Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2004

- OR -

For the transition period from              to             

Commission file number 000 – 24573

Overnite Corporation

(Exact name of registrant as specified in its charter)

1000 Semmes Avenue, Richmond, Virginia

(Address of principal executive offices)

23224

(Zip Code)

(804) 231-8000

(Registrant’s telephone number, including area code)

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 by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    YES ¨    NO x

As of July 23, 2004, there were 28,007,524 shares of the Registrant’s Common Stock outstanding.

Table of Contents

TABLE OF CONTENTS

OVERNITE CORPORATION

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

OVERNITE CORPORATION (OVERNITE HOLDING, INC., prior to November 5, 2003)

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)

The accompanying Notes are an integral part of these Consolidated Condensed Financial Statements.

3

Table of Contents

OVERNITE CORPORATION (OVERNITE HOLDING, INC., prior to November 5, 2003)

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (Unaudited)

The accompanying Notes are an integral part of these Consolidated Condensed Financial Statements.

4

Table of Contents

OVERNITE CORPORATION (OVERNITE HOLDING, INC., prior to November 5, 2003)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

The accompanying Notes are an integral part of these Consolidated Condensed Financial Statements.

5

Table of Contents

OVERNITE CORPORATION (OVERNITE HOLDING, INC., prior to November 5, 2003)

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements for Overnite Corporation (prior to November 5, 2003, Overnite Holding, Inc.) and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting, and in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial presentation. In the opinion of management, the financial statements include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the financial position and operating results for the interim periods. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for Overnite Corporation (“Overnite”) for the year ended December 31, 2003. The results of operations for the six months ended June 30, 2004 are not necessarily indicative of the results for the entire year ending December 31, 2004.

Unless the context otherwise requires, all references herein to “we,” “us,” “our,” and “the Company” are to Overnite Corporation and its subsidiaries.

On November 5, 2003 Union Pacific Corporation (“UPC”) completed the divestiture of its entire interest in Overnite Holding, Inc. through an initial public offering. In order to facilitate the offering, immediately prior to the consummation of the offering, Overnite Corporation acquired from UPC all of the outstanding common stock of Overnite Holding, Inc. In exchange, Overnite Corporation issued to UPC (1) 27.5 million shares of its common stock, which represented all of the outstanding shares of common stock of Overnite Corporation upon consummation of the transaction, and (2) a $1.0 million promissory note payable six months following the date of consummation of the transaction. In addition, subsequent to this transaction but immediately prior to the consummation of the offering, Overnite Holding, Inc. (“Overnite Holding”) paid to UPC a dividend consisting of $128.0 million in cash and the forgiveness of the net intercompany advances to UPC as of the date of the transaction, which totaled $222.1 million. This series of transactions is referred to as the “Divestiture Transaction.”

Concurrent with the Divestiture Transaction, Overnite Corporation and Overnite Transportation Company entered into a $300 million credit agreement (the “Credit Agreement”) with a syndicate of lenders. A total of $128.0 million was drawn immediately to pay the cash dividend described in the preceding paragraph.

Following the Divestiture Transaction, Overnite Holding became a direct wholly owned subsidiary of Overnite Corporation and Overnite Transportation Company and Motor Cargo Industries, Inc. became indirect wholly owned subsidiaries of Overnite Corporation. UPC sold 100% of the shares of common stock of Overnite Corporation that it received in the Divestiture Transaction in the initial public offering.

Note 1. Business

Overnite Corporation, through its primary operating subsidiaries, is a leading predominantly non-union provider of less than truckload (“LTL”) transportation service, offering a full spectrum of regional, inter-regional and long-haul services nationwide. The Company serves a diverse customer base through a network of 207 service centers located near metropolitan centers. The Company operates through two principal subsidiary companies, Overnite Transportation Company (“Overnite Transportation” or “OTC”) and Motor Cargo Industries, Inc. (“Motor Cargo”). OTC operates on a nationwide basis and Motor Cargo operates primarily in the Western United States.

6

Table of Contents

OVERNITE CORPORATION (OVERNITE HOLDING, INC., prior to November 5, 2003)

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

Note 2. Earnings and Dividends Per Share

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

Basic earnings per share is calculated on the weighted average number of common shares outstanding during each period. Diluted earnings per share includes shares issuable upon exercise of outstanding stock options and stock-based awards where such instruments would be dilutive.

