Central Freight Lines (NASDAQ:CENF)
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Central Freight Lines, Inc. Reports Third Quarter Financial
Results; Announces Election of Cam Carruth to Board
WACO, Texas, Nov. 5 /PRNewswire-FirstCall/ -- Central Freight Lines, Inc.
(NASDAQ:CENF) announced today its financial results for the quarter and nine
months ended October 2, 2004. Central also announced today the election of J.
Campbell ("Cam") Carruth, former Chief Executive Officer of US Freightways
Corporation (now USF Corporation), to the Central Board of Directors.
For the third quarter of 2004, Central's operating revenue was $98.5 million on
63 working days, compared to operating revenue of $101.2 million on 64 working
days for the third quarter of 2003. Revenue per working day decreased 1.1% and
total tons hauled per working day decreased 1.5% for the third quarter of 2004
compared to the same period in 2003. LTL revenue per hundredweight increased
2.2% from $11.57 in the 2003 quarter to $11.83 in the 2004 quarter, due to an
increase in fuel surcharge revenue. Excluding fuel surcharge revenue, LTL
revenue per hundredweight was down 1.6% in the 2004 quarter compared to the
2003 quarter.
Consistent with the Company's previous guidance, a net loss of $7.9 million, or
$0.43 per diluted share, was realized in the third quarter of 2004. Pro forma
net income for the third quarter of 2003 was $5.1 million, or $0.43 per diluted
share, using a pro forma tax rate of 39%. Prior to November 1, 2003, the
Company was an S corporation and federal income tax attributes flowed directly
to stockholders.
For the nine months ended October, 2004, operating revenue amounted to $301.1
million, a 0.3% increase over the $300.2 million reported for the same period
in 2003, on one less working day. A net loss of $11.6 million, or $0.65 per
diluted share, was reported for the nine months ended October 2, 2004, compared
to pro forma net income of $6.2 million, or $0.52 per diluted share, for the
same period in 2003.
Central's President and Chief Executive Officer, Bob Fasso, commented on the
Company's results: "The results we announced today are consistent with the
guidance we provided on September 23. As previously discussed, the main areas
of concern were a revenue shortfall relating to lower than acceptable tonnage
and yield and higher than acceptable costs of labor and insurance and claims.
In addition, operating and general supplies and expenses increased
significantly with the majority of the increase being attributable to higher
fuel prices and public company expenses. To address the most pressing issues,
we have initiated a turnaround program based on service, safety, and
productivity throughout our Company.
"During the third quarter we began implementing our service, safety and
productivity measures with the goal of improving our Company for our customers,
for our employees, and for our stockholders. One of our first steps was to
initiate reductions in our cost structure to better align controllable costs
with our expected revenue base. In that regard, we consolidated the operations
of ten terminals into surrounding facilities which had excess capacity and
converted an additional seven terminals into driver- only locations. These
terminal realignments occurred primarily in our recently expanded Northwest and
Midwest regions. Our 2003 and 2004 expansions into new geographical markets
primarily targeted the freight corridors along the I-5 and I-35 interstate
highways, which we continue to believe are important market segments to feed
freight to and from our strong base in the Southwest from Texas to California.
In the Southwest, we also opened a new $7 million, 121-door terminal in Phoenix
to replace an aging, cramped, and inefficient facility. The new Phoenix
facility is already one of our most efficient terminals, and we believe it will
provide benefits in moving freight throughout our terminal network. We are
committed to operating the right terminal network to allow us to provide
superior regional LTL service to customers and provide the proper scale for our
revenue base.
"We have recently reduced our personnel by approximately 310 full time
employees and 220 part time employees attributable to the streamlining of our
terminal network and system wide productivity gains. We also re-engineered
most of the linehaul movements throughout our network to consolidate movements
where possible and reduce our use of third-party purchased transportation.
Compared with the second quarter of 2004, we reduced our combined cost of
salaries, wages, and benefits and purchased transportation by approximately
$5.4 million, on one less working day. This decrease occurred despite an
increase in workers compensation expense of approximately $1.8 million. The
corrective actions were implemented throughout the quarter and are expected to
be more substantial on a full-quarter basis. We continue to focus on our
personnel costs as well as our efficiency, as measured by LTL shipments handled
per person per hour worked, or bills per hour. Our most immediate goal in
terms of personnel efficiency is to return to the average level of bills per
hour that we generated during 2003. For the third quarter of 2004, our
productivity was 4.1% below the 2003 target level. Although it is too early to
determine any long-term trend, we are pleased that productivity as measured by
bills per hour improved 2.3% in October over the third quarter of 2004.
