10-Q 1 q310q02.txt CURRENT REPORT 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 quarterly period ended September 30, 2002 -------------- 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 in its charter) Texas 75-1301831 ----------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 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 such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No As of November 6, 2002, 16,799,000 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 - September 30, 2002 and December 31, 2001 2 Consolidated Condensed Statements of Income - Three and nine months ended September 30, 2002 and 2001 3 Consolidated Condensed Statements of Cash Flows - Nine months ended September 30, 2002 and 2001 4 Notes to Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 Item 4. Controls and Procedures 11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 Certifications 12 FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Condensed Balance Sheets (Unaudited) Sep. 30, Dec. 31, 2002 2001 ------- ------- Assets (In thousands) Current assets Cash and cash equivalents $ 10,188 $ 3,236 Accounts receivable, net 46,528 39,600 Inventories 6,380 7,409 Tires 5,010 4,558 Other current assets 7,113 5,246 ------- ------- Total current assets 75,219 60,049 Property and equipment, net 61,769 55,154 Other assets 11,978 11,334 ------- ------- $148,966 $126,537 ======= ======= Liabilities and Shareholders' Equity Current liabilities Trade accounts payable $ 23,112 $ 19,056 Accrued claims liabilities 5,247 7,960 Accrued payroll 4,556 5,471 Current maturities of long-term debt -- 250 Other 1,613 2,188 ------- ------- Total current liabilities 34,528 34,925 Long-term debt 20,000 1,750 Accrued claims liabilities and other 16,544 15,286 ------- ------- 71,072 51,961 ------- ------- Shareholders' equity Common stock 25,921 25,921 Paid-in capital 2,779 3,753 Retained earnings 53,230 50,403 ------- ------- 81,930 80,077 Less - Treasury stock 4,036 5,501 ------- ------- Total shareholders' equity 77,894 74,576 ------- ------- $148,966 $126,537 ======= ======= See accompanying notes. FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Condensed Statements of Income Three and Nine Months Ended September 30, 2002 and 2001 (Unaudited) Three Months Nine Months ------------------- ------------------- 2002 2001 2002 2001 ------ ------ ------- ------- (In thousands, except per-share amounts) Revenue Freight revenue $88,282 $83,903 $250,156 $246,835 Non-freight revenue 4,573 14,226 10,284 40,055 ------- ------- ------- ------- 92,855 98,129 260,440 286,890 ------- ------- ------- ------- Costs and expenses Freight operating expenses Salaries, wages and related expenses 23,225 22,158 68,975 66,105 Purchased transportation 21,230 18,890 57,686 55,963 Supplies and expenses 25,848 25,213 72,825 75,890 Revenue equipment rent 5,738 7,107 20,579 19,913 Depreciation 3,607 2,994 9,204 8,560 Communications and utilities 1,001 984 2,917 3,026 Claims and insurance 4,907 4,932 11,686 12,670 Operating taxes and licenses 1,042 995 3,077 2,803 Miscellaneous expense, net 641 258 1,650 1,493 ------- ------- ------- ------- 87,239 83,531 248,599 246,423 Non-freight costs and operating expenses 5,659 13,780 11,731 39,624 ------- ------- ------- ------- 92,898 97,311 260,330 286,047 ------- ------- ------- ------- (Loss)income from operations (43) 818 110 843 Interest and other expense, net 497 344 1,250 1,255 ------- ------- ------- ------- (Loss) income before income tax (540) 474 (1,140) (412) (Benefit from)provision for income tax (3,923) 197 (3,967) (53) ------- ------- ------- ------- Net income(loss) $ 3,383 $ 277 $ 2,827 $ (359) ======= ======= ======= ======= Net income(loss) per share of common stock Basic $ .20 $ .02 $ .17 $ (.02) ======= ======= ======= ======= Diluted $ .20 $ .02 $ .17 $ (.02) ======= ======= ======= ======= Weighted average shares outstanding Basic 16,604 16,388 16,545 16,364 ======= ======= ======= ======= Diluted 16,741 16,405 16,691 16,364 ======= ======= ======= ======= See accompanying notes. FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows Nine Months Ended September 30, 2002 and 2001 (Unaudited) 2002 2001 ---- ---- (In thousands) Net cash provided by operating activities $ 6,564 $ 4,001 ------ ------ Cash flows from investing activities Expenditures for property and equipment (23,121) (9,518) Proceeds from sale of property and equipment 6,020 4,878 Other (511) (872) ------ ------ Net cash used in investing activities (17,612) (5,512) ------ ------ Cash flows from financing activities Borrowings under revolving credit agreement 35,700 17,000 Payments against revolving credit agreement (17,700) (16,000) Net treasury stock activity -- 259 ------ ------ Net cash provided by financing activities 18,000 1,259 ------ ------ Net increase (decrease) in cash and cash equivalents 6,952 (252) Cash and cash equivalents at January 1 3,236 1,222 ------ ------ Cash and cash equivalents at September 30 $ 10,188 $ 970 ====== ====== See accompanying notes. FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements September 30, 2002 and 2001 (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). 