Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549

Form 10-Q

Commission File Number 0-19791

USF CORPORATION
(Exact name of registrant as specified in its charter)

Registrant’s telephone number
including area code: (773) 824-1000

N/A
(Former name or former address, if changed since the last report)

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 X  No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of April 28, 2004, 27,718,021 shares of common stock were outstanding.

PART I: FINANCIAL INFORMATION.

Item 1.  Financial Statements

USF Corporation
Condensed Consolidated Balance Sheets
Unaudited (Dollars in Thousands)

2

USF Corporation
Condensed Consolidated Statements of OperationsUnaudited
(Dollars in Thousands, Except Share and Per Share Amounts)

3

USF Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited (Dollars in Thousands)

4

USF Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Unaudited (Dollars in Thousands)

5

Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)

1. Summary of Significant Accounting Policies

Basis of Presentation

These interim financial statements of USF Corporation have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Quarterly Reports on Form 10-Q and Rule 10-01 of Regulation S-X, and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2003. Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein.

In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our consolidated financial position as of April 3, 2004, the consolidated results of our operations for the quarters ended April 3, 2004 and April 5, 2003, and our consolidated cash flows for the quarters ended April 3, 2004 and April 5, 2003. Operating results for the quarter ended April 3, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

We report on a calendar year basis. Our quarters consist of thirteen weeks that end on a Saturday either before or after the end of March, June and September.

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

2. Earnings Per Share

Basic earnings per share are calculated on net income divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share are calculated by dividing net income by the weighted-average number of common shares outstanding plus the shares that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares for the period. Unexercised stock options are the only reconciling items between our basic and diluted earnings per share.

The following table presents information necessary to calculate basic and diluted earnings per share:

6

Notes to Condensed Consolidated Financial Statements Continued (Unaudited)
(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)

3. Debt

Our debt includes $100,000 of unsecured guaranteed notes due May 1, 2009 and $150,000 of unsecured guaranteed notes due April 15, 2010.

Our guaranteed notes are fully and unconditionally guaranteed, on a joint and several basis, and on an unsecured senior basis, by substantially all of our direct and indirect domestic subsidiaries (the “Subsidiary Guarantors”). All of the assets are owned by the Subsidiary Guarantors and substantially all of our operations are conducted by the Subsidiary Guarantors. Accordingly, the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, liabilities, earnings and equity shown in our consolidated financial statements. Our subsidiaries, other than the Subsidiary Guarantors, are minor. There are no material restrictions on our ability to obtain funds from our subsidiaries by dividend or loan. We, therefore, are not required to present separate financial statements of our Subsidiary Guarantors, and other disclosures relating to them.

We have a $200,000 credit facility with a group of banks that will expire in October 2005. This facility is for working capital, general corporate funding needs, and up to $125,000 for letters of credit under our self-insurance program. As of April 3, 2004 we had no borrowings drawn under the facility and $100,724 in issued letters of credit.

4. Goodwill and Other Intangible Assets

The changes in carrying amounts of goodwill by segment for the year-to-date period ended April 3, 2004 were as follows:

Intangible assets subject to amortization consist of the following:

Aggregate amortization expense for the quarters ended April 3, 2004, and April 5, 2003 was $992 and $259, respectively.

7

Notes to Condensed Consolidated Financial Statements Continued (Unaudited)
(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)

5. Segment Reporting

8

Notes to Condensed Consolidated Financial Statements Continued (Unaudited)
(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)

6. Stock Based Compensation

Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation”, establishes a fair value based method of accounting for stock options. We have elected to continue using the intrinsic value method prescribed under Accounting Principals Board (“APB”) Opinion No. 25 as permitted by SFAS No. 123. For all stock options that have been granted, the exercise prices of the stock options were equal to the market prices of the underlying stock on the grant dates, therefore no compensation expense was recognized. If we had elected to recognize compensation expense based on the fair value of the options at grant date, as prescribed by SFAS No. 123, our net income and earnings per share would have been reduced to the pro forma amounts indicated in the table below:

