-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DzF6Hd5vOYi6M4TS/3Qzf6n9dS6J2pU19gXKmZ6hH+7lNNePXn4aPR2hANWMkRHO vjXb8u5u7cyR2ZZJBZwcnQ== 0001008886-04-000240.txt : 20041019 0001008886-04-000240.hdr.sgml : 20041019 20041019154704 ACCESSION NUMBER: 0001008886-04-000240 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041018 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041019 DATE AS OF CHANGE: 20041019 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COVENANT TRANSPORT INC CENTRAL INDEX KEY: 0000928658 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 880320154 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24960 FILM NUMBER: 041085253 BUSINESS ADDRESS: STREET 1: 400 BIRMINGHAM HIGHWAY CITY: CHATTANOOGA STATE: TN ZIP: 37419 BUSINESS PHONE: 4238211212 MAIL ADDRESS: STREET 1: 400 BIRMINGHAM HIGHWAY CITY: CHATTANOOGA STATE: TN ZIP: 37419 8-K 1 form8koct2004.txt FORM 8-K OCTOBER 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): October 18, 2004 COVENANT TRANSPORT, INC. (Exact name of registrant as specified in its charter) Nevada 000-24960 88-0320154 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 400 Birmingham Hwy., Chattanooga, TN 37419 (Address of principal executive offices) (Zip Code) (423) 821-1212 (Registrant's telephone number, including area code) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Section 1. Registrant's Business and Operations Item 1.01 Entry into a Material Definitive Agreement. Not applicable. Item 1.02 Termination of a Material Definitive Agreement. Not applicable. Item 1.03 Bankruptcy or Receivership. Not applicable. Section 2. Financial Information Item 2.01 Completion of Acquisition or Disposition of Assets. Not applicable. Item 2.02 Results of Operations and Financial Condition. On Monday, October 18, 2004, Covenant Transport, Inc., a Nevada corporation (the "Company"), issued a press release (the "Earnings Release") announcing its financial and operating results for the quarter and nine month period ended September 30, 2004, after the close of the market. A copy of the Earnings Release is attached to this report as Exhibit 99.1. On Tuesday, October 19, 2004, the Company held a conference call to discuss the Earnings Release and other matters. The prepared remarks for the conference call, which contain certain statistical and financial data in addition to that contained in the Earnings Release, are attached to this report as Exhibit 99.2. In addition, on October 6, 2004, the Company issued a press release (the "Pre-Release") announcing updated earnings guidance for the quarter ended September 30, 2004. A copy of the Pre-Release is attached to this report as Exhibit 99.3. The Earnings Release, prepared remarks for the conference call, and Pre-Release also are available on the Company's website, www.covenanttransport.com, under "Investor Relations-Press Releases." The information contained in this report and the exhibits hereto shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. The information in this report and the exhibits hereto may contain "forward-looking statements" that are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995 and otherwise may be protected. Such statements are made based on the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Actual results may differ from those anticipated by forward-looking statements. Please refer to the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission for information concerning risks, uncertainties and other factors that may affect future results. Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. Not applicable. Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement. Not applicable. Item 2.05 Costs Associated with Exit or Disposal Activities. Not applicable. Item 2.06 Material Impairments. Not applicable. Section 3. Securities and Trading Markets Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing. Not applicable. Item 3.02 Unregistered Sales of Equity Securities. Not applicable. Item 3.03 Material Modification to Rights of Security Holders. Not applicable. Section 4. Matters Related to Accountants and Financial Statements Item 4.01 Changes in Registrant's Certifying Accountant. Not applicable. Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. Not applicable. Section 5. Corporate Governance and Management Item 5.01 Changes in Control of Registrant. Not applicable. Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers. Not applicable. Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. Not applicable. Item 5.04 Temporary Suspension of Trading Under Registrant's Employee Benefit Plans. Not applicable. Item 5.05 Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics. Not applicable. Section 6. [Reserved] Section 7. Regulation FD Item 7.01 Regulation FD Disclosure. Not applicable. Section 8. Other Events Item 8.01 Other Events. Not applicable. Section 9. Financial Statements and Exhibits Item 9.01 Financial Statements and Exhibits. (a) Financial statements of businesses acquired. Not applicable. (b) Pro forma financial information. Not applicable. (c) Exhibits. EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- --------------------------------------------------------------- 99.1 Covenant Transport, Inc. press release announcing financial and operating results for the quarter and nine month period ended September 30, 2004 99.2 Prepared remarks for conference call concerning financial and operating results for the quarter and nine month period ended September 30, 2004 99.3 Covenant Transport, Inc. press release announcing updated earnings guidance for the quarter ended September 30, 2004