On January 22, 2004, the Company’s board of directors declared the Company’s first regular quarterly dividend of $0.04 per share. The dividend was paid on March 17, 2004 to shareholders of record on February 25, 2004. On May 14, 2004, the Company’s board of directors declared the Company’s second regular quarterly dividend of $0.04 per share. The dividend was paid on June 17, 2004 to shareholders of record on May 27, 2004. Dividends per share are omitted for the three months and six months ended June 30, 2003 as the Company was a wholly-owned subsidiary of UPC and therefore would not be meaningful.

Note 3. Comprehensive Income

For the six months ended June 30, 2004 and June 30, 2003, the Company recognized total comprehensive income of $24.3 million and $23.5 million, respectively. For the six months ended June 30, 2004, the Company recognized no other comprehensive income or loss, compared to other comprehensive loss of $0.5 million for the six months ended June 30, 2003. Other comprehensive loss for the six-month period ended June 30, 2003 related primarily to the effective portion of the changes in the fair values of derivatives designated as hedging instruments related to fuel.

Note 4. Segment Information

OTC Segment

The OTC segment includes the LTL, closely related truckload operations and dedicated truckload operations of OTC, operating as a regional carrier with long-haul capabilities, with a network of 171 service centers

7

Table of Contents

OVERNITE CORPORATION (OVERNITE HOLDING, INC., prior to November 5, 2003)

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

throughout the United States. This segment serves all 50 states, Canada, Mexico, the U.S. Virgin Islands, Puerto Rico and Guam and transports a variety of products, including machinery, textiles, plastics, electronics and paper products.

Motor Cargo Segment

Motor Cargo is a regional LTL carrier operating through 36 service centers, providing transportation services within the Western United States, transporting a variety of products, including consumer goods, packaged foodstuffs, electronics, apparel, hardware and industrial goods. Motor Cargo also provides warehousing, dry and temperature controlled LTL and logistics services.

The following tables reflect asset information for the Company as of June 30, 2004 and December 31, 2003, and capital expenditures and depreciation expense for the three-month and six-month periods ended June 30, 2004 and 2003:

8

Table of Contents

OVERNITE CORPORATION (OVERNITE HOLDING, INC., prior to November 5, 2003)

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

The following table reflects operating segment information of the Company for operating revenue, operating income and net income for the three-month and six-month periods ended June 30, 2004 and 2003:

Note 5. Related Party Transactions

Until the date of the Divestiture Transaction, advances to and from UPC accrued interest at a 7.5% annual interest rate. The Company earned $7.0 million of interest income related to the receivable from UPC in the first six months of 2003. The receivable from UPC was eliminated on November 5, 2003 as a result of the Divestiture Transaction.

Until the date of the Divestiture Transaction, the Company and UPC completed transportation arrangements for each other’s customers and billed each other in accordance with intermodal agreements and other contracts in the normal course of business, at commercial terms that were equitable to all parties. During the six months ended June 30, 2003 these intercompany transactions included in the Company’s operating revenue amounted to $2.2 million.

Note 6. Long-term debt

Long-term debt at June 30, 2004 consisted of $121.8 million outstanding under the Credit Agreement entered into at the time of the Divestiture Transaction. The Credit Agreement provides for total borrowings of $300 million, consisting of a term loan of $125 million and a revolving loan of $175 million, of which up to a maximum of $150 million is available for the issuance of letters of credit.

The remaining availability under the revolving loan facility can be used for working capital, capital expenditures, general corporate purposes and to support letters of credit. The terms of the Credit Agreement also provide for an increase, at our option, in the aggregate commitments under the facility from $300 million to $350 million, either by adding additional lenders or by agreeing with existing lenders to increase their commitments. Each of the term loan and the revolving loan facility has a maturity date of November 5, 2008.

