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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Commission file number 000-32821

ROADWAY CORPORATION

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 21, 2003 was 19,898,002.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Roadway Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)

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.

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

See notes to condensed consolidated financial statements.

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

See notes to condensed consolidated financial statements.

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

See notes to condensed consolidated financial statements.

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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-four weeks ended June 21, 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 Company completed the required 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.

Note 2—Accounting Period

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

Note 3—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.

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Note 4—Earnings per Share

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

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Note 5—Segment information

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 LTL freight services primarily in the northeast region of the United States.

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

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Note 5—Segment information (continued)

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Note 5—Segment information (continued)

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

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Note 5—Segment information (continued)

Reconciliation of total segment assets to total consolidated assets:

Note 6—Comprehensive Income

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

Note 7—Contingent Matter

The Company’s former parent is currently under examination by the Internal Revenue Service for tax years 1994 and 1995, years prior to the spin-off of the Company. The IRS has proposed substantial adjustments for these tax years for 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 at the time 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 $14,000,000 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 $16,000,000 in additional taxes and $0 to $10,000,000 in related interest, net of tax benefit. The Company has established certain reserves with respect to these proposed adjustments. There can be no assurance, however, that the amount or timing of any liability of the Company to the former parent will not have a material adverse effect on the Company’s results of operations and financial position.

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Note 8—Subsequent event

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

Consolidated results of operations for the second quarter ended June 21, 2003 compared to the second quarter ended June 21, 2002

Consolidated revenue was $742 million in the current quarter, a 13% increase from second quarter 2002. This increase was primarily due to increased revenue at Roadway Express following the shutdown in September 2002 of Consolidated Freightways, a major competitor. Operating expenses grew by nearly the same amount, and the operating ratio (operating expenses as a percentage of revenue) improved by 0.1 points to 97.6%, compared to last year’s 97.7%. The Company’s consolidated operating income was $17.4 million compared to $14.8 million in the second quarter of 2002. This increase in operating income is solely attributable to the improved performance of Roadway Express. The net other expense of $6.0 million is primarily composed of interest and amortization of financing costs associated with the acquisition of Roadway Next Day in 2001. The Company had net income of $6.3 million or $0.33 per share (diluted), for the current quarter, compared to a net income of $5.7 million, or $0.30 per share (diluted) in the same quarter last year.

The effective tax rate for the second quarter of 2003 was 42.0%, compared to 41.9% in the second quarter 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.

Consolidated results of operations for the two quarters ended June 21, 2003 compared to the two quarters ended June 15, 2002

Consolidated revenue was $1,496 million in the first two quarters, a 19% increase from the first two quarters of 2002. This increase was primarily due to increased revenue at Roadway Express following the shutdown in September 2002 of Consolidated Freightways, a major competitor. In addition, Roadway’s first two quarters this year contained 121 working days compared to 117 working days in last year’s first two quarters. Operating expenses grew by 17.9%, and the operating ratio (operating expenses as a percentage of revenue) improved by 1.0 points to 97.5%, compared to last year’s 98.5%. The Company’s consolidated operating income was $37.8 million compared to $18.5 million in 2002. This increase in operating income is solely attributable to the improved performance of Roadway Express. The net other expense of $12.8 million is primarily composed of interest and amortization of financing costs. The Company had net income of $14.3 million or $0.75 per share (diluted), for the first two quarters of 2003, compared to a net income of $3.9 million, or $0.21 per share (diluted) in the prior year.

In January 2003, we sold ATS, the truckload subsidiary of Roadway Next Day Corporation, for $55 million. ATS has been accounted for as a discontinued operation for all periods presented.

Contract negotiations with the Teamsters were successfully concluded in early February 2003, well in advance of the March 31, 2003 expiration date. The Teamsters ratified this new five-year contract on March 28, 2003.

The effective tax rate for the first two quarters of 2003 was 42.0%, compared 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.

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

Roadway Express, Inc.

Results of operations for the second quarter ended June 21, 2003 compared to the second quarter ended June 15, 2002

Roadway delivered 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 due to the shutdown of Consolidated Freightways, and we expect that positive tonnage comparisons will continue through the third quarter of 2003. Less-than-truckload (LTL) tons were up 11.8% while truckload tons were up 8.4%. Net revenue per ton was $388.18, up 2.5% compared to the same quarter last year, with LTL up 1.9% and truckload up 5.6%. Without the revenue increase relating to the fuel surcharge, freight rates were up 1.2% compared to the second quarter of 2002. During the second quarter, Roadway began to experience a shift in its freight mix, where the company saw some loss of higher-yielding time-critical freight. In addition, an increase in the average shipment size and a decrease in the average length-of-haul both contributed to lower revenue rates. To offset this revenue yield decline, Roadway announced a rate increase of 5.9% effective July 13, 2003. The continued economic sluggishness has lead to increased pricing pressures, especially in the regional markets. A variable rate fuel surcharge averaged 3.1% of revenue in the current quarter compared to 1.8% of revenue in the prior-year quarter. Total operating expenses increased by 13.8%, while revenue increased 14.0%, leading to an improvement in the operating ratio to 98.3%, compared to a 98.5% in the same quarter last year.

Salaries, wages, and benefits as a percentage of revenue decreased to 62.7% in the current quarter, from 64.8% in the second 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 $2.7 million increase in variable pay related to performance. Operating supplies and expenses increased slightly to 18.2% of revenue, up from 17.1% in the prior year quarter, as favorable variances due to the growth in freight volume were more than offset by higher fuel prices and increases in terminal and administrative costs. The growth in purchased transportation as a percent of revenue was primarily due to the 24% increase of linehaul miles run on the railroads. We also saw expense increases related to air service provided. Depreciation expense declined as a percent of revenue because we were able to handle the significant growth in tonnage using existing capacity.

The following table is a comparison of operating statistics for the second quarter of 2003 and 2002: