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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 July 28, 2004, 27,780,580 shares of common stock were outstanding.

PART I: FINANCIAL INFORMATION

Item 1.

Financial Statements

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

See accompanying Notes to Condensed Consolidated Financial Statements.

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

See accompanying Notes to Condensed Consolidated Financial Statements.

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

See accompanying Notes to Condensed Consolidated Financial Statements.

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

See accompanying Notes to Condensed Consolidated Financial Statements.

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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 fairly present our consolidated financial position as of July 3, 2004, the consolidated results of our operations for both the quarters and year-to-date periods ended July 3, 2004 and July 5, 2003, and our consolidated cash flows for the year-to-date periods ended July 3, 2004 and July 5, 2003. Operating results for the year-to-date period ended July 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. Restructuring and Impairment Charges

In the 2004 second quarter we shutdown USF Red Star, our former Northeast carrier. Our 2004 second quarter financial statements included losses and shutdown costs for USF Red Star of $21,359 of which $10,049 pertained to restructuring charges.

As a result of the USF Red Star shutdown, we incurred the following charges:

Subsequent to the closure of USF Red Star, we announced plans to expand USF Holland’s operations into the Northeast. As a result of USF Holland’s expansion and following the guidance of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets”, the results of USF Red Star are reported in continuing operations.

The following is a summary of the accruals recorded on the balance sheet for lease obligations and severance costs:

During the 2004 second quarter, we abandoned an LTL information technology project because of software stability and performance issues. As a result, we recorded an impairment charge of $5,980 to write the asset down to zero.

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

3. 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:

4. 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. 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 July 3, 2004 we had no borrowings drawn under the facility and $100,634 in issued letters of credit.

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

5. Goodwill and Other Intangible Assets

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

Intangible assets subject to amortization consist of the following:

Due to the closure of USF Red Star, the gross carrying amount and accumulated amortization of USF Red Star intangible assets, which net to zero, have been removed from the 2004 financial statements.

Aggregate amortization expense for the quarters ended July 3, 2004, and July 5, 2003 was $977 and $636, respectively, and for the six-month periods ended July 3, 2004 and July 5, 2003 was $1,969 and $895, respectively. The 2004 second quarter included an $805 write-off of intangible assets due to the closure of USF Red Star.

Estimated amortization expense for each of the years ending December 31 is as follows:

The $2,033 amortization expense for 2004 includes an $805 write-off due to the USF Red Star closure, as well as related amortization expense for the first two quarters.

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

6.     Segment Reporting

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

7. Stock Based Compensation

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:

8. Contingencies

We contribute to several union sponsored multi-employer pension plans. These plans are not administered by us, and contributions are determined in accordance with provisions of negotiated labor contracts. The Multi-Employer Pension Plan Amendments Act of 1980 established a continuing liability to such union sponsored plans for an allocated share of each plan’s unfunded vested benefits upon substantial or total withdrawal by us or upon termination of the pension plans. We believe any withdrawal liability could be material. No withdrawal or termination has occurred or is contemplated other than the potential liability for USF Red Star discussed below.

Due to the shutdown of USF Red Star, we are subject to withdrawal payments for up to 13 multi-employer pension plans. We are in the early stages of gathering information to determine the extent of such withdrawal liability, if any, from each of the plans, and, consequently, are unable to estimate our ultimate withdrawal liability at this time. Given the complexity of the calculations along with the expected mitigation relative to the USF Holland expansion, the final withdrawal liability may be material to our financial position but cannot currently be estimated, and therefore we have not accrued any costs. We believe the process will likely take at least several months, but it could extend to a year or more for the following reasons: the time it will take to gather information from the pension plans and analyze such information, substantial negotiations with these pension plans over withdrawal liability and any potential arbitration of the issues and other legal proceedings.

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 following reflects the accruals estimated for the ultimate cost of self-insured claims incurred, but not paid, for bodily injury, property damage, cargo loss and damage, and workers’ compensation.

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

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. When we can reasonably estimate liabilities associated with environmental matters, we record the necessary accrual. As of July 3, 2004 there were no material liabilities recorded.