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. COVENANT TRANSPORT, INC. Date: October 19, 2004 By: /s/ Joey B. Hogan ------------------------------------------------- Joey B. Hogan Executive Vice President and Chief Financial Officer EXHIBIT INDEX EXHIBIT NUMBER EXHIBIT DESCRIPTION ------ ----------------------------------------------------------- 99.1 Covenant Transport, Inc. press release announcing financial and operating results for the quarter and nine month period ended September 30, 2004 99.2 Prepared remarks for conference call concerning financial and operating results for the quarter and nine month period ended September 30, 2004 99.3 Covenant Transport, Inc. press release announcing updated earnings guidance for the quarter ended September 30, 2004
EX-99 2 exhibit991.txt EXHIBIT 99.1 Exhibit 99.1 COVENANT TRANSPORT ANNOUNCES THIRD QUARTER FINANCIAL AND OPERATING RESULTS CHATTANOOGA, TENNESSEE - October 18, 2004 - Covenant Transport, Inc. (Nasdaq/NMS:CVTI) announced today financial and operating results for the quarter and nine month period ended September 30, 2004. For the quarter, net income increased 17%, to $4.7 million from $4.1 million in 2003, and diluted earnings per share increased 14%, to $.32 from $.28 in 2003. The third quarter of 2004 was negatively impacted by $.02 per share relating to the previously announced interest cost on a proposed disallowed deduction by the IRS, and the third quarter of 2003 had been positively impacted by a $.01 per share adjustment for interest rate changes under FAS 133. The Company's announced guidance had been a range of $.32 to $.36 per share before the effect of the $.02 per share interest charge. Total revenue for the quarter increased 4%, to $151.9 million from $146.5 million in 2003. Freight revenue, before fuel surcharges, remained essentially constant at $140.6 million in the 2004 quarter and $140.3 million in the 2003 quarter. The Company measures freight revenue, before fuel surcharges, because management believes that fuel surcharges tend to be a volatile source of revenue and that removal of such surcharges affords a more consistent basis for comparing results of operations from period to period. For the first nine months, net income increased 22%, to $9.9 million from $8.1 million in 2003, and diluted earnings per share increased 20%, to $.66 from $.55 in 2003. Total revenue increased 2%, to $439.4 million from $430.3 million during the same period of 2003. Freight revenue, before fuel surcharges, remained essentially constant at $411.3 million in the 2004 period and $410.1 million in the 2003 period. Chairman, President, and Chief Executive Officer David R. Parker stated, "Our results were within the range of guidance we previously announced and reflect continued improvement in our operating margin. We have been executing a strategy based on constraining our fleet size and improving our asset productivity, with the goal of returning to an operating ratio (operating expenses as a percentage of total revenue) of below 90%. For the third quarter, our operating ratio was 92.7%, the first time it has been under 93% since the fourth quarter of 1999. This reflected an improvement of 130 basis points over the 94.0% operating ratio we posted in the third quarter of 2003. Our operating results reflected a good freight environment for most of the quarter as well as high fuel prices and tough competition for drivers. As previously announced, freight demand was strong during the quarter except for a soft spot during August. Our business mix reflected a continuation of our trend toward a shorter length of haul and more dedicated routes as we allocate our capacity toward more productive customers and lanes. We are maintaining our historical focus on a substantial transcontinental team operation, but we are shifting a meaningful portion of medium length of haul movements toward shorter lengths of haul. The general effects on our business have been higher rates offset partially by lower mileage utilization and an increase in non-revenue miles. Overall, we believe the shift has been a major factor in the improvements in Covenant's profitability over the past several quarters. For the quarter, we increased our average freight revenue per loaded mile 11.9% compared with the third quarter of 2003, primarily because of a favorable relationship between freight demand and available