UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2004
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________.
Commission file number 000-50485
Central Freight Lines, Inc.
(Exact name of registrant as specified in its charter)
Nevada 74-2914331
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5601 West Waco Drive, Waco, TX 76710
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)
(254) 741-5305
Not applicable
(Former name or former address, if changed since the last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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. X Yes No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes X No
The number of shares of common stock outstanding at November 15, 2004 was
18,171,173.
1
Central Freight Lines, Inc.
Form 10-Q
Three months and nine months ended October 2, 2004
Table of Contents
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of October 2, 2004 (unaudited) and December 31, 2003 3
Consolidated Statements of Operations (unaudited) for the Three months and Nine months
ended October 2, 2004 and October 4, 2003 4
Consolidated Statements of Cash Flows (unaudited) for the Nine months
ended October 2, 2004 and October 4, 2003 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21
Item 4. Controls and Procedures 21
Part II. Other Information
Item 1. Legal Proceedings 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Securities Holders. 24
Item.5. Other Information 24
Item 6. Exhibits 24
Signatures 26
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 2, 2004 and December 31, 2003
(Dollars in thousands)
2004
Assets (Unaudited) 2003
------------------ -----------------
Cash and cash equivalents $ 4,161 $ 41,493
Restricted cash 18,852 -
Accounts receivable less allowance for doubtful accounts and revenue 56,675 51,864
adjustments of $6,913 in 2004 and $5,353 in 2003
Other current assets 9,326 8,298
Deferred income taxes 13,549 4,588
------------------ -----------------
Total current assets 102,563 106,243
Property and equipment, net 129,434 114,693
Goodwill 4,324 4,324
Other assets 6,826 2,113
------------------ -----------------
Total assets $ 243,147 $ 227,373
================== =================
Liabilities and Stockholders' equity
Current maturities of long-term debt $ 8,077 $ 6,375
Short-term notes payable 26,323 -
Trade accounts payable 19,242 18,136
Payables for related party transportation services 987 1,020
Accrued expenses 32,114 27,207
------------------ -----------------
Total current liabilities 86,743 52,738
Long-term debt, excluding current maturities 11,876 19,988
Related party financing 22,852 23,154
Deferred income taxes 13,976 15,633
Other liabilities 8,992 7,422
------------------ -----------------
Total liabilities 144,439 118,935
------------------ -----------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $0.001 par value per share; 10,000,000 shares authorized;
none issued or outstanding - -
Common Stock; $0.001 par value per share; 100,000,000 shares authorized,
18,171,173 and 17,632,545 shares issued and outstanding as of
October 2, 2004 and December 31, 2003, respectively 18 17
Additional paid-in capital 109,453 108,143
Unearned compensation (293) (822)
Retained earnings (accumulated deficit) (10,470) 1,100
------------------ -----------------
Total stockholders' equity 98,708 108,438
------------------ -----------------
Total liabilities and stockholders' equity $ 243,147 $ 227,373
================== =================
See accompanying notes to consolidated financial statements.
3
CENTRAL FREIGHT LINES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share data)
Three months ended Nine months ended
-------------------------------- --------------------------------
October 2, October 4, October 2, October 4,
2004 2003 2004 2003
---------------- -------------- --------------- ---------------
Operating revenues $ 98,539 $ 101,209 $ 301,090 $ 300,161
---------------- -------------- --------------- ---------------
Operating expenses:
Salaries, wages and benefits 57,818 49,142 173,558 157,612
Purchased transportation 10,621 11,029 33,313 28,533
Purchased transportation - related parties 3,590 3,756 11,832 15,965
Operating and general supplies and expenses 22,455 16,691 62,080 50,860
Operating and general supplies and expenses - related parties 91 224 225 244
Insurance and claims 8,689 3,875 19,090 12,261
Building and equipment rentals 1,176 979 3,149 2,612
Building and equipment rentals - related parties 450 358 1,346 1,130
Depreciation and amortization 4,408 4,303 12,278 12,858
---------------- -------------- --------------- ---------------
Total operating expenses 109,298 90,357 316,871 282,075
---------------- -------------- --------------- ---------------
(Loss) income from operations (10,759) 10,852 (15,781) 18,086
Other expense:
Interest expense (399) (938) (972) (2,937)
Interest expense - related parties (1,533) (1,559) (4,675) (4,654)
---------------- -------------- --------------- ---------------
(Loss) income from before income taxes (12,691) 8,355 (21,428) 10,495
Income taxes:
Income tax benefit (expense) 4,793 (318) 9,858 (449)
---------------- -------------- --------------- ---------------
Net (loss) income $ (7,898) $ 8,037 $ (11,570) $ 10,046
================ ============== =============== ===============
Net loss per share:
Basic $ (0.43) $ (0.65)
Diluted (0.43) (0.65)
Weighted average outstanding shares (in thousands):
Basic 18,158 17,903
Diluted 18,158 17,903
Pro forma C corporation data (Note 5):
Historical income before income taxes $ 8,355 $ 10,495
Pro forma income tax expense (3,257) (4,288)
-------------- ---------------
Pro forma net income $ 5,098 $ 6,207
============== ===============
Net income per share:
Basic $ 0.47 $ 0.57
Diluted 0.43 0.52
Weighted average outstanding shares (in thousands):
Basic 10,873 10,870
Diluted 11,875 11,909
See accompanying notes to consolidated financial statements.
4
CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended October 2, 2004 and October 4, 2003
(Unaudited, dollars in thousands)
2004 2003
----------------- -----------------
Cash flows from operating activities:
Net (loss) income $ (11,570) $ 10,046
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating activities:
Bad debt expense 744 601
Non-cash interest expense - related parties - 500
Equity in income of affiliate 28 1
Depreciation and amortization 12,278 12,858
Deferred income taxes (9,999) 276
Decrease in unearned compensation 165 178
Gain on curtailment of health plan - (7,799)
Change in operating assets and liabilities, net
of purchase accounting effects:
Restricted cash (18,852) -
Accounts receivable (5,556) (7,000)
Accounts receivable - related parties - 651
Other assets (934) (1,014)
Trade accounts payable 1,106 (5,732)
Trade accounts payable - related parties (33) 700
Claims and insurance accruals 5,902 2,689
Accrued expenses and other liabilities 575 2,047
----------------- -----------------
Net cash (used in) provided by operating activities (26,146) 9,002
----------------- -----------------
Cash flows from investing activities:
Additions to property and equipment (25,947) (5,877)
Proceeds from sale of property and equipment 3,876 477
Cash paid for acquisition of business (9,058) -
----------------- -----------------
Net cash used in investing activities (31,129) (5,400)
----------------- -----------------
Cash flows from financing activities:
Proceeds from long-term debt - 37,944
Proceeds from securitization facility 25,300 -
Repayments of long-term debt (6,409) (39,768)
Exercise of stock options 1,122 -
Initial public offering costs (70) -
Distributions paid - (6,140)
----------------- -----------------
Net cash provided by (used in) financing activities 19,943 (7,964)
----------------- -----------------
Net decrease in cash (37,332) (4,362)
Cash at beginning of period 41,493 7,350
----------------- -----------------
Cash at end of period $ 4,161 $ 2,988
================= =================
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 5,788 $ 7,431
Income taxes $ 179 $ 134
Non-cash transaction:
Note payable for acquisition of business $ 1,023 $ -
See accompanying notes to consolidated financial statements.
5
CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except share and per share amounts)
(1) Basis of Presentation
The accompanying consolidated financial statements of Central Freight
Lines, Inc. and its wholly owned subsidiaries (the "Company") have been prepared
by the Company in accordance with accounting principles generally accepted in
the United States of America for interim financial information and the
instructions to Quarterly Reports on Form 10-Q and Rule 10-01 of Regulation S-X,
and should be read in conjunction with the Annual Report on Form 10-K for the
year ended December 31, 2003. Accordingly, significant accounting policies and
other disclosures normally provided have been omitted since such information is
provided therein.
