UNITED STATES

FORM 10-Q

(Mark One)

FOR THE QUARTER ENDED JUNE 30, 2004

OR

Commission file number: 0-49983

SCS TRANSPORTATION, INC.

(816) 960-3664

     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  o

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  x No  o

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

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SCS TRANSPORTATION, INC.

INDEX

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PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

SCS Transportation, Inc. and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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SCS Transportation, Inc. and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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SCS Transportation, Inc. and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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SCS Transportation, Inc. and Subsidiaries

(1) Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of SCS Transportation, Inc. and its two wholly owned regional transportation subsidiaries (together the Company or SCST), Saia Motor Freight Line, Inc. and Jevic Transportation, Inc. and the accounts of Clark Bros. Transfer, Inc. since its acquisition date of February 16, 2004 (See Note 3).

The condensed consolidated financial statements have been prepared by the Company, without audit by independent public accountants. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods included herein have been made. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from these statements. These interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Operating results for the quarter and six months ended June 30, 2004, are not necessarily indicative of the results of operations that may be expected for the year ended December 31, 2004.

Organization

The Company provides regional overnight and second-day less-than-truckload (LTL) and selected inter-regional LTL and truckload (TL) transportation services through two subsidiaries, Saia Motor Freight Line, Inc. (Saia) and Jevic Transportation, Inc. (Jevic). The Company merged Clark Bros. Transfer, Inc. (Clark Bros.) into Saia and integrated operations in May 2004 (See Note 3). The accounts of Saia reflect the results of Clark Bros. since February 16, 2004, the acquisition date. For the quarter ended June 30, 2004 Saia generated 66 percent and Jevic 34 percent of total revenue.

Certain of SCST’s long-term debt is guaranteed by its subsidiaries. The guarantees are full and unconditional, joint and several, and any subsidiaries that are not guarantors are minor as defined by Securities and Exchange Commission (SEC) regulations. SCST, as the parent company issuer of this debt, has no independent assets or operations. There are no significant restrictions on the Company’s ability or the ability of any guarantor to obtain funds from its subsidiaries by such means as a dividend or loan.

Stock-Based Compensation

For all stock option grants prior to January 1, 2003, stock-based compensation to employees is accounted for based on the intrinsic value method under Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” and related interpretations, including Financial Accounting Standards Board (FASB) Interpretation No. 44 “Accounting for Certain Transactions involving Stock Compensation”.

Effective January 1, 2003, the Company adopted the fair value method of recording stock option expense under SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123”. Under SFAS No. 123 the Company will recognize stock option expense prospectively for all stock awards granted after January 1, 2003. Stock option grants after January 1, 2003 are expensed over the vesting period based on the fair value at the date the options are granted.

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In connection with the spin-off of SCST from its former parent, which was effective October 1, 2002, all former parent company stock options issued and outstanding to employees of SCST were replaced with SCST stock options with equivalent vesting, contract terms and an intrinsic value identical to the value of the former parent company options being replaced.

The following table illustrates the effect on net income and earnings per share during the quarters and six months ended June 30, 2004 and 2003 if the Company had applied the fair value recognition provisions of SFAS No. 123 “Accounting for Stock-Based Compensation” for all stock option grants prior to January 1, 2003, the date the Company adopted SFAS No. 123 (in thousands, except per share data).

New Accounting Pronouncements

There are no new accounting pronouncements pending adoption as of June 30, 2004, which the Company believes would have a significant impact on its consolidated financial position or results of operations.

(2) Computation of Earnings Per Share

The calculation of basic earnings per common share and diluted earnings per common share was as follows (in thousands except per share amounts):

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(3) Acquisition

On February 16, 2004, the Company acquired all of the outstanding common stock of Clark Bros., a Midwestern less-than-truckload carrier operating in eleven states with revenue of approximately $66 million in fiscal year 2003. Clark Bros. was merged and its operations integrated into Saia in May 2004, bringing the benefits of Saia transportation service to major Midwestern markets including Chicago, Minneapolis, St. Louis and Kansas City. The results of operations of Clark Bros. are included in the consolidated results of the Company since the mid-February acquisition date. The total consideration of $30.8 million includes $21.7 million for the purchase of all outstanding Clark Bros. equity, the repayment of $6.0 million of existing Clark Bros. debt and approximately $3.1 million in consideration to structure the transaction as an asset sale for tax purposes. The transaction was financed from cash balances, existing revolving credit capacity, and a $6.2 million seller note payable in 2008 with a variable rate of interest, adjusted semi-annually, to prime less 1.25% (2.75% at June 30, 2004). As a result of the preliminary allocation of the purchase price, the Company recorded approximately $18.5 million of purchase price in excess of net tangible assets, including an adjustment of $1.1 million recorded in the quarter ended June 30, 2004 to reflect revised estimates of the fair value of assets acquired and liabilities assumed; however, the Company has not yet completed the allocation of this intangible between goodwill and other identifiable intangible assets. Management does not believe the amortization of identifiable intangibles would be material to its 2004 financial results or the pro forma disclosures below.