truck capacity. Average freight revenue per total mile increased 10.5%, reflecting a modest increase in non-revenue miles associated with a decrease in our average length of haul. Average freight revenue per tractor per week, our main measure of asset productivity, increased 2.2%, reflecting higher rates partially offset by fewer average miles per tractor. Our mileage utilization was negatively impacted by our shorter average length of haul, a decrease in the percentage of team-driven tractors, and an increase in the percentage of our tractors that did not have drivers. On the expense side, our after-tax costs increased almost 10%, or $.11 per mile compared with the third quarter of 2003. The main factors were a $.044 increase in compensation expense driven primarily by increases in driver pay, a $.029 increase in fuel cost per mile net of fuel surcharge recovery, and an approximately $.022 per mile increase in our cost of insurance and claims resulting from an increase in our accrual rate for accidents. One positive development was that the increase in our ownership and operating costs associated with our tractor/trailer fleet has begun to flatten out as the maintenance savings of a newer fleet are offsetting more of the increased capital and trade-in costs of acquiring the new fleet. At September 30, 2004, the average age of our tractor and trailer fleets were 1.5 years and 2.7 years, respectively, compared with 2.1 years and 4.1 years, respectively, a year ago. Looking forward, we believe driver availability will continue to be the most pressing issue facing Covenant and the industry for the foreseeable future. We expect competition for quality drivers to remain intense and that driver numbers will be the most substantial limiting factor on capacity growth. We expect many carriers to use future rate increases to increase driver compensation. Also, the actuarial study of our claims accruals that we previously announced has not been completed. We expect the results of the study to be available during the fourth quarter. Our balance sheet remains strong. At September 30, 2004, we had $201.9 million in stockholders' equity and $60.2 million in balance sheet debt, for a debt-to-total capitalization ratio of 23%." The Company will be hosting a conference call on Tuesday, October 19, 2004, at 10:00 a.m. EDT. The public will be able to listen and participate in the call telephonically by dialing 800-603-1780 access code 1462406. For more information on how to access the conference call and for statistical and financial information regarding the Company that is expected to be discussed during the conference call, please visit our website at www.covenanttransport.com. Covenant Transport, Inc. is a public truckload carrier that offers just-in-time service and other premium transportation services for customers throughout the United States. Covenant operates one of the ten largest fleets in North America. The Company's Class A common stock is traded on the Nasdaq National Market under symbol, "CVTI." 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: excess tractor or trailer capacity in the trucking industry; decreased demand for our services or loss of one or more of our major customers; surplus inventories; recessionary economic cycles and downturns in customers' business cycles; strikes, work slow downs, or work stoppages at the Company, customers, ports, or other shipping related facilities; increases or rapid fluctuations in fuel prices as well as fluctuations in hedging activities and surcharge collection; the volume and terms of diesel purchase commitments; interest rates, fuel taxes, tolls, and license and registration fees; increases in the prices paid for new revenue equipment and changes in the resale value of our used equipment; increases in compensation for and difficulty in attracting and retaining qualified drivers and independent contractors; elevated experience in the frequency and severity of claims relating to accident, cargo, workers' compensation, health, and other claims; high insurance premiums; fluctuations in claims expenses that result from high self-insured retention amounts and differences between estimates used in establishing and adjusting claims reserves and actual results over time; seasonal factors such as harsh weather conditions that increase operating costs; competition from trucking, rail, and intermodal competitors; regulatory requirements that increase costs or decrease efficiency, including revised hours-of-service requirements for drivers; the ability to successfully execute the Company's initiative of improving the profitability of medium length of haul movements; and the ability to identify acceptable acquisition candidates, consummate acquisitions, and integrate acquired operations. Readers should review and consider these factors along with the various disclosures by the Company in its press releases, stockholder reports, and filings with the Securities Exchange Commission. For further information