Presentation to the 2006 Special Committee of the Board of Directors
January 2006
The information contained in this information package should be considered confidential and should not be used for any purposes other than the Special Committee of the Board of Directors’ consideration of this Transaction.
Morgan Keegan & Company, Inc.
Investment Banking
50 North Front Street
19th Floor
Memphis, TN 38103
(901) 524-4100
CONFIDENTIAL
DRAFT

Table of Contents

I. | Transaction Overview | Tab A
II. | Methodology | Tab B
III. | Company Overview | Tab C
IV. | Financial Review | Tab D
V. | Stock Trading Analysis | Tab E
VI. | Valuation | Tab F
| A) Peer Group Analysis |
| B) Precedent Transaction Analysis |
| C) Discounted Cash Flow Analysis |
| D) Purchase Price Premium Analysis |
VII. | Valuation Summary | Tab G
VIII. | Conclusion | Tab H
IX. | Appendix | Tab I
| A) Detailed Peer Group Analysis |

2

Transaction Overview
SECTION I
3

On Thursday, November 10, 2005, Central Freight Lines, Inc. (“CENF” or “the Company”) announced it is considering an offer whereby Jerry Moyes, the Company’s chairman, will acquire the approximately 68.3% of outstanding CENF shares he does not already own (the “Transaction”) for total cash consideration of $2.25 per share (the “Offer Price”). In consideration of this transaction, the Company must take into account the following:
–
Mr. Moyes, including certain trusts of family members related to Mr. Moyes, owns 5,762,351 common CENF shares1. Of the shares attributed to Jerry Moyes, 1,046,002 are held by Jerry and Vickie Moyes as trustees of the Jerry and Vickie Moyes Family Trust, 4,708,348 are held by Gerald F. Ehrlich as trustee of the Moyes Children's Trust and 8,001 shares (all under option) are held by Mr. Moyes individually.
–
The proposed transaction implies an equity and enterprise value of $41.1 million and $101.2 million, respectively, and represents a premium of 27.6% and 16.1% to the most recent 30-day and 90-day average closing share price, respectively.
–
The offer is subject to approval by the Company’s shareholders, funding under the financing commitments and other customary conditions, including regulatory approvals.
Transaction Overview
1 As filed with the SEC, Schedule 14A, April 22, 2005
4

Transaction Valuation
(in thousands, except per share data)
5

Methodology
SECTION II
6

Methodology
In connection with rendering its opinion, Morgan Keegan, among other things:
•
reviewed the proposed terms of the Transaction;
•
reviewed certain publicly available business and financial information relating to the Company;
•
reviewed audited financial results of the Company for fiscal years ended December 2002 through 2004 as well as for the latest unaudited results for the twelve months ended October 1, 2005;
•
reviewed projections prepared by management regarding the Company’s business plan and capital structure and discussed the underlying assumptions and basis for those assumptions with key members of management of the Company;
•
reviewed certain other information provided to us by the Company and discussed the business prospects and financial position of the Company with management;
•
reviewed the reported historical prices and historical trading activity of the Company’s common stock;
•
compared and considered the financial performance of the Company with that of certain other publicly traded companies and their securities;
•
performed such other analyses and considered such other factors as Morgan Keegan deemed appropriate;
•
assumed, with respect to financial forecasts provided to Morgan Keegan that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of management as to future financial performance of the Company;
•
assumed no responsibility for independent verification of any of the foregoing information and relied on its being complete and accurate in all material respects; and
•
made no independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company.
7

Company Overview
SECTION III
8

Headquartered in Waco, Texas, Central Freight Lines, Inc. is a regional less-than-truckload trucking company that has operations in the Southwest, Northwest, West Coast and Midwest regions of the United States. CENF was organized in 1997 when Jerry Moyes acquired the terminal network and physical assets of the Southwest Division of Viking Freight Lines. The Company completed its initial public offering December 11, 2003 at $15.00 per share. Through the acquisition of East Oregon Freight Service in March of 2004, the Company has expanded its geographic reach in the Western United States. It now offers LTL service through a network of 75 terminals in 20 U.S. states.
Company Overview
As of December 31, 2004, CENF’s fleet was comprised of 779 line haul tractors with an average age of 4.9 years, 1,214 pick-up and delivery tractors with an average age of 5.8 years and 8,624 trailers with an average age of 14.2 years. The Company employs over 3,000 full-time workers and over 500 part-time employees. The retail sector comprises the Company’s largest customer base, with 15.5% of its revenue coming from its top five customers.
CENF Footprint
9

