OVERNITE CORP - 10-Q Quarterly 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 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 October 25, 2004, there were 28,010,084 shares of the Registrant’s Common Stock outstanding.

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

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 a 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 nine months ended September 30, 2004 are not necessarily indicative of the expected 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 and its subsidiaries.

On November 5, 2003 Union Pacific Corporation (“UPC”) completed the divestiture of its entire interest in Overnite Holding, Inc. (“Overnite Holding”) through an initial public offering. In order to facilitate the offering, immediately prior to the consummation of the offering, Overnite acquired from UPC all of the outstanding common stock of Overnite Holding. In exchange, Overnite issued to UPC (1) 27.5 million shares of its common stock, which represented all of the outstanding shares of common stock of Overnite 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 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 and Overnite Transportation Company (“Overnite Transportation” or “OTC”) 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 and Overnite Transportation and Motor Cargo Industries, Inc. (“Motor Cargo”) became indirect wholly-owned subsidiaries of Overnite. UPC sold 100% of the shares of common stock of Overnite that it received in the Divestiture Transaction in the initial public offering.

The Company, 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 208 service centers located near metropolitan centers. The Company operates through two principal subsidiary companies, OTC and Motor Cargo. OTC operates on a nationwide basis and Motor Cargo operates primarily in the Western United States.

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

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.

For the nine months ended September 30, 2004 and September 30, 2003, the Company recognized total comprehensive income of $46.8 million and $43.3 million, respectively. For the nine months ended September 30, 2004, the Company recognized no other comprehensive income or loss, compared to other comprehensive loss of $0.5 million for the nine months ended September 30, 2003. Other comprehensive loss for the nine-month period ended September 30, 2003 related to the effective portion of the changes in the fair values of derivatives designated as hedging instruments related to fuel.

The OTC segment includes LTL, closely related truckload operations and dedicated truckload operations, and operates as a regional carrier with long-haul capabilities, with a network of 171 service centers 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. Corporate assets and expenses are included in the OTC segment.

Motor Cargo is a regional LTL carrier operating through 37 service centers, providing transportation services within the Western United States, transporting a variety of products, including consumer goods,

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

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 these segments of the Company as of September 30, 2004 and December 31, 2003, and capital expenditures and depreciation expense for the three-month and nine-month periods ended September 30, 2004 and 2003:

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

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

Until the date of the Divestiture Transaction, advances to and from UPC accrued interest at a 7.5% annual interest rate. The Company earned $11.0 million of interest income related to the receivable from UPC in the first nine 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 nine months ended September 30, 2003 these intercompany transactions included in the Company’s operating revenue amounted to $4.1 million.

Long-term debt at September 30, 2004 consisted of $115.6 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.

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 September 30, 2004 was 3.34%. For the nine months ended September 30, 2004 the average interest rate was 2.73%. Outstanding letters of credit issued under the revolving loan facility are 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 $68.7 million at September 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 we believe are 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.

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

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 nine months of 2004, the Company made pension plan contributions of $30.3 million compared to $45.7 million in the comparable period of 2003. The Company has made these contributions on a voluntary basis as no contributions were required in either 2003 or 2004.

The amount of net periodic benefit cost for the three months ended September 30, 2004 was $10.9 million compared to $7.7 million for the same period in 2003. The amount of net periodic benefit cost for the nine months ended September 30, 2004 was $29.1 million compared to $22.6 million for the same period in 2003. The components are summarized in the table below:

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

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 nine-month periods ended September 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:

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 nine months ended September 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 nine months ended September 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%.

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.

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

Commitments—As of September 30, 2004, the Company’s self-insured retention arrangements for workers’ compensation and automobile liability were secured by $83.4 million in letters of credit, which were unused, compared to $55.4 million as of December 31, 2003. The Company has $68.7 million of the letters of credit at September 30, 2004 that fall under the Credit Agreement. 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—The Company completed the required goodwill impairment test under generally accepted accounting principles effective August 31, 2004, which did not indicate any impairment. The Company has $13.2 million of goodwill and $3.0 million in non-amortizable intangible assets related to its investment in Motor Cargo.

On November 3, 2004, the Company amended the Credit Agreement to reduce the total credit availability to $250 million by (i) increasing the revolving loan to $250 million, of which $175 million will be available for the issuance of letters of credit, and (ii) converting all outstanding term loans to revolving loans so that the outstanding principal amount of all term loans and term loan commitments shall be zero. The initial interest rate will be 50 basis points below the existing rate. The terms of the Credit Agreement, as amended and restated (the “Amended and Restated Credit Agreement”) also provide an option for the Company to increase the aggregate revolving credit commitments under the facility from $250 million up to $400 million, either by adding additional lenders or agreeing with existing lenders to increase their commitments. The revolving loan facility has a maturity date of November 3, 2009. The Amended and Restated Credit Agreement contains affirmative, negative and financial covenants customary for financings of this type. Specifically, the Amended and Restated Credit Agreement contains financial covenants regarding a maximum leverage ratio and a minimum fixed charge coverage ratio. Obligations under the Amended and Restated 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 the capital stock held by OTC and any guarantor under the Amended and Restated Credit Agreement.

Overnite uses Marsh & McLennan Cos. (“Marsh”) as a broker for insurance coverage. Marsh has been accused by the Attorney General of the State of New York in a civil action, and the Chairman and Chief Executive of Marsh has resigned. The Company does not believe the outcome of the civil suit or the change in the management at Marsh will have a material effect on the financial results of the Company or the availability or affordability of insurance coverage.

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

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.

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 208 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

income from UPC, which accounted for $11.0 million of interest income in the first nine months of 2003. Furthermore we have incurred certain costs in connection with operating as a stand-alone company that 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.

Operating revenue for the three months ended September 30, 2004 was $429.0 million, an increase of $44.8 million or 11.7% from $384.2 million for the comparable period of 2003. Total operating expense for the three months ended September 30, 2004 was $391.6 million, an increase of $36.2 million or 10.2% from $355.4 million for the comparable period of 2003. The growth in operating revenue for the three months ended September 30, 2004 was primarily attributable to volume growth of 8.9%, higher fuel surcharges, and rate increases negotiated with customers. The tonnage growth was attributable to higher growth in the economy, general tightness in the TL market, and the implementation of new hours of service rules. Higher expenses were primarily due to increased volumes, higher fuel costs and increased other expenses.

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

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

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

For the three months ended September 30, 2004, operating revenue increased $44.9 million. The increase in operating revenue resulted from a 7.1% increase in LTL weight hauled. This volume increase was primarily the result of a stronger economy and contributed approximately $24.4 million in additional operating revenue. The LTL Rate Factor increased 2.7%. The change in the LTL Rate Factor, which increased operating revenue approximately $9.9 million, is the result of increased revenue from fuel surcharges and favorable price negotiation with customers. These increases were offset by changes in our freight mix, such as heavier weight per shipment, lower average length of haul and lower average classification of freight. Our dedicated truckload

revenue increased $5.5 million due to a change in customer mix, an increase in shipments resulting from the addition of three new customers during the second quarter of 2004 and an increase in fuel surcharges. TL revenue increased $4.9 million as a result of a 19.2% increase in weight hauled due to capacity constraints in the TL market, the implementation of new hours of service rules and increased fuel surcharges. Fuel surcharge revenue, which is included in the preceding amounts referenced in this paragraph, was $24.9 million, an increase of $14.1 million, or 131.2%, over $10.8 million for the comparable period of 2003.