Integration charges totaling $1.1 million and $2.1 million were expensed in the quarter and six months ended June 30, 2004, respectively. These integration charges consist of employee retention and stay bonuses, communications, re-logoing the fleet of Clark Bros., technology integration and other miscellaneous items. The Company does not anticipate any additional significant integration charges. In addition, at the date of acquisition, the Company accrued and capitalized approximately $1.1 million in exit costs as part of the purchase allocation for employee severance and lease costs associated with the elimination of duplicate facilities. At June 30, 2004, total remaining accrued exit costs were $0.9 million with changes during the quarter and six month period related to payments of these liabilities. These accrued exit costs are anticipated to be fully paid by April 2006.

The following unaudited pro forma financial information reflects the consolidated results of operations of SCS Transportation, Inc. as if the acquisition of Clark Bros. had taken place on January 1, 2003. The quarter and six months ended June 30, 2004 include $1.1 million and $2.1 million of integration charges that were not included in the quarter and six months ended June 30, 2003. The pro forma information includes primarily adjustments for interest expense on estimated incremental acquisition debt and estimated amortization of acquired identifiable intangibles. The pro forma financial information is not necessarily indicative of the results of operations as it would have been had the transaction been effected on the assumed date.

(4) Business Segment Information

The Company has two operating subsidiaries (Saia and Jevic) that are reportable segments. Each of these segments is a strategic business unit offering different products and services.

The segments are managed separately because each requires different operating, technology and marketing strategies. The Company evaluates financial performance primarily on operating income and return on capital.

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The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Management fees and other corporate services are charged to segments based on direct benefit received or allocated indirect benefit based on revenue. The following table summarizes the Company’s operations by business segment (in thousands):

(5) Commitments and Contingencies

The Company is subject to legal proceedings that arise in the ordinary course of its business. In the opinion of management, the aggregate liability, if any, with respect to these actions will not materially adversely affect our financial position, results of operations or cash flows.

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

Executive Overview

The Company’s business is highly correlated to the industrial economy. The Company is focused on increasing volume within existing geographies while managing both the mix and yield of business to achieve increased profitability. The Company’s business is both labor intensive and capital intensive. The Company looks for opportunities to improve safety, leverage technology and achieve better asset utilization to improve cost and productivity. On February 16, 2004, the Company acquired Clark Bros. Transfer, Inc. (Clark Bros.), a Midwestern less-than-truckload carrier operating in eleven states, and merged this company into the operations of Saia Motor Freight Line, Inc. in May 2004. The Company grew quarter over quarter revenue by approximately 19.2 percent in the second quarter of 2004. Approximately 9 percent of this growth was due to the acquisition of Clark Bros., and the remainder of this increase was attributable to improved economic conditions and company-specific growth initiatives compared to the second quarter of 2003. While consolidated revenue is primarily from less-than-truckload (LTL) tonnage, the Company experienced growth in both LTL and truckload revenues. Management believes the LTL revenue growth reflects improved economic conditions and market share gains due to various sales initiatives. Truckload growth is largely due to an improved economy, tightened capacity within the truckload industry and a targeted backhaul program at Jevic. The LTL pricing environment remained competitive and the Company saw some improvement in quarter over quarter LTL revenue per hundredweight, one measure of yield, at Jevic, while yields were slightly lower at Saia primarily due to mix issues.

The consolidated operating income of $11.4 million improved $2.5 million from the prior year quarter. The second quarter 2004 consolidated results included $1.1 million of integration charges related to the Clark Bros. acquisition as well as a significant increase in insurance claims due to severe accidents during the quarter. Tonnage increases within the Company’s existing networks, along with cost and productivity improvements realized in the second

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quarter of 2004, more than offset structural cost increases in wages and health insurance as well as funding the integration charges and higher level of accident expense. This resulted in an overall improvement in the Company’s operating ratio (operating expenses divided by operating revenue) of 30 basis points to 95.4 percent in the second quarter of 2004.