Source: Factset
Total Shares Outstanding = 18.2 million
TOP INSTITUTIONAL HOLDINGS
SHAREHOLDER DISTRIBUTION
INSIDER HOLDINGS1
Ownership Summary
-
Top 5 institutional investors hold approximately 38.5% of total outstanding CENF shares
Source: Factset
1 Excludes options.
10

Financial Review
SECTION IV
11

Annual Financial Highlights
(in millions)
REVENUE
EBITDA
4
Revenue has declined over 5% since FY2003
4
EBITDA has declined approximately 130% since FY2003
12

Annual Financial Highlights
(in millions)
Net Income (Loss)
EBIT
4
EBIT has declined over 225% since FY2003
4
Net loss has increased from approximately breakeven in FY2003 to a loss of over $39 million for the twelve-month period ending October 1, 2005
13

Quarterly Financial Highlights
(in millions)
REVENUE
EBITDA| EBITDA Margin
Net Income
EBIT |Operating Ratio
14

Quarterly Book Value Summary
(in millions, except per share values)
BOOK VALUE(1)
BOOK VALUE / SHARE(1)(2)
(1)
Q3 ’03 book value per S-1 registration statement.
(2)
Based on weighted average diluted shares outstanding at quarter end.
CENF book value continues to erode:
•
Book value has declined approximately 38% from $96.9 million (pro forma for the Company’s initial public offering) at quarter end Q3 2003 to $60.0 million at quarter end Q3 2005
•
Book value per share has declined approximately 66% from $9.61 (pro forma for the Company’s initial public offering) at quarter end Q3 2003 to $3.29 at quarter end Q3 2005
15

Historical Results from Operations
(in thousands, except per share data)
16

Historical Results from Operations
(in thousands, except per share data)
17

Historical Balance Sheet
(in thousands, except per share data)
18

Projected Results from Operations
(in thousands, except per share data)
19

Projected Balance Sheet
(in thousands, except per share data)
20

Stock Trading Analysis
SECTION V
21

Stock Trading Analysis Summary
•
Since the Company’s initial public offering on December 11, 2003, CENF stock has traded between $1.78 (September 1, 2005) and $19.13 (February 20, 2004). The Company’s current stock price, $2.02 as of November 10, 2005, represents a discount of 86.5% from its initial public offering price of $15.00.
•
After the Company’s initial public offering, CENF shares have traded in volumes between 2,061 (February 8, 2005) and 6,497,614 (March 17, 2004). The largest spikes in trading volume have been associated with a drop in share price in conjunction with Company-issued guidance. CENF’s current 90-day average trading volume, as of November 10, 2005 is 64,087.
•
CENF’s stock price is currently trading at 13.5% of its initial public offering level. Over the same period of time, the S&P 500 index has gained approximately 15% and an index of the Company’s peers has gained approximately 48%.
•
In the period since the Company’s initial public offering, CENF’s stock has spent 86.3% of its trading days trading at a level below the initial public offering price of $15.00.
•
The Company’s quarterly revenues, net income and earnings per share have declined since 1Q04, while operating ratios have risen. CENF has released earnings that have missed analyst expectations in each of the last five quarters.
•
Mr. Moyes’ offer was submitted concurrently with the Company’s latest quarterly earnings release; Morgan Keegan believes this offer mitigated a potentially significant drop in CENF’s share price.
22

CENF Share Price / Volume History
(December 11, 2003 – November 10, 2005)
Earnings Release History
23

Relative Share Performance
13.5
114.9
147.9
(December 11, 2003 – November 10, 2005)
Source: Bloomberg
Note: Peer Group includes Arkansas Best Corporation, CNF, Inc., Old Dominion Freight Line, Inc., SCS Transportation, Vitran Corporation and Yellow Roadway Corp.
24

Note: Closing prices split-adjusted
Source: Bloomberg
Trading Volume Analysis
(December 11, 2003 – November 10, 2005)
25