Overnite Transportation: Operating revenue for the three months ended September 30, 2004 was $380.8 million, an increase of $39.9 million or 11.7%, from $340.9 million for the comparable period in 2003. For the three months ended September 30, 2004, LTL volume increased 6.9%, contributing approximately $21.1 million in additional revenue. The LTL Rate Factor increased by 2.7%, increasing operating revenue by approximately $8.8 million. Dedicated truckload service contributed $5.5 million in additional operating revenue. Operating revenue from truckload services increased by $4.4 million. LTL weight per LTL shipment increased by 7.6%. Fuel surcharge revenue, which is included in the preceding amounts referenced in this paragraph, was $22.3 million, an increase of $12.9 million, or 138.5%, from $9.4 million for the comparable period in 2003.

Motor Cargo: For the three months ended September 30, 2004, operating revenue was $48.3 million, an increase of $5.0 million, or 11.7%, from $43.3 million in the comparable period of 2003. LTL operating revenue increased $4.4 million as LTL weight hauled increased 9.0%. Truckload services and other services contributed $0.6 million in additional operating revenue. Fuel surcharge revenue, which is included in the preceding amounts referenced in this paragraph, was $2.6 million, an increase of $1.2 million, or 82.9%, from $1.4 million for the comparable period in 2003.

For the three months ended September 30, 2004, operating expenses were $391.6 million, an increase of $36.2 million, or 10.2%, from $355.4 million for the comparable period in 2003. As a percentage of operating revenue, operating expenses improved to 91.3% of revenue for the three months ended September 30, 2004, compared to 92.5% for the comparable period of 2003, and 93.1% on a pro forma basis for 2003. Operating expenses, on a pro forma basis, were $357.5 million, or 93.1% of operating revenue, for the three months ended September 30, 2003 and included $2.1 million in stand-alone expenses, which represent incremental costs incurred following the Divestiture Transaction.

For the three months ended September 30, 2004 operating expenses as compared to actual and pro forma 2003 (as described above) were primarily affected by changes in salaries, wages and employee benefits; supplies and expenses; claims and insurance; rents and purchased transportation, and other expenses. The discussion of our calculation of pro forma items and reconciliation to the nearest GAAP measure begins on page 25. Discussion and analysis of these items follows.

Salaries, wages and employee benefits were 56.6% of operating revenue in the period, compared to 56.9% for the comparable period in 2003 and 57.1% of operating revenue for the comparable period of 2003 on a pro forma basis. This 0.5% improvement, compared to pro forma results, as a percent of operating revenue resulted from our increased volume of transportation services, while maintaining control over wage and benefit costs. Salaries, wages and employee benefits, for the three months ended September 30, 2003, on a pro forma basis, included $0.5 million of incremental costs related to staff needed as a stand-alone entity.

The 10.8% increase in salaries, wages and employee benefits from $219.2 million, on a pro forma basis, for the three months ended September 30, 2003 to $243.0 million for the three months ended September 30, 2004 was due to wage inflation and a 3.8% increase in the average number of employees over the period. The increase in the number of employees was primarily due to the increase in LTL volume shipped.

Salaries and wages increased by $13.4 million, compared to actual results, primarily due to a 3.8% increase in the average number of employees resulting from the increase in LTL volume shipped. Pro forma 2003 expenses include human resources costs for internal audit, accounting, tax, human resource and treasury functions. These functions were fully staffed at September 30, 2004. The new provisions of the Fair Labor Standards Act (“FLSA”) defining overtime hours is not expected to have a material effect on salaries and wages.

Employee benefit expenses increased $10.9 million, compared to actual results, for the three months ended September 30, 2004 and were primarily affected by pension and other post employment benefit cost increases and the 3.8% increase in the average number of employees. Expenses related to pension and other post retirement benefits were $14.0 million for the three months ended September 30, 2004, an increase of $4.1 million, or 41.7%, from $9.9 million in the comparable period in 2003. This increase was primarily attributable to the lower than expected returns on pension assets in the years 2000 through 2002 and declines in interest rates. Payroll taxes were $21.0 million for the three months ended September 30, 2004 an increase of $1.7 million, or 8.9%, from $19.3 million for the comparable period of 2003. The cost of healthcare benefits for active employees was $20.5 million in the three months ended September 30, 2004, an increase of $4.4 million, or 27.6%, from $16.1 million in the comparable period in 2003. Pro forma 2003 expense includes benefits associated with the additional staffing described above.

Supplies and expenses increased to 9.6% of operating revenue in the three months ended September 30, 2004 from 8.0% in the comparable period of 2003. The increase in expense was primarily due to a 58.5% increase in fuel expense. Fuel expense was $23.2 million for the 2004 period compared to $14.6 million in 2003 and the increase is a result of a 5.4% increase in miles driven and a 48.0% increase in the cost of fuel compared to 2003. Fuel expense for the three months ended September 30, 2004 and 2003 does not include fuel surcharges that the Company paid to third-party carriers who provided purchased transportation. These costs are included in purchased transportation. Maintenance and facilities supplies expenses were $17.9 million for the three months ended September 30, 2004, an increase of $1.6 million, or 9.9%, from $16.3 million in the comparable period in 2003. Maintenance and facilities supplies expenses increased as a result of increased volume and an associated 5.4% increase in miles driven during the three months ended September 30, 2004.

Claims and insurance expenses decreased to 2.8% of operating revenue in the three months ended September 30, 2004 from 5.0% for the comparable period in 2003 and 5.2% for the comparable period in 2003 on a pro forma basis. Expenses decreased by $7.5 million or 38.7% from the comparable period of 2003 as our provisions for liability reserves for injury or property damages decreased by $4.5 million and our provision for liability reserves for cargo claims decreased by $3.8 million. These decreases were partially offset by a $0.8 million increase in insurance expense. The reduction in liability reserves for injury and property damages is

attributable to improved claim experience in 2004. The reduction in liability provision for cargo claims is attributable to successful quality cargo handling initiatives in 2004. Pro forma 2003 expense includes $0.6 million of incremental costs for directors and officers insurance coverage and other insurance coverages necessary as a stand-alone entity.

Rents and purchased transportation expenses decreased to 10.2% of operating revenue from 10.3% in 2003 on an actual basis, and increased by $4.2 million, or 10.7%, from the 2003 level of expenditures as a result of the 8.9% increase in tonnage hauled and an increase in the rates charged by third-party carriers, primarily related to higher costs such as fuel and insurance. During the three months ended September 30, 2004 we increased, on an absolute basis, the use of other carriers to supplement our resources and provide flexibility in connection with higher tonnage levels in the quarter.