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 accounting principles generally accepted in the United States of America, 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 April 9, 2002, 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 September 30, 2002 and December 31, 2001, respectively, there were 16,773,000 and 16,573,000 shares of our common stock outstanding. 3. COMMITMENTS AND CONTINGENCIES ----------------------------- We have accrued for costs related to liability, cargo and work-related injury claims which had occurred prior to the date of the financial statements. Some of these 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: 2002 2001 ------- ------ For the three months ended September 30 137,000 17,000 For the nine months ended September 30 146,000 -- 5. INCOME TAXES ------------ During the third quarter of 2002, we reported a benefit from income taxes of $3.9 million. In certain prior years, we recorded income tax deductions for interest paid on loans against insurance policies as allowed under the U.S. Tax Code. Due to the uncertainty of such deductions, we maintained a $4 million reserve for the contingent expense that could have resulted from any related tax assessments. By September 30, 2002, the risk of a tax assessment had ended and the reserve for any related expense was no longer required. Accordingly, during the quarter ended September 30, 2002, we reversed the amount of the reserve as a non-recurring reduction of our income tax expense. 6. 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 activities relating to the sale and service of air conditioning and refrigeration components. Following is information for each reportable segment for the three and nine- month periods ended September 30, 2002 and 2001 (in millions): Three Months Nine Months ------------- ------------- 2002 2001 2002 2001 ----- ------ ------ ------ Freight Operations Total Revenue $ 88.3 $ 83.9 $250.2 $246.8 Operating Income 1.0 0.4 1.6 0.4 Total Assets 148.2 138.4 148.2 138.4 Non-Freight Operations Total Revenue $ 4.6 $ 16.4 $ 10.3 $ 43.6 Operating Income (1.1) 0.4 (1.4) 0.4 Total Assets 18.5 29.9 18.5 29.9 Intercompany Eliminations Revenue $ -- $ (2.2) $ -- $ (3.5) Operating Income -- -- -- -- Total Assets (17.7) (22.9) (17.7) (22.9) Consolidated Revenue $ 92.9 $ 98.1 $260.4 $286.9 Operating Income -- 0.8 0.1 0.8 Total Assets 149.0 145.4 149.0 145.4 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. 7. NEW ACCOUNTING STANDARDS ------------------------ In July 2001 the Financial Accounting Standards Board issued SFAS No. 142 "Goodwill and Other Intangible Assets" (FAS 142). Under this pronouncement, which we adopted as of January 1, 2002, goodwill and intangible assets with indefinite lives are not amortized but are to be 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. The impact of adopting FAS 142 on our consolidated financial statements was not significant because the amount of goodwill and other intangible assets in our financial statements is minimal. We did not experience a significant impact from the adoption of FAS 142. 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 nine-month periods ended September 30, 2002 and 2001. Three Months Nine Months ------------- --------------- 2002 2001 2002 2001 ---- ---- ---- ---- Salaries, wages and related expenses 26.3% 26.4% 27.6% 26.8% Purchased transportation 24.0 22.5 23.1 22.7 Supplies and expenses 29.3 30.1 29.1 30.7 Revenue equipment rent 6.5 8.5 8.2 8.1 Depreciation 4.1 3.6 3.7 3.5 Claims and insurance 5.6 5.9 4.7 5.1 Other 3.0 2.6 3.0 2.9 ---- ---- ---- ---- Total freight operating expenses 98.8% 99.6% 99.4% 99.8% ==== ==== ==== ==== Third Quarter of 2002 vs. 2001 During the third quarter of 2002, our freight revenue increased by $4.4 million as compared to the third quarter of 2001 to $88.3 million. Non- freight revenue aggregated 4.9% and 14.5% of total revenue during the third quarter of 2002 and 2001, respectively. Excluding the impact of reduced fuel adjustment revenue, during the third quarter of 2002, freight revenue improved by $5.2 million or 6.4% when compared with the third quarter of 2001. Full truckload revenue rose by $4.4 million between the third quarters of 2001 and 2002, on an 8.4% increase in the number of full truckload shipments we transported. Also excluding the impact of reduced fuel adjustment charges, revenue from our less-than-truckload (LTL) activities improved by 3.7% between the third quarters of 2001 and 2002 to $24.7 million. During 2001, and through the first quarter of 2002, the number of LTL shipments we transported fell significantly from comparable prior-year levels. However, during the third quarter of 2002, we hauled 1.7% more LTL shipments than during the third quarter of 2001, and the average weight of those shipments was 3% more than it was during the comparable quarter of last year. 