Valuation
SECTION VI
26

Peer Group Analysis
27

Peer Group Analysis
Overview
•
Morgan Keegan assessed the relative value of the Company based on certain publicly traded companies that were deemed to be comparable to the Company (the “Peer Group”).
•
Morgan Keegan assumed CENF’s Peer Group included Arkansas Best Corporation; CNF, Inc.; Old Dominion Freight Line, Inc.; SCS Transportation and Vitran Corporation.
•
Morgan Keegan derived valuation multiples by analyzing the Peer Group’s available financial information and, if applicable, applied these valuation multiples to the Company’s LTM results.
•
In addition, Morgan Keegan applied certain multiples of current enterprise value and current market value to projected, select Peer Group financial results to CENF management’s projected FY2005 and FY2006 results to reach an implied equity value, if applicable.
•
Certain multiples were excluded due to the unprofitable nature of the Company’s operations:
-
For FY2005, multiples of enterprise value to EBITDA and EBIT as well as multiples of equity value to net income and price to earnings were not applicable.
-
For FY2006, multiples of enterprise value to EBIT as well as multiples of equity value to net income and price to earnings were not applicable.
28

Peer Group Analysis
(in thousands, except per share data)
29

Peer Group Analysis
(in thousands, except per share data)
30

Peer Group Analysis
Conclusion
•
No company analyzed in the Peer Group was identical to CENF.
•
Morgan Keegan applied selected median valuation multiples derived from the Peer Group for the LTM period October 1, 2005, projected FY2005 and projected FY2006 to selected Company financial results.
•
Morgan Keegan specifically analyzed each applicable financial metric as well as analyzed the Peer Group Analysis as a whole. However, as the Company continues to generate significant operating losses, Morgan Keegan believes multiples of market value to book value to be the most appropriate metric to calculate an implied per-share equity value for CENF.
•
Based on the median LTM, projected 2005 and 2006 median market value to book value multiples for the Peer Group, Morgan Keegan calculated an implied per-share equity value ranging from $1.62 to $7.25.
•
The Offer Price represents between a premium of 38.9% to a discount of 69.0% to Morgan Keegan’s derived range of per-share equity values.
•
CENF maintains off-balance sheet lease arrangements for the majority of its terminals; the Company’s competitors typically either own their respective terminals or maintain their terminals under capitalized lease obligations. As such, Morgan Keegan believes any multiples of market value to book value derived from the Peer Group should be discounted prior to being applied to the Company’s current or projected book value.
31

Precedent Transaction Analysis
32

Precedent Transaction Analysis
Overview
•
Morgan Keegan researched previous transactions (the “Precedent Transactions”) that have taken place in CENF’s industry and similar industries.
•
Morgan Keegan derived multiples of equity value and enterprise value to selected target company financial information from these Precedent Transactions.
•
Selected multiples of equity value and enterprise value were then applied to CENF’s relevant financial information to derive an implied per-share equity value for CENF.
33

Precedent Transaction Analysis
(in thousands, except per share data)
34

Precedent Transaction Analysis
(in thousands, except per share data)
Conclusion
•
No transaction analyzed was identical to the proposed Central Freight Lines Transaction.
•
Morgan Keegan applied the median valuation multiples derived from the Precedent Transactions to the Company’s LTM EBITDA and EBIT and current book value.
•
Due to the Company’s negative EBITDA and EBIT for the LTM period, Morgan Keegan was unable to calculate an implied equity value using these measures. As such, Morgan Keegan believes that multiples of market value to book value to be the most appropriate metric to calculate an implied per-share equity value for CENF.
•
Based on the median market value to book value for the Precedent Transactions and the Company’s current book value (at October 1, 2005), Morgan Keegan calculated an implied per-share equity value of $6.26.
•
Based on this analysis, the Offer Price represents a discount of 64.1% to Morgan Keegan’s derived per-share equity value.
•
CENF maintains off-balance sheet lease arrangements for the majority of its terminals; the Company’s competitors typically either own their respective terminals or maintain their terminals under capitalized lease obligations. As such, Morgan Keegan believes any multiples of market value to book value derived from the precedent transactions should be discounted prior to being applied to the Company’s current or projected book value.
35