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments (including normal recurring
adjustments) necessary to present fairly our consolidated financial position as
of October 2, 2004, the consolidated results of our operations for the three
months and nine months ended October 2, 2004 and October 4, 2003 and our
consolidated cash flows for the nine months ended October 2, 2004 and October 4,
2003. The results of our operations for the nine months ended October 2, 2004
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2004.
(2) Revenue Recognition
The Company recognizes revenue upon the delivery of the related freight. A
portion of the Company's revenue is derived from shipments that originated or
terminated in other regions, where a portion of freight movement is handled by
another carrier. Most of this revenue is with carriers with which the Company
maintains transportation alliances. The Company does not recognize revenue or
the associated expenses that relate to the portion of the shipment transported
by its alliance partners.
6
CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -continued
(In thousands, except share and per share amounts)
(3) Stock-Based Compensation
The Company has a stock-based employee compensation plan. The Company
accounts for that plan under the recognition and measurement principles of
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. As such, the Company records
compensation expense only if the fair value of the underlying stock exceeds the
exercise price on the date of grant. The following table illustrates the effect
on net (loss) income and (loss) income per share as if the Company had applied
the fair value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, and as allowed by SFAS No. 148, Accounting for
Stock-Based Compensation -- Transition and Disclosure, an Amendment of FASB No.
123, to stock-based employee compensation and had the Company been a C
corporation for all periods presented.
Three months ended Nine months ended
----------------------------- --------------------------------
October 2, October 4, October 2, October 4,
2004 2003 2004 2003
------------- ------------- --------------- --------------
Net loss, as reported: $ (7,898) $ (11,570)
Add:
Stock-based employee compensation expense included
in reported net (loss), net of related tax effects 46 165
Deduct:
Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects (190) (502)
------------- ---------------
Pro forma net loss $ (8,042) $ (11,907)
============= ===============
Net loss per share
Basic
As reported $ (0.43) $ (0.65)
Pro forma (0.44) (0.67)
Diluted
As reported (0.43) (0.65)
Pro forma (0.44) (0.67)
Net income, as reported: $ 8,037 $ 10,046
Add:
Stock-based employee compensation expense included
in reported net income, net of related tax effects 59 178
Deduct:
Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects (71) (209)
------------- --------------
Adjusted net income 8,025 10,015
Pro forma federal income tax adjustment (3,000) (3,839)
------------- --------------
Adjusted pro forma net income $ 5,025 $ 6,176
============= ==============
Adjusted pro forma net income per share:
Basic
As reported $ 0.47 $ 0.57
Pro forma 0.46 0.57
Diluted
As reported 0.43 0.52
Pro forma 0.42 0.52
7
CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -continued
(In thousands, except share and per share amounts)
(4) Acquisition
Effective March 5, 2004, the Company purchased selected terminals and
rolling stock of Eastern Oregon Fast Freight ("EOFF") a non-union
less-than-truckload carrier that operated 21 terminals in the states of Oregon,
Washington, and Idaho. The selected assets of EOFF were purchased for
approximately $10,000 in cash ($7,000 of the purchase price was paid in the
first quarter, $1,000 was paid in each of the second and third quarters and the
remainder will be paid before the end of 2004). Included in the purchase price
was a $600 non-compete agreement that will be amortized over fifteen years. The
purpose of the acquisition was to expand the Company's operations into the
Pacific Northwest. The assets acquired were recorded at estimated fair values as
determined by the Company's management based on information currently available
and on assumptions as to future operations. If the results of the operations of
EOFF had been reflected in the Company's consolidated results effective January
1, 2004, the EOFF results would not have had a material effect on the Company's
consolidated results.
The $10,000 purchase price was allocated as follows:
Property and equipment $9,400
Non-compete agreement 600
-------
Total $10,000
=======
(5) (Loss) Income Per Share
On November 1, 2003, the Company converted from an S corporation to a C
corporation (see note 7). (Loss) income per share has been calculated as if the
Company were a C corporation for federal income tax purposes for the three
months and nine months ended October 2, 2003. Basic (loss) income per share is
calculated using the weighted average number of shares outstanding. The weighted
average shares outstanding used in the calculation of diluted (loss) income per
share includes the dilutive effect of options to purchase common stock,
calculated using the treasury stock method. Unexercised stock options are the
only reconciling items between basic and diluted income per share for 2003.
The following table presents information necessary to calculate basic and
diluted (loss) income per share:
Three months ended Nine months ended
----------------------------- ------------------------------
October 2, October 4, October 2, October 4,
2004 2003 2004 2003
------------ ------------ ------------ -------------
Net (loss) income $ (7,898) $ 8,037 $ (11,570) $ 10,046
============ ============
Pro forma federal tax adjustment (2,939) (3,839)
------------ -------------
Pro forma net (loss) income $ 5,098 $ 6,207
============ =============
(Shares in thousands)
Weighted average shares outstanding - basic 18,158 10,873 17,903 10,870
Common stock equivalents - 1,002 - 1,039
------------ ------------ ------------ -------------
Weighted average shares outstanding - diluted 18,158 11,875 17,903 11,909
============ ============ ============ =============
Basic loss per share (0.43) (0.65)
Pro forma basic (loss) income per share 0.47 0.57
Diluted loss per share (0.43) (0.65)
Pro forma diluted (loss) income per share 0.43 0.52
Anti-dilutive unexercised options excluded
from calculation 1,810 303 1,810 303
8
CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -continued
(In thousands, except share and per share amounts)
(6) Debt and Related Party Financing
(a) Long term debt
Long-term debt consists of the following at October 2, 2004 and December
31, 2003:
2004 2003
---- ----
Notes payable $ 131 $ 169
Capital lease obligations 19,822 26,194
------ ------
19,953 26,363
Less: Current portion 8,077 6,375
------ ------
$11,876 $19,988
====== ======
The Company has a note agreement with a third party. The balance of the
note was $131 and $169 at October 2, 2004 and December 31, 2003, respectively.
The note has a fixed interest rate of 8.75% and matures January 2006 and
requires monthly principal and interest payments through maturity.
(b) Short term notes payable
On April 30, 2002, the Company entered into a $40,000 revolving accounts
receivable securitization facility (the Securitization Facility) that expires on
April 27, 2005. Under the Securitization Facility, the Company, on a revolving
basis, sells its interests in its accounts receivable to Central Receivables, a
wholly-owned, special purpose subsidiary. The assets and liabilities of Central
Receivables are included in the consolidated financial statements of the
Company. The Company can receive up to $40,000 of proceeds, subject to eligible
receivables and will pay a service fee recorded as interest expense, as defined
in the agreement. The Company pays commercial paper interest rates plus an
applicable margin on the proceeds received. Interest is generally payable
monthly. The Securitization Facility includes certain restrictions and financial
covenants. The Company must pay a commitment fee equal to 0.2% per annum of 102%
of the facility limit minus the aggregate principal balance, as well as an
administrative fee equal to 0.15% per annum of the uncommitted balance. As of
October 2, 2004 there were borrowings of $25,300 and at December 31, 2003, there
were no borrowings outstanding under the Securitization Facility.
On July 28, 2004, the Company and SunTrust Bank entered into a $30,000
amended and restated revolving credit facility (the Amended and Restated
Revolving Facility). On November 5, 2004, the Company executed a first amendment
to the Amended and Restated Revolving Credit Facility. Under the first amendment
to the Amended and Restated Revolving Facility, the Company can receive up to an
aggregate of $30,000 of proceeds in the form of letters of credit, only. The
Amended and Restated Revolving Facility accrues interest at a variable rate
equal, at the Company's option, to either (a) the bank's prime lending rate
minus an applicable margin, or (b) LIBOR plus an applicable margin. The
applicable margins for both types of loans will vary depending on the Company's
lease adjusted leverage ratio. Interest is payable in periods from one to three
months at the option of the Company. The Amended and Restated Revolving Facility
is secured by certain revenue equipment, and letters of credit that are issued
are secured by cash collateral. The facility contains, among other things,
certain financial and non-financial covenants, and matures on April 30, 2006.
The Company must pay a commitment fee equal to 0.50% per annum on the daily
unused Amended and Restated Revolving Facility as well as a letter of credit fee
equal to 0.25% per annum on the average daily amount of the letters of credit.