The Company generated $29.0 million in cash from operating activities through the first six-months of the year versus $25.0 million in the prior year period. The Company had net capital expenditures of $39.6 million during the first six months of 2004, of which $23.5 million was for the Clark Bros. acquisition. The Company primarily utilized a portion of its cash balance of $30.9 million at December 31, 2003, a $6.2 million note to the seller and availability under its revolving credit facility to fund the Clark Bros. acquisition. As a result, outstanding indebtedness at June 30, 2004 increased by $6.2 million from December 31, 2003.

General

The following management’s discussion and analysis describes the principal factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies, of SCS Transportation, Inc. (also referred to as “SCST”). This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements, and our 2003 audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Those financial statements include additional information about our significant accounting policies, practices and the transactions that underlie our financial results.

SCST is an asset-based transportation company providing regional and interregional LTL and selected truckload (TL) service solutions to a broad base of customers across the United States. Our operating subsidiaries are Saia Motor Freight Line, Inc. (Saia), based in Duluth, Georgia, and Jevic Transportation, Inc. (Jevic), based in Delanco, New Jersey. On February 16, 2004 the Company acquired Clark Bros. Transfer, Inc. (Clark Bros.), a Midwestern less-than-truckload carrier operating in eleven states. The operations of Clark Bros. were merged into Saia in May 2004. The total consideration of $30.8 million includes $21.7 million for the purchase of all outstanding Clark Bros. equity, the repayment of $6.0 million of existing Clark Bros. debt and $3.1 million in consideration to structure the transaction as an asset sale for tax purposes. The transaction was financed from cash balances, existing revolving credit capacity, and a $6.2 million seller note.

Our business is highly correlated to the industrial economy and is impacted by a number of other external factors as detailed in the Forward Looking Statements section of this Form 10-Q. The key factors that affect our operating results are the volumes of shipments transported through our networks, as measured by our average daily shipments and tonnage; the prices we obtain for our services, as measured by revenue per hundredweight (yield) and revenue per shipment; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages and benefits, purchased transportation, claims and insurance expense, fuel and maintenance; and our ability to match operating costs to shifting volume levels.

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Results of Operations

For the quarters ended June 30, 2004 and 2003
(in thousands, except ratios and revenue per hundredweight)

Quarter and six-months ended June 30, 2004 vs. quarter and six-months ended June 30, 2003

Revenue and volume

Consolidated revenue increased 19.2% to $248.2 million in the second quarter of 2004 as a result of volume increases in both shipments and LTL tonnage. Current quarter results benefited from the mid-February acquisition of Clark Bros., an improving economy and company-specific sales initiatives compared to the second quarter of 2003. On a pro forma basis, including Clark Bros. in the prior quarter comparison, consolidated revenue was up 10.4 percent. Jevic’s results included quarter over quarter yield improvement, while mix issues resulted in a slight decrease in Saia’s yield between quarters, as pricing remains competitive for both operating subsidiaries. Fuel surcharge revenue, which was 5.3 percent of total revenue in the second quarter of 2004 compared to 3.4 percent of total revenue in the second quarter of 2003, is intended to reduce the Company’s exposure to rising diesel prices.

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For the six-months ended June 30, 2004 operating revenues were $473.5 million up 15.9 percent from $408.4 million for the six-months ended June 30, 2003, primarily due to the Clark Bros. acquisition, a $7.4 million increase in fuel surcharge revenue, increases in market share and improved economic conditions.

Saia consolidated operating revenue was $164.6 million in the second quarter of 2004, an increase of 23.7 percent over second quarter 2003 operating revenue of $133.1 million. Saia consolidated operating revenue excluding fuel surcharge was $156.0 million in the second quarter of 2004, up 21.3 percent from $128.6 million in the second quarter of 2003. Saia LTL revenue per hundredweight excluding fuel surcharge (a measure of yield) decreased 0.6 percent to $9.48 per hundredweight for the second quarter of 2004 due primarily to mix issues, including increased weight per shipment and lower yielding revenue from the Clark Bros. acquisition, not in the prior year amount. LTL tonnage was up 22.4 percent to 0.8 million tons and LTL shipments were up 18.6 percent to 1.4 million shipments. On a pro forma basis, including Clark Bros. in the prior quarter comparison, Saia revenue was up 10.0 percent, LTL tonnage was up 7.4 percent and LTL shipments were up 2.6 percent. Management believes that Saia continues to grow volume by providing high quality service for its customers and from sales initiatives in specific market segments. Approximately 75 percent of Saia’s revenue is subject to individual customer price adjustment negotiations that occur intermittently throughout the year. The remaining 25 percent of revenue is subject to the annual general rate increase. On June 1, 2004, Saia implemented a 6.2 percent general rate increase for this smaller group of customers. Saia implemented a similar rate increase during the second quarter of 2003 and the current rate increase did not materially impact the second quarter 2004 results. Competitive factors, customer turnover and mix changes impact the extent to which customer rate increases are retained over time.