7. Contingencies

We are routinely involved in a number of legal proceedings and claims arising in the ordinary course of business, primarily involving claims for bodily injury and property damage incurred in the transportation of freight. The estimated liability for claims included in liabilities, both current and long-term, is $57,499 and $84,049, respectively, at April 3, 2004, and $57,146 and $75,243, respectively, at April 5, 2003. These liabilities reflect the estimated ultimate cost of self-insured claims incurred, but not paid, for bodily injury, property damage, cargo loss and damage, and workers’ compensation. We believe the outcome of these matters is not expected to have any material adverse effect on our consolidated financial position or results of our operations and have been adequately provided for in our financial statements.

We use underground storage tanks at certain terminal facilities and maintain a comprehensive policy of testing, upgrading, replacing or eliminating these tanks to protect the environment and comply with various Federal and state laws. We take prompt remedial action whenever any contamination is detected.

8. Acquisitions

In February 2003, we acquired the stock of System 81 Express, Inc., a truckload carrier based in Tennessee that owned or operated approximately 140 tractors and 260 trailers, for approximately $1,900 in cash and $2,800 in assumed debt. In addition, contingent payments totaling $314 were subsequently made to the former owners of System 81 Express. Goodwill and other intangible assets of $304 and $461, respectively, were recorded under the acquisition. The acquisition contributed approximately $3,000 to revenue for the first quarter of 2004, an increase of $900 from the first quarter of 2003.

9

(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)

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

EXECUTIVE SUMMARY

We are pleased with the improvement in our revenue and operating profit reported for the 2004 first quarter. The overall improved economy, the increased focus on selling our USF PremierPlus® product at competitive rates and the initial favorable impact of our “best practice” initiatives were the main contributors to this quarter’s improvement compared to last year. While we are pleased with our first quarter results, we are not satisfied. We believe there are many opportunities and challenges ahead. These include ensuring that we continue to have the necessary labor resources, adequate capacity in our terminal network and equipment to maintain our customer service standards as business levels increase. These issues, along with continued pricing pressures, in certain geographic areas need to be addressed and managed. We will continue to evaluate our customer base and will shed less profitable accounts while adding new, more profitable business. We are confident we have the resources and plans in place to ensure these issues are addressed in a timely, efficient and cost effective manner.

Our management team remains focused and committed to our goals of sustainable financial success and value creation for our shareholders

CONSOLIDATED RESULTS

Our revenue and net income for the quarters ended April 3, 2004 and April 5, 2003 were as follows:

Our net income for the 2003 first quarter was negatively impacted by $1,467 due to a change in the accounting for revenue and expense recognition. Effective January 1, 2003, we recognize revenue for LTL and TL operations by the allocation of revenue between reporting periods based on the relative transit time in each reporting period with expenses recognized as incurred. This change was made to recognize the increase in our average length of haul of freight, which resulted from our implementation of new marketing strategies.

Our consolidated financial statements have been restated to reflect the non-core freight forwarding segment as discontinued operations. Unless otherwise indicated, the following discussion relates to our continuing operations.

10

(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)

RESULTS OF OPERATIONS

LTL Trucking

Our revenue, income from operations and operating ratios for our LTL segment for the quarters ended April 3, 2004 and April 5, 2003 were as follows:

Our LTL segment includes our LTL operating companies, each of which generates revenue from LTL and TL shipments. Revenue from LTL shipments represents over 90% of the revenue in the LTL segment. LTL statistics presented in the table below exclude TL shipments.

2004 First Quarter Compared to 2003 First Quarter

In the 2004 first quarter our LTL segment’s total revenue and income from operations increased from the 2003 first quarter by 6.3% and 43.0%, respectively. The following provides an understanding of the factors that impacted our operating results:

Included in the first quarter results was a 6.6% increase in revenue at USF Holland, our largest LTL carrier. USF Holland also recorded an improvement in their operating ratio of over 100 basis points. Also, included in the LTL segment’s results was a 10% increase in revenue at USF Reddaway.