The Company must also cash collateralize its outstanding letters of credit. At
October 2, 2004, the Company had restricted cash of $18,852, as reported on the
Company's consolidated balance sheet related to these letters of credit. At
October 2, 2004, the Company had letters of credit of $16,771 outstanding and $
13,229 available under the Amended and Restated Revolving Facility.
The Company has a note agreement with a third party. The balance of the
note was $131 and $169 at October 2, 2004 and December 31, 2003, respectively.
The note has a fixed interest rate of 8.75% and matures January 2006 and
requires monthly principal and interest payments through maturity.
9
CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -continued
(In thousands, except share and per share amounts)
In March 2004, (see Note 4 above) the Company acquired certain assets of
EOFF for approximately $10,000. Under the terms of the agreement, the Company
paid approximately $7,000 of the purchase price at closing and $1,000 in the
second quarter of 2004 and $1,000 in the third quarter of 2004. The remaining
$1,000 is recorded on the consolidated balance sheet as short-term notes payable
at October 2, 2004.
(c) Related-Party Financing
In 1998, the Company entered into an agreement with Southwest Premier
Properties, L.L.C., an entity controlled by the Company's principal stockholder,
for the sale and leaseback of the land, structures and improvements of some of
the Company's terminals. For financial accounting purposes, this transaction has
been accounted for as a financing arrangement. Consequently, the related land,
structures and improvements remain on the Company's consolidated balance sheet.
The initial lease term is for ten years with an option for an additional ten
years at the then fair market rental rate. At the expiration of the original
lease term, the Company has an option to purchase all of the properties,
excluding certain surplus properties, for the then fair market value.
Since the fair value of the properties sold and leased back has always
equaled or exceeded the proceeds from the financing arrangement, the annual
lease payments have been reflected as a cost of the financing and recorded as
interest expense. During 2004, $302 of these properties were sold and accounted
for as a reduction in the financing obligation and a reduction in property. The
amount outstanding under the financing agreement was $22,852 and $23,154 at
October 2, 2004 and December 31, 2003, respectively. If the Company exercises
the fair value purchase option, the excess of the amount paid over the recorded
financing obligation will be reflected as additional interest expense. If the
fair value purchase option is not exercised at the end of the lease term, the
excess of the recorded financing obligation over the net book value of the
related properties will be reflected as a gain on the financing arrangement.
(7) Income Taxes
On November 1, 2003, the Company converted to a C Corporation for federal
income tax purposes.
Prior to the C Corporation election, the Company elected S Corporation
status for federal income tax purposes. Accordingly, the accompanying unaudited
consolidated financial statements for the three months and nine months ended
October 4, 2003 do not include the effects of federal income taxes, and income
taxes consist solely of state income taxes.
The income tax benefit for the nine months ended October 2, 2004 includes a
$1.8 million benefit from the reversal of a previously recorded deferred tax
liability as a result of an IRS review.
(8) Contingencies
The Company is involved in certain claims and pending litigation arising
from the normal conduct of business. Based on the present knowledge of the
facts, management believes the resolution of these claims and pending litigation
will not have a material adverse effect on the consolidated financial position,
results of operations or liquidity of the Company.
In June and July 2004, three stockholder class actions were filed against
the Company and certain of its officers and directors. The class actions were
filed in the United States District Court - Western District of Texas and
generally allege that false and misleading statements were made in the Company's
initial public offering registration statement and prospectus, during the period
surrounding the Company's initial pubic offering and up to the press release
dated June 16, 2004. The class actions are in the initial phases and the Company
intends to vigorously defend against the suits. The Company maintains a
directors' and officers' insurance policy with a $350 deductible. The Company
has informed its insurance carrier and has retained outside counsel to assist in
its defense.
10
CENTRAL FREIGHT LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -continued
(In thousands, except share and per share amounts)
On August 9 and 10, 2004, two purported derivative actions were filed
against the Company, as nominal defendant, and against certain of the Company's
officers, directors, and former directors. These actions were filed in the
District Court of McLennan County, Texas and generally allege breach of
fiduciary duty, abuse of control, gross mismanagement, waste of corporate
assets, and unjust enrichment on the part of certain of the Company's present
and former officers and directors in the period between December 12, 2003 and
the present. The purported derivative actions seek declaratory, injunctive, and
other relief.
The Company believes there is no factual or legal basis for the
allegations. Although it is not possible at this time to predict the litigation
outcome of these cases, the Company expects to prevail. However, an adverse
litigation outcome could be material to the Company's consolidated financial
position or results of operations. As a result of the uncertainty regarding the
outcome of this matter, no provision has been made in the consolidated financial
statements with respect to this contingent liability.
The Company is subject to loss contingencies pursuant to federal, state,
and local environmental regulations dealing with the transportation, storage,
presence, use, disposal, and handling of hazardous materials, discharge of storm
water and fuel storage tanks. Environmental liabilities, including remediation
costs, are accrued when amounts are probable and can be reasonably estimated.
(9) Related-Party Transactions
During the three months and nine months ended October 2, 2004 and October
4, 2003 the Company incurred approximately $3,590, $3,756, $11,832 and $15,965,
respectively, for transportation services provided by companies for which the
Company's principal stockholder is the Chairman. At October 2, 2004 and December
31, 2003, the Company had payables of $987 and $1,020, respectively, for these
transportation services.
During the three months and nine months ended October 2, 2004 and October
4, 2003, the Company incurred $91, $224, $225, and $244, respectively, to an
entity owned by a stockholder of the Company for legal services. The Company
also paid $117 for legal services in 2003, which were related to the initial
public offering.
During the three months and nine months ended October 2, 2004 and October
4, 2003, the Company incurred $450, $358, $1,346, and $1,130, respectively, for
building rental expense with related parties.
(10) Employee Benefit Plan
During August 2004, the Company initiated its Employee Stock Purchase Plan
(the "Plan") as approved under a Form S-8 filed on August 9, 2004. The Plan is
limited to benefits eligible employees. Employees may acquire shares under this
Plan at a 10% discount to the market based upon the closing price of the
Company's shares on the last trading day of each month. The total number of
shares allocated to the Plan is 1,000,000.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Cautionary Note Regarding Forward-Looking Statements
Except for the historical information contained herein, the discussion in
this annual report contains "forward-looking statements," which 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 including
improvements in productivity, service, safety, yield, and tonnage growth;
expectations as to cost savings, revenue growth, and income; the time by which
certain objectives will be achieved; proposed new products and services;
expectations that claims, lawsuits, commitments, contingent liabilities, labor
negotiations, or agreements, or other matters will not have a materially 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,
future liquidity, 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.
These statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. 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 actual performance or results to differ materially from those expressed in
the statements. Readers should review and consider the factors discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors that May Affect Future Results" of our Annual Report on
Form 10-K, filed on March 30, 2004, along with the various disclosures by us in
our press releases, stockholder reports, and other filings with the Securities
and Exchange Commission. We do not assume, and specifically disclaim, any
obligation to update any forward-looking statement contained in this Report.
Executive Overview
We are one of the ten largest regional less-than-truckload ("LTL") carriers
in the United States based on revenues, generating approximately $390.0 million
in revenue during 2003 and approximately $98.5 and $301.1 million, respectively,
in revenue during the third quarter and first three quarters of 2004. In our
operations, we pick up and deliver multiple shipments for multiple customers on
each trailer. In 2003 and the first three-quarters of 2004, a significant
portion of our business was concentrated in our Southwest region, which is
anchored by Texas and California, two of the nation's three largest state
economies.
We grew substantially between our first full year of operation in 1998 and
2001, but our operating results were less than we desired and we experienced a
loss during 2001. In 2002 and 2003, we assembled a new senior management team
and began executing a strategic plan designed to increase the efficiency of our
operations and expand our geographic territory. In 2002 and 2003, we focused on
streamlining our terminal network, routing freight efficiently through that
network, improving our freight mix through a comprehensive yield management
program, and applying our dynamic resource planning process to our operations.
In 2002 and 2003, our profitability, as measured by operating ratio, improved
substantially, and we achieved an operating ratio of 93.9% for the year ended
December 31, 2003, compared to 98.9% for 2001.