9. Acquisitions

In February 2003, we acquired the stock of System 81 Express, Inc. (“System 81”), 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. Goodwill and other intangible assets of $304 and $461, respectively, were recorded under the acquisition. The year-to-date period ending July 3, 2004 includes approximately $900 in revenue associated with the acquisition of System 81 that the year-to-date period ended July 5, 2003 does not.

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(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 reported a loss from continuing operations for the 2004 second quarter of $2,017, or ($.07) per diluted share.

On May 23^rd we announced the closure of our USF Red Star operations which served the Northeast portion of the US. As a result of this closure pre-tax operating losses and shut-down costs of $21,359 were included in the loss as well as a $5,980 charge related to an LTL information technology project. Income from continuing operations, excluding the effects of USF Red Star and the LTL information technology project, was $16,027, or $.58 earnings per diluted share.

Our LTL segment reported revenues of $518,191 and operating income of $15,755. Revenue and operating income excluding the impact of USF Red Star was $486,783 and $37,114, respectively. On a comparable basis this represents an increase of $72,211 (or 17.4 %) and $9,735 (or 35.6 %), respectively, when compared to the 2003 second quarter. Our inter-regional LTL product, USF PremierPlus®, continued its strong revenue growth during the quarter with a 16% increase compared to the prior quarter.

Subsequent to the USF Red Star closure, we determined that the best way to serve our customers in the Northeast was to expand USF Holland into that market. Therefore, on June 23^rd we announced that USF Holland will be opening eight terminals in the Northeast by early September.

Our Truckload segment reported an operating profit of $607 for the 2004 second quarter compared to $962 for the 2003 second quarter. This quarter’s operating profit was negatively impacted by higher fuel and insurance costs, as well as driver shortages. We are disappointed with the performance in this segment and have taken action to initiate improvement starting with the appointment of a new president with considerable industry experience.

Our Logistics segment reported 2004 second quarter operating profit of $1,827, which was virtually the same as last year. This segment is continuing to rebuild its revenue base after a major customer’s bankruptcy in 2003.

Overall, we are pleased with the progress we have made in improving our revenue growth and operating profit through our Team One initiatives.  We will continue to execute against our strategic goals and objectives and are confident we will improve shareholder value.

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

CONSOLIDATED RESULTS

Our revenue and net income/(loss) for the quarters and year-to-date periods ended July 3, 2004 and July 5, 2003 were as follows:

Our 2004 second quarter revenue increased 7.9% from 2003 primarily due to strong growth in our LTL segment. The 2004 second quarter contains 28 fewer working days of USF Red Star revenue than 2003 as a result of its closure. Excluding USF Red Star revenue from the second quarter of 2004 and 2003, our revenue increased 14.0%.

Our 2004 second quarter resulted in a net loss of $2,017 and was negatively impacted by the closure of USF Red Star and the write-down of an LTL information technology project. The net loss for the 2004 second quarter includes USF Red Star after-tax operating losses and shutdown costs of $13,627, the after-tax write-down of an LTL information technology project of $3,815 and the after-tax write-off of intangible assets of $514 related to the closure of USF Red Star. Our net income for the 2003 second quarter was negatively impacted by $1,200 after-tax related to retirement costs for a former CEO.

Our net income for the year-to-date period ended July 5, 2003 was also negatively impacted by an $1,148 after-tax write-off of receivables in our Logistics segment and $1,467 after-tax charge 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.

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

Reconciliation of Non-GAAP Financial Measures

We believe that excluding the impact of: the closure of USF Red Star; the write-down of an LTL information technology project; the retirement costs for a former CEO; and receivables write-off related to a major USF Logistics customer that filed for bankruptcy from our reported results for both the quarters and year-to-date-periods ended July 3, 2004 and July 5, 2003, respectively, provide a better understanding of our ongoing financial performance.

The following table is provided as a reconciliation of reported earnings and earnings per share to earnings and earnings per share excluding non-comparable items.