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. In recent years, as LTL activity and revenue 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. We are starting to see some diminished pressure on our freight rates which has negatively impacted our results during recent years. As market conditions permit, during 2002, we have begun to increase certain of our freight rates. The number of tractors in our fleet of company-operated, full-truckload equipment increased from approximately 1,300 at the beginning of 2002 to about 1,320 by the end of the third quarter of 2002. As of September 30, 2001 we had approximately 1,280 such trucks. The number of full-truckload tractors provided to us by owner-operators has increased in 2002 by 100 to about 610. As of September 30, 2001, there were approximately 560 tractors in our owner-operator-provided full-truckload fleets. The increased number of company-operated full-truckload tractors resulted from an increase in the level of our dedicated fleet operations. Full-truckload activities, which contributed more than 70% of freight revenue during the third quarters of both 2002 and 2001, 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 third quarter of 2002, the percent of freight revenue absorbed by salaries, wages and related expense was 26.3%, as compared to 26.4% during the year-ago quarter. Of the $1.1 million increase in salaries, wages and related expense, about 50% was related to increased driver payroll expenses and about 33% was related to increased payroll for non-driver employees. The remainder was due to increases in other costs associated with employment, such as health insurance and payroll taxes. Purchased transportation expenses primarily represent payments to owner- operators who own trucks which we use to haul some of our freight. Owner- operators are responsible for all costs and expenses associated with the operation of their trucks including fuel, maintenance, insurance and labor. During the third quarter of 2002, purchased transportation expenses increased by $2.3 million, or 12% when compared to the year-ago quarter. We have increased the size of our owner-operator provided full-truckload fleet during 2002 by about 100 units, or nearly 20%. Virtually all of that increase occurred during the third quarter of 2002. The increase in the size of the owner-operator provided full-truckload fleet was a primary contributor to the increase in purchased transportation expense. Supplies and expenses primarily represent costs we incur for fuel, maintenance, tires, driver over-the-road expenses and freight handling expenses. Such costs are for company-operated equipment. Supplies and expenses increased by $635,000 between the third quarters of 2001 and 2002. The amount we spent for fuel to operate the company-operated fleet declined by $115,000 or 1% between the quarters. Although per-gallon costs we paid for fuel decreased by 3% during the third quarter of 2002 as compared to the same quarter of 2001, the average number of miles traveled by our fleet increased. Sudden and dramatic fuel price volatility enhances or diminishes 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. During the third quarter of 2002, our equipment repair expenses increased by about $500,000 as compared to the year-ago quarter. Much of this increase is related to our having extended the length of time we keep tractors before turning them in. The total of depreciation and revenue equipment rent expense fell from 12.1% of freight revenue for the third quarter of 2001 to 10.6% for the comparable 2002 quarter. This change resulted primarily from the increased use of owner-operator provided trucks in our full-truckload operations. Claims and insurance expense was $4.9 million during the third quarter of 2002, about the same as the third quarter of 2001. Claims and insurance expense was about 50% more than in 2002's second quarter. During 2002's third quarter, one of our trucks was involved in a major accident. The accident resulted in significant injuries to several occupants of the other vehicle. That event was the primary contributor to the increase in claims and insurance expenses during the third quarter of 2002. Factors mitigating the impact of the July 2002 accident included improvement with regard to cargo and physical damages claims. Operating income from our freight hauling activities increased by $671,000 or 180% to $1,043,000 during the three months ended September 30, 2002 as compared to the second quarter of 2001. During the third quarter of 2002, our non-freight operation incurred a loss of $1,086,000, as compared to an operating profit of $446,000 in the same quarter of 2001. We sold most of our non-freight business in December of 2001. The remaining business has significant inventories of refrigeration equipment and air conditioning parts that are slow-moving. Because customer demand for such parts is usually strongest during the summer and early fall we intensified our efforts to sell these parts during this year's third quarter. Our success was limited by a number of factors. Accordingly, during the third quarter of 2002, we lowered our expectations about how much those parts are worth, and we recorded as expense the difference between the amount we expect to receive on sale or other disposition of the parts and what we paid for them. The inventory write-down was the cause of our third quarter loss from non-freight operations. Including the results from both freight and non-freight operations, our loss from operations for the third quarter of 2002 was $43,000 as compared to an operating profit of $818,000 for the same period of 2001. Interest and other expense, net rose from $344,000 to $497,000 between the two quarters. Although the interest expense we have incurred on our debt decreased by $90,000 to $145,000 the components of miscellaneous non-operating expenses related to certain life insurance investments rose by about $200,000 between the two quarters. We incurred a pre-tax loss of $540,000 during the third quarter of 2002 as compared to pre-tax income of $474,000 during the comparable 2001 period. During the third quarter of 2002, we reported a benefit from income taxes of $3.9 million. In certain prior years, we recorded income tax deductions for interest paid on loans against insurance policies as allowed under the U.S. Tax Code. Due to the uncertainty of such deductions, we maintained a $4 million reserve for the contingent expense that could have resulted from any related tax assessments. By September 30, 2002, the risk of a tax assessment had ended and the reserve for any related expense was no longer required. Accordingly, during the quarter ended September 30, 2002, we reversed the amount of the reserve as a non-recurring reduction of our income tax expense. Under accounting principles generally accepted in the United States of America, if we can reliably estimate our expectations of full year pre-tax and taxable income, we are obligated to record our interim period income tax expense based on that full year estimate. Because we are at this time unable to reliably predict our full year pre-tax and taxable income (or loss), we have computed our year-to-date income tax expense based on our year-to-date pre-tax and taxable income. First Nine Months of 2002 vs. 2001 Items not specifically discussed with regard to the nine-month period fluctuated on a year-to-date basis in a manner and for reasons similar to those outlined in the above discussion regarding the three-month period. Excluding the impact of decreased fuel adjustment charges, for the first nine months of 2002, revenue from our full-truckload operations rose by $7.7 million, or 4.4%, while revenue from our LTL operations rose by $350,000 or 0.5%, in each case when compared to the prior year comparable period. Including the impact of fuel adjustment charges, total freight revenue increased by $3.3 million, or 1.3%. For the nine months ended September 30, 2002, salaries, wages and related expenses were 27.6% of freight revenues as compared to 26.8% for the comparable year-ago period. Total salaries and wages increased by 4.3%, but salaries for employee-drivers, which represent more than half of the total, increased by only 2.3% between the nine-month periods ender September 30, 2002 and 2001. Non-driver payroll costs rose by 4.8%, primarily due to merit increases. On a year-to-date basis, costs associated with work-related injuries have increased about $700,000 in 2002 vs. 2001. In December 2001, we sold the largest component of our non-freight operations. The business we sold is a dealership engaged in the sale and service of refrigeration equipment and of trailers used in freight transportation. Products offered included trailers manufactured by Wabash and mobile trailer refrigeration machinery manufactured by Carrier Transicold. Because revenue and expenses from the dealership were present in our financial statements during 2001, but not in 2002, our non-freight revenue has declined by $29.8 million this year. However, our non-freight expense fell by only $27.9 million between the same two periods. Our remaining non-freight operation is engaged in the sale and service of air conditioning and refrigeration components. For the first nine months of 2002, we incurred an operating loss from our non-freight activities of $1.4 million as compared to an operating profit of $431,000 during the first nine months of 2001. This substantially offset the $1.1 million increase in operating income from our freight activities between the same periods. Because we carry large deductibles for personal injury claims, insurance premiums are not a primary determinant of claims and insurance expense. Individual events which result in our exposure for significant liability for personal injury occur infrequently. Because of this irregular timing of larger claims, our claims and insurance expense will demonstrate significant volatility over time. Accordingly, during 2002, 42% of our September 30 year-to-date claims and insurance expense was incurred during the third quarter as compared to 39% during 2001. During the first nine months of 2002, we reported a benefit from income taxes of $4.0 million. In certain prior years, we recorded income tax deductions for interest paid on loans against insurance policies as allowed under the U.S. Tax Code. Due to the uncertainty of such deductions, we maintained a $4 million reserve for the contingent expense that could have resulted from any related tax assessments. By September 30, 2002, the risk of a tax assessment had ended and the reserve for any related expense was no longer required. Accordingly, during the quarter ended September 30, 2002, we reversed the amount of the reserve as a non-recurring reduction of our income tax expense. 