contact: Joey B. Hogan, Executive VP and Chief Financial Officer (423) 825-3336 hogjoe@covenanttransport.com For copies of Company information contact: Kim Perry, Administrative Assistant (423) 825-3357 perkim@covenanttransport.com Covenant Transport, Inc. Key Financial and Operating Statistics Three Months Ended Sept 30 Nine Months Ended Sept 30 ----------------------------- ----------------------------- ($000s) 2004 2003 % Change 2004 2003 % Change ---- ---- -------- ---- ---- -------- Freight revenue $140,631 $140,313 0.2% $411,257 $410,145 0.3% Fuel surcharge revenue 11,304 6,170 28,192 20,155 -------------------- -------------------- Total revenue $151,935 $146,483 3.7% $439,449 $430,300 2.1% Operating expenses Salaries, wages and related expenses 55,563 55,863 163,899 165,335 Fuel expense 32,893 26,370 90,708 81,660 Operations and maintenance 7,657 10,161 22,851 30,446 Revenue equipment rentals and purchased transportation 16,593 18,634 53,745 50,014 Operating taxes and licenses 3,478 3,343 10,631 10,519 Insurance and claims 9,809 8,240 27,073 25,836 Communications and utilities 1,550 1,868 4,866 5,307 General supplies and expenses 3,422 3,527 10,443 10,526 Depreciation and amortization 10,728 9,991 33,209 31,208 -------------------- -------------------- Total operating expenses 141,693 137,997 417,425 410,851 -------------------- -------------------- Operating income 10,242 8,486 20.7% 22,024 19,449 13.2% Other (income) expenses: Interest expense 708 538 1,971 1,786 Interest income (11) (43) (30) (106) Other 297 (251) (254) (206) -------------------- -------------------- Other (income) expenses, net 994 244 1,687 1,474 -------------------- -------------------- Income before income taxes 9,248 8,242 12.2% 20,337 17,975 13.1% Income tax expense 4,503 4,192 10,484 9,923 -------------------- -------------------- Net income $4,745 $4,050 17.2% $9,853 $8,052 22.4% ==================== ==================== Basic earnings per share $0.33 $0.28 17.9% $0.67 $0.56 19.6% Diluted earnings per share $0.32 $0.28 14.3% $0.66 $0.55 20.0% Weighted avg. common shares outstanding 14,585 14,461 14,634 14,413 Weighted avg. common shares outstanding 14,811 14,692 14,817 14,652 adjusted for assumed conversions Operating statistics excludes fuel surcharges. Net margin as a percentage of freight revenue 3.37% 2.89% 2.40% 1.96% Average revenue per loaded mile $1.410 $1.260 11.9% $1.368 $1.255 9.0% Average revenue per total mile $1.285 $1.163 10.5% $1.245 $1.155 7.8% Average revenue per tractor per week $3,035 $2,971 2.2% $2,925 $2,861 2.2% Average miles per tractor per period 31,043 33,568 -7.5% 91,989 96,444 -4.6% Weighted avg. tractors for period 3,524 3,584 -1.7% 3,582 3,665 -2.3% Tractors at end of period 3,517 3,586 -1.9% 3,517 3,586 -1.9% Trailers at end of period 8,847 8,294 6.7% 8,847 8,294 6.7% Sept 2004 Dec 2003 --------- -------- Total assets $351,976 $354,281 Total equity 201,936 192,143 Total debt, including current maturities 60,172 61,653 Debt to Capitalization Ratio 23.0% 24.3%
EX-99 3 exhibit992.txt EXHIBIT 99.2 Exhibit 99.2 3rd Quarter 2004 Conference Call Mr. Hogan - Good Morning - I will begin with financial information and our current expectations for the remainder of 2004. David will follow up with his perspective of the current freight environment, as well as efficiency measures, and driver and equipment updates. I will state in advance that this call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This information is in accordance with the company's current expectations and is subject to certain risks and uncertainties and we would encourage you to review those risks in the company's filings with the Securities Exchange Commission. I would like to begin with some miscellaneous financial information that was not covered in our press release: o End of quarter owner operators - 238, 8% of the miles for this quarter versus 11% of the miles last year. o Revenue equipment - For the quarter, capital expenditures net of dispositions were $18 million. o We averaged for the quarter about 1,040 teams which were 170 fewer than the third quarter of 2003 and about 40 fewer than the second quarter of 2004. o Revenue equipment rental expense was $8.8 million in the third quarter of 2004 compared to $6.9 million in the third quarter of 2003. o An approximate 150 mile per load reduction in our average length of haul was a contributing factor in our deadhead or non revenue miles increasing about 120 basis points to 8.9% from 7.7% last year. o The actuarial study of our claims accruals that we previously announced has not been completed and we expect the results of the study to be available during the fourth quarter. o The third quarter of 2004 includes interest related to a proposed disallowed deduction by the IRS that resulted in an expense of approximately $400,000 or $.02 per diluted share. Excluding the interest expense charge, our earnings would have been $.34 for the quarter. Additionally, last year we had a $.01 per share benefit from a