However, this still remains 1.9% below our immediate target.
"The next major area we are addressing relates to insurance and claims. In this
area Central had performed reasonably well in 2003, with insurance and claims
amounting to approximately 4.0% of revenue. In 2004 to date, the level of
follow-through in our claims-related procedures has not been at the level we
desire, which has resulted in far too much expense as well as a customer
service and safety environment that is below our standards. Insurance and
claims increased to 8.8% of revenue in the third quarter of 2004. During the
third quarter, we hired Jeff Jordan from Yellow/Roadway to fill the newly
created position of Director of Claims Prevention. Jeff is leading a Company-
wide effort to prevent and manage claims more effectively. We believe this
will take several months of lead time to return to an acceptable level as the
training is implemented and then translated into results, particularly because
reported claims lag the improvements in process.
"In addition to maintaining gains in productivity and controlling costs, we are
working diligently to increase our revenue yield and the tonnage moving through
our freight network. The Company possesses a newly upgraded fleet, ample
freight capacity and a Company-wide commitment on all levels to offer exemplary
customer service. Communicating to our customers our commitment to satisfying
their needs will be an important part of our efforts. We believe there are two
main issues to address. First, our revenue yield, measured by revenue per
hundredweight, has not kept pace with changes in our freight mix and average
length of haul, as LTL revenue per hundredweight, excluding fuel surcharge
revenue, was down in the 2004 quarter compared to the 2003 quarter, despite an
increase in the average length of haul of 8.1%. Second, our tonnage has
decreased and is still trending down, with the seasonally slower winter months
ahead. We are taking strong steps in the sales and pricing areas. During the
third quarter, Cliff Cordes, who had led our record yield improvements efforts
during 2002 and part of 2003 returned to the position of Vice President of
Pricing after serving as Director of Sales in our Dallas division. In
addition, we re-assigned sales and marketing under the direct supervision of
Walt Ainsworth and myself. Walt and I are personally committed to
re-invigorating our sales effort."
Mr. Fasso concluded his remarks by announcing the election on November 5, 2004
of J. Campbell ("Cam") Carruth to Central's Board of Directors, filling the
vacancy created by the resignation of Duane Acklie on July 12, 2004. Mr.
Carruth formerly served as Chief Executive Officer of US Freightways. Mr.
Fasso stated, "Central's management and Board members are excited to have Cam
join us. With over forty years of experience in the trucking industry, Cam
will be a valuable asset to Central."
At October 2, 2004, Central's consolidated balance sheet reflected $4.2 million
in unrestricted cash, $18.9 million in restricted cash that serves as
collateral for letters of credit, $42.8 million in long-term debt and capital
lease obligations, including current portion, and $26.3 million in short term
debt, of which $18.9 million represents the cash collateral for letters of
credit. Stockholders' equity was $98.7 million at October 2, 2004. The Company
had net capital expenditures, primarily for revenue equipment, of $8.8 million
during the third quarter. During the nine months ended October 2, 2004 net
capital expenditures totaled $22.1 million, primarily for revenue equipment and
the purchase of the Phoenix terminal in the second quarter for $7.1, plus an
additional $9.0 million dollars relating to the purchase of certain assets of
Eastern Oregon Fast Freight (EOFF) in March 2004. The Company expects net
capital expenditures of approximately $13.0 million in the fourth quarter of
2004, excluding the additional $1.0 million that may become due for the EOFF
purchase. Net capital expenditures for 2005 are expected to be in the range of
$15 million to $20 million. The Company is in compliance with the covenants
under its revolving credit facility and accounts receivable securitization
facility, in each case as recently amended. The Company recently completed an
approximately $10.0 million sale-leaseback transaction of revenue equipment,
which will be financed under capitalized leases. In addition, the Company is
evaluating proposals to replace its accounts receivable securitization
facility, which matures on April 27, 2005, and its revolving credit facility
with a facility that will afford greater liquidity.
Central Freight Lines, Inc. is a non-union less-than-truckload carrier
specializing in regional overnight and second day markets. One of the 10
largest regional LTL carriers in the nation, Central provides regional,
interregional, and expedited services, as well as value-added supply chain
management, throughout the Midwest, Southwest, West Coast and Pacific
Northwest. Utilizing marketing alliances, Central provides service solutions
to the Great Lakes, Northeast, Southeast, Mexico and Canada.