Other operating expenses increased as a percentage of operating revenue from 3.7% during the three months ended September 30, 2003, to 4.3% for the three months ended September 30, 2004. For the three months ended September 30, 2004, provision for bad debt increased $1.3 million over the comparable period of 2003 as a result of higher revenue. General supplies and expenses increased $1.4 million for the three months ended September 30, 2004 over the comparable period of 2003. Other expenses for the three months ended September 30, 2003, on a pro forma basis, include $0.9 million in stand-alone expenses, which represent incremental legal and professional fees incurred subsequent to the Divestiture Transaction.

Overnite Transportation: Operating expenses at OTC were $347.0 million for the three months ended September 30, 2004, an increase of $31.0 million, or 9.8%, from $316.0 million for the comparable period in 2003 due to the factors discussed above. Operating expenses on a pro forma basis for the three months ended September 30, 2003 included $2.2 million in incremental stand-alone expenses.

Motor Cargo: Operating expenses at Motor Cargo were $44.7 million for the three months ended September 30, 2004, an increase of $5.3 million, or 13.4%, from $39.4 million for the comparable period in 2003 due to the factors discussed above.

For the three months ended September 30, 2004, operating income was $37.4 million, an increase of $8.6 million, or 29.8%, compared to $28.8 million in the comparable period of 2003, and $26.7 million on a pro forma basis in 2003. Our operating expenses as a percentage of operating revenue, or operating ratio, was 91.3% for the three months ended September 30, 2004, compared to 92.5% for the comparable period of 2003 and 93.1% on a pro forma basis.

Overnite Transportation: For the three months ended September 30, 2004, operating income at OTC was $33.7 million, an increase of $8.8 million, or 35.3%, from $24.9 million in the comparable period of 2003. For the three months ending September 30, 2004, the operating ratio for OTC improved to 91.1%, compared to 92.7% for the comparable period of 2003. For the three months ended September 30, 2003, pro forma operating income was $22.8 million and the pro forma operating ratio was 93.3%.

Motor Cargo: For the three months ended September 30, 2004, operating income at Motor Cargo was $3.7 million, a decrease of 5.8% from $3.9 million in the comparable period of 2003. For the three months ended September 30, 2004, the operating ratio for Motor Cargo was 92.4%, compared to 91.0% for the comparable period of 2003. The deterioration in the operating ratio was a result of lower rate factor growth as a result of decreased freight mix and higher costs for salaries, wages and benefits and purchased transportation.

Other income and expense items netted to $1.3 million of expense for the three months ended September 30, 2004, compared to income of $3.8 million for the comparable period of 2003. For the three months ended September 30, 2004, there was no interest income received from UPC, compared with $4.1 million for the three months ended September 30, 2003. This decrease was the result of no longer receiving intercompany interest income after the Divestiture Transaction. Interest expense for the three months ended September 30, 2004 was $1.4 million, an increase of $1.1 million, compared to $0.3 million for the comparable period of 2003, primarily as a result of the debt incurred in connection with the Divestiture Transaction. Pro forma other income and expense reflects the absence of $4.1 million of intercompany interest income and the addition of $1.1 million to reflect interest expense for debt incurred related to the Divestiture Transaction for the three months ended September 30, 2003.

Income taxes were $13.6 million in the three months ended September 30, 2004, with an effective tax rate of 37.8%, compared to $12.9 million in the comparable period of 2003, with an effective tax rate of 39.5%. Income taxes for the three months ended September 30, 2004 reflect a state income tax audit settlement during the quarter that reduced income taxes by $0.7 million. Pro forma income taxes reflect the tax effect of the pro forma adjustments described above with an effective tax rate of 39.5% for the three months ended September 30, 2003.

As a result of the foregoing, net income for the three months ended September 30, 2004 was $22.4 million, an increase of $2.7 million, or 13.8%, from $19.7 million in the comparable period of 2003. OTC contributed $20.1 million in net income for the three months ended September 30, 2004, compared to $17.2 million in net income in the comparable period of 2003. Motor Cargo contributed $2.3 million of net income in the three months ended September 30, 2004 compared to $2.5 million in net income in the comparable period of 2003. Net income for the comparable period of 2003 on a pro forma basis would have been $15.3 million as a result of the adjustments described above.

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

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

For the nine months ended September 30, 2004, operating revenue increased $128.7 million, or 11.7%, to $1,226.1 million from $1,097.4 million for the nine months ended September 30, 2003. The increase in operating revenue resulted from a 9.8% increase in LTL weight hauled. This volume increase which was the result of a stronger economy contributed approximately $95.8 million in additional operating revenue. The LTL Rate Factor increased 0.5%. The change in the LTL Rate Factor increased operating revenue approximately $4.9 million is the result of increased revenue from fuel surcharges and favorable price negotiation with customers. These increases were offset by changes in our freight mix, such as heavier weight per shipment, lower average length of haul and lower average classification of freight. Our dedicated truckload revenue increased $12.2 million due to a change in our customer mix, an increase in shipments resulting from the addition of three new customers in the second quarter of 2004 and an increase in fuel surcharges. TL revenue increased $14.8 million as a result of a 22.4% increase in weight hauled due to capacity constraints in the TL market, the implementation of new hours of service rules and increased fuel surcharges. Fuel surcharge revenue, which is included in the preceding amounts referenced in this paragraph, was $60.1 million, an increase of $26.8 million, or 80.3%, compared to $33.3 million for the comparable period in 2003.

Overnite Transportation: For the nine months ended September 30, 2004, operating revenue at OTC was $1,091.7 million, an increase of $113.7 million, or 11.6%, compared to operating revenue of $978.0 million for the nine months ended September 30, 2003. LTL volume at OTC increased 9.8%, contributing approximately $86.2 million in additional revenue. The LTL Rate Factor increased by 0.2%, increasing operating revenue by approximately $1.8 million. Dedicated truckload service contributed $12.2 million in additional revenue and operating revenue from truckload services increased by $13.5 million as a result of a 25.4% increase in weight hauled. Fuel surcharge revenue, which is included in the preceding amounts referenced in this paragraph, was $53.6 million an increase of $23.9 million, or 80.3%, compared to $29.8 million for the comparable period in 2003.

Motor Cargo: For the nine months ended September 30, 2004, operating revenue at Motor Cargo was $134.4 million, an increase of $15.0 million, or 12.6%, from $119.4 million in the comparable period of 2003. Operating revenue at Motor Cargo from LTL business increased by $12.6 million as a result of a 9.7% increase in LTL volume. Truckload services and other services contributed $2.4 million in additional operating revenue. Fuel surcharge revenue, which is included in the preceding amounts referenced in this paragraph, was $6.5 million, an increase of $2.9 million, or 81.1%, compared to $3.6 million for the comparable period in 2003.

For the nine months ended September 30, 2004, operating expenses were $1,145.5 million, an increase of $110.5 million, or 10.7%, from $1,035.0 million for the comparable period in 2003. As a percentage of operating revenue, operating expenses were 93.4%, for the nine months ended September 30, 2004 and 94.3% for the comparable period of 2003. Operating expenses, on a pro forma basis, were $1,040.7 million, or 94.8% of operating revenue, for the nine months ended September 30, 2003 and included $5.8 million in stand-alone expenses, which represent incremental costs incurred following the Divestiture Transaction.