FAS 133 adjustment, so we had a $.03 per share swing in interest expense that's not related to our operations. Regarding expenses, our after-tax cost per mile increased $.11 to $1.242. The three areas that comprised the majority of the increase were driver pay, fuel net of surcharge revenue and insurance. Salaries and wages are up $.044 per mile due to the result of three driver pay increases we instituted this year, and a result of our owner operator fleet being down versus year ago, our company trucks ran 92% of the miles this year versus 89% of the total miles a year ago. Several factors negatively impacted net fuel expense (fuel expense less fuel surcharge revenue) by $2.5 million or $.10 per share. Diesel prices averaged $.39 per gallon higher than the third quarter a year ago and our fuel economy was about 2.5% worse than year ago due to the growth of the 2002 emission compliant engines as a percentage of the total fleet. Our fuel surcharge revenue did help us recover 79% of the increased cost of fuel. The amount we are not able to recover continues to grow as the gross cost of fuel grows as well as the fuel economy of the trucks is worse today due the new emission compliant engines. During the fourth quarter, we will be discussing our new fuel surcharge program with our customers. Our cost of fuel, net of surcharge revenue, for the quarter was $.213 per company mile versus $.189 per company mile in the third quarter of 2003, which is a difference of $.025 per company mile or $.10 per share. Insurance and claims expense is up $.022 per mile versus the same quarter last year. Our accident experience this quarter was good, and was about the same as last year's quarter. However, we had unfavorable development regarding some large older claims that impacted this year's expense. The combination of workers compensation (which is included within salaries and wages) and insurance and claims expense on a per mile basis was the same as the second quarter of 2004. From February 2001 until March of 2003 our deductibles went from $5000 per occurrence to $2 million per occurrence. Due to the rapid increase in deductibles and the size to which our claims accrual has grown, management felt it should obtain an independent study of its reserves and accrual process as one factor to use in evaluating the adequacy of our reserves. The review began in September and we expect it to be completed in the fourth quarter. For the quarter, our balance sheet debt remained essentially constant at $60 million and we paid down $6 million in off balance sheet financing. As of the end of September, we had $202 million in stockholder's equity which resulted in a debt-to-total capitalization ratio of 23%, while our book value per share ended the quarter increased to $13.63 per share. We are pleased about the continued margin improvement that we exhibited in the third quarter. We are still not planning on adding any growth to our fleet until we achieve at least a 90 operating ratio. During the fourth quarter, we expect the fleet to be about the same size as the third quarter, but will down versus the fourth quarter of 2003 by 4% to 5%. For the fourth quarter, we expect our revenue per tractor per week to be up about 1% to 2% over year ago, and our costs to be up about 1% sequentially from the third quarter, mainly because of the full quarter effect of the September driver pay increase. We expect earnings for the fourth quarter will be in the range of $.30 to $.34 per share, excluding any effects of the actuarial study we have mentioned. Capital expenditures, net of proceeds from dispositions, are expected to be in the range of $50 to $55 million for the year of which we have spent $27 million through the nine months of this year. Depending on how we finance the acquisition of revenue equipment, the capital expenditure amount may be off balance sheet in the form of operating leases. Due to the complications of forecasting the business and the time and energy required to monitor internal forecasts compared to external expectations, the fourth quarter of 2004 will be our last quarter of giving out future expectations. Nothing will change regarding our responsiveness to analysts and shareholders questions and requests for investors meetings; we will just not be giving out public guidance anymore. Mr. Parker - Overview of the Quarter Thanks Joey, I continue to see positive moves within our profit improvement objectives in that we were able to improve our operating ratio by 130 basis points, even with a $.10 per share negative impact versus a year ago in fuel, even with 5% to 6% of the fleet unmanned, even with freight slowing slightly during the summer and with us working through four major storms in the southeast during the quarter. Our main accomplishment during the quarter was that we were able to grow our revenue per loaded mile by $.15 per mile or 12% during the quarter, which followed a 10% increase in the second quarter. These increases helped produce an increase in