Discounted Cash Flow Analysis
36

Discounted Cash Flow Analysis
Overview
•
Morgan Keegan performed a discounted cash flow analysis (“DCF”) using CENF management’s projected unlevered cash flows for the projected years ending December 31, 2006 through 2009.
•
Morgan Keegan utilized a range of discount rates based on the Company’s weighted average cost of capital to calculate the present value of projected cash flows. Additionally, Morgan Keegan utilized a range of terminal multiples of EBITDA and EBIT to calculate an implied terminal value. This terminal value was then discounted based on the aforementioned range of discount rates.
•
Due to management’s projected operating losses in FY2006 and the current net operating losses that could be carried forward and applied to future earnings, Morgan Keegan assumed CENF will pay zero income taxes in FY2006 through FY2009.
•
Projected cash flows were discounted back to January 3, 2006.
•
Morgan Keegan used a range of discount rates from 10.0% to 14.0%.
37

Discounted Cash Flow Analysis
(in thousands, except per share data)
(1)
Assumes CENF generates a net operating loss totaling approximately $38.9 million in FYE 2005 and 2006. Assumed net operating loss is applied as a reduction to FYE 2007, 2008 and 2009 unlevered net income before taxes.
38

Implied Enterprise and Equity Value
(in thousands, except per share data)
39

Implied Equity Value per Share
40

Discounted Cash Flow Analysis
Conclusion
•
The DCF valuation is highly dependent on a number of factors, including, but not limited to, the validity of management’s projections. Morgan Keegan assumed management’s projections were reasonably prepared and reflect their best available estimate and judgment regarding the future financial performance of the Company.
•
Based on management’s projections, a range of discount rates from 10.0% to 14.0% and a range of terminal multiples applied to 2009 EBITDA, this analysis implies a range of equity value of $2.66 to $7.35 per share.
•
Based on management’s projections, a range of discount rates from 10.0% to 14.0% and a range of terminal multiples applied to 2009 EBIT, this analysis implies a range of equity value of $2.78 to $6.02 per share.
•
Based on a terminal multiple of EBITDA, the Offer Price represents between a 15.5% and 69.4% discount to the implied per-share equity values.
•
Based on a terminal multiple of EBIT, the Offer Price represents between a 19.1% and 62.7% discount to the implied per-share equity values.
41

Premium Analysis
42

Premium Analysis
Overview
•
Morgan Keegan researched previous transactions in which the target company was publicly traded and that have taken place in CENF’s industry. Additionally, Morgan Keegan analyzed numerous general industrial transactions.
•
Morgan Keegan found the premium the acquirer paid on a per-share basis for the target company’s stock for a variety of time frames preceding the announcement of the acquisition.
•
These premiums were then applied to CENF’s stock price based on these selected time frames to derive an implied per-share equity value for the Company.
43

Selected Trucking Transactions
(CY2000 – CY2005)
44

Selected Industrial Transactions
(CY2000 – CY2005)
45

Selected Industrial Transactions
(CY2000 – CY2005)
46

Premium Analysis
Conclusion
•
No transaction analyzed, or resulting implied premium, was identical to the proposed Transaction.
•
While transactions involving similar companies to CENF as well as general industrial transactions were analyzed, Morgan Keegan placed a greater emphasis on implied premiums related to historical trucking and trucking-related transactions.
•
Based on Morgan Keegan’s analysis, the median premium to the 1-Day, 5-Day average and 30-Day average stock price was 28.5%, 34.9% and 39.1% for trucking transactions. These premiums imply a share price of $2.73 to $2.96. These share prices represent a premium of 21.3% to 31.6% to the Offer Price.
•
However, due to CENF’s historical and projected unprofitable financial results, Morgan Keegan believes the implied premiums paid should be discounted accordingly before being applied to the Company’s current share price.
•
Additionally, Morgan Keegan believes that Mr. Moyes’ offer established a price floor for CENF shares. Had Mr. Moyes delayed the submission of his offer until after the Company’s earnings release for the quarterly period ended October 1, 2005, CENF’s share price would have likely decreased, which would have resulted in a higher implied premium based on the Offer Price.
•
The Offer Price represents a premium of 27.6% and 16.1%, respectively, to the Company’s most recent 30-day and 90-day average closing share price.
47