12
Our results for 2003 included several items that we consider to be unusual.
During 2003, we recorded an aggregate of $3.8 million in increases to our
insurance reserves for accident, workers' compensation, and other liabilities
arising prior to 2003 ($1.8 million of which related to two accidents that
occurred in 2002). This compared to an accrual of $0.5 million relating to
claims that arose in prior periods in that we accrued in the year ended December
31, 2002. We recorded the increased accruals despite improvements in our rate of
both accident claims and workers' compensation claims during 2003. We also
amended a benefit plan to reduce our future obligations. As a result of this
amendment, we recorded a curtailment gain of approximately $7.8 million in 2003.
In addition, in January of 2002 and 2003, we increased the useful lives and
decreased the salvage values of our tractors and trailers to reflect that we are
operating the tractors and trailers for longer periods than previously estimated
by our past management. These changes decreased our depreciation expense by
approximately $3.3 million compared with the expense we would have recorded
under the prior method. In the aggregate, these items had a positive effect of
approximately $7.3 million on our operating income for the year ended December
31, 2003. We do not anticipate benefits similar to these in future periods.
In December 2002, we expanded service in a seven-state, Midwest region,
establishing all-points coverage in six of these states. Our expenses for the
nine months ended October 4, 2003, reflect the costs of this Midwest expansion,
primarily consisting of purchased transportation, employee training, and
relocation expenses.
On March 16, 2004, we announced the acceleration of our expansion into the
Pacific Northwest through the purchase of selected terminal network and rolling
stock of Eastern Oregon Fast Freight, Inc. ("EOFF"), a non-union LTL carrier
that operated in the states of Oregon, Washington, and Idaho. The selected
assets of EOFF were purchased for approximately $10.0 million, with $7.0 million
of the purchase price paid from cash reserves in the first quarter of 2004,
another $1.0 million paid in the second quarter of 2004 and another $1.0 million
paid in the third quarter of 2004. The remainder of the purchase price will be
paid later in 2004. The assets acquired included six owned terminal properties,
eleven leased terminal properties, 160 tractors, and 644 trailers. Our operating
expenses for the quarter and the nine months ended October 2, 2004, reflect the
costs of our accelerated Northwest expansion, primarily consisting of additional
employee costs, additional purchased transportation costs, and additional lease
expense for terminals in the expanded territory.
In late July 2004, the Company hired Walt Ainsworth as Executive Vice
President. As Executive Vice President he will be involved in all aspects of the
Company. In addition, in July 2004, the Company hired David Heim as Vice
President of Transportation and Jeff Jordan as Director of Claims Prevention,
both newly created positions.
Revenues
Our operating revenues vary with the revenue per hundredweight we charge to
customers and the volume of freight we transport. From our first full year of
operation in 1998 to 2001, our revenue grew from approximately $276.3 million to
approximately $395.7 million, a compounded annual growth rate of approximately
13%. Our growth resulted from a combination of internal growth, geographic
expansion, and our acquisitions of two LTL carriers that expanded our presence
in California, Arizona, and Nevada.
Following the arrival of our new management team in early 2002, we closed
approximately 25% of our then existing terminals and implemented a yield
management process intended to eliminate freight that did not generate
sufficient returns. As a result of these efforts, our revenues decreased $24.3
million, or 6.1%, from $395.7 million for 2001 to approximately $371.4 million
in 2002, but revenue derived from the resulting improved freight portfolio began
to increase in the latter part of 2002 and in 2003 as our revenue increased to
$389.7 million. LTL revenue per hundredweight increased 9.1% in 2003 compared to
2002 on a 7.0% increase in average length of haul.
Due to our geographic expansion in 2003 and 2004, our average length of
haul has increased significantly, 9.7% in the nine months ended October 2, 2004
compared to the same period in 2003. However, our LTL revenue per hundredweight,
excluding fuel surcharge revenue, has increased only 0.4%. Total tons hauled in
the nine months ended October 2, 2004 are lower by 1.4% per day compared to the
same period in 2003, and total tons hauled in the 2004 third quarter are down by
1.5% per day compared to the 2003 third quarter.
13
Operating Expenses
Our major expense categories can be summarized as follows:
Salaries, wages, and benefits. This category includes compensation for our
employees, health insurance, workers' compensation, 401(k) plan contributions,
and other fringe benefits. These expenses will vary depending upon several
factors, including our efficiency, our experience with health and workers'
compensation claims, and increases in health care costs. Salaries, wages, and
benefits also include the non-cash expense associated with stock options granted
to several of our executives that had exercise prices that were determined to be
below fair market value. This non-cash compensation expense is expected to
amount to approximately $106,000 annually through June of 2007.
Purchased transportation. This category primarily consists of the payments
we make to third parties to handle a portion of a freight movement for us. The
largest category is outsourced linehaul movements, where we contract with
truckload carriers and owner-operators to move our freight between origin and
destination terminals. Swift Transportation, a related party, has been our
largest provider of outsourced linehaul service. Purchased transportation also
includes outsourced pick-up and delivery service when we use alternative
providers to service areas where we lack the terminal density to provide
economical service.
Operating and general supplies and expenses. This category includes fuel,
repairs and maintenance, tires, parts, general and administrative costs, office
supplies, operating taxes and licenses, communications and utilities, and other
general expenses. Repairs and maintenance, fuel, tires, and parts expenses vary
with the age of equipment and the amount of usage. We have a fuel surcharge
program that enables us to recover a significant portion of fuel price
increases.
Insurance and claims. This category includes the cost of insurance premiums
and the accruals we make for claims within our self-insured retention amounts,
primarily for personal injury, property damage, physical damage to our
equipment, and cargo claims. These expenses will vary primarily based upon the
frequency and severity of our accident experience and the market for insurance.
Building and equipment rentals. This category consists mainly of payments
to unrelated third parties under terminal leases and payments to related parties
for seven terminals leased under operating leases.
Depreciation and amortization. This category relates to owned assets,
assets under capitalized leases, and the 22 active properties we lease from a
related party that are considered to be a financing arrangement.
Net Loss
We incurred a net loss of $(7.9) million, or $(0.43) per diluted share, for
the third quarter of 2004, compared to pro forma C corporation net income of
$5.1 million, or $0.43 per diluted share, for the third quarter of 2003. For the
nine months ended October 2, 2004, we incurred a net loss of $(11.6) million, or
$(0.65) per diluted share, compared to pro forma C corporation net income of
$6.2 million, or $0.52 per diluted share, for the comparable 2003 period. The
net loss in the 2004 periods resulted primarily from increased salaries, wages,
and benefits, operating and general supplies and expenses (including increased
fuel and vehicle repairs), insurance and claims expense, and other costs, as
discussed in more detail below in "Results of Operations."
S Corporation Status
Prior to November 1, 2003, we operated as an S corporation for federal
income tax purposes. An S corporation passes through essentially all taxable
income and losses to its stockholders and does not pay federal income taxes at
the corporate level. For comparative purposes, we have included a pro forma
provision for income taxes showing what those taxes would have been had we been
taxed as a C corporation in all periods our S corporation election was in
effect.
14
Results of Operations
The table below sets forth the percentage relationship of the specified
items to operating revenues for the periods indicated.
Three months ended Nine months ended
------------------------------- ----------------------------
October 2, October 4, October 2, October 4,
2004 2003 2004 2003
---------------- -------------- ------------- --------------
Operating revenues.................................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Operating expenses:
Salaries, wages, and benefits....................... 58.7 48.6 57.6 52.5
Purchased transportation............................ 14.4 14.6 15.0 14.8
Operating and general supplies and
expenses......................................... 22.9 16.7 20.7 17.1
Insurance and claims................................ 8.8 3.8 6.3 4.1
Building and equipment rentals...................... 1.6 1.3 1.5 1.2
Depreciation and amortization....................... 4.5 4.3 4.1 4.3
----- ----- ----- -----
Total operating expenses(1)...................... 110.9 89.3 105.2 94.0
----- ----- ----- -----
(Loss) income from operations......................... (10.9) 10.7 (5.2) 6.0
Interest expense...................................... 2.0 2.4 1.9 2.5
----- ----- ----- -----
(Loss) income before income taxes..................... (12.9) 8.3 (7.1) 3.5
----- ----- ----- -----
Income tax (expense) benefit.......................... 4.9 (0.3) 3.3 (0.2)
----- ----- ----- -----
Net (loss) income..................................... (8.0)% 8.0 (3.8)% 3.3
===== ----- ===== -----
Pro Forma Data:
Income before income taxes............................ - 8.3 - 3.5
Pro forma income tax benefit (expense) (2)............ - (3.2) - (1.4)
----- -----
Pro forma income (2).................................. - 5.1% - 2.1%
===== =====
<FN>
- ----------
(1) Total operating expenses as a percentage of operating revenues, as presented
in this table, is also referred to as operating ratio.