11

(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)

TL Trucking

The following provides an understanding of the factors that impacted our operating results:

Logistics

The following provides an understanding of the factors that impacted our operating results:

12

(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)

Corporate and Other

The following provides an understanding of the factors that impacted our operating results:

Non-operating Income and Expense

Interest expense principally includes interest on our guaranteed unsecured notes of $250,000. We had cash invested in interest bearing instruments during the first quarter of 2004 and 2003. At the end of the first quarter of 2004 and 2003, we had cash and cash equivalents of $118,198 and $47,298, respectively.

Outlook—Unknown Trends or Uncertainties

We expect improvement in our operating results in 2004 as a result of an improved economy and our strategic initiatives. We believe our 2004 initiatives will provide increased revenue opportunities and generate cost savings through operational efficiencies. We believe achieving improved operating results are dependent on us executing our strategic initiatives, the level of competition, and the extent of the improvement in the US economy. We currently estimate that our full year earnings per share will be in the $1.95 — $2.15 range.

We have been subject to organization efforts by the International Brotherhood of Teamsters. We understand there will be union issues over time. We will deal with these organization efforts appropriately but ultimately we cannot predict the outcome of these activities.

13

(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)

LIQUIDITY AND CAPITAL RESOURCES

The following is a table of our contractual obligations and other commercial commitments as of April 3, 2004:

We believe that projected cash flows from operating activities, cash on hand and funding from our committed credit facilities will be adequate to finance our anticipated cash needs for 2004.

Sources and Uses of Cash

Operations

Our primary sources and uses of cash result from the realization of trade accounts receivable and settlement of payroll, trade accounts payable, and operating accruals, including insurance and claims. During the first quarter of 2004 we did not experience any unusual transactions or trends in these areas that would impact our cash position.

Net cash provided by operating activities decreased $22,689 in the 2004 first quarter from the 2003 first quarter. This was primarily due to increased revenue in March 2004, and the subsequent increase in net trade accounts receivable at the end of the 2004 first quarter.

There have not been, and we do not expect, any material changes to the underlying drivers of our operating cash flows. We believe that cash generated from our core operations, cash on hand and, if needed, our credit facilities to be sufficient to fund our operations.

Investing

We maintain an appropriate level of tractors and trailers to ensure the effectiveness of our operations. Purchases of tractors and trailers have been, and are expected to be, our most significant type of capital expenditure. These purchases can be deferred or accelerated in order for us to respond to changes in economic conditions and the market for these assets. Purchases of tractors and trailers were $1,922 and $12,130, and total capital expenditures were $21,445 and $37,436 during the first quarter of 2004 and 2003, respectively. Purchases of land and buildings in the 2004 first quarter were $9,653 compared to $12,326 in the 2003 first quarter.

We increased our loan related to our Mexican joint venture by $500 to $5,865.

14

(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)

Financing

We have a $200,000 committed credit facility that expires in October 2005. The facility allows up to $125,000 for standby letters of credit to cover our self-insurance programs and other miscellaneous letter of credit requirements. In addition to our committed credit facility, we maintain an uncommitted line of credit, which provides $10,000 of short-term funds. At April 3, 2004, we had no borrowings under these facilities and had $100,724 of outstanding standby letters of credit under the revolving credit facility.

Our external debt financing arrangements are discussed in Note 3 to the Condensed Consolidated Financial Statements.

Debt Instruments, Guarantees, and Related Covenants

Our financing arrangements include covenants that require us to comply with certain financial ratios including net worth and funded debt to adjusted cash flows. We are in compliance with these covenants and do not believe these covenants would restrict us from securing additional financing, if necessary.

Cash Management

Cash decreased by $3,461 in the first quarter of 2004 compared to a decrease of $6,860 in the same period of 2003.