Valuation Summary
SECTION VII
48

Valuation Summary
•
Morgan Keegan placed a greater emphasis on the selected analyses as a whole than on any individual analysis.
•
CENF has significantly underperformed its Peer Group and Morgan Keegan believes the Company’s implied equity and enterprise value should be discounted accordingly; however, the selected analyses presented herein and the implied per-share equity values derived from these analyses do not include any discounts to any financial metrics.
•
The selected analyses performed yielded an average and median per-share equity value of $4.42 and $4.58, respectively, which represents a 76.8% and 103.6% premium, respectively, to the Offer Price.
49

Valuation Considerations
•
Due to CENF’s historical unprofitable financial performance and the continued erosion of the Company’s share price, Morgan Keegan does not believe fundamental financial metrics such as multiples of enterprise value to EBITDA and EBIT, which are traditionally used to value companies similar to CENF, can be applied to the Company’s current or projected financial results to yield an accurate per-share equity value.
•
These fundamental financial metrics were incorporated throughout the financial analyses presented herein, however, Morgan Keegan placed a greater emphasis on implied multiples of market value (share price) to book value (book value per share) to yield a range of per-share equity values for CENF.
•
Additionally, Morgan Keegan believes the Company’s book value remains depressed irrespective of its continued operating losses as it maintains off-balance sheet arrangements for the majority of its terminals. Each of the Company’s publicly-traded peers trades at a significantly higher multiple of market value to book value than does CENF. As such, Morgan Keegan believes an implied valuation for CENF’s common stock based on multiples of market value to book value derived from the Peer Group or similar, precedent transactions should be discounted accordingly.
•
Since its initial public offering in December 2003, CENF’s book value has continued to decline. management’s projections estimate that book value will continue to erode through FY2007. While the Offer Price represents a 31.5% discount to current book value per share ($3.29 per share), it represents a significant premium to projected FY2006 and FY2007 book value per share.
(1) Current book value at October 1, 2005; projected book value per CENF management.
50

Conclusion
SECTION VIII
51

Conclusion
In determining the fairness of the Transaction, from a financial point of view, Morgan Keegan considered various valuation analyses, qualitative considerations and characteristics of the Transaction related to the current position of the CENF’s common stockholders:
•
Morgan Keegan performed various valuation analyses incorporating numerous selected financial metrics in order to derive an implied per-share equity value for the Company. Due to the Company’s history of unprofitable financial results and the significant decline in CENF share price, Morgan Keegan believes that traditional financial metrics used to value less-than-truckload carriers do not provide an accurate estimate of the intrinsic value of CENF’s common stock. As such, Morgan Keegan placed a greater emphasis on the Company’s book value in order to derive a per-share value for CENF’s common stock.
•
CENF’s book value has declined continuously since FY2003. Book value at October 1, 2005, was approximately 45% less than book value at December 31, 2003. Book value per share has declined approximately 60% from $8.30 per share at December 31, 2003, to $3.29 per share at October 1, 2005. Additionally, management projects a continued decline in book value through FY2007. management estimates that book value will continue to erode to approximately $25.9 million ($1.42 per share) and $20.8 million ($1.14 per share) at year end for FY2006 and FY2007, respectively. While the Offer Price represents a discount of approximately 32% to CENF’s book value per share at October 1, 2005, the Offer Price represents a premium to projected book value at fiscal year end 2006 and 2007 (58.8% and 97.8%, respectively).
•
CENF’s available cash has significantly decreased since the Company’s initial public offering. At October 31, 2005, the Company had approximately $356,000 of cash and cash equivalents. Any further investment in the business will require additional borrowings under the Company’s current credit facility or alternative means of financing. Despite the Company’s recent amendment to its credit facility, which increased available liquidity by $5 million, and its assets held for sale, the Company may not have access to sufficient capital to remain a going concern. Should CENF seek bankruptcy protection and/or choose to liquidate assets, any incremental borrowings could reduce the residual value available to common shareholders.
•
Morgan Keegan also took into account the Company’s continued loss in market capitalization. Shares of CENF common stock have lost a significant majority of their value since the Company’s initial public offering in December 2003, declining in price from $15.00 (IPO offer price) to $1.62 (January 3, 2006). Had Mr. Moyes not submitted his offer concurrently with CENF’s earnings announcement for the quarterly period ended October 1, 2005, which effectively established a temporary price floor for the Company’s common stock, Morgan Keegan believes the price for CENF shares would have declined below current price levels.
52

Appendix
SECTION IX
53

Detailed Peer Group Analysis
54

Peer Group Analysis
55

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