our revenue per truck per week of slightly over 2% to $3,035 per truck. Truck capacity continues to be very tight and requests for dedicated capacity also continue to come in at a very high pace. We believe the combination of improvements in our pricing philosophy and the continuation of the current relationship between demand and truck capacity will enable us to improve our revenue per truck per week throughout the remainder of 2004. On the negative side, our utilization was down. The main issues are a shortage of drivers, fewer teams and a shorter length of haul. The combination of having 5% to 6% of our fleet unmanned versus virtually zero last year and that we have 170 fewer teams than a year ago, negatively impacted our utilization by 7.5% versus a year ago. The open truck situation continues to be a major focus of ours. We have raised driver pay three times this year, while examining traffic lanes and growing our dedicated division in order to improve our drivers' quality of life. After the accessorial pay increase in January and an across the board pay increase in March, we instituted an increase effective September 1 focused on retention of drivers. o Customers and Rates - For the quarter, our top 100 accounts represented 83% of total volume and grew 26%. We have 28 new accounts in the top 100. Excluding the new accounts, the remaining top 100 were up 8%. Obviously with our freight revenue in total being flat with a year ago, and our top 100 accounts growing greatly, we are concentrating our capacity with customers that will pay us a fair price and work with us to increase efficiencies within their supply chain. For the quarter, as a percentage of revenue: Transportation 32% Retail 23% Paper/packaging 12% Food & Beverage 9% Manufacturing 8% Floorcoverings 5% Consumer Goods 4% Auto 3% Housing materials 2% Electronics 2% As we said earlier, our rates are up 12% over year ago. We expect rates for the fourth quarter to be up about 1% sequentially versus the third quarter or about 8% over year ago. We expect the rate of growth over year ago to begin to narrow in future periods because rates really began climbing for us in the fourth quarter of 2003. In fact, rates grew sequentially almost 3% per quarter from the third quarter of 2003 to the fourth quarter of 2003. Our 2004 objectives of growing our rates and our dedicated division continued to unfold throughout the third quarter. Even though our length of haul has declined about 150 miles versus a year ago and contributed to our rate increases, we have raised our rates nicely in all lengths of haul. Particularly, we raised our rates in our medium haul or "tweener" loads by $.09 per mile and the percentage of loads have decreased from 28% in the third quarter of 2003 to 24% in the third quarter of 2004. Our dedicated division has grown by 48% or 180 trucks to 557 trucks since the first quarter of 2004. Also, we are working hard this quarter to roll out a new surcharge program that if successful will cover the rising cost of diesel fuel and the reduced fuel economy of the new 2002 emission compliant engines. o New Engines - We currently have in service almost 2300 or 69% of our company-owned fleet equipped with new emission compliant engines. We continue to be pleased with the performance of the engines versus our expectations. We are currently seeing approximately 4% fuel degradation and no significant maintenance increase versus the pre EGR engines. o That concludes our prepared comments and we will now open up for any questions. EX-99 4 exhibit993.txt EXHIBIT 99.3 Exhibit 99.3 COVENANT TRANSPORT UPDATES THIRD QUARTER EXPECTATIONS CHATTANOOGA, TENNESSEE - October 6, 2004 - Covenant Transport, Inc. (Nasdaq/NMS:CVTI) announced today updated earnings guidance for the third quarter of 2004. The Company expects to release actual results for the quarter and nine months ended September 30, 2004, after the close of the market on October 18. Chairman, President, and Chief Executive Officer David R. Parker stated, "Our present estimate is that earnings per diluted share will be in a range of $.32 to $.36 for the quarter, excluding the effects of an interest accrual we expect to make in connection with the reversal of a tax-planning strategy and the results of an actuarial study presently being conducted on our claims accruals. Our current estimate compares with $.28 per diluted share for the third quarter last year and our guidance given in July that indicated an expected range of $.36 to $.40 for the third quarter of this year. The business environment is good. We experienced a soft spot in August that we did not expect and disruption in freight patterns in the Southeast during August and September due to the hurricanes that affected our equipment utilization, but in general July and September were quite good and October has started out strong. For the quarter, we expect revenue per total mile, excluding fuel surcharge, to improve more than 10% compared with the same period last year. We expect