-----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, SnHC7WflD09ZH+QADNZjYy/fOXnFrAm2Ob2lgDRMTCO1otUAqUWTOxtOPAKSDfWV AM8lvp9aT33tSnoU87t/lQ== 0000039273-96-000002.txt : 19960401 0000039273-96-000002.hdr.sgml : 19960401 ACCESSION NUMBER: 0000039273-96-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10006 FILM NUMBER: 96540800 BUSINESS ADDRESS: STREET 1: 1145 EMPIRE CENTRAL PLACE CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146308090 10-K405 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 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 (I.R.S. Employer incorporation or organization) Identification No.) 1145 Empire Central Place, Dallas, Texas 75247-4309 - ---------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 630-8090 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock $1.50 Par Value Nasdaq Stock Market - -------------------------------- ---------------------------------------- Securities registered pursuant to section 12(g) of the Act: None 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. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 08, 1996, 16,394,484 shares of the registrant's common stock, $l.50 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE The sections "Outstanding Capital Stock; Principal Shareholders", "Nominees for Directors", "Executive Compensation", and "Transactions with Management" of the Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 1996, are incorporated by reference into Part III of this Form 10-K. Portions of the Annual Report to Shareholders for the year ended December 31, 1995, are incorporated by reference into Parts I and II of this Form 10-K. FROZEN FOOD EXPRESS INDUSTRIES, INC. Form 10-K For the Fiscal Year Ended December 31, 1995 PART I ITEM 1. BUSINESS. Frozen Food Express Industries, Inc. (the company) is the largest temperature-controlled trucking company in North America. References to the company herein, unless the context requires otherwise, include Frozen Food Express Industries, Inc., and its subsidiaries, all of which are wholly owned. In its 49 years of operation, the company has not experienced an unprofitable year. The company is also the only nationwide, full-service, temperature- controlled trucking company in the United States offering all of the following services: - LESS-THAN-TRUCKLOAD: A load, typically consisting of 18 to 30 shipments, weighing as little as 50 pounds or as much as 20,000 pounds, from multiple shippers destined for various deliveries across the United States, Canada and Mexico. The company's temperature-controlled "LTL" operation is the largest in the United States and the only one offering regularly scheduled nationwide LTL service. The company is the only major LTL carrier which uses multi-compartment refrigerated trailers to carry goods requiring different temperatures on one trailer, enhancing customer service and operating efficiencies. - FULL-TRUCKLOAD: A load, typically weighing between 20,000 and 40,000 pounds and usually from a single shipper, filling the trailer. Normally, a full-truckload has a single destination, although the company is also able to provide multiple deliveries. Management believes the company is one of the five largest temperature-controlled, full-truckload carriers in North America. - DISTRIBUTION: Distribution generally involves the delivery of cargo within a 50-to-75-mile radius of a company terminal. Full-truckload or large LTL loads are divided into smaller shipments at a terminal and delivered by distribution trucks to "end users," such as grocery stores, food brokers or drug stores, typically within a single metropolitan area. 1 Following is a summary of certain financial and statistical data for the years ended December 31, 1991 through 1995 (LTL data also includes distribution shipments):
1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Revenue* Full-truckload $180,598 $163,988 $129,549 $109,178 $103,582 Less-than-truckload 87,783 88,328 80,965 72,864 65,068 Other 23,964 22,304 16,875 12,846 8,345 ------- ------- ------- ------- ------- Total $292,345 $274,620 $227,389 $194,888 $176,995 ======= ======= ======= ======= ======= Operating ratio 94.7% 93.0% 93.2% 94.0% 94.4% Full-truckload Loaded miles* 135,469 121,106 97,753 83,247 80,663 Loads* 142.9 128.1 106.6 92.9 85.5 Revenue per shipment 1,264 1,280 1,215 1,175 1,211 Loaded miles per load 948 945 917 896 943 Less-than-truckload Hundredweight* 8,296 8,670 8,116 6,848 6,211 Revenue per hundredweight 10.58 10.19 9.98 10.64 10.48 Shipments* 292.1 305.2 292.0 253.3 231.3 Revenue per shipment 301 289 277 288 281 * In thousands
Freight revenue, from motor carrier operations, has accounted for more than 90% of total operating revenue during each of the last five years. The percent of total freight revenue contributed by full-truckload operations and by LTL operations during the past five years is summarized below:
Percent of Total Freight Revenue ------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Full-truckload 67% 65% 62% 60% 61% LTL and distribution 33 35 38 40 39 --- --- --- --- --- Total 100% 100% 100% 100% 100% === === === === ===
2 The company offers nationwide "one call does all" services to about 7,000 customers, none of which accounted for more than 10% of total revenue during any of the past five years. During 1994, the company commenced significant expansion of transportation services for customers shipping products to and from Mexico and Canada. Canadian operations are conducted with equipment operating directly under authority of the company. The company does not presently operate its tractors in Mexico. To provide service in Mexico, the company has arrangements with a railroad and Mexico-based motor carriers. Pursuant to these arrangements, the company interchanges its trailers with the Mexico freight service provider for movement within Mexico. During 1994, approximately 6% of freight revenue was derived from international activities, for which the company collects primarily United States currency, principally from United States-based customers. During 1995, continuing efforts to expand international activities were negatively impacted by the late 1994 devaluation of the Mexican peso, which significantly reduced the amount of United States freight destined by all motor carriers to Mexico. TEMPERATURE-SENSITIVE MARKET More than 80% of the cargo transported by the company is temperature- sensitive. Examples are meat, poultry, seafood, processed foods, candy and other confectioneries, dairy products, pharmaceuticals, medical supplies, fruits and vegetables, cosmetics, film, and heat-sensitive aerospace manufacturing materials. The common and contract hauling of temperature-sensitive cargo is highly fragmented, comprised primarily of carriers generating less than $50 million in annual revenue. Industry publications report that only 10 temperature- controlled carriers generated $100 million or more of revenue in 1994. In addition, many major food companies, food distribution firms and grocery chains continue to transport their products with their own fleets ("private carriage"). Increasingly, large shippers are seeking to lower their cost structures by reducing their private carriage capabilities and turning to common and contract carriers ("core carriers") for their transportation needs. As these core carriers continue to improve their service capabilities through such means as satellite tracking and communications systems and electronic data interchange, shippers are expected to reduce their private carriage fleets in favor of common or contract carriage. Management believes that the temperature- controlled private carriage segment accounts for approximately 45% of the total temperature-controlled segment of the motor carrier industