-----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, W2p0ZdlG3Yk9Mm5N1LOEMRvuxWDriQ95ftXc2PJMcDZ7KdGzarmyN9tV/mFCw2WX mweM77oiSZVKpHkEqQcuPw== 0000039273-01-500018.txt : 20010815 0000039273-01-500018.hdr.sgml : 20010815 ACCESSION NUMBER: 0000039273-01-500018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FROZEN FOOD EXPRESS INDUSTRIES INC CENTRAL INDEX KEY: 0000039273 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 751301831 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10006 FILM NUMBER: 1707808 BUSINESS ADDRESS: STREET 1: 1145 EMPIRE CENTRAL PLACE CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146308090 10-Q 1 q2q01.txt 2ND QUARTER 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended June 30, 2001 -------------------------------------------------------------- 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 1-10006 Frozen Food Express Industries, Inc. --------------------------------------------------------------- (Exact name of registrant as specified on its charter) Texas 75-1301831 --------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1145 Empire Central Place Dallas, Texas 75247-4309 --------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (2l4) 630-8090 --------------------------------------------------------------- (Registrant's telephone number, including area code) None --------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. [X] Yes [ ] No As of August 6, 2001, 16,515,000 shares of the Registrant's Common Stock, $1.50 par value, were outstanding. INDEX PART I - FINANCIAL INFORMATION Page No. -------- Item l. Financial Statements Consolidated Condensed Balance Sheets - June 30, 2001 and December 31, 2000 2 Consolidated Statements of Income - Three and six months ended June 30, 2001 and 2000 3 Consolidated Condensed Statements of Cash Flows - Six months ended June 30, 2001 and 2000 4 Notes to Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II - OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders 11 FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Condensed Balance Sheets (In thousands) (Unaudited) June 30, Dec. 31, 2001 2000 Assets ------ ------ Current assets Cash $ 699 $ 1,222 Accounts receivable, net 48,073 47,652 Inventories 16,942 17,208 Tires 4,144 4,424 Other current assets 6,676 7,546 ------- ------- Total current assets 76,534 78,052 Property and equipment, net 59,502 61,899 Other assets 14,999 14,778 ------- ------- $151,035 $154,729 ======= ======= Liabilities and Shareholders' Equity Current liabilities Trade accounts payable $ 24,709 $ 22,209 Accrued claims liabilities 6,930 8,101 Accrued payroll 5,679 5,834 Other 2,817 4,892 ------- ------- Total current liabilities 40,135 41,036 Long-term debt 14,000 14,000 Other and deferred credits, net 15,585 17,676 ------- ------- Total liabilities & deferred credits 69,720 72,712 ------- ------- Shareholders' equity Common stock 25,921 25,921 Paid-in capital 4,087 4,655 Retained earnings 57,311 58,187 ------- ------- 87,319 88,763 Less - Treasury stock 6,004 6,746 ------- ------- Total shareholders' equity 81,315 82,017 ------- ------- $151,035 $154,729 ======= ======= See accompanying notes. FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per-share amounts) (Unaudited) For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------ ----------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenue Freight revenue $ 84,623 $ 81,033 $162,932 $157,924 Non-freight revenue 14,650 18,966 25,829 34,491 ------- ------- ------- ------- 99,273 99,999 188,761 192,415 ------- ------- ------- ------- Costs and expenses Freight operating expenses Salaries, wages & related expenses 22,032 21,586 43,947 42,405 Purchased transportation 19,247 20,011 37,073 38,070 Supplies and expenses 26,769 22,923 50,677 44,755 Revenue equipment rent 6,684 6,328 12,806 12,581 Depreciation 2,822 2,888 5,566 5,895 Communications & utilities 1,079 1,183 2,042 2,355 Claims and insurance 4,700 3,841 7,738 7,220 Operating taxes & licenses 791 1,358 1,808 2,766 Miscellaneous expense, net 304 (135) 1,235 804 ------- ------- ------- ------- 84,428 79,983 162,892 156,851 Non-freight costs & operating expenses 13,989 18,112 25,844 33,402 ------- ------- ------- ------- 98,417 98,095 188,736 190,253 ------- ------- ------- ------- Income from operations 856 1,904 25 2,162 Interest and other expense, net 661 745 1,375 1,869 ------- ------- ------- ------- Income (loss) before income tax 195 1,159 (1,350) 293 Provision for (benefit from) income tax 67 406 (474) 103 ------- ------- ------- ------- Net income (loss) $ 128 $ 753 $ (876) $ 190 ======= ======= ======= ======= Net income(loss) per share of common stock Basic $ .01 $ .05 $ (.05) $ .01 ======= ======= ======= ======= Diluted $ .01 $ .05 $ (.05) $ .01 ======= ======= ======= ======= Weighted average shares outstanding Basic 16,360 16,321 16,351 16,320 ======= ======= ======= ======= Diluted 16,375 16,372 16,351 16,354 ======= ======= ======= ======= See accompanying notes. FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (In thousands) (Unaudited) For the Six Months Ended June 30, --------------------- 2001 2000 ---- ---- Net cash provided by operating activities $ 3,336 $ 7,450 ------ ------ Cash flows from investing activities Expenditures for property & equipment (4,791) (3,908) Proceeds from sale of property & equipment 1,835 4,640 Other (1,084) (3,175) ------ ------ Net cash used in investing activities (4,040) (2,443) ------ ------ Cash flows from financing activities Borrowings under revolving credit agreement 8,000 17,000 Payments against revolving credit agreement (8,000) (19,500) Net treasury stock activity 181 (43) ------ ------ Net cash provided by (used in) financing activities 181 (2,543) ------ ------ Net (decrease) increase in cash and cash equivalents (523) 2,464 Cash and cash equivalents at January 1 1,222 1,613 ------ ------ Cash and cash equivalents at June 30 $ 699 $ 4,077 ====== ====== See accompanying notes. FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements June 30, 2001 and 2000 (Unaudited) 1. BASIS OF PRESENTATION --------------------- These consolidated financial statements include Frozen Food Express Industries, Inc. (FFEX) and its subsidiary companies, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and have not been audited by independent public accountants. In the opinion of management, all adjustments (which consisted only of normal recurring accruals) necessary to present fairly our financial position and results of operations have been made. Pursuant to SEC rules and regulations, certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements unless significant changes have taken place since the end of the most recent fiscal year. We believe that the disclosures contained herein, when read in conjunction with the financial statements and notes included, or incorporated by reference, in our Form 10-K filed with the SEC on March 27, 2001, are adequate to make the information presented not misleading. It is suggested, therefore, that these statements be read in conjunction with the statements and notes (included, or incorporated by reference), in our report on Form 10-K. 2. SHAREHOLDERS' EQUITY -------------------- As of June 30, 2001 and December 31, 2000, respectively, there were 16,506,000 and 16,395,000 shares of our common stock outstanding. 3. COMMITMENTS AND CONTINGENCIES ----------------------------- We have accrued for costs related to liability, cargo and work-related injury claims, some of which involve litigation. The aggregate amount of these claims is significant. In the opinion of management, these actions can be successfully defended or resolved, and any additional costs incurred over amounts accrued will not have a material adverse effect on our financial position, cash flows or results of operations. 4. EARNINGS PER SHARE ------------------ Common stock equivalents included in diluted weighted average shares, all of which result from dilutive stock options were as follows (in thousands): 2001 2000 ---- ---- For the three months ended June 30 15,000 51,000 For the six months ended June 30 - 34,000 5. OPERATING SEGMENTS ------------------ Our operations consist of two reportable segments. The freight segment is engaged primarily in the motor carrier freight transportation business. The smaller segment is primarily engaged in non-freight business relating to the sale and service of refrigeration equipment and of trailers used in freight transportation. Following is information for each reportable segment for the six-month periods ended June 30, 2001 and 2000 (in millions): June 30, ---------- 2001 2000 ---- ---- Freight Operations Total Revenue $162.9 $157.9 Operating Income - 1.1 Total Assets 145.0 158.8 Non-Freight Operations Total Revenue $ 27.2 $ 35.3 Operating Income - 1.1 Total Assets 31.6 38.4 Intercompany Eliminations Revenue $ (1.3) $ (0.8) Operating Income - - Assets (25.6) (29.0) Consolidated Revenue $188.8 $192.4 Operating Income - 2.2 Assets 151.0 168.2 Intercompany elimination of revenue relates to transfers at cost of inventory such as trailers and refrigeration units from the non-freight segment for use by the freight segment. 6. NEW ACCOUNTING STANDARDS ------------------------ In July 2001 the Financial Accounting Standards Board issued SFAS No. 142 "Goodwill and Other Intangible Assets" (FAS 142). FAS 142 will be effective for fiscal years beginning after December 15, 2001. Under this pronouncement, goodwill and intangible assets with indefinite lives will no longer be amortized but reviewed at least annually for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. In addition, the useful lives of recognized intangible assets acquired in transactions completed before July 1, 2001 will be reassessed and the remaining amortization periods adjusted accordingly. We have evaluated the impact of adopting FAS 142 on our consolidated financial statements and, because the amount of goodwill and other intangible assets in our financial statements is minimal, we do not expect to see a significant impact from the adoption of FAS 142. 7. PRIOR PERIOD AMOUNTS -------------------- Certain amounts reported for prior periods have been reclassified in order to conform with the current period presentation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- The following table sets forth, as a percentage of freight revenue, certain major operating expenses for the three-month and six-month periods ended June 30, 2001 and 2000. Three Months Six Months Ended June 30, Ended June 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- Salaries, wages and related expense 26.0% 26.6% 27.0% 26.9% Purchased transportation 22.7 24.7 22.8 24.1 Supplies and expenses 31.6 28.3 31.1 28.3 Revenue equipment rent 7.9 7.8 7.9 8.0 Depreciation 3.3 3.6 3.4 3.7 Claims and insurance 5.6 4.7 4.7 4.6 Other 2.7 3.0 3.1 3.7 ---- ---- ----- ---- Total freight operating expenses 99.8% 98.7% 100.0% 99.3% ==== ==== ===== ==== Second Quarter of 2001 vs. 2000 - ------------------------------- During the second quarter of 2001, our freight revenue increased by 4.4% to $84.6 million. Non-freight revenue aggregated 14.8% and 19.0% of total revenue during the second quarter of 2001 and 2000, respectively. Approximately 15% of the $5.9 million increase in our full-truckload revenue resulted from increased fuel adjustment revenue during the second quarter of 2001. Also contributing to higher full-truckload revenue were increases in our average length of haul and in the number of shipments transported. Revenue from our less-than-truckload (LTL) activities declined by $2.3 million between the second quarters of 2000 and 2001. Slackening demand for the refrigerated LTL service we offer, reflected by a 12% drop in the number of shipments we hauled, was the primary contributor to this variance. The number of tractors in our fleet of company-operated, full-truckload equipment increased from approximately 1,190 at the beginning of 2001 to about 1,250 by the end of the second quarter. The number of full-truckload tractors provided to us by owner-operators increased by about 40 to about 575. As of June 30, 2000, there were approximately 1,150 and 535 tractors, respectively, in our company-operated and independent contractor-provided full-truckload fleets. The increased number of company-operated full- truckload tractors resulted from an increase in our level of dedicated fleet operations. The increase was also a result of a temporary imbalance between the scheduled retirement and replacement of trucks. The increased number of owner-operator-provided tractors resulted primarily from our continuing efforts to increase the size of the owner-operator full-truckload fleet. Full-truckload activities, which contributed about 73% and 69% of freight revenue during the second quarter of 2001 and 2000, respectively, are conducted primarily with company-operated equipment, while LTL activities are conducted primarily with equipment provided by owner-operators. Changes in the mix of LTL versus full-truckload revenue as well as fluctuations in the amount of total freight handled on company-operated versus owner- operator provided equipment, impact the percent of freight revenue absorbed by the various categories of operating expenses between the two quarters. During the second quarter of 2001, the percent of freight revenue absorbed by salaries, wages and related expense was 26.0%, as compared to 26.6% during the year-ago quarter. Total salaries and wages rose by 2.1%, but payroll expenses related to drivers, which represent more than half of our payroll, increased by 18% between the quarters. The increased driver payroll costs resulted primarily from a general driver pay increase we introduced during the middle of the second quarter of last year. Substantially offsetting the increase in driver pay were reductions in non- driver staffing and improvements regarding work-related injuries. Supplies and expenses rose by $3.8 million between the second quarters of 2000 and 2001. About 45% of this increase was related to fuel consumed by our company-operated fleet. Per-gallon costs we paid for fuel increased by 4.3% during the second quarter of 2001 as compared to 2000. Sudden and dramatic fuel price volatility impacts our profitability. We have in place a number of strategies designed to address such volatility. Owner-operators are responsible for all costs associated with their equipment, including fuel. Therefore, the cost of such fuel is not a direct expense of ours. With regard to fuel expenses for company-operated equipment, we attempt to mitigate the impact of fluctuating fuel costs by purchasing more fuel- efficient tractors and aggressively managing fuel purchasing. Last year, energy prices began to rise at an alarming rate. Pursuant to the contracts and tariffs by which our freight rates are determined, those rates automatically fluctuate as diesel fuel prices rise and fall. Also last year, we began to ask shippers to accept increases in basic freight rates to compensate us for the increased employee-driver payroll costs. Many shippers were not willing to accept those increases. The shippers felt rates had already increased as much as they were willing to pay because of the impact of energy prices. Therefore, for most of 2000 and 2001, we have been forced to incur the increased employee-driver payroll costs with little of the expected offsetting revenue. Future recovery of such labor and fuel cost increases will depend largely on competitive freight market conditions. Purchased transportation, as a percent of freight revenue, fell from 24.7% during the second quarter of 2000 to 22.7% during the comparable 2001 period. Purchased transportation expense includes payments to other service providers such as railroad companies for intermodal services and to other motor carriers for linehaul service involving remote locations where we infrequently provide direct service. Payments to these other service providers have declined significantly during 2001 as compared to 2000. The portion of freight revenue we paid to independent contractors for purchased transportation, as a percent of revenue, has not changed appreciably since last year. The total of depreciation and revenue equipment rent expense fell from 11.4% of freight revenue for the second quarter of 2000 to 11.2% for the comparable 2001 quarter. This change resulted primarily from the increased use of independent contractors in our refrigerated full-truckload operations. Claims and insurance expense rose from 4.7% of freight revenue during the second quarter of 2000, to 5.6% for 2001. The increase resulted from a variety of factors, including but not limited to changes in the frequency of physical damage losses. Our income from operations was $856,000 during the second quarter of 2001 as compared to $1.9 million in the second quarter of 2000. Interest and other expense, net fell from $745,000 to $661,000 between the two quarters. Decreased interest costs associated with lower levels of borrowed funds was the principal factor affecting this decrease. We earned a pre-tax income of $195,000 during the second quarter of 2001 as compared to $1,159,000 during the comparable 2000 period. The provision for income tax was approximately 35% of pre-tax income for both the second quarters of 2001 and 2000. First Six Months of 2001 vs. 2000 - --------------------------------- For the first six months of 2001, revenue from our full-truckload operations rose by $9.9 million, or 9.1%, while revenue from our LTL operations declined by $4.9 million, or 10.1%. Excluding the impact of fuel adjustment charges, freight revenue increased by $2.8 million, or 1.8%. During the first six months of 2001, as compared to 2000, revenue from our non-freight segment fell by $8.7 million, or 25.1%. During the first six months of 2000, our non-freight segment earned an operating profit of $1.1 million, as compared to an operating loss of $15,000 during the comparable 2001 period. Our non-freight segment primarily sells and services trailers and mobile refrigeration equipment. As demand for trucking services has slackened during 2001, so too has the demand for equipment used by providers of such service. This reduction in the demand for the services and products offered by our non-freight segment was a primary contributor to our total revenue and consolidated operating profit during the first six months of 2001. With regard to our freight business, our full-truckload operations have continued to expand during 2001, while our LTL operation has continued to contract. Increased competition from logistics outsourcing and freight consolidators has negatively impacted our penetration of the market for refrigerated LTL services. Slow or negative growth in the demand for such services, together with the increased presence of competitors capable of arranging such services have resulted in a 12.6% decrease in the number of LTL shipments we transported this year, as compared to 2000. While LTL operations offer the opportunity to earn higher revenue on a per-mile and per-hundredweight basis than do full-truckload operations, the level of investment and fixed costs associated with LTL activities significantly exceed those of full-truckload activities. Accordingly, as LTL revenue fluctuates, many costs remain fixed, leveraging the impact from such revenue fluctuations on operating income. During 2001, as LTL activity and revenue have declined, many LTL-related costs have remained static. In order to address this challenge, we are exploring and are implementing a number of strategies designed to reduce the level of fixed costs associated with our LTL operations. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Our primary needs for capital resources are to finance working capital, capital expenditures and, from time to time, acquisitions. Working capital investment typically increases during periods of sales expansion when higher levels of receivables and, with regard to non-freight operations, inventory are present. We had long-term debt of $14 million as of June 30, 2001. The unused portion of the company's $50 million revolving credit facility was approximately $32 million. During the six months ended June 30, 2001, net cash provided by operating activities was $3.3 million as compared to $7.5 million in 2000. This decrease was due primarily to the reduction in our net income as compared to 2000 and the settlement during 2001 of certain accrued liabilities that were recorded as expenses during prior years. We believe that our current cash position, funds from operations, and the availability of funds under our credit agreement will be sufficient to meet anticipated liquidity requirements for the next twelve months. At June 30, 2001, working capital was $36.4 million as compared to $42.2 million at June 30, 2000, and $37.0 million at December 31, 2000. OUTLOOK - ------- Statements contained herein which are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act ("PSLRA") of 1995. Certain statements contained herein including statements regarding the anticipated development and expansion of our business or the industry in which we operate, our intent, plans, belief or current expectations of the company, our directors or our officers, primarily with respect to the future operating performance or our financial position and other statements contained herein regarding matters that are not historical facts, are "forward-looking" statements (as such term is defined in PSLRA). Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied from such forward-looking statements. These risks and uncertainties include competition, weather conditions and the general economy; the availability and cost of labor; interest rates and the company's ability to negotiate favorably with lenders and lessors; the availability and cost of new equipment, fuel and supplies; the market for previously-owned equipment; the impact of changes in the tax and regulatory environment in which we operate, operational risks, insurance and risks associated with the technologies and systems we use. FAIR VALUE OF FINANCIAL INSTRUMENTS - ----------------------------------- As of June 30, 2001, debt stood at $14 million, which approximated fair market value. We sponsor a Rabbi Trust for benefit of participants in a supplemental executive retirement plan. As of June 30, 2001, the trust had about 100,000 shares of our stock. To the extent that trust assets are invested in our stock, our future pre-tax income will reflect changes in the market value of our stock. Other than the impact of our stock owned by the Rabbi Trust, as of June 30, 2001, we held no material market risk sensitive instruments (for trading as well as non-trading purposes) which would involve significant foreign currency exchange rate risk, commodity price risk or other relevant market risks, such as equity price risk. Accordingly, the potential loss to us in future earnings, fair values or cash flows of market risk sensitive investments resulting from changes in interest rates, foreign currency exchange rates, commodity prices and other relevant market rates or prices, other than discussed above, is not significant. PART II - OTHER INFORMATION Items 1, 2, 3, 5 and 6 of Part II are omitted due to a lack of updated information to disclose pursuant to said items. Item 4. Submission of Matters to Vote of Security Holders Our annual meeting of shareholders was held on April 26, 2001. At the meeting, the following persons were elected as directors: Elected Class I Directors to serve until April 2002: Edgar O. Weller and Leroy Hallman Elected Class II Directors to serve until April 2003: F. Dixon McElwee, Jr., Brian Blackmarr and W. Mike Baggett Elected Class III Directors to serve until April 2004: Stoney M. Stubbs, Jr., Charles G. Robertson and T. Michael O'Connor These persons comprise all directors of the company. SIGNATURES - ---------- Pursuant to the requirements of the Securities and Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. Frozen Food Express Industries, Inc. ------------------------------------ (Registrant) August 13, 2001 By: /s/Stoney M. Stubbs, Jr. ------------------------------------ Stoney M. Stubbs, Jr. Chairman of the Board August 13, 2001 By: /s/F. Dixon McElwee, Jr. ------------------------------------ F. Dixon McElwee, Jr. Senior Vice President Principal Financial and Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----