(2) Provision for federal income taxes and net income as if we were a C
corporation for tax purposes for all periods.
</FN>
Comparison of Three Months Ended October 2, 2004, to Three Months Ended October
4, 2003
Operating revenues. Operating revenues decreased $2.7 million, or 2.7%,
from $101.2 million for the third quarter of 2003 to $98.5 million for third
quarter of 2004. The decrease in operating revenues is partially due to one less
working day in the 2004 quarter (the 2004 quarter had 63 working days, compared
to 64 working days in the 2003 quarter). Revenue per working day was $1.56
million in the 2004 quarter, which was 1.3% lower than the $1.58 million per
working day in the 2003 quarter. LTL revenue per hundredweight increased 2.2%
from $11.57 in the 2003 quarter to $11.83 in the 2004 quarter as a result of
increased fuel surcharge revenue and length of haul. LTL revenue per
hundredweight in the third quarter of 2004, excluding fuel surcharge revenue,
decreased by 1.6% compared to the third quarter of 2003 despite an increase in
the average length of haul of 8.1%. Total tonnage decreased 15.2 thousand tons,
or 3.1%, from 496.2 thousand tons in the 2003 quarter to 481.0 thousand tons in
the 2004 quarter partially due to the one less working day in the 2004 third
quarter. Total tons per working day decreased 1.5%.
Salaries, wages, and benefits. Salaries, wages, and benefits increased $8.7
million, or 17.7%, from $49.1 million for the third quarter of 2003 to $57.8
million for the third quarter of 2004. Included in the 2003 third quarter was a
$5.3 million gain from curtailment of a postretirement health plan. The increase
in salaries, wages, and benefits, before the curtailment gain, resulted
primarily from an increase in health insurance and workers compensation costs.
Increases in length of haul also contributed to the increase, due to the fact
that our linehaul drivers are paid on the basis of miles driven. As a percentage
of operating revenues, salaries, wages, and benefits increased from 48.6% for
the 2003 quarter to 58.7% for the 2004 quarter, with the impact of the 2003
curtailment gain accounting for 5.2 percentage points of this increase.
Purchased transportation.
15
Purchased transportation decreased $0.6 million, or 4.1%, from $14.8
million for the third quarter of 2003 to $14.2 million for the third quarter of
2004. The decrease in purchased transportation expenses resulted primarily from
a decreased usage of third party purchased transportation due to improvement in
our lane balance, which shifted more linehaul costs away from purchased
transportation to company linehaul. The existence of one less working day in the
2004 quarter also contributed to the decrease in purchased transportation. As a
percentage of operating revenues, purchased transportation decreased from 14.6%
for the 2003 quarter to 14.4% for the 2004 quarter.
Operating and general supplies and expenses. Operating and general supplies
and expenses increased $5.6 million, or 33.1%, from $16.9 million for the third
quarter of 2003 to $22.5 million for the third quarter of 2004. The increase in
operating and general supplies and expenses resulted primarily from an increase
in the cost of fuel. Also, vehicle repairs, fuel and property taxes, and audit
and professional services relating to Sarbanes-Oxley compliance increased. As a
percentage of operating revenues, operating and general supplies and expenses
increased from 16.7% for the 2003 quarter to 22.9% for the 2004 quarter.
Insurance and claims. Insurance and claims increased $4.8 million, or
123.1%, from $3.9 million for the third quarter of 2003 to $8.7 million for the
third quarter of 2004. The increase in insurance and claims expense resulted
primarily from increases in our third party accident claims and cargo claims
expense. The current quarter included a $750,000 charge for an August accident.
As a percentage of operating revenues, insurance and claims increased from 3.8%
for the 2003 quarter to 8.8% for the 2004 quarter.
Building and equipment rentals. Building and equipment rentals increased
approximately $0.3 million, or 23.1%, from $1.3 million for the third quarter of
2003 to $1.6 million for the third quarter of 2004. The increase in building and
equipment rentals resulted primarily from the addition of leased terminals in
connection with our Northwest expansion, a new terminal in California and normal
annual rent increases for other terminals. As a percentage of operating
revenues, building and equipment rentals increased from 1.3% for the 2003
quarter to 1.6% for the 2004 quarter.
Depreciation and amortization. Depreciation and amortization expense
increased approximately $0.1 million, or 2.3%, from $4.3 million for the third
quarter of 2003 to $4.4 million for the third quarter of 2004, mainly as a
result of adding new revenue equipment. Gains on sales amounted to approximately
$0.2 million in the 2004 quarter, mainly from the sale of excess land, compared
to $6 thousand in the 2003 quarter. As a percentage of operating revenues,
depreciation and amortization increased from 4.3% for the 2003 quarter to 4.5%
for the 2004 quarter.
Operating ratio. Our operating ratio increased from 89.3% for the third
quarter of 2003 to 110.9% for the third quarter of 2004. The 2003 third quarter
operating ratio was 94.5% excluding the $5.3 million gain from the curtailment
of a postretirement health plan.
Interest expense. Total interest expense decreased $0.6 million, or 24.0%,
from $2.5 million for the third quarter of 2003 to $1.9 million for the third
quarter of 2004. As a percentage of operating revenues, interest expense
decreased from 2.4%for the 2003 quarter to 2.0% for the 2004 quarter. Our debt
balances decreased by approximately $50.0 million in December 2003, as we
utilized part of the net proceeds from our initial public offering to pay off
debt. In the first quarter of 2004, we further reduced our outstanding debt by
$2.0 million through the utilization of net proceeds from our initial public
offering. Our related party interest expense decreased slightly from $1.6
million in the 2003 quarter to $1.5 million in the 2004 quarter. The amounts for
related party interest are recorded as interest expense because the associated
leases are reflected as a financing arrangement in our consolidated financial
statements.
Income taxes. We recorded a $4.8 million income tax benefit in the third
quarter of 2004 on a pre-tax loss of $12.7 million. Our pro forma income tax
expense in the third quarter of 2003 was approximately $3.3 million on pre-tax
income of $8.4 million. The effective tax rate in the 2004 third quarter was
37.8% compared to pro forma 39.0% in the same quarter last year.
16
Comparison of Nine Months Ended October 2, 2004, to Nine Months Ended October 4,
2003
Operating revenues. Operating revenues increased $0.9 million, or 0.3%,
from $300.2 million for the 2003 period to $301.1 million for the 2004 period.
The increase in operating revenues was partially due to an increase in fuel
surcharge revenue due to higher cost of fuel offset by one less working day in
the 2004 period. Revenue per working day was $1.56 million in the 2004 period,
which was 0.6% higher than the $1.55 million per working day in the 2003 period.
LTL revenue per hundredweight increased 2.4% from $11.25 in the 2003 period to
$11.52 in the 2004 period due in part to an increase in fuel surcharge revenue
and average length of haul. LTL revenue per hundredweight in the 2004 period,
excluding fuel surcharge revenue, increased 0.4% compared to the 2003 period on
an increase in the average length of haul of 10.0%. Total tonnage decreased 28.9
thousand tons, or 1.9%, from 1,528.3 thousand tons in the 2003 period to 1,499.4
thousand tons in the 2004 period. Total tons per working day decreased 1.4%.