For the six-months ended June 30, 2004, Saia had operating revenue of $307.4 million versus $256.7 million for the six-months ended June 30, 2003 for a 19.7 percent increase. Operating revenues, excluding fuel surcharges, were $292.7 million for the six-months ended June 30, 2004 up 18.4 percent from $247.2 million for the six-months ended June 30, 2003. The increase, exclusive of fuel surcharges, over the six-month periods is primarily due to increased volumes from the Clark Bros. acquisition and revenue growth in Saia’s historical geography in the current period versus the prior year period.

Jevic had operating revenue of $83.6 million in the second quarter of 2004, an 11.3 percent increase over $75.1 million in the second quarter of 2003. Jevic operating revenue excluding fuel surcharge was $79.1 million in the second quarter of 2004, up 9.1 percent from $72.6 million in the second quarter of 2003. Jevic revenue per hundredweight excluding fuel surcharge increased 2.4 percent to $6.54 per hundredweight and tonnage increased 5.5 percent to 0.6 million tons and shipments were up 2.4 percent to 0.3 million shipments compared to the prior year quarter. Jevic’s revenue increase is due to increased LTL and truckload volumes and improved yields. Approximately 60 percent of Jevic’s revenue is subject to individual customer price adjustment negotiations that occur intermittently throughout the year. The remaining 40 percent of revenue is subject to the annual general rate increase. On June 21, 2004, Jevic implemented a 6.0 percent general rate increase on LTL business and a 5.0 percent increase on truckload business for this smaller group of customers. Jevic implemented a similar rate increase during the second quarter of 2003 and the current rate increase did not materially impact the second quarter 2004 results. Competitive factors, customer turnover and mix changes impact the extent to which customer rate increases are retained over time.

For the six-months ended June 30, 2004, Jevic had operating revenue of $166.1 million versus $151.6 million for the six-months ended June 30, 2003 for a 9.5 percent increase. Operating revenues, excluding fuel surcharges, were $157.9 million for the six-months ended June 30, 2004, up 8.3 percent from $145.8 million for the six-months ended June 30, 2003. Jevic benefited from an improved economy and company-specific initiatives that resulted in increased tonnage and prices, which drove the year over year revenue increase for the six-month period.

Operating expenses and margin

Consolidated operating income increased 27.9 percent to $11.4 million inclusive of $1.1 million of integration charges for the first quarter acquisition of Clark Bros. and auto liability claims expense approximately $1.4 million higher than the company’s three-year historical average (when calculated as a percent of revenue excluding fuel surcharge). The increase in consolidated operating income reflects higher margin contribution on quarter over quarter volume increases and cost and productivity improvements partially offset by structural cost increases, integration charges and higher accident expense. The second quarter 2004 operating ratio (operating expenses divided by operating revenue) was 95.4 compared to 95.7 in the second quarter of 2003. Higher fuel prices (exclusive of taxes), in conjunction with volume changes, caused $5.7 million of the increase in operating expenses and supplies. Increased revenues from the fuel surcharge program largely offset fuel price increases.

For the six-months ended June 30, 2004, operating income was $18.2 million with an operating ratio of 96.2 compared to operating income of $13.4 million with an operating ratio of 96.7 for the six-months ended June 30,

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2003. Year over year volume gains for the six-month period ended June 30, 2004 more than offset $2.1 million of integration costs, higher than expected accident expense and structural cost increases in salaries, wages and health insurance.

Saia had operating income of $9.1 million in the second quarter of 2004 inclusive of $1.1 million of integration charges related to the Clark Bros. acquisition. Claims and insurance expense was up $1.6 million over the prior quarter, reflecting higher than expected accident expense for the quarter. Saia had operating income of $7.9 million in the second quarter of 2003. The operating ratio at Saia was 94.5 in the current quarter (93.8 excluding the integration charges) compared to 94.1 in the second quarter of 2003. Saia improved its operating income through volume gains, and continued strong cost controls and productivity initiatives that improved performance. These improvements in labor productivity and other expense reductions offset higher healthcare costs, a general wage increase in August 2003 and other wage adjustments during the year. Saia’s wage rates averaged 3.1 percent higher in the second quarter of 2004 compared to the second quarter of 2003. Saia’s overall increase in wage expense was partially offset by a decrease in purchased transportation as a percentage of revenue as Saia utilized more Company drivers in selected lanes.