This press release contains forward-looking statements that involve risk,
assumptions, and uncertainties that are difficult to predict. Statements that
constitute forward-looking statements are usually identified by words such as
"anticipates," "believes," "estimates," "projects," "expects," "plans,"
"intends," or similar expressions. These statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such statements are based upon the current beliefs and expectations of our
management and are subject to significant risks and uncertainties. Actual
results may differ from those set forth in the forward-looking statements. The
following factors, among others, could cause actual results to differ
materially from those in forward-looking statements: the risk that revenue
growth may be delayed or not occur at all; the risk that improvements in
revenue yield and tonnage growth may be delayed or not occur at all; the risk
that service, safety, and productivity measures will be further delayed or will
not be successfully implemented throughout our operations; the risk that our
cost-cutting measures may have unintended and unforeseen consequences that
adversely affect our business; the risk that recent geographic expansion has
produced or may produce freight imbalances, customer service issues,
operational issues, or other consequences that we cannot manage successfully on
a timely basis or at all; the risk that our insurance and claims costs will
continue to exceed our expectations and will not return to acceptable levels on
a timely basis or at all; the risk that we will be unable to obtain the
financing we are seeking or that it will not be available on acceptable terms;
the risk that operating losses and negative cash flows will continue and will
have a material and adverse result; and the risks detailed from time to time in
reports filed by the Company with the Securities and Exchange Commission,
including forms 8-K, 10-Q, 10-K, and our registration statement on Form S-1.
Corporate Contact:
Jeff Hale, Chief Financial Officer
(480) 361-5295
CENTRAL FREIGHT LINES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share data)
Quarters ended Nine months ended
----------------- ------------------
Oct. 2, Oct. 4, Oct. 2, Oct. 4
------- -------- -------- --------
2004 2003 2004 2003
---- ---- ---- ----
Working Days 63 64 193 194
------- -------- -------- --------
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 50,857
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
Deprecation and amortization 4,408 4,303 12,278 12,861
------- -------- -------- --------
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 before income
taxes (12,691) 8,355 (21,428) 10,495
Income tax:
Income tax benefit (expense) 4,793 (318) 9,858 (449)
------- -------- -------- --------
Net (loss) income $(7,898) $ 8,037 $(11,570) $ 10,046
======= ======== ======== ========
Pro forma C Corporation data
(unaudited):
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
======= ======== ======== ========
(Loss) income per share:
Basic: (0.43) 0.47 ** (0.65) 0.57**
Diluted: (0.43) 0.43 ** (0.65) 0.52**
Weighted average outstanding shares
(in thousands):
Basic 18,158 10,873 17,903 10,870
Diluted 18,158 10,875 17,903 11,909
* YTD 2003 includes a $7,799 gain resulting from amendments to a benefit
plan.
** Calculation based on pro forma net (loss) income.
CENTRAL FREIGHT LINES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 2, 2004 and December 31, 2003
(Unaudited, dollars in thousands, except per share data)
Assets 2004 2003
-------- --------
Cash $ 4,161 $ 41,493
Restricted cash 18,852 ---
Accounts receivable 56,675 51,864
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
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
Other liabilities 22,968 23,055
-------- --------
Total liabilities 144,439 118,935
-------- --------
Total stockholders' equity 98,708 108,438
-------- --------
Total liabilities and stockholders' equity $243,147 $227,373
======== ========
CENTRAL FREIGHT LINES, INC AND SUBSIDIARIES
OPERATING STATISTICS
(Amounts in thousands except where indicated by *)
Quarters ended Nine months ended
-------------- -----------------
Oct. 2, Oct. 4, Oct. 2, Oct. 4,
------- ------- ------- -------
2004 2003 % Change 2004 2003 % Change
---- ---- -------- ---- ---- --------
Operating Ratio 110.9% 89.3% 105.2% 94.0%
Working days 63 64 -1.6% 193 194 -0.5%
LTL bills 889.39 964.15 -7.8% 2,773.57 2,930.63 -5.4%
Total bills 899.19 974.29 -7.7% 2,802.95 2,960.26 -5.3%
LTL tons 390.78 416.56 -6.2% 1,231.20 1,265.16 -2.7%
Total tons 481.00 496.20 -3.1% 1,499.42 1,528.31 -1.9%
LTL revenue per
hundredweight* $11.83 $11.57 2.2% $11.52 $11.25 2.4%
LTL weight per bill
(in pounds)* 879 864 1.7% 888 863 2.9%
Average length of haul
(in miles)* 481 445 8.1% 475 432 10.0%
Fuel surcharge as a %
of total revenue* 5.9% 2.3% 4.5% 2.6%
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DATASOURCE: Central Freight Lines, Inc.
CONTACT: Jeff Hale, Chief Financial Officer of Central Freight Lines,
Inc., +1-480-361-5295, or
Web site: http://www.centralfreight.com/