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 seasonally high levels of receivables and, with regard to non-freight operations, inventory are present. In May of 2002, we entered into a new $40 million 3-year credit facility with Comerica Bank-Texas and LaSalle Bank. The new credit agreement is initially secured by our accounts receivable. To the extent that our receivables do not support our borrowing needs, we may, subject to the $40 million limit, pledge a portion of our tractors or trailers to support additional borrowing. The new agreement limits capital expenditures, our ability to pay dividends and the amount of fixed charges and debt we may incur. At September 30, 2002, we had long-term debt of $20 million. The unused portion of the company's $40 million revolving credit facility was approximately $15 million. Also, as of September 30, 2002 we had $10.2 million of cash on hand. On October 1, 2002, we repaid $7 million of our debt, which we expect lower our borrowing costs for the balance of the year. During the nine months ended September 30, 2002, net cash provided by operating activities was $6.6 million as compared to $4.0 million in 2001. 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. As of September 30, 2002, our working capital was $40.7 million as compared to $25.1 million at the end of 2001. This includes an increase of $7.0 million in the amount of our cash and cash equivalents. On October 1, 2002, we repaid $7 million of our long-term debt. Also serving to increase working capital at September 30, 2002 was a seasonal increase in our accounts receivable. 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, but not limited to, 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk As of September 30, 2002, debt stood at $20 million, which approximated fair market value. We sponsor a Rabbi Trust for the benefit of participants in a supplemental executive retirement plan. As of September 30, 2002, the trust had about 133,000 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. We own life insurance policies that have cash surrender value. The investment returns earned by the insurance company serve to pay insurance costs and increase cash surrender value, which is a key determinant of the amount that we could receive pursuant to the policy as of the date of our financial statements. Accordingly, changes in the market value of and returns from those investments could impact the value of our life insurance policies. We held no other material market risk sensitive instruments (for trading or non-trading purposes) that would involve significant relevant market risks, such as equity price risk. Accordingly, the potential loss in our future earnings resulting from changes in such market rates or prices is not significant. Item 4. Controls and Procedures Within 90 days prior to the date of filing of this report, the company carried out an evaluation, under the supervision and with the participation of the company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of, the design and the operation of the company's disclosure controls and procedures pursuant to Exchange Act Rules 13a-14 and 15d-14. Based on the evaluation, the company's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC's rules and forms. There have been no significant changes in the company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation. PART II - OTHER INFORMATION Items 1, 2, 3, 4 and 5 of Part II are omitted due to a lack of updated information to disclose pursuant to said items. Item 6. Exhibits and reports on Form 8-K. a. Exhibits None b. On July 16, 2002, we filed a current report on Form 8-K announcing a change in our certified independent public accountant, which we amended on a Form 8-K/A filed on July 19, 2002. On August 15, 2002 we filed a current report on Form 8-K in which we filed the certifications as of June 30, 2002 of our Chief Executive Officer (as Exhibit 99.1) and our Chief Financial Officer (as Exhibit 99.2) pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Frozen Food Express Industries, Inc. ------------------------------------ (Registrant) November 12, 2002 By: /s/ Stoney M. Stubbs, Jr. ------------------------------------ Stoney M. Stubbs, Jr. Chairman of the Board and Chief Executive Officer November 12, 2002 By: /s/ F. Dixon McElwee, Jr. ------------------------------------ F. Dixon McElwee, Jr. Senior Vice President and Chief Financial Officer CERTIFICATION I, Stoney M. Stubbs, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Frozen Food Express Industries, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies (if any) in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Stoney M. Stubbs, Jr. ------------------------- Stoney M. Stubbs, Jr. Chairman of the Board and Chief Executive Officer See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002, which is filed on Form 8-K on the date of this report. CERTIFICATION I, F. Dixon McElwee, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Frozen Food Express Industries, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entites, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors(or persons performing the equivalent function): a) All significant deficiencies (if any) in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ F. Dixon McElwee, Jr. ------------------------- F. Dixon McElwee, Jr. Senior Vice President and Chief Financial Officer See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002, which is filed on Form 8-K on the date of this report.