For the six-months ended June 30, 2004, Saia had operating income of $15.2 million (inclusive of $2.1 million of integration charges related to the Clark Bros. acquisition) and an operating ratio of 95.1 compared to operating income of $12.2 million and an operating ratio of 95.2 for the six-months ended June 30, 2003. Operating income improvement for the six month period ended June 30, 2004 from volume gains and effective cost management was partially offset by the integration costs, increased accident expense and other structural cost increases.

Jevic operating income was $3.6 million in the second quarter of 2004, up from $1.6 million in the second quarter of 2003. Jevic’s revenue and yield improvement offset structural cost increases in wages and benefits as well as modest increases in casualty claims expense in the current quarter. Through on-going operating initiatives, Jevic improved its overall freight delivery performance and costs while managing higher volumes in the current quarter contributing to the improved margin. Simultaneously, process changes implemented in the first quarter continued to play a role in helping Jevic improve operating effectiveness. The operating ratio at Jevic was 95.7 for the second quarter of 2004 compared to 97.9 for the second quarter of 2003. Jevic’s wage rates averaged 1.8 percent higher in the second quarter of 2004 compared to the second quarter of 2003.

For the six-months ended June 30, 2004, Jevic had operating income of $5.5 million and an operating ratio of 96.7 compared to operating income of $2.7 million and an operating ratio of 98.2 for the six-months ended June 30, 2003. The increase in operating income for the six-months ended June 30, 2004 over the six-months ended June 30, 2003 was primarily a result of the second quarter activities discussed in the previous paragraph.

Holding company operating expenses for the second quarter of 2004 were $1.3 million in excess of costs allocated to the operating companies, an increase of $0.7 million over the second quarter of 2003. The increase in holding company costs included $0.4 million attributable to equity based compensation charges resulting from SCST stock price appreciation and about $0.2 million in higher professional fees. For the six-month period ended June 30, 2004, holding company costs were $2.5 million up $1.0 million over the prior year six-month period. The increase in year-to-date holding company costs is primarily related to charges for equity based compensation resulting from SCST stock price appreciation and increased professional fees.

Other

Substantially all SCST nonoperating expenses represent interest expense and there was no significant change in net interest expense between the quarters or six-month periods. The consolidated effective tax rate was 39.6 percent in the second quarter of 2004 versus 41.6 percent in the second quarter of 2003. The consolidated effective tax rate was 40.1 percent for the six-months ended June 30, 2004 versus 41.5 percent for the six-months ended June 30, 2003. The decrease in year over year effective tax rate is primarily due to higher forecasted pretax income in 2004 versus the prior year. The notes to the 2003 audited consolidated financial statements included in the Form 10-K for the year ended December 31, 2003 provide an analysis of the income tax provision and the effective tax rate.

Net income was $5.5 million or $0.36 per diluted share in the second quarter of 2004 compared to net income of $3.9 million or $0.26 per diluted share in the second quarter of 2003. Net income was $8.1 million or $0.53 per diluted share in the six-months ended June 30, 2004 compared to $5.2 million or $0.35 per diluted share for the six-months ended June 30, 2003.

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Working capital/capital expenditures

The decrease in working capital at June 30, 2004 compared to June 30, 2003 is predominantly due to a lower invested cash balance, higher salary, wage and benefit accruals and higher accident claim accruals, which more than offset increases in accounts receivable. Cash used for the Clark Bros. acquisition was $23.5 million, which represents the $30.8 million purchase price less a $6.2 million note to the selling shareholders and net of cash acquired. Increases in accounts receivable due to the acquisition and stronger business volumes in the first half of 2004 versus the first half of 2003 were more than offset by increases in accounts payable, wage and employee benefits accruals and accident claim accruals. The 2004 acquisition of property and equipment is primarily investments in revenue equipment and technology equipment and software.

Outlook

Our business is highly correlated to the general economy, and in particular industrial production. However, in 2003 and through the first six-months of 2004, we achieved profitability improvement and revenue growth rates above the underlying economic indicators. For the remainder of 2004, we anticipate an improving economy and subsidiary-specific growth initiatives to create continued growth in our existing geography, including the new states gained through the Clark Bros. acquisition. We also expect subsidiary-specific profit improvement initiatives, focused on cost management, productivity and asset utilization will help offset anticipated structural cost increases in wages and healthcare costs. Additionally, we believe an improving economy will provide the opportunity for improved pricing and yield management.