Excluding non-comparable items, our income from continuing operations increased $5,199 or 48% in the 2004 second quarter compared to the 2003 second quarter, and increased $5,762 or 29.7% for the year-to-date period ended July 3, 2004 compared to the year-to-date period ended July 5, 2003.

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(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 and year-to-date periods ended July 3, 2004 and July 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.

In the 2004 second quarter our LTL segment’s total revenue increased from the 2003 second quarter by 9.7% and income from operations decreased by 37.7%. The following provides an understanding of the factors that impacted our operating results in the 2004 second quarter compared to the 2003 second quarter:

Total revenue and income from operations for our LTL segment, excluding USF Red Star, increased 12.6% and 28.1%, respectively, in the year-to-date period ended July 3, 2004 compared to the year-to-date period ended July 5, 2003.

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(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 in the 2004 second quarter compared to the 2003 second quarter:

Revenue for our TL segment increased $1,235 in the year-to-date period ended July 3, 2004 compared to the year-to-date period ended July 5, 2003. The acquisition of System 81 Express, Inc. in February 2003 accounted for $900 of the increase in revenue in 2004.

Logistics

The following provides an understanding of the factors that impacted our operating results in the 2004 second quarter compared to the 2003 second quarter:

The 2003 first quarter included a receivables write-off of $2,000 related to the major customer’s bankruptcy. Adjusted for the receivables write-off, income from operations in the year-to-date period ended July 3, 2004 was $881 lower than the year-to-date period ended July 5, 2003 primarily due to the reduction in revenue during the first quarter 2004.

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(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 in the 2004 second quarter compared to the 2003 second quarter:

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 second quarters of 2004 and 2003. At the end of the second quarters of 2004 and 2003, we had cash and cash equivalents of $143,963 and $57,451, 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, excluding the effects of USF Red Star , both current and ongoing and the information technology write-down, 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.

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(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 July 3, 2004:

(1)     As of July 3, 2004, we invested $8,308 in the form of a loan, which can be increased to $10,000. (2) At July 3, 2004 our capital purchase commitments included $1,500 for land and improvements, $64,420 for revenue equipment and $641 for information technology related projects.

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

Cash increased by $22,304 in the year-to-date period ended July 3, 2004 to $143,963 compared to an increase of $3,293in the year-to-date period ended July 5, 2003 to $57,451.

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 as part of our ongoing operating activities. As a result of the shutdown of USF Red Star, we are subject to withdrawal payments for up to 13 multi-employer pension plans. These potential withdrawal payments and USF Red Star shutdown costs may reduce our cash position as payments are made. However, we do not believe the closure of USF Red Star materially changes the underlying drivers of our operating cash flows. We believe that cash generated from our core operations and cash on hand will be sufficient to fund our operations and any potential liabilities resulting from the closure of USF Red Star.

Net cash provided by operating activities decreased $5,372 in the year-to-date period ended July 3, 2004 compared to the year-to-date period ended July 5, 2003. This was primarily due to a decrease in net income and an increase in trade receivables.

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

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 $31,297 and $23,712, and total capital expenditures were $57,524 and $69,409 during the first half of 2004 and 2003, respectively. Purchases of land and buildings in the first half of 2004 were $11,299 compared to $18,967 in the first half of 2003.

In the 2004 second quarter, we increased our loan related to our Mexican joint venture by $2,443 to $8,308.

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 July 3, 2004, we had no borrowings under these facilities and had $100,634 of outstanding standby letters of credit under the revolving credit facility.

Our external debt financing arrangements are discussed in Note 4 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.

Dividends

Our quarterly dividend rate is .0933 per share. During the 2004 second quarter, we paid cash dividends totaling $2,584.

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

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 our short-term investments and 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. At July 3, 2004, we had approximately $131,500 in short-term investments.

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 July 3, 2004 we had no borrowings drawn under the facility and $100,634 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 August 3, 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 second quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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(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 USF Logistics, in the Circuit Court of Cook County in Chicago, Illinois. Idealease is asking the court to require USF 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 USF Logistics is liable for $557 in lease payments and that certain riders to a lease agreement are invalid due to a lack of consideration. USF 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.

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Item 2. Changes in Securities and Use of Proceeds.