For the nine months ended September 30, 2004 operating expenses as compared to actual and pro forma 2003 were primarily affected by changes in salaries, wages and employee benefits, supplies and expenses, claims and insurance, rents and purchased transportation and other expenses. The discussion of our calculation of pro forma items and reconciliation to the nearest GAAP measure begins on page 25. Discussion and analysis of these items follows:

Salaries, wages and employee benefits were 57.9% of operating revenue in the 2004 period, compared to 59.0% for the comparable period in 2003, and 59.1% for the comparable period in 2003 on a pro forma basis. This 1.2% improvement, compared to pro forma results, as a percentage of operating revenue resulted from our

increased volume of transportation services while maintaining control over wage and benefit costs. Salaries, wages and employee benefits, for the nine months ended September 30, 2003, on a pro forma basis, included $1.4 million of incremental costs related to staff needed as a stand-alone entity.

The $61.3 million, or 9.5%, increase, on a pro forma basis, in salaries, wages and benefits compared to the same period in 2003 was due to wage inflation and a 3.6% increase in the average number of employees over the period. The increase in the number of employees was primarily due to the increase in LTL volume shipped.

Salaries and wages increased by $39.6 million, compared to actual results, primarily due to a 3.6% increase in the average number of employees resulting from the increase in LTL volume shipped. Pro forma 2003 expenses include human resources costs for internal audit, accounting, tax, human resource and treasury functions. These functions were fully staffed at September 30, 2004. The new provisions of the FLSA defining overtime hours is not expected to have a material effect on salaries and wages.

Employee benefit expense increased $23.1 million, compared to actual results, for the nine months ended September 30, 2004 over the comparable period in 2003. Employee benefit expenses were primarily affected by pension, other post employment benefits and employee healthcare cost increases and the 3.6% increase in the average number of employees. Expenses related to pension and other post retirement benefits were $39.4 million for the nine months ended September 30, 2004, an increase of $8.3 million, or 26.6%, from $31.1 million in the comparable period in 2003. This increase was primarily attributable to the lower than expected returns on pension assets in 2000 through 2002 and declines in interest rates. The cost of healthcare benefits for active employees was $61.9 million in the nine months ended September 30, 2004, an increase of $7.8 million, or 14.4%, from $54.1 million in the comparable period in 2003. Payroll taxes were $60.5 million for the nine months ended September 30, 2004, an increase of $4.1 million, or 7.2%, from $56.4 million for the comparable period of 2003.

Supplies and expenses increased to 9.1% of operating revenue in the nine months ended September 30, 2004, from 8.3% in the comparable period of 2003. The increase in expense was primarily due to a 31.7% increase in fuel expense. Fuel expense was $61.5 million for the nine months ended September 30, 2004, compared to $46.7 million for the comparable period in 2003. The increase is the result of a 6.0% increase in miles driven and a 31.2% increase in the cost of fuel as compared to 2003. Fuel expense for the nine months ended September 30, 2004 and 2003 does not include fuel surcharges that the Company paid to third-party carriers who provided purchased transportation. These costs are included in purchased transportation. Maintenance and facilities supplies expenses were $49.6 million for the nine months ended September 30, 2004, an increase of $4.8 million, or 10.6%, from $44.8 million in the comparable period in 2003. Maintenance and facilities supplies expenses increased as a result of increased volume and an associated 6.0% increase in miles driven during the nine months ended September 30, 2004.

Claims and insurance expenses decreased to 3.2% of operating revenue in the nine months ended September 30, 2004, from 4.1% for the comparable period in 2003, and 4.2% for the comparable period in 2003 on a pro forma basis. Claims and insurance expenses decreased $5.5 million, or 12.4% from the comparable period of 2003, as provisions to our liability reserves for injury or property damages decreased by $4.1 million and our provision for reserves for cargo claims decreased by $3.5 million. These decreases were partially offset by a $2.1 million increase in insurance expense. The reduction in liability reserves for injury and property damages is attributable to improved claim experience in 2004. The reduction in liability provision for cargo claims is attributable to successful quality cargo handling initiatives in 2004. Pro forma claims and insurance expense for the nine months ended September 30, 2003 include $1.8 million of incremental costs related to directors and officers insurance coverage and other coverages necessary as a stand-alone entity.

Rents and purchased transportation expenses, as a percentage of operating revenue, increased to 10.6% during the nine months ended September 30, 2004, compared to 10.3% for the comparable period of 2003. These costs include the use of other trucking carriers for both inter-city and local delivery services to supplement our resources, provide flexibility and enable us to maintain service levels as we absorbed the 11.7% increase in total volume. The growth in these costs also reflects an increase in the rates charged by third-party carriers, primarily related to higher costs such as fuel and insurance. These cost increases were partially offset by a reduction in the use of rail carriers to provide long distance haul support, which decreased by $1.0 million, or 5.0%, from the comparable period of 2003.

As a percentage of operating revenue, other expenses increased to 4.3% during the nine months ended September 30, 2004, from 3.7% for the nine months ended September 30, 2003, and 4.0% for the comparable period in 2003 on a pro forma basis. For the nine months ended September 30, 2004, our provision for bad debt increased $6.5 million over the comparable period of 2003 as a result of higher revenue. General supplies and expenses increased $5.0 million for the nine months ended September 30, 2004 over the comparable period of 2003. Other expenses for the nine months ended September 30, 2003, on a pro forma basis, include $2.2 million in stand-alone expenses, which represent incremental legal and professional fees incurred subsequent to the Divestiture Transaction.

Overnite Transportation: Operating expenses at OTC were $1,020.0 million for the nine months ended September 30, 2004, an increase of $97.0 million, or 10.5%, from $923.0 million for the comparable period in 2003 due to the factors discussed above. Operating expenses on a pro forma basis for the nine months ended September 30, 2003 included $5.8 million in incremental stand-alone expenses.

Motor Cargo: Operating expenses at Motor Cargo were $125.4 million for the nine months ended September 30, 2004, an increase of $13.5 million, or 12.1%, from $111.9 million for the comparable period in 2003 due to the factors described above.

For the nine months ended September 30, 2004, operating income was $80.6 million, an increase of $18.2 million, or 29.1%, compared to $62.4 million in the comparable period of 2003, and $56.6 million on a pro forma basis in 2003. Our operating ratio was 93.4% for the nine months ended September 30, 2004, compared to 94.3% for the nine months ended September 30, 2003 and 94.8% for the comparable period of 2003 on a pro forma basis.

Overnite Transportation: For the nine months ended September 30, 2004, operating income at OTC was $71.6 million, an increase of $16.7 million, or 30.4%, from $54.9 million in the comparable period of 2003. For the nine months ended September 30, 2004, the operating ratio for OTC improved to 93.4%, compared to 94.4% for the nine months ended September 30, 2003, and 95.0% for the comparable period of 2003 on a pro forma basis.

Motor Cargo: For the nine months ended September 30, 2004, operating income at Motor Cargo was $9.0 million, an increase of 20.0% from $7.5 million in the comparable period of 2003. For the nine months ended September 30, 2004, the operating ratio for Motor Cargo was 93.3%, compared to 93.7% for the comparable period of 2003.