Our priorities in 2004 include a continued focus on providing top quality service, improving safety performance and investing in management and infrastructure for future growth. The Company is currently assessing the potential impact, if any, of the July 2004 judicial ruling on recently enacted Hours of Service rules. See “Forward-Looking Statements” for a more complete discussion of potential risks and uncertainties that could materially affect our future performance.

New Accounting Pronouncements

There are no new accounting pronouncements pending adoption as of June 30, 2004, which the Company believes would have a significant impact on its consolidated financial position or results of operations.

Financial Condition

SCST liquidity needs arise primarily from capital investment in new equipment, land and structures and information technology, as well as funding working capital requirements.

In connection with the spin-off from our former parent, SCST issued $100 million in Senior Notes under a $125 million Master Shelf Agreement with Prudential Investment Management, Inc. and certain of its affiliates. SCST has also entered into an amended $75 million Agented Revolving Credit Agreement (the Credit Agreement) with Bank of Oklahoma, N.A., as agent. Proceeds from the Senior Notes and a portion of the Credit Agreement were used for payments due to Yellow Corporation, now known as Yellow Roadway Corporation, (Yellow) discussed below. SCST had approximately $120.5 million outstanding under line-of-credit agreements with Yellow immediately prior to the spin-off, of which $113.6 million was repaid to Yellow under the terms of the spin-off. The remaining $6.9 million reduction in the line of credit with Yellow was a capital contribution to SCST from Yellow.

The Company’s long-term debt at June 30, 2004 includes $100 million in Senior Notes that are unsecured with a fixed interest rate of 7.38 percent and an average original maturity of eight years. Payments due under the Senior Notes are interest only until June 30, 2006 and at that time semi-annual principal payments begin, with the final payment due December 2013. Under the terms of the Senior Notes, SCST must maintain several financial covenants including a maximum ratio of total indebtedness to earnings before interest, taxes, depreciation, amortization and rent (EBITDAR), a minimum interest coverage ratio and a minimum tangible net worth, among others. At June 30, 2004, SCST was in compliance with these covenants.

The amended $75 million Credit Agreement is unsecured with an interest rate based on LIBOR or prime at the Company’s option, plus an applicable spread, in certain instances, and matures in September 2006. The availability under the Credit Agreement is limited to SCST’s qualified receivables (as defined in the Credit Agreement). At June 30, 2004, SCST had no borrowings under the Credit Agreement, $41 million in letters of credit outstanding under the Credit Agreement and availability of $34 million based on SCST’s qualified receivables. The letters of credit are primarily in support of self-insured retentions for casualty and workers compensation claims. The available portion of the Credit Agreement may be used for future capital expenditures, working capital and letter of credit requirements as needed. Under the terms of the Credit Agreement, SCST must maintain several financial

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covenants including a maximum ratio of total indebtedness to EBITDAR, a minimum interest coverage ratio and a minimum tangible net worth, among others. At June 30, 2004, SCST was in compliance with these covenants.

In addition, SCST has third party borrowings of approximately $16.5 million in subordinated notes and a $6.2 million note to the selling shareholders issued in connection with the Company’s acquisition of Clark Bros.

At June 30, 2004, Yellow provided on behalf of SCST approximately $1.1 million in outstanding surety bonds. These bonds, issued by insurance companies, serve as collateral support primarily for workers’ compensation programs in states where SCST is self-insured. The price and availability of surety bonds fluctuates over time with general conditions in the insurance market. At June 30, 2004, Yellow has provided on behalf of SCST $3.3 million in outstanding letters of credit under historical insurance programs, in which Saia participated with other Yellow affiliates. The collateral support by Yellow is expected to remain in place until claims for these prior years are closed. Under the Master Separation and Distribution Agreement entered into in connection with the spin-off, SCST pays Yellow’s actual cost of the collateral through October 2005 after which time it will pay Yellow’s cost plus 100 basis points through October 2007.

Projected net capital expenditures for 2004 are approximately $60 million, an approximately $10 million increase from 2003 net capital expenditures. The projected net capital expenditures include planned real estate divestment proceeds expected to be reinvested in strategic real estate locations. Approximately $28.5 million of the remaining 2004 capital budget was committed at June 30, 2004. Net capital expenditures pertain primarily to replacement of revenue equipment at both subsidiaries and additional investments in information technology, land and structures.