9

Table of Contents

OVERNITE CORPORATION (OVERNITE HOLDING, INC., prior to November 5, 2003)

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

Borrowings under the term loan and the revolving loan facility bear interest, at the Company’s option, at either adjusted LIBOR or the alternate base rate, plus a spread based upon our credit rating. The effective interest rate at June 30, 2004 was 2.84%. For the six months ended June 30, 2004 the average interest rate was 2.61%. Outstanding letters of credit to be issued under the revolving loan facility will be subject to an annual fee equal to the applicable spread over adjusted LIBOR for revolving loans. Letters of credit outstanding under the Credit Agreement were $69.2 million at June 30, 2004. The Company is also required to pay administrative fees, commitment fees, letter of credit issuance and administration fees and certain expenses, and to provide certain indemnities, all of which the Company believes to be customary for financings of this type.

The Credit Agreement contains affirmative, negative and financial covenants customary for financings of this type. Specifically, the Credit Agreement contains financial covenants regarding maximum leverage ratios, a minimum fixed charge coverage ratio and a minimum asset coverage ratio. Obligations under the Credit Agreement are guaranteed by Overnite and certain of our domestic subsidiaries, including Motor Cargo, and are secured by a first-priority lien on and security interest in all of the capital stock of Overnite Holding, Overnite, Inc. and OTC, as well as all of the capital stock held by OTC and any guarantor under the Credit Agreement.

The Company’s long-term debt at June 30, 2004 consists of:

Note 7. Retirement Plans

The Company provides defined pension benefits to eligible employees of OTC and Motor Cargo. OTC pension benefits are based on years of service and compensation during employment and cover substantially all employees. Motor Cargo pension benefits are based solely upon years of service.

On April 10, 2004, the Pension Funding Equity Act of 2004 (“the Act”) was approved. As a result, discount rates used to calculate pension funding requirements for 2004 and 2005 will be based upon long-term corporate bond rates. In years prior to 2004, discount rates used to calculate pension funding requirements were based upon the 30-year Treasury rate which, in general, has been slightly lower than the rates now required under the Act.

During the first six months of 2004, the Company made pension plan contributions of $25.0 million compared to $30.3 million in the comparable period of 2003. The Company plans to voluntarily contribute an additional $5.0 million to its pension plans in 2004, although no contributions are required.

10

Table of Contents

OVERNITE CORPORATION (OVERNITE HOLDING, INC., prior to November 5, 2003)

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

The amount of net periodic benefit cost for the three months ended June 30, 2004 was $9.1 million compared to $7.5 million for the three months ended 2003. The amount of net periodic benefit cost for the six months ended June 30, 2004 was $18.2 million compared to $14.9 million for the six months ended 2003. The components are summarized in the table below:

Note 8. Stock-Based Compensation

The Company has stock-based employee compensation that may consist of options, stock appreciation rights, stock awards or performance shares. The Company participated in UPC’s stock-based employee compensation plans until November 5, 2003. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation expense, related to stock option grants, is reflected in net income as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Stock-based employee compensation expense related to restricted stock and other incentive plans is reflected in net income. The following table illustrates the effect on net income for the three-month and six-month periods ended June 30, 2004 and 2003 if the Company had applied the fair value recognition provisions of Financial Accounting Standards Board (the “FASB”) Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation:

11

Table of Contents

OVERNITE CORPORATION (OVERNITE HOLDING, INC., prior to November 5, 2003)

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions for options granted during the three and six months ended June 30, 2004: risk-free interest rates of 3.2%; dividend yield of 0.7%; expected lives of 5 years; and volatility of 44.6%. Assumptions for the three and six months ended June 30, 2003 were: risk free interest rates of 2.9%; dividend yield of 1.5%; expected lives of 5 years; and volatility of 28.4%.

Note 9. Commitments and Contingencies

Unasserted Claims—There are various claims and lawsuits pending against the Company. It is not possible at this time for the Company to determine fully the effect of all unasserted claims on its consolidated financial condition, results of operations or liquidity; however, to the extent possible, where unasserted claims can be estimated and where such claims are considered probable, the Company has recorded a liability. The Company does not expect that any known lawsuits, claims, environmental costs, commitments, contingent liabilities or guarantees will have a material adverse effect on its consolidated financial condition, results of operations or liquidity.