Salaries, wages, and benefits. Salaries, wages, and benefits increased
$16.0 million, or 10.2%, from $157.6 million for the 2003 period to $173.6
million for the 2004 period due partially to a $7.8 million curtailment gain
relating to a reduction of our obligations under a post-retirement health plan
in the 2003 period. The increase in salaries, wages, and benefits, before the
curtailment gain, resulted primarily from an increase in health insurance and
workers compensation costs, increased length of haul and lower employee
productivity. As a percentage of operating revenues, salaries, wages, and
benefits increased from 52.5% for the 2003 period, to 57.6% for the 2004 period,
with the impact of the 2003 curtailment gain accounting for 2.6 percentage
points of this increase.
Purchased transportation. Purchased transportation increased $0.6 million,
or 1.3%, from $44.5 million for the 2003 period to $45.1 million for the 2004
period. The increase in purchased transportation expenses resulted primarily
from an increased usage of third party purchased transportation in the first two
quarters of 2004 due to an increase in our average length of haul. Higher fuel
surcharge costs paid to the third party providers also contributed to the
increase in purchased transportation. As a percentage of operating revenues,
purchased transportation increased from 14.8% for the 2003 period to 15.0% for
the 2004 period.
Operating and general supplies and expenses. Operating and general supplies
and expenses increased $11.2 million, or 21.9%, from $51.1 million for the 2003
period to $62.3 million for the 2004 period. The increase in operating and
general supplies and expenses resulted primarily from an increase in the cost of
fuel. Also, vehicle repairs, fuel and property taxes, and audit and professional
services relating to Sarbanes-Oxley compliance increased. As a percentage of
operating revenues, operating and general supplies and expenses increased from
17.1% for the 2003 period to 20.7% for the 2004 period.
Insurance and claims. Insurance and claims increased $6.8 million, or
55.3%, from $12.3 million for the 2003 period to $19.1 million for the 2004
period. The increase in insurance and claims expense resulted primarily from an
increase in cargo claims and premiums expense (including our deductible expensed
in the 2004 second quarter under our directors and officers policy). As a
percentage of operating revenues, insurance and claims increased from 4.1% for
the 2003 period to 6.3% for the 2004 period.
Building and equipment rentals. Building and equipment rentals increased
approximately $0.8 million, or 21.6%, from $3.7 million for the 2003 period to
$4.5 million for the 2004 period. The increase in building and equipment rentals
resulted primarily from the addition of leased terminals in connection with our
Northwest expansion, a new terminal in California and normal annual rent
increases for other terminals. As a percentage of operating revenues, building
and equipment rentals increased from 1.2% for the 2003 period to 1.5% for the
2004 period.
Depreciation and amortization. Depreciation and amortization expense
decreased approximately $0.6 million, or 4.6%, from $12.9 million for the 2003
period to $12.3 million for the 2004 period. The decrease resulted primarily
from equipment becoming fully depreciated during 2003 and sales of non-essential
equipment late in 2003 offset to some degree by increases in new revenue
equipment depreciation beginning in the 2004 third quarter. We reported gains on
sales of $0.6 million in the 2004 period compared to only $21 thousand in the
2003 period, due mainly to gains on sales of excess land. As a percentage of
operating revenues, depreciation and amortization decreased from 4.3% for the
2003 period to 4.1% for the 2004 period.
17
Operating ratio. Our operating ratio increased from 94.0% for the 2003
period to 105.2% for the 2004 period. The 2003 period operating ratio was 96.6%
excluding the $7.8 million gain from the curtailment of a postretirement health
plan.
Interest expense. Total interest expense decreased $2.0 million, or 26.3%,
from $7.6 million for the 2003 period to $5.6 million for the 2004 period. As a
percentage of operating revenues, interest expense decreased from 2.5% for the
2003 period to 1.9% for the 2004 period. Our debt balances decreased by
approximately $50.0 million in December 2003 as we utilized part of the net
proceeds from our initial public offering to pay off debt. In the first quarter
of 2004, we further reduced our outstanding debt by $2.0 million through the
utilization of net proceeds from our initial public offering. Our related party
interest expense was largely unchanged at $4.7 million in both the 2003 and 2004
periods. The amounts for related party interest are recorded as interest expense
because the associated leases are reflected as a financing arrangement in our
consolidated financial statements.
Income taxes. We recorded an income tax benefit in the 2004 period of $9.9
million, which yields an effective tax rate of 46.0% (including a $1.8 million
benefit for the reversal of a previously recorded deferred tax liability as a
result of an IRS review) on a pre-tax loss of $21.4 million. Excluding the $1.8
million benefit, the effective tax rate would have been 37.8%. Our pro forma
income taxes in the 2003 period were approximately $4.3 million on a pre-tax
income of $10.5 million. The effective tax rate was 40.9%. Included in the pro
forma 2003 pre-tax income was a non-deductible interest expense of $0.5 million.
Excluding the non-deductible interest expense, the effective tax rate would have
been 39%.
Liquidity and Capital Resources
Our business requires substantial, ongoing capital investments,
particularly to replace revenue equipment such as tractors and trailers. Our
primary sources of liquidity have historically been cash from operations,
secured borrowings, and proceeds of our initial public offering. We believe
these and other sources of liquidity will be sufficient to fund our operations
at least through the end of 2004. We believe, based on past experience with our
lenders, that such financing will be available if needed to provide liquidity
for 2004 and 2005.
Net cash (used in) provided by operating activities was approximately
$(26.1) million and $9.0 million for the nine months ended October 2, 2004 and
October 4, 2003, respectively. Net cash used in the 2004 period resulted mainly
from $18.9 million being invested under a restricted cash financial covenant, an
increase in accounts receivable of $5.6 million, and an increase in other assets
of $0.9 million (mainly prepaid licenses). Our net income, for the nine months
ended October 4, 2003 amounted to $10.0 million including non-cash expenses of
$12.9 million for depreciation. Other significant items affecting net cash of
$9.0 million provided in the 2003 period were a $2.0 million increase in accrued
expenses and other liabilities, an increase in trade accounts receivable of $7.0
million, a $5.7 million decrease in trade accounts payable and an increase of
$2.7 million in claims and insurance accruals.
Net cash used in investing activities was approximately $31.1 million and
$5.4 million for the nine months ended October 2, 2004 and October 4, 2003. Our
capital expenditures were approximately $25.9 million in the 2004 period and
$5.9 million in the 2003 period. In 2004, we paid $9.0 million (of the total
purchase price of $10.0 million) for the terminal network and rolling stock of
EOFF - our Northwest expansion. We expect our net capital expenditures for the
last quarter of 2004 to be approximately $13.0 million, consisting primarily of
the acquisition of new tractors and trailers.
Net cash provided by (used in) financing activities was approximately $19.9
million for the nine months ended October 2, 2004 due mainly to borrowings from
the securitization facility of $25.3 million (primarily to cash collateralize
outstanding letters of credit) offset by payments on long-term debt amounting to
$6.4 million. In the nine months ended October 4, 2003, net cash used amounted
to $8.0 million due mainly to a $6.1 million distribution made to stockholders
of our former S corporation relating to the fourth quarter of 2002.
On April 30, 2002, we entered into a $40.0 million revolving accounts
receivable securitization facility that expires April 27, 2005, with Three
Pillars Funding Corporation. Under the securitization facility, we can borrow up
to $40.0 million, subject to eligible receivables. We pay commercial paper
interest rates plus an applicable margin on amounts borrowed. Interest is
generally payable monthly. The securitization facility includes certain
restrictions and financial covenants. As of October 2, 2004, we had borrowings
$25.3 million outstanding under the securitization facility. Under the
securitization facility, we pay a commitment fee equal to 0.2% per year of 102%
of the facility limit minus the aggregate outstanding principal balance, as well
as an administrative fee equal to 0.15% per annum of the uncommitted balance.
18
On July 28, 2004, the Company and SunTrust Bank entered into a $30.0
million amended and restated revolving credit facility (the Amended and Restated
Revolving Facility). On November 5, 2004, the Company executed a first amendment
to the Amended and Restated Revolving Credit Facility. Under the first amendment
to the Amended and Restated Revolving Facility, the Company can receive up to an
aggregate of $30.0 million of proceeds in the form of letters of credit, only.