The Company has historically generated cash flows from operations that have funded its capital expenditure requirements. Cash flows from operations were $58.3 million for the year ended December 31, 2003, which were $8.4 million more than 2003 net capital expenditures. The timing of capital expenditures can largely be managed around the seasonal working capital requirements of the Company. However, the Company believes it has adequate sources of capital to meet short-term liquidity needs through its cash ($21 million at June 30, 2004) and availability under its revolving credit facility ($34 million at June 30, 2004). In addition to these sources of liquidity, the Company has $25 million under its long-term debt facilities, which is available to fund other longer-term strategic investments. The February 16, 2004 acquisition of Clark Bros. Transfer, Inc. utilized approximately $24 million in cash. Future operating cash flows are primarily dependent upon the Company’s profitability and its ability to manage its working capital requirements, primarily accounts receivable, accounts payable and wage and benefit accruals. The Company has the ability to adjust its capital expenditures in the event of a shortfall in anticipated operating cash flows. The Company believes its current capital structure and availability under its borrowing facilities along with anticipated cash flows from future operations will be sufficient to fund planned replacements of revenue equipment and investments in technology. Additional sources of capital may be needed to fund future long-term strategic growth initiatives.

In accordance with accounting principles generally accepted in the United States, our operating leases are not recorded in our balance sheet; however, the future minimum lease payments are included in the “Contractual Cash Obligations” table below. See the notes to our audited consolidated financial statements included in Form 10-K for the year ended December 31, 2003 for additional information. In addition to the principal amounts disclosed in the tables below, the Company has interest obligations of approximately $9.0 million for 2004 and decreasing for each year thereafter, based on borrowings outstanding at June 30, 2004.

Contractual Cash Obligations

The following tables set forth a summary of our contractual cash obligations and other commercial commitments as of June 30, 2004 (in millions):

(1)

See Note 3 to the audited consolidated financial statements in Form 10-K for the year ended December 31, 2003.

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(2)

Includes commitments of $28.5 million for capital expenditures.

Critical Accounting Policies And Estimates

SCST makes estimates and assumptions in preparing the consolidated financial statements that affect reported amounts and disclosures therein. In the opinion of management, the accounting policies that generally have the most significant impact on the financial position and results of operations of SCST include:

•		Claims and Insurance Accruals. SCST has self-insured retention limits generally ranging from $250,000 to $2.0 million per claim for medical, workers’ compensation, auto liability, casualty and cargo claims. For the current policy year, the Company has a $2.0 million per claim deductible under its auto liability program and $1.0 million per claim deductible under its workers’ compensation program. The liabilities associated with the risk retained by SCST are estimated in part based on historical experience, third-party actuarial analysis, demographics, nature and severity, past experience and other assumptions. The liabilities for self-funded retention are included in claims and insurance reserves based on claims incurred, with liabilities for unsettled claims and claims incurred but not yet reported being actuarially determined with respect to workers’ compensation claims and with respect to all other liabilities, estimated based on management’s evaluation of the nature and severity of individual claims and historical experience. However, these estimated accruals could be significantly affected if the actual costs of SCST differ from these assumptions. These estimates tend to be historically accurate over time; however, assumptions regarding severity of claims, medical cost inflation, as well as specific case facts can create short-term volatility in estimates.
•		Revenue Recognition and Related Allowances. Revenue is recognized on a percentage-of-completion basis for shipments in transit while expenses are recognized as incurred. In addition, estimates included in the recognition of revenue and accounts receivable include estimates of shipments in transit and estimates of future adjustments to revenue and accounts receivable for billing adjustments and collectibility.
		Revenue is recognized in a systematic process whereby estimates of shipments in transit are based upon actual shipments picked up, scheduled day of delivery and current trend in average rates charged to customers. Since the cycle for pick up and delivery of shipments is generally 1-3 days, typically less than 5 percent of a total month’s revenue is in transit at the end of any month. Estimates for credit losses and billing adjustments are based upon historical experience of credit losses, adjustments processed and trends of collections. Billing adjustments are primarily made for discounts and billing corrections. These estimates are continuously evaluated and updated; however, changes in economic conditions, pricing arrangements and other factors can significantly impact these estimates.
•		Depreciation and Capitalization of Assets. Under the SCST accounting policy for property and equipment, management establishes appropriate depreciable lives and salvage values for SCST’s revenue equipment (tractors and trailers) based on their estimated useful lives and estimated fair values to be received when the equipment is sold or traded in. These estimates are continuously evaluated and updated when circumstances warrant. However, actual depreciation and salvage values could differ from these assumptions based on market conditions and other factors.
•		Recovery of Goodwill. Annually, SCST assesses goodwill impairment by applying a fair value based test. This fair value based test involves assumptions regarding the long-term future performance of the operating subsidiaries of SCST, fair value of the assets and liabilities of SCST, cost of capital rates and other assumptions. However, actual recovery of remaining goodwill could differ from these assumptions based on market conditions and other factors. In the event remaining goodwill is determined to be impaired a charge to earnings would be required.