Commitments—As of June 30, 2004, the Company’s self-insured retention arrangements for workers’ compensation and automobile liability were secured by $83.6 million in letters of credit, which were unused, compared to $55.4 million as of December 31, 2003. The increase in the letters of credit resulted primarily as the surety bond market has deteriorated and the Company has replaced surety bonds with letters of credit. Additionally the increase resulted from the Company becoming a stand-alone entity and having to obtain letters of credit rather than relying on UPC letters of credit.

Goodwill—As a result of the acquisition of Motor Cargo, the Company recognized $13.2 million in goodwill and $3.0 million in non-amortizable intangible assets. The Company expects to perform the required annual goodwill impairment assessment on a recurring basis at the end of the third quarter each year, or more frequently if events or changes in circumstances resulting in goodwill impairment arise.

12

Table of Contents

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

FORWARD LOOKING STATEMENTS

The following discussion contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding: expectations as to operational improvements; expectations as to cost savings, revenue growth and earnings; the time by which certain objectives will be achieved; estimates of costs relating to environmental remediation and restoration; proposed new products and services; expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; and statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause the Company’s actual performance or results to differ materially from those expressed in the statements. Important factors that could cause such differences include, but are not limited to: whether we are fully successful in implementing our financial and operational initiatives; industry competition; conditions, performance and consolidation; legislative and/or regulatory developments; the effects of adverse general economic conditions, both within the United States and globally; any adverse economic or operational repercussions from terrorist activities, any government response thereto and any future terrorist activities, war or other armed conflicts; changes in fuel prices; changes in labor costs; labor stoppages; the outcome of claims and litigation; natural events such as severe weather, floods and earthquakes and other factors described in the Company’s filings with the SEC, including under “Risk Factors” under Item 1 of our annual report on Form 10-K for the year ended December 31, 2003.

Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.

OVERVIEW

The Company is a leading, predominantly non-union provider of LTL transportation services, offering a full spectrum of regional, inter-regional and long-haul LTL services nationwide. In addition to our core LTL service, we also provide our customers with a number of additional value-added LTL services, including expedited and guaranteed delivery, cross-border, assembly and distribution, trade show, government and third party logistics services. We serve a diverse customer base through a network of 207 service centers located near metropolitan centers. We draw customers from varying industries and geographic markets, including customers in the retail, chemical, automotive, electronics and furniture industries.

From 1986 until November 5, 2003, the Company was a wholly-owned subsidiary of UPC. Although we operated as a separate business, distinct from UPC’s other activities, we relied on UPC for certain support functions, as well as financial support. Following the Divestiture Transaction, we no longer receive interest

13

Table of Contents

income from UPC, which accounted for $7.0 million of interest income in the first six months of 2003. Furthermore we have incurred certain costs in connection with operating as a stand-alone company that will exceed the costs that were incurred or were charged to us by UPC. These stand-alone costs include certain administrative costs for services previously performed for us by UPC, such as cash management, internal audit and information services, as well as incremental costs we will incur, including SEC compliance, insurance, corporate secretary, shareholder relations, government relations and non-employee director costs. In addition, Overnite incurred indebtedness under the Credit Agreement in order to pay a cash dividend to UPC in connection with the Divestiture Transaction, and may incur future indebtedness to finance working capital, capital expenditures, other general corporate purposes and to support letters of credit.

MANAGEMENT SUMMARY

Operating revenue for the three months ended June 30, 2004 was $418.5 million, an increase of $46.5 million or 12.5% from $372.0 million for the comparable period of 2003. Total operating expense for the three months ended June 30, 2004 was $389.3 million, an increase of $38.3 million or 10.9% from $351.0 million for the comparable period of 2003. The growth in operating revenue for the three months ended June 30, 2004 exceeded the growth in operating expense from the comparable period in 2003 as a result of growth in the economy, general tightness in the TL market, the implementation of new hours of service rules and a general rate increase of approximately 5.95%, effective June 7, 2004, which impacts approximately 30-35% of tonnage.

The following table sets forth certain statement of income data expressed as a percentage of operating revenue.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

14

Table of Contents

Notes:

Operating Revenue

The following table presents our analysis of the components of operating revenue for the three months ended June 30, 2004. Operating revenue is affected by weight hauled, LTL revenue per LTL hundredweight (Rate Factor) including LTL fuel surcharge, and volume of shipments of our dedicated truckload service.