Other income and expense items netted to expense of $3.9 million for the nine months ended September 30, 2004, a change of $14.2 million, compared to income of $10.3 million for the comparable period of 2003. For the

nine months ended September 30, 2004, there was no interest income received from UPC, compared with $11.0 million for the nine months ended September 30, 2003. This decrease was the result of no longer receiving intercompany interest income after the Divestiture Transaction. Interest expense for the nine months ended September 30, 2004 was $4.0 million, an increase of $3.0 million, compared to $1.0 million for the comparable period of 2003, primarily as a result of the debt incurred in connection with the Divestiture Transaction. Pro forma other income and expense reflects the absence of $11.0 million of intercompany interest income and the addition of $3.5 million to reflect interest expense for debt incurred related to the Divestiture Transaction for the nine months ended September 30, 2003.

Income taxes were $30.0 million for the nine months ended September 30, 2004, with an effective tax rate of 39.1%, compared to $29.0 million in the comparable period of 2003, with an effective tax rate of 39.8%. Income taxes for the nine months ended September 30, 2004 reflect a state income tax audit settlement that reduced income taxes by $0.7 million. Pro forma income taxes reflect the tax effect of the pro forma adjustments described above with an effective tax rate of 39.8% for the nine months ended September 30, 2003.

As a result of the foregoing, net income for the nine months ended September 30, 2004 was $46.8 million, an increase of $3.1 million, or 6.9%, from $43.7 million in the comparable period of 2003. OTC contributed $41.1 million in net income for the nine months ended September 30, 2004, compared to $38.9 million in net income in the comparable period of 2003. Motor Cargo contributed $5.7 million of net income in the nine months ended September 30, 2004, compared to $4.8 million in net income in the comparable period of 2003. Net income for the comparable period in 2003 on a pro forma basis would have been $31.5 million as a result of the adjustments described above.

We believe that the most effective way to discuss and analyze our current performance compared to prior periods is to include a discussion of actual results for both periods and also to compare the actual results for 2004 with a pro forma presentation of 2003. As described in “Basis of Presentation” in Item 1 of this report, we became a stand-alone public company on November 5, 2003 as a result of the Divestiture Transaction. Pro forma results have been provided to present 2003 results as if we had been a public entity as of January 1, 2003.

We have included pro forma operating expenses, the resulting pro forma operating income and pro forma operating ratio, pro forma net income and pro forma earnings per share amounts (basic and diluted) for the three-month and nine-month periods ended September 30, 2003 in addition to results prepared under generally accepted accounting principles in the United States (“GAAP”). We believe that these pro forma, non-GAAP financial measures are more reflective of our continuing operations as they present investors with information about the impact of the divestiture from UPC and the initial public offering on our financial results and, in doing so, improve transparency to investors and enhance period-to-period comparability of operations and financial performance.

These pro forma financial measures are alternatives to measures determined in accordance with GAAP. They should not be considered in isolation or as an alternative to measures determined in accordance with GAAP. Set forth below is a reconciliation of these pro forma non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP.

Net cash provided by operating activities was $106.2 million during the first nine months of 2004, a decrease of $3.7 million, or 3.4%, from $109.9 million during the comparable period of 2003. Net cash from operations is attributable primarily to net income, adjusted for depreciation, changes in working capital items and pension plan contributions. Net cash provided by operating activities for 2003 includes $25.4 million related to a tax overpayment made in 2002 which was the result of pension contributions made in late 2002. During the nine months ended September 30, 2004 we made $30.3 million of voluntary contributions to our pension plans compared to $45.7 million of voluntary contributions in the comparable period of 2003. We plan to contribute up to $45 million to the pension plan on a voluntary basis in 2005, and may pull from $5 million to $15 million of this funding into 2004.

Our business requires substantial ongoing capital investments, particularly for replacement of revenue equipment such as tractors and trailers. Capital expenditures totaled $48.3 million in the first nine months of 2004 compared to $43.5 million for the comparable period of 2003, as set forth in the following table:

During the first nine months of 2004, we acquired 158 tractors and 648 trailers, which replaced older units in our fleet. The $4.8 million increase in capital expenditures between the first nine months of 2004 and 2003 relates primarily to the acquisition and construction of a new service center in Newburgh, New York and timing of the purchase of revenue equipment. We expect capital expenditures to total approximately $85 million for the year ended December 31, 2004.

Historically, our capital expenditures have been funded primarily through cash provided by operations and to a lesser extent by the proceeds from sales of used equipment and facilities. We generated cash proceeds from the sale of used tractors and trailers in the amount of $1.1 million in the first nine months of 2004 compared to $0.8 million in the comparable period of 2003.

Financing activities prior to the Divestiture Transaction consisted primarily of cash forwarded to UPC, including dividends and intercompany cash advances. Cash dividends were historically paid in an amount equal to $16.0 million per year. Intercompany cash advances were made to UPC periodically each month when cash was generated in excess of what is anticipated to fund our operations, including expected capital expenditures. Neither dividend payments to UPC nor cash advances to or from UPC continued after the Divestiture Transaction.

During the first nine months of 2004 we paid dividends of $3.4 million to our shareholders and repaid $13.4 million of debt, including $1.0 million to repay a note payable to UPC. During the first nine months of 2003, we forwarded cash to UPC, including dividends and intercompany advances, totaling $63.4 million.

Based on our current level of operations and our anticipated growth, we believe that cash flow from operations and other available sources of liquidity, including borrowings under our bank credit facility, will be sufficient to fund our operations for the next 12 months and for our currently anticipated needs beyond that period.

We have contractual obligations and commercial commitments that may affect our financial condition. Based on our assessment of the underlying provisions and circumstances of our material contractual obligations and commercial commitments there is no known trend, demand, commitment, event or uncertainty that we believe is reasonably likely to occur which would have a material adverse effect on our results of operations, financial condition or liquidity. In addition, our commercial obligations, financings and commitments are customary transactions which we believe are similar to those of other comparable corporations within the transportation industry.

Concurrent with the Divestiture Transaction, Overnite and OTC entered into a $300 million Credit Agreement with a syndicate of lenders. The Credit Agreement provides for aggregate commitments of $300 million, consisting of (1) a term loan facility of $125 million and (2) a revolving loan facility of $175 million, of

which up to a maximum of $150 million is available for the issuance of letters of credit. Availability under the revolving loan facility is reduced by outstanding letters of credit issued under the facility. Borrowings under the term loan in the amount of $125 million were used to pay a portion of the cash dividend to UPC in connection with the Divestiture Transaction. The remaining $3 million of the cash dividend was funded with the initial borrowings under the revolving loan facility. The remaining availability under the revolving loan facility is available 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 of five years.

Borrowings under the term loan and revolving loan facility bear interest, at our option, at either adjusted LIBOR or the alternate base rate, plus a spread based upon our credit rating. The rate of interest at September 30, 2004 was 3.34%. Outstanding letters of credit issued under the revolving loan facility are subject to an annual fee equal to the applicable spread over adjusted LIBOR for revolving loans.

