnings from being directly affected by changes in interest rates related to the trailer leases. The fair value of Roadway’s interest rate swaps at ~~June~~September 2113, 2003 is a liability of approximately $200,000, net of income taxes, and has been determined using proprietary financial models developed by the lending institutions that are counterparties to the swap arrangements.

Pricing under the revolving credit facility and the senior term loan is at a fluctuating rate based on alternate base rate as determined by Credit Suisse First Boston or LIBOR, plus an additional margin. The Company may incur economic losses due to adverse changes in the alternate base rate or LIBOR, but does not view its current exposure as material. A 5% adverse change in rates would not have a material impact on future cash flows and earnings of the Company.

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.

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

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Item 4. ~~Disclosure~~ Controls and Procedures

An evaluation was performed under the supervision and with the participation of Roadway’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of ~~the design and operation of~~ its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of ~~June~~ September 2113, 2003. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that ~~the~~ these disclosure controls and procedures were effective. Noas ~~significant~~of ~~changes~~September 13, 2003. There were ~~made~~ inno changes in Roadway’s internal ~~controls~~control orover financial reporting (as defined in ~~other~~Rule 13a-15(f) ~~factors~~under ~~that~~the ~~could~~Securities Exchange Act of 1934) during the fiscal quarter ~~significantly~~covered ~~affect~~by ~~these~~this ~~controls~~quarterly ~~subsequent~~report that have materially affected, or are reasonably likely to ~~the~~materially ~~date~~affect, ofRoadway’s ~~their~~internal ~~evaluation~~control over financial reporting.

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 the Company’s common stock (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 ~~two~~ three quarters of 2003, the Company issued a total of 19,~~993~~966 shares of Common Stock to participants 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.

On January 15, 2003, the Company granted 3,124 shares of common stock, par value $0.01 per share, to the members of the Roadway Express, Inc. Medical Board. These transactions were exempt from the registration provisions of the Securities Act of 1933, as amended pursuant to Section 4(2) of such Act.

1825

Item 5. Other information

On ~~July~~October 78, 2003, the Board of Directors of the Company declared a cash dividend of $0.05 per share on the Company’s common stock. The dividend is payable on ~~September~~December 21, 2003, to shareholders of record on ~~August~~November 1514, 2003.

On July 8, 2003, the Company announced the signing of a definitive agreement under which Yellow Corporation would acquire Roadway for approximately $966 million, or $48 per share. See the Company’s 8-K filed on July 8, 2003 for further information and details.

Item 6. Exhibits and Reports on Form 8-K

Exhibit No.
10.20		Board Service Agreement between Roadway Corporation and Michael W. Wickham.
10.21*		Form of Change in Control Severance Agreement.
31.1		Chief Executive Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Chief Financial Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Chief Executive Officer’s certification of financial statements and related information with respect to the Company’s quarterly report on Form 10-Q for the quarter ended ~~June~~September 2113, 2003, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Chief Financial Officer’s certification of financial statements and related information with respect to the Company’s quarterly report on Form 10-Q for the quarter ended ~~June~~September 2113, 2003, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1		Condensed Consolidated Financial Statements of Roadway Express, Inc. and Subsidiaries for the quarters ended ~~June~~September 2113, 2003 and ~~June~~September 157, 2002.
99.2		Condensed Consolidated Financial Statements of Roadway Next Day Corporation for the quarters ended ~~June~~September 2113, 2003 and ~~June~~September 157, 2002.

* Pursuant to Instruction 2 to Item 601 of Regulation S-K, the several Change of Control Severance Agreements between the registrant and each of Joseph R. Boni III, John D. Bronneck, J. Dawson Cunningham, John J. Gasparovic, John T. Hickerson, Thomas V. Lopienski, Robert W. Obee, and Robert L. Stull are not filed as exhibits to this quarterly report on Form 10-Q because they are substantially identical in all material respects to the form of Change of Control Severance Agreement filed as Exhibit 10.21 to this quarterly report on Form 10-Q.

(b)

List of the Current Reports on Form 8-K that were filed in the second quarter of 2003:

Filing Date of Form 8-K		Description
April 15, 2003		Press release concerning results of operations for the first quarter ending March 29, 2003.
July 8, 2003		Press release concerning results of operations for the second quarter ending June 15, 2003.
July 8, 2003		Press release announcing the signing of a definitive agreement under which Yellow Corporation would acquire Roadway. The Agreement and Plan of Merger were included as an exhibit to this 8-K.
August 27, 2003		Transcript of a meeting of William D. Zollars, President, CEO, and Chairman of Yellow Corporation, with employees of Roadway Corporation.

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SIGNATURES

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

	ROADWAY CORPORATION
Date: July 29, 2003	By:		/s/ J. Dawson Cunningham
Date: October 27, 2003	By:		/s/ J. Dawson Cunningham
		J. Dawson Cunningham, Executive Vice President
			J. Dawson Cunningham, Executive Vice President and Chief Financial Officer
		and Chief Financial Officer
Date: October 27, 2003	By:		/s/ John G. Coleman
Date: July 29, 2003	By:		/s/ John G. Coleman
			John G. Coleman, Controller
		John G. Coleman, Controller

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