The Amended and Restated Revolving Facility accrues interest at a variable rate
equal, at the Company's option, to either (a) the bank's prime lending rate
minus an applicable margin, or (b) LIBOR plus an applicable margin. The
applicable margins for both types of loans will vary depending on the Company's
lease adjusted leverage ratio. Interest is payable in periods from one to three
months at the option of the Company. The Amended and Restated Revolving Facility
is secured by certain revenue equipment, and letters of credit that are issued
are secured by cash collateral. The facility contains, among other things,
certain financial and non-financial covenants, and matures on April 30, 2006.
The Company must pay a commitment fee equal to 0.50% per annum on the daily
unused Amended and Restated Revolving Facility as well as a letter of credit fee
equal to 0.25% per annum on the average daily amount of the letters of credit.
The Company must also cash collateralize its outstanding letters of credit. At
October 2, 2004, the Company had restricted cash of $18.9 million, as reported
on the Company's consolidated balance sheet related to these letters of credit.
At October 2, 2004, the Company had letters of credit of $16.8 million
outstanding and $13.2 million available under the Amended and Restated Revolving
Facility.
The Company has a note agreement with a third party. The balance of the
note was $131,000 and $169,000 at October 2, 2004 and December 31, 2003,
respectively. The note has a fixed interest rate of 8.75% and matures January
2006 and requires monthly principal and interest payments through maturity.
In 1998, we entered into an agreement with Southwest Premier Properties,
L.L.C., an entity controlled by our principal stockholder, for the sale and
leaseback of the land, structures and improvements of some of our terminals. For
financial accounting purposes, this transaction has been accounted for as a
financing arrangement. Consequently, the related land, structures and
improvements remain on our consolidated balance sheet. The lease was amended in
February 2003 to increase the rent and provide for a term of ten years with an
option for an additional ten years at the then fair market rental rate. At the
expiration of the original lease term, we have an option to purchase all of the
properties, excluding certain surplus properties, for the then fair market
value.
Because the fair value of the properties sold and leased back has always
equaled or exceeded the proceeds from the financing arrangement, the annual
lease payments have been reflected as a cost of the financing and recorded as
interest expense. The amount outstanding under the financing agreement was $22.9
million and $23.2 million at October 2, 2004 and December 31, 2003,
respectively.
Our results for the nine months ended October 2, 2004, included a loss of
$15.8 million, and we have needed to amend our revolving credit facility and
amended and restated revolving credit facility following each of the first three
quarters of 2004 to prevent a default. We are presently attempting to replace
our amended and restated revolving credit facility. In addition, our accounts
receivable securitization facility expires on April 27, 2005, and we have not
been informed whether, or on what basis, it may be renewed. However, on November
5, 2004, we secured $10.6 million from a lender in a sale-leaseback transaction.
In addition, we had stockholders' equity of $98.7 million at October 2, 2004,
and had significant assets available for financing. And, based on recent
negotiations with potential lenders, we believe alternative or additional
financing would be available to us. Moreover, management has implemented certain
cost reductions and revenue enhancement programs that are expected to improve
our operations in future periods. Accordingly, we believe that we have
sufficient liquidity to fund our operations for the next twelve months.
Off-Balance Sheet Arrangements
Certain of our terminals and revenue equipment are financed off-balance
sheet through operating leases. As of October 2, 2004, 49 of our terminals,
including seven owned by related parties, were subject to operating leases.
Terminals and revenue equipment held under operating leases are not carried
on our balance sheet, and lease payments in respect of such terminals and
revenue equipment are reflected in our statements of operations in the line
items "Building and equipment rentals" and "Building and equipment rentals -
related parties." Our total rental expense related to operating leases,
including rent paid to related parties, was $4.5 million for the first
three-quarters of 2004, compared to $3.7 million for the first three quarters of
2003. The total amount of remaining payments under operating leases as of
October 2, 2004 was $21.4 million, with $5.4 million due in the next 12 months.
19
Critical Accounting Policies
We believe that the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Revenue Recognition. Operating revenue is recognized upon delivery of the
related freight, as is fuel surcharge revenue. We also generate revenues derived
from interline shipments. Most of this interline revenue was with carriers with
which we maintain transportation alliances. We do not recognize revenue (or the
associated expenses) that relates to the portion of the shipment transported by
our alliance partners.
Insurance and Claims Accruals. We record insurance and claims accruals
based upon our estimate of the ultimate total cost of claims, not covered by
insurance, for bodily injury and property damage, cargo loss and damage,
physical damage to our equipment, workers' compensation, long-term disability,
and group health, and post-retirement health benefits. Our estimates are based
on our evaluation of the nature and severity of the claims and our past claims
experience. We include an estimate for incurred but not reported claims. The
estimated costs for bodily injury and property damage, cargo loss and damage,
and physical damage to our equipment are charged to insurance and claims. The
other estimated costs are charged to employee benefits expense.
While we believe that our insurance and claims accruals are adequate, such
estimates may be more or less than the amount ultimately paid when claims are
settled. The estimates are continually reviewed and any changes are reflected in
current operations.
Our self-insured retention for bodily injury and property damage, cargo
loss and damage, and physical damage to our equipment was an aggregate $750,000
per occurrence.
Our self-insured retention for workers' compensation has been $1.0 million
per occurrence since October 28, 2002. We also self-insure for all health claims
up to $300,000 per occurrence.
Allowance for Doubtful Accounts and Revenue Adjustments. We maintain
allowances for doubtful accounts and revenue adjustments. Such allowances
represent our estimate of accounts that will not ultimately be collected and
correspondingly adjust our operating revenues to reflect the estimates of
noncollectible accounts. Estimates used in determining this allowance are based
on our historical collection experience, current trends, credit policy, and a
percentage of our accounts receivable by aging category. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
Inflation
Most of our expenses are affected by inflation, which generally results in
increased operating costs. In response to fluctuations in the cost of petroleum
products, particularly diesel fuel, we have implemented a fuel surcharge in our
tariffs and contractual agreements. The fuel surcharge is designed to offset the
cost of fuel above a base price and increases as fuel prices escalate over the
base. We do not expect the net effect of inflation on our results of operations
to be different from the effect on LTL carriers generally.
Seasonality
We experience some seasonal fluctuations in freight volume. Historically,
our shipments decrease during winter months and our fuel efficiency declines,
but our operating expenses have been higher in the summer months due to
increased maintenance costs for our tractors and trailers in hotter weather as a
large percentage of our operating region is in the South and Southwest United
States. Our expansion into the Midwest and the Northwest may increase our
exposure to seasonal fluctuations in operating expenses.
Item 3. Quantatative and Qualitative Disclosures About Market Risk.
We are exposed to a variety of market risks, most importantly the effects
of the price and availability of diesel fuel and changes in interest rates. To
address the risk of high fuel prices, we maintain a fuel surcharge program. Fuel
surcharge programs are well established in the industry and are broadly accepted
by our customers. We believe our fuel surcharge program is effective at
mitigating the risk of high fuel prices. Accordingly, we have not engaged in any
fuel price hedging activities. Because fuel surcharges, typically, are based on
the weekly national average price of diesel fuel and our operations are
concentrated in the Southwest and West coast, we have structured our fuel
surcharge to reflect the cost in those regions where we conduct the majority of
our business. There remains some risk that this blended national average will
not fully reflect regional fuel prices. We are highly dependent on adequate
supplies of diesel fuel. If our supply were interrupted, for example as a result
of war or hostile action against the United States or in fuel producing regions,
we would be exposed to significant risks.
20
Our market risk is also affected by changes in interest rates.
Historically, we have used a combination of fixed rate and variable rate
obligations to manage our interest rate exposure. Fixed rate obligations expose
us to the risk that interest rates might fall. Variable rate obligations expose
us to the risk that interest rates might rise. We did not have any interest rate
swaps at October 2, 2004, although we may enter into such swaps in the future if
we deem appropriate.
Our variable rate obligations consist of our revolving line of credit and
our accounts receivable securitization facility. Our revolving line of credit,
provided there has been no default, carries a variable interest rate based on
either the prime rate or LIBOR. Our securitization facility carries a variable
interest rate based on the commercial paper rate. We currently have $25.3
million in drawings under our securitization facility at October 2, 2004, and a
one percentage point increase in commercial paper rates would increase our
annual interest expense by $253,000.