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These accounting policies, and others, are described in further detail in the notes to our audited consolidated financial statements included in Form 10-K for the year ended December 31, 2003.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

Forward-Looking Statements

Certain statements in this Report, including those contained in “Outlook” and “Financial Condition” are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of SCST. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “predict,” “believe” and similar words or expressions are intended to identify forward-looking statements. We use such forward-looking statements regarding our future financial condition and results of operations and our business operations in this Report. All forward-looking statements reflect the present expectation of future events of our management and are subject to a number of important factors, risks, uncertainties and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. These factors and risks include, but are not limited to, general economic conditions; labor relations; cost and availability of qualified drivers; governmental regulations, including but not limited to Hours of Service, engine emissions and Homeland Security; cost and availability of fuel; inclement weather; expansion and integration risks; competitive initiatives and pricing pressures; self-insurance claims and other expense volatility; and other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s SEC filings.

As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this Report. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

SCST is exposed to a variety of market risks, including the effects of interest rates and fuel prices. The detail of SCST’s debt structure is more fully described in the notes to the consolidated financial statements set forth in the Form 10-K for the year ended December 31, 2003. To help mitigate our risk to rising fuel prices, Saia and Jevic each have implemented fuel surcharge programs. These programs are well established within the industry and customer acceptance of fuel surcharges remains high. Since the amount of fuel surcharge is based on average national diesel fuel prices and is reset weekly, exposure of SCST to fuel price volatility is significantly reduced.

The following table provides information about SCST third-party financial instruments as of June 30, 2004. The table presents principal cash flows (in millions) and related weighted average interest rates by contractual maturity dates. The fair value of the fixed rate debt was estimated based upon the borrowing rates currently available to the Company for debt with similar terms and remaining maturities.

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Item 4. Controls and Procedures

Quarterly Controls Evaluation and Related CEO and CFO Certifications

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company conducted an evaluation of the effectiveness of the design and operation of its “disclosure controls and procedures” (Disclosure Controls). The controls evaluation was performed under the supervision and with the participation of management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

Based upon the controls evaluation, the Company’s CEO and CFO have concluded that, subject to the limitations noted below, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Disclosure Controls were effective to provide reasonable assurance that material information relating to SCST and its consolidated subsidiaries is made known to management, including the CEO and CFO, particularly during the period when SCST’s periodic reports are being prepared.

As of the end of the period covered by this Quarterly Report, there have been no significant changes in internal control over financial reporting or in other factors that could significantly affect internal control over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.

Attached as Exhibits 31.1 and 31.2 to this Quarterly Report are certifications of the CEO and the CFO, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934 (the Exchange Act). This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications.

Definition of Disclosure Controls

Disclosure Controls are controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported timely. Disclosure Controls are also designed to ensure that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The Company’s Disclosure Controls include components of its internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of SCST’s financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles.

Limitations on the Effectiveness of Controls

The Company’s management, including the CEO and CFO, does not expect that its Disclosure Controls or its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings — None

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities —

(1)		All shares purchased were purchased on the open market by the SCST Executive Capital Accumulation Plan. For more information on the SCST Executive Capital Accumulation Plan see the Registration Statement on Form S-8 (No. 333-103661) filed on March 7, 2003 and the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
(2)		The SCST Executive Capital Accumulation Plan sold 360 shares of SCST stock on the open market at $23.89 per share during the period of April 1, 2004 through April 30, 2004.
(3)		The SCST Executive Capital Accumulation Plan sold 1,500 shares of SCST stock on the open market at $22.12 per share during the period of May 1, 2004 through May 31, 2004.
(4)		The SCST Executive Capital Accumulation Plan sold 380 shares of SCST stock on the open market at $25.91 per share during the period of June 1, 2004 through June 30, 2004.

Item 3. Defaults Upon Senior Securities — None

Item 4. Submission of Matters to a Vote of Security Holders — None

Item 5. Other Information — None

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

(b) Reports on Form 8-K.

The registrant furnished or filed the following current reports on Form 8-K:

•		Form 8-K dated April 21, 2004, reporting under Item 12, announcing its first quarter results.
•		Form 8-K dated April 21, 2004, reporting under Item 5, announcing the resignation of Mark Ernst from the Board of Directors.
•		Form 8-K dated May 27, 2004, reporting under Item 5, announcing the election of Linda J. French as a Class III director of the Corporation.

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SIGNATURE

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.

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EXHIBIT INDEX

E-1