On November 3, 2004, the Company amended the Credit Agreement to reduce the total credit availability to $250 million by (i) increasing the revolving loan to $250 million, of which $175 million will be available for the issuance of letters of credit, and (ii) converting all outstanding term loans to revolving loans so that the outstanding principal amount of all term loans and term loan commitments shall be zero. The initial interest rate will be 50 basis points below the existing rate. The terms of the Credit Agreement, as amended and restated (the “Amended and Restated Credit Agreement”) also provide an option for the Company to increase the aggregate revolving credit commitments under the facility from $250 million up to $400 million, either by adding additional lenders or agreeing with existing lenders to increase their commitments. The revolving loan facility has a maturity date of November 3, 2009. The Amended and Restated Credit Agreement contains affirmative, negative and financial covenants customary for financings of this type. Specifically, the Amended and Restated Credit Agreement contains financial covenants regarding a maximum leverage ratio, and a minimum fixed charge coverage ratio. Obligations under the Amended and Restated 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 the capital stock held by OTC and any guarantor under the Amended and Restated Credit Agreement.

We provide 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 have been slightly lower than those required under the Act.

We made voluntary contributions of $30.3 million to the pension plans in the nine months ended September 30, 2004, although no contributions were required. We plan to contribute $45 million to the pension plans in 2005 although future contributions may be affected by a change in interest rates and returns generated on plan assets. We may pull from $5 million to $15 million of this funding into 2004.

The preparation of our financial statements requires estimates and judgments that affect the reported amounts of revenues, expenses, assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The following are our critical accounting policies that affect significant areas of our operations and involve judgments and estimates. If these estimates differ materially from actual results, the impact on the consolidated financial statements may be material.

Operating revenue is recognized in accordance with Emerging Issues Task Force 91-9, “Revenue and Expense Recognition for Freight Services in Process,” which requires us to use the percentage of completion method, based upon average transit time, for transactions where we are the sole provider. Expenses related to operating revenue are recognized as incurred. We periodically contract with third party carriers to perform transportation services for our customers. When we are the primary obligor for these services, meaning we are responsible for pricing, loss or damage and credit risk, we record revenue gross for the entire amount billed to the customer, and operating expenses for amounts paid to the third party carriers in accordance with Emerging Issues Task Force 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” When we are not the primary obligor for these transportation services, we record revenue net of the amounts paid to third party carriers. Completed but unpaid interline obligations are accrued for in the month in which the shipment was made.

Claims and insurance costs, which primarily result from property damage, bodily injury, freight damage and workers’ compensation, are accrued using current information and future estimates to arrive at an estimated ultimate value of claims, less recovery and mitigation credits. These ultimate values are based on assumptions related to the rates of growth in medical costs, general inflation, the normal elapsed time required to adjudicate and settle claims and a predicted pattern of injury severity for claims incurred but not reported. In many cases, independent actuaries are retained to render an opinion so that we may value our reserve requirements in a way that is fair, complete and as accurate as possible based on the information available.

We accrue for cargo claims on a per-shipment basis using a method that takes into account the claims experience, including efforts to mitigate the original claim value, and lag time between shipment and the filing date of the claim. The accuracy of our assumptions relating to claims and insurance costs may be affected by a number of factors. Based on the nature of our business, there may be temporary or permanent reductions or increases in the number of incidents, the severity of the incident and the secondary coverage provided by insurance. Other factors outside of our control that may contribute to casualty costs include weather severity in parts of the country, road, bridge and tunnel conditions and tire, brake and power train technology and performance. In the event that actual costs for claims and insurance exceed our original estimates, we will incur expenses in future periods. In addition, we may adjust our underlying assumptions that result in the estimated ultimate claim value. Any of these events could have a material effect on our financial results for future periods.

Independent consultants and actuaries are used to develop estimates of healthcare, pension and other post employment benefits (“OPEB”) costs. With regard to pension obligations, actuarial consultants provide valuations of the future obligations compared to the value of plan assets and earnings of the plan assets for the current and future years, using demographics of the current and future work force. We exercise oversight over the basic assumptions used to develop pension, healthcare and OPEB costs, including an estimated rate of asset returns, salary increases, discount rates and rates of inflation of medical costs, the demographic assumptions of

the current and future work force and life expectancy of the retired work force. Information regarding these assumptions is set forth in the notes to our audited consolidated financial statements included in our annual report on Form 10-K, and these assumptions are evaluated for fairness by our actuaries.

Expenses and required contributions to the OTC and Motor Cargo pension plans have been and will continue to be determined based upon the use of market related values, which is a valuation method that recognizes changes in the value of assets over five years. The assumptions we use to estimate healthcare, pension and OPEB costs may differ significantly from actual results due to a number of factors, including changing economic conditions, withdrawal rates, participant life spans and changes in actual costs of healthcare. These differences may have a material effect on the amount of expenses we record for these costs.

Under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”), goodwill and other intangible assets having indefinite useful lives are periodically tested for impairment and a charge is taken to the extent of any impairment. Under FAS 142, we are required to perform impairment tests at least annually, and we have elected to perform our annual impairment tests at August 31 of each fiscal year. We are also required to perform impairment tests whenever events or changes in circumstances indicate that the carrying value of goodwill or intangible assets may not be recoverable. The acquisition of Motor Cargo was accounted for as a purchase transaction and the purchase price was allocated among tangible assets, intangible assets and goodwill, in accordance with FASB Statement No. 141, “Business Combinations,” and FAS 142. Our statement of financial position as of September 30, 2004 includes a non-amortizable intangible asset related to the Motor Cargo brand name of $3.0 million and goodwill of $13.2 million. We completed our annual review of goodwill and intangible assets to test for impairment and concluded that there was no indication of impairment, as of August 31, 2004, with respect to goodwill or intangible assets.

We generate and transport hazardous and nonhazardous materials and we are subject to Federal, state and local environmental laws and regulations. A liability of $0.7 million has been accrued as of September 30, 2004 for future cleanup costs at all petroleum storage and hazardous substance release sites where our obligation is probable and where such costs can be reasonably estimated. We believe that we have adequately identified and estimated the ultimate share of costs at sites where we are alleged to be subject to joint and several liability. Future environmental obligations are not expected to have a material adverse effect on our business, financial condition or results of operations.

We have been notified by the United States Environmental Protection Agency that we are a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, at four hazardous waste sites. Under CERCLA, we may be jointly and severally liable for all site remediation and expenses. We have investigated the nature and costs of potential response actions at these sites and our own involvement, alone and in relation to the involvement of other named potentially responsible parties, in waste disposal or waste generation at such sites. We have either resolved such liabilities through de minimis settlements or we have taken the position that our obligations with respect to all such sites not subject to settlement will involve immaterial monetary liability, though there can be no assurances in this regard. Furthermore, we believe we are in material compliance with all laws applicable to our operations and we are not aware of any situation or condition that we believe is likely to have a material adverse effect on our business, financial condition or results of operation.

Our shipment level and revenue mix is subject to seasonal trends common in the transportation industry. Financial results in the first and fourth quarters are normally lower due to reduced shipments during the winter

months. Harsh winter weather can also adversely impact our performance by reducing demand and increasing operating expenses including costs related to accidents. The second and third quarters reflect increased demand for services during the spring and summer months, which generally results in improved operating margins.