Item 4. Controls and Procedures.
As required by Rule 13a-15 under the Exchange Act, the Company has carried
out an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. This evaluation was carried out under the supervision and with
the participation of the Company's management, including our Chief Executive
Officer and our Chief Financial Officer. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by
this report. During the Company's first three quarters of 2004, there were no
changes in the Company's internal control over financial reporting that have
materially affected, or that are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in the
Company's reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer as appropriate, to allow timely decisions regarding
disclosures.
21
The Company has confidence in its internal controls and procedures.
Nevertheless, the Company's management, including the Chief Executive Officer
and Chief Financial Officer, does not expect that our disclosure controls and
procedures or our internal controls will prevent all errors or intentional
fraud. An internal control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of such
internal controls are met. Further, the design of an internal control system
must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in all internal control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected.
22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are involved in litigation incidental to our operations. These lawsuits
primarily involve claims for workers' compensation, personal injury, or property
damage incurred in the transportation of freight.
In June and July 2004, three stockholder class actions were filed against
us and certain of our officers and directors. The class actions were filed in
the United States District Court - Western District of Texas and generally
allege that false and misleading statements were made in our initial public
offering registration statement and prospectus, during the period surrounding
our initial pubic offering and up to the Company's press release dated June 16,
2004. The class actions are in the initial phases and we intend to vigorously
defend against the suits. We maintain a directors' and officers' insurance
policy with a $350,000 deductible. We have informed our insurance carrier and
retained outside counsel to assist us in our defense.
On August 9 and 10, 2004, two purported derivative actions were filed
against us, as nominal defendant, and against certain of our officers,
directors, and former directors. These actions were filed in the District Court
of McLennan County, Texas and generally allege breach of fiduciary duty, abuse
of control, gross mismanagement, waste of corporate assets, and unjust
enrichment on the part of certain of our present and former officers and
directors in the period between December 12, 2003 and the present. The purported
derivative actions seek declaratory, injunctive, and other relief.
We believe there is no factual or legal basis for the allegations contained
in the class actions and purported derivative actions. Although it is not
possible at this time to predict the litigation outcome of these cases, we
expect to prevail. However, an adverse litigation outcome could be material to
our consolidated financial position or results of operations. As a result of the
uncertainty regarding the outcome of this matter no provision has been made in
the consolidated financial statements with respect to this contingent liability.
We are not aware of any other claims that could materially affect our
consolidated financial position or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Not applicable.
(b) Use of Proceeds from Registered Securities.
The effective date of the registration statement relating to our initial
public offering, filed on Form S-1 under the Securities Act (File No.
333-109068), was December 11, 2003. A total of 9,775,000 of our common shares
were sold. The managing underwriters for the offering were Bear, Stearns & Co.
Inc., BB&T Capital Markets, a division of Scott & Stringfellow, Inc., Legg Mason
Wood Walker, Incorporated, Morgan Keegan & Company, Inc., and Stephens Inc.
The offering commenced on December 11, 2003, and has been completed. Of the
8,500,000 shares of common stock registered, 5,700,000 shares were offered and
sold by us and 2,800,000 shares were offered and sold by Jerry Moyes and certain
trusts for the benefit of Mr. Moyes and his family, as selling shareholders. The
aggregate offering price of shares sold by us was $85,500,000. The underwriting
discount on those shares was $5,985,000. We incurred approximately $1,881,000 of
other expenses in connection with the offerings. The net proceeds to us totaled
approximately $77,634,000. We did not receive any of the proceeds from the sale
of shares by the selling stockholders.
Approximately $49.6 million of the proceeds we received have been used to
repay debt, including: (a) $30.5 million under our accounts receivable
securitization facility; (b) $17.1 million under secured equipment and terminal
notes; and (c) $2.0 million under secured capital leases. As of October 2, 2004,
we had used approximately $9.0 million for the acquisition of certain assets of
EOFF. We expect to use an additional $1.0 million in connection with this
acquisition. We have also used another $10.6 million, in the first nine months
of 2004, to acquire two terminals and purchase used and new revenue equipment.
23
(c) Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
Exhibit No. Description
3.1 Amended and Restated Articles of Incorporation of Central Freight
Lines, Inc., a Nevada corporation. (Incorporated by reference to
Exhibit 3.1(b) to the Company's Registration Statement on Form
S-1 No. 333-109068.)
3.2 Bylaws of Central Freight Lines, Inc., a Nevada corporation.
(Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 No. 333-109068.)
4.1 Amended and Restated Articles of Incorporation of Central Freight
Lines, Inc., a Nevada corporation. (Incorporated by reference to
Exhibit 3.1 to this Report on Form 10-Q.)
4.2 Bylaws of Central Freight Lines, Inc., a Nevada corporation.
(Incorporated by reference to Exhibit 3.2 to this Report on Form
10-Q.)
10.4(a) First Amended and Restated Revolving Credit Loan Agreement,
dated July 28, 2004, by and between Central Freight Lines, Inc.,
a Texas corporation, and Suntrust Bank, a Georgia state banking
corporation. (Incorporated by reference to Exhibit 10.4(a) to the
Company's Report on Form 10-Q for the quarterly period ended July
3, 2004, filed with the Securities and Exchange Commission on
August 13, 2004.)
10.4(b) Revolving Credit Note, dated July 28, 2004, by Central Freight
Lines, Inc., a Texas corporation, in favor of Suntrust Bank, a
Georgia state banking corporation. (Incorporated by reference to
Exhibit 10.4(b) to the Company's Report on Form 10-Q for the
quarterly period ended July 3, 2004, filed with the Securities
and Exchange Commission on August 13, 2004.)
10.5 Guaranty, dated July 28, 2004, by Central Freight Lines, Inc., a
Nevada corporation, in favor of Suntrust Bank, a Georgia state
banking corporation. (Incorporated by reference to Exhibit 10.5
to the Company's Report on Form 10-Q for the quarterly period
ended July 3, 2004, filed with the Securities and Exchange
Commission on August 13, 2004.)
10.6 Security Agreement, dated July 28, 2004, by and between Central
Freight Lines, Inc., a Texas corporation and Suntrust Bank, a
Georgia state banking corporation. (Incorporated by reference to
Exhibit 10.6 to the Company's Report on Form 10-Q for the
quarterly period ended July 3, 2004, filed with the Securities
and Exchange Commission on August 13, 2004.)
24
31.1* Certification pursuant to Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, by Robert V. Fasso, the Company's Chief Executive Officer.
31.2* Certification pursuant to Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, by Jeffrey A. Hale, the Company's Chief Financial Officer.
32.1* Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by
Robert V. Fasso, the Company's Chief Executive Officer.
32.2* Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by
Jeffrey A. Hale, the Company's Chief Financial Officer.
* Filed herewith.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Quarterly Report to be signed on its
behalf by the undersigned thereunto duly authorized.
November 16, 2004
Central Freight Lines, Inc.
/s/ Jeffrey A. Hale
Jeffrey A. Hale
Senior Vice President and Chief Financial Officer
26
Exhibit 31.1
CERTIFICATION
I, Robert V. Fasso, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Central Freight
Lines, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 16, 2004
/s/ Robert V. Fasso
Robert V. Fasso
Chief Executive Officer
27
Exhibit 31.2
CERTIFICATION
I, Jeffrey A. Hale, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Central Freight
Lines, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 16, 2004
/s/ Jeffrey A. Hale
Jeffrey A. Hale
Chief Financial Officer
28
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Central Freight Lines, Inc. (the
"Company") on Form 10-Q for the period ended October 2, 2004, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Robert
V. Fasso, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Robert V. Fasso
Robert V. Fasso
Chief Executive Officer
November 16, 2004
29
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Central Freight Lines, Inc. (the
"Company") on Form 10-Q for the period ended October 2, 2004, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey
A. Hale, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Jeffrey A. Hale
Jeffrey A. Hale
Chief Financial Officer
November 16, 2004
30