revenue per tractor per week, excluding fuel surcharge, to improve approximately 2%, to approximately $3,025 for the quarter. Excluding the possible effects of the actuarial study mentioned above, we are expecting an operating ratio of approximately 92.7% for the quarter compared with 94.0% for the same quarter last year. In addition to the effects on utilization mentioned above, rapidly escalating fuel costs were the other main factor that influenced the change in our expectations. The national average diesel fuel price, as reported weekly by the United States Department of Energy, increased approximately 30 cents per gallon between July and September. Our fuel surcharge program historically has recovered approximately 70% of the effect of increases in fuel prices over the baseline prices in our contracts. As prices have risen, the effect of the unrecovered portion has grown. Even with fuel surcharge revenue expected to exceed $.10 per mile for the quarter, our net fuel cost, after collection of fuel surcharges, is up 2.5 cents per company mile versus the third quarter of last year. For the quarter, we estimate that the impact of higher fuel prices, after collection of surcharges, is approximately $.10 per diluted share compared with the third quarter last year and approximately $.04 per diluted share greater than we expected based on fuel prices when we issued our guidance in July. The tax item relates to our reversal of a tax planning strategy that was disallowed by the IRS. The strategy accelerated certain deductions. Accordingly, when it was reversed, certain deductions were recognized later than originally recorded, so we will incur interest, but not any penalties, on the reversal. We expect the interest charge to be approximately $400,000 pre-tax, and are in the process of finalizing that amount. During the quarter we engaged an actuarial firm to analyze our claims accruals. Our self insured retention amounts have increased significantly over the past three years, and we believed it was appropriate to engage an outside actuarial firm to review the reserves and methodologies that we employ each quarter in our own analysis. While we believe our claims accrual methods have been prudent, the outside firm's analysis is not yet complete, and we cannot predict whether their analysis will indicate a need for changes in our accruals. All-in-all, although we never like to lower guidance, we feel very good about the progress we are making in our business and the current supply-demand relationship in the freight market." Covenant Transport, Inc. is a public truckload carrier that offers just-in-time service and other premium transportation services for customers throughout the United States. Covenant operates one of the ten largest fleets in North America. The Company's Class A common stock is traded on the NASDAQ National Market under symbol, "CVTI." 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: excess tractor or trailer capacity in the trucking industry; decreased demand for our services or loss of one or more of our major customers; surplus inventories; recessionary economic cycles and downturns in customers' business cycles; strikes, work slow downs, or work stoppages at the Company, customers, ports, or other shipping related facilities; increases or rapid fluctuations in fuel prices as well as fluctuations in hedging activities and surcharge collection; the volume and terms of diesel purchase commitments; interest rates, fuel taxes, tolls, and license and registration fees; increases in the prices paid for new revenue equipment and changes in the resale value of our used equipment; increases in compensation for and difficulty in attracting and retaining qualified drivers and independent contractors; elevated experience in the frequency and severity of claims relating to accident, cargo, workers' compensation, health, and other claims; high insurance premiums; fluctuations in claims expenses that result from high self-insured retention amounts and differences between estimates used in establishing and adjusting claims reserves and actual results over time; seasonal factors such as harsh weather conditions that increase operating costs; competition from trucking, rail, and intermodal competitors; regulatory requirements that increase costs or decrease efficiency, including revised hours-of-service requirements for drivers; the ability to successfully execute the Company's initiative of improving the profitability of medium length of haul movements; and the ability to identify acceptable acquisition candidates, consummate acquisitions, and integrate acquired operations. Readers should review and consider these factors along with the various disclosures by the Company in its press releases, stockholder reports, and filings with the Securities Exchange Commission. For further information contact: Joey B. Hogan, Executive VP and Chief Financial Officer (423) 825-3336 hogjoe@covenanttransport.com -----END PRIVACY-ENHANCED MESSAGE-----