Dividends

Our quarterly dividend rate is .0933 per share. During the first quarter of 2004, we paid cash dividends totaling $2,562.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to the impact of interest rate changes. Our exposure to changes in interest rates is limited to borrowings under a line of credit agreement, which has variable interest rates tied to LIBOR. There have been no borrowings under this agreement in the current year-to-date period nor during 2003. In addition, we have $150,000 of unsecured notes with an 8 1/2% fixed annual interest rate and $100,000 of unsecured notes with a 6 1/2% fixed annual interest rate. We have no hedging instruments. From time to time, we invest excess cash in overnight money market accounts. At April 3, 2004, we had approximately $109,600 that was invested in overnight money market accounts, which yielded approximately 1.1% per annum.

We have a $200,000 credit facility with a group of banks that will expire in October 2005. This facility is for working capital, general corporate funding needs, and up to $125,000 for letters of credit issued under our self-insurance program. As of April 3, 2004 we had no borrowings drawn under the facility and $100,724 in issued letters of credit.

The facility bears interest at LIBOR, plus a margin depending on our debt rating. In addition, there are other fees associated with the facility and certain financial covenants including minimum net worth and maximum funded debt to adjusted cash flow.

Item 4. Controls and Procedures

In order to ensure that information for disclosure in our filings of periodic reports with the Securities and Exchange Commission is identified, recorded, processed, summarized, and reported on a timely basis, we have adopted disclosure controls and procedures. Our Chief Executive Officer, Richard P. DiStasio, and our Chief Financial Officer, Thomas E. Bergmann, have reviewed and evaluated our disclosure controls and procedures as of April 27, 2004, and have concluded that our disclosure controls and procedures were adequate as of that date.

There were no changes in our internal controls over financial reporting identified in connection with the foregoing evaluation that occurred during our current year’s first quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

15

(Dollars in Thousands, Except Share and Per Share Amounts, Unless Otherwise Indicated)

PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

Our trucking subsidiaries are parties to a number of proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act, (CERCLA). They have been made parties to these proceedings as an alleged generator of waste disposed of at hazardous waste disposal sites. In each case, the Government alleges that the parties are jointly and severally liable for the cleanup costs. Although joint and several liability is alleged, these proceedings are frequently resolved on the basis of the quantity of waste disposed of at the site by the generator. Our potential liability varies greatly from site to site. For some sites the potential liability is de minimis and for others the costs of cleanup have not yet been determined. It is not feasible to predict or determine the outcome of these or similar proceedings brought by state agencies or private litigants. We believe such liability, if any, would not materially adversely affect our financial condition or results of operations.

On December 23, 2003, Idealease Services, Inc. (“Idealease”) filed a complaint against Logistics, in the Circuit Court of Cook County in Chicago, Illinois. Idealease is asking the court to require Logistics to specifically perform an alleged contractual obligation to buy back from Idealease a fleet of vehicles it claims is valued at approximately $14,500 or to pay Idealease that amount. Idealease also contends that Logistics is liable for $557 in lease payments and that certain riders to a lease agreement are invalid due to a lack of consideration. Logistics denies the material allegations in the Idealease complaint and plans to vigorously contest the lawsuit in court.

We are involved in other litigation arising in the ordinary course of business, primarily involving claims for bodily injury, property damage, and workers’ compensation. We believe the ultimate recovery or liability, if any, resulting from such litigation, individually or in total, would not materially adversely affect our financial condition or results of operations.

Item 2. Changes in Securities and Use of Proceeds.

                           N/A

Item 3. Defaults Upon Senior Securities.

                           N/A

Item 4. Submission of Matters to a Vote of Security Holders.

                           N/A

Item 5. Other Information.

                           N/A

16

Item 6. Exhibits and Reports on Form 8-K.

                                            (a) Exhibits

                                            (b) Current Reports on Form 8-K were filed:

17

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated May 7, 2004.

18