When fuel costs exceed our planned levels, we seek to charge a portion of the higher cost to our customers through a fuel surcharge. While we have historically been able to offset significant increases in fuel prices through fuel surcharges, we cannot be certain that we will be able to do so in the future. The fuel surcharges we negotiate with our customers only apply when our fuel costs exceed specified levels. Accordingly, in order to protect against fluctuations in fuel prices that will not be covered by fuel surcharges, we have historically entered into fuel hedging arrangements. In the event we are not hedged, we are at risk to the extent that changes in the market price of fuel are not covered by our negotiated fuel surcharge arrangements. Alternatively, while the use of fuel hedging arrangements may provide us with protection from adverse fluctuations in fuel prices, by utilizing these arrangements we potentially forgo the benefits that might result from favorable fluctuations in fuel prices or, in some cases, we may incur hedging losses. We have not hedged any of our remaining forecasted fuel consumption for 2004.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective in alerting them, in a timely manner, to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

Additionally, during the period covered by this report, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

We are generally subject to litigation in the personal injury, property damage, freight claim, employment and labor areas. Legal actions in these and various other areas arising in the normal course of business, are pending. None of these legal actions currently pending against us is expected to have a material adverse effect on our business, financial condition or results of operations.

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.


OVERNITE CORPORATION (Registrant)

By		/s/ PATRICK D. HANLEY
		Patrick D. Hanley Senior Vice President and Chief Financial Officer (Principal Financial Officer)

By		/s/ MICHAEL S. LIEBSCHWAGER
		Michael S. Liebschwager Vice President and Controller (Principal Accounting Officer)


		Page Number

	PART I. FINANCIAL INFORMATION

Item 1:	Consolidated Condensed Financial Statements:

	CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) For the Three Months and Nine Months Ended September 30, 2004 and 2003	3

	CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (Unaudited) At September 30, 2004 and December 31, 2003	4

	CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, 2004 and 2003	5

	NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)	6

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4:	Controls and Procedures	31

	PART II. OTHER INFORMATION

Item 1:	Legal Proceedings	32

Item 6:	Exhibits	32

Signatures		33


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2004		2003			2004		2003
	(Thousands of Dollars)					(Thousands of Dollars)
Operating Revenue	$	429,046	$	384,182		$	1,226,105	$	1,097,390

Operating Expenses:
Salaries, wages and employee benefits		242,983		218,703			710,226		647,458
Supplies and expenses		41,083		30,916			111,076		91,533
Operating taxes		14,461		13,368			42,639		39,699
Claims and insurance		11,882		19,376			38,951		44,459
Rents and purchased transportation		43,826		39,582			130,195		112,959
Communication and utilities		4,874		5,243			15,318		15,903
Depreciation		14,267		14,033			44,199		42,787
Other		18,254		14,130			52,889		40,169

Total operating expenses		391,630		355,351			1,145,493		1,034,967

Operating Income		37,416		28,831			80,612		62,423


Other Income and Expense:
Interest income from Union Pacific Corporation		—		4,053			—		11,022
Interest expense		1,353		263			3,989		1,032
Other income (expense)		7		(9	)		137		288

Income before Income Taxes		36,070		32,612			76,760		72,701
Income tax expense		13,640		12,894			29,984		28,952

Net Income	$	22,430	$	19,718		$	46,776	$	43,749


Earnings and dividends per share:
Net income per share – basic	$	0.81	$	0.72		$	1.69	$	1.59

Net income per share – diluted	$	0.80	$	0.72		$	1.67	$	1.59

Number of shares – basic		27,766,403		27,500,000			27,764,158		27,500,000

Number of shares – diluted		27,974,393		27,500,000			27,905,251		27,500,000

Dividends declared	$	0.04		N/A		$	0.12		N/A


	At September 30, 2004			At December 31, 2003
	(Thousands of Dollars)
ASSETS
Current Assets:
Cash and cash equivalents	$	53,275		$	11,068
Accounts receivable (net of allowances of $18,249 in 2004 and $14,848 in 2003)		183,870			152,285
Inventories		10,723			9,569
Current deferred income tax asset		8,643			8,643
Other current assets		9,228			16,693

Total current assets		265,739			198,258

Properties:
Cost		1,024,691			1,009,443
Accumulated depreciation		(522,201	)		(509,997	)

Net properties		502,490			499,446

Other Assets:
Deferred income tax asset		78,778			81,126
Goodwill and intangible asset		16,232			16,232
Intangible pension asset		20,375			20,375
Other assets		14,007			15,293

Total assets	$	897,621		$	830,730

LIABILITIES AND COMMON SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	41,880		$	34,268
Employee savings plan		20,991			18,125
Accrued wages and benefits		68,535			60,646
Accrued casualty costs		53,477			48,488
Income and other taxes		16,706			10,151
Retiree benefits obligation		11,400			11,400
Current portion of long-term debt		12,500			12,500
Promissory note to Union Pacific Corporation		—			1,000
Other current liabilities		5,470			5,268

Total current liabilities		230,959			201,846

Non-current Liabilities:
Long-term debt, less current portion		103,125			115,500
Accrued casualty costs		23,450			23,450
Retiree benefits obligation		111,098			107,817
Other liabilities		992			1,049

Total non-current liabilities		238,665			247,816

Commitments and contingencies
Common Shareholders’ Equity:
Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 28,008,524 shares at September 30, 2004 and 27,913,720 at December 31, 2003		280			279
Paid-in surplus		1,286,012			1,275,415
Accumulated deficit		(800,495	)		(843,911	)
Unearned deferred compensation		(9,830	)		(2,745	)
Accumulated other comprehensive loss		(47,970	)		(47,970	)

Total common shareholders’ equity		427,997			381,068

Total liabilities and common shareholders’ equity	$	897,621		$	830,730


	For the Nine Months Ended September 30,
	2004			2003
	(Thousands of Dollars)
Operating Activities:
Net income	$	46,776		$	43,749
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		44,199			42,787
Provision for doubtful accounts		10,395			3,883
Deferred income taxes		2,348			19,572
Change in retiree obligations, net		3,281			(20,530	)
Other—net		4,741			(350	)
Changes in current assets and liabilities, net		(5,556	)		20,775

Cash provided by operating activities		106,184			109,886

Investing Activities:
Capital investments		(48,312	)		(43,530	)
Proceeds from sale of assets		1,070			805

Cash used in investing activities		(47,242	)		(42,725	)

Financing Activities:
Repayment of debt		(13,375	)		—
Dividends paid to shareholders		(3,360	)		—
Cash overdraft		—			(2,979	)
Dividends paid to Union Pacific Corporation		—			(12,000	)
Advances to Union Pacific Corporation, net		—			(51,423	)

Cash used in financing activities		(16,735	)		(66,402	)

Net Change in Cash:		42,207			759
Cash at beginning of year		11,068			2,086

Cash at end of period	$	53,275		$	2,845

Changes in Current Assets and Liabilities, net:
Accounts receivable	$	(41,980	)	$	(29,534	)
Income taxes receivable		—			25,381
Inventories		(1,154	)		914
Other current assets		7,465			2,541
Accounts, wages and benefits payable		15,501			11,889
Employee savings plan		2,866			3,992
Other current liabilities		202			(3,323	)
Income and other taxes payable		6,555			3,405
Casualty cost		4,989			5,510

Total	$	(5,556	)	$	20,775

Supplemental Cash Flow Information:
Cash paid during the period for:
Interest	$	3,598		$	1,013
Income taxes, net	$	24,952		$	(20,624	)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
	(thousands except share and per share amounts)				(thousands except share and per share amounts)
Net income	$	22,430	$	19,718	$	46,776	$	43,749

Basic EPS
Weighted average shares outstanding – basic		27,766,403		27,500,000		27,764,158		27,500,000


Net income per share	$	0.81	$	0.72	$	1.69	$	1.59

Diluted EPS
Weighted average shares outstanding – basic		27,766,403		27,500,000		27,764,158		27,500,000
Dilutive effect of stock options		80,282		—		56,321		—
Dilutive effect of retention shares		127,708		—		84,772		—


Weighted average shares outstanding – diluted		27,974,393		27,500,000		27,905,251		27,500,000


Net income per share	$	0.80	$	0.72	$	1.67	$	1.59

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	At
	September 30, 2004		December 31, 2003
	(Thousands of Dollars)
Assets:
OTC	$	767,152	$	710,752
Motor Cargo		130,469		119,978

Consolidated	$	897,621	$	830,730


	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
	(Thousands of Dollars)				(Thousands of Dollars)
Capital Expenditures:
OTC	$	29,331	$	14,438	$	40,863	$	35,784
Motor Cargo		3,348		1,518		7,449		7,746

Consolidated	$	32,679	$	15,956	$	48,312	$	43,530


Depreciation Expense:
OTC	$	12,403	$	12,009	$	38,482	$	36,412
Motor Cargo		1,864		2,024		5,717		6,375

Consolidated	$	14,267	$	14,033	$	44,199	$	42,787


	(Thousands of Dollars)
Term Loan	$	115,625
Current Portion		(12,500	)

Total Long-Term Debt	$	103,125


	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
	(Thousands of Dollars Except Per Share Amounts)						(Thousands of Dollars Except Per Share Amounts)
Net income as reported	$	22,430		$	19,718		$	46,776		$	43,749
Stock-based employee compensation expense included in reported net income, net of tax		1,531			381			2,016			1,690
Total stock-based employee compensation expense determined under fair value method for all awards, net of tax		(1,704	)		(840	)		(2,584	)		(3,059	)

Pro forma net income	$	22,257		$	19,259		$	46,208		$	42,380

Net income per share, as reported – basic	$	0.81		$	0.72		$	1.69		$	1.59

Net income per share, pro forma – basic	$	0.80		$	0.70		$	1.66		$	1.54

Net income per share, as reported – diluted	$	0.80		$	0.72		$	1.67		$	1.59

Net income per share, pro forma – diluted	$	0.80		$	0.70		$	1.66		$	1.54


	Three Months Ended September 30,				Increase (Decrease) from 2003			% Change from 2003
	2004		2003		Increase (Decrease) from 2003			% Change from 2003
Operating Revenue by Business Line
(amounts in thousands of dollars, except for percentages):
OTC LTL (1)	$	335,859	$	305,928	$	29,931		9.8	%
OTC TL (1)		23,497		19,093		4,404		23.1
OTC Dedicated TL		21,346		15,882		5,464		34.4
Motor Cargo LTL (1)		41,264		36,852		4,412		12.0
Motor Cargo TL (1)		4,985		4,496		489		10.9
Motor Cargo Other operating revenue		2,095		1,931		164		8.5

Consolidated Operating Revenue	$	429,046	$	384,182	$	44,864		11.7	%

Operating Measures
Weight hauled (millions of pounds)(1):
LTL		2,359.3		2,202.3		157.0		7.1	%
TL		455.7		382.3		73.4		19.2

Total		2,815.0		2,584.6		230.4		8.9	%

OTC Dedicated TL Shipments (in thousands)		22.6		18.4		4.2		22.8	%
LTL weight per LTL shipment (pounds)		957		889		68		7.6
LTL revenue per LTL hundredweight (including fuel surcharge)(2)	$	15.98	$	15.56	$	0.42		2.7
Length of haul (miles)		768		787		(19	)	(2.4	)


	For the Three months ended September 30,
(amounts in thousands of dollars except percentages)	2004		2003		Pro Forma 2003(1)		% Change from 2003		% Change from Pro Forma
Salaries, wages and employee benefits	$	242,983	$	218,703	$	219,212	11.1	%	10.8	%
Supplies and expenses		41,083		30,916		30,916	32.9	%	32.9	%
Claims and insurance		11,882		19,376		19,977	(38.7	)%	(40.5	)%
Rents and purchased transportation		43,826		39,582		39,582	10.7	%	10.7	%
Other		18,254		14,130		15,070	29.2	%	21.1	%


	For the Nine months ended September 30,
(amounts in thousands of dollars except percentages):	2004		2003		Pro Forma 2003 (1)		% Change from 2003		% Change from Pro Forma
Salaries, wages and employee benefits	$	710,226	$	647,458	$	648,902	9.7	%	9.5	%
Supplies and expenses		111,076		91,533		91,533	21.4	%	21.4	%
Claims and insurance		38,951		44,459		46,257	(12.4	)%	(15.8	)%
Rents and purchased transportation		130,195		112,959		112,959	15.3	%	15.3	%
Other		52,889		40,169		42,402	31.7	%	24.7	%


(amounts in thousands, except share, per share and operating ratio data)	Three Months Ended September 30, 2003			Nine Months Ended September 30, 2003
Operating income as reported	$	28,831		$	62,423
Less: pro forma calculation of stand-alone expenses:
Salaries, wages and employee benefits		509			1,444
Claims and insurance		601			1,798
Depreciation		114			306
Other		940			2,233

		2,164			5,781

Pro forma operating income	$	26,667		$	56,642

Pro forma operating ratio		93.1	%		94.8	%


(amounts in thousands, except share and per share data)	Three Months Ended September 30, 2003			Nine Months Ended September 30, 2003
Net Income as reported	$	19,718		$	43,749
Less: pro forma calculation of stand-alone expenses (after-tax):
Pro forma calculation of stand-alone expenses		1,308			3,479
Elimination of intercompany interest income		2,450			6,632
Pro forma calculation of stand-alone interest expense		671			2,108

Pro forma net income	$	15,289		$	31,530

Pro forma earnings per share:
Basic	$	0.55		$	1.13
Diluted	$	0.55		$	1.13
Pro forma shares outstanding:
Basic		27,766,403			27,764,158
Diluted		27,974,393			27,905,251


Exhibit No.		Description

10.1		Amended and Restated Credit Agreement, dated as of November, 3, 2004, among Overnite Corporation, Overnite Transportation Company, the lenders party thereto (the “Lenders”), SunTrust Bank, as administrative agent and collateral agent, and SunTrust Capital Markets, Inc., as sole bookrunner and lead arranger.

31(a)		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31(b)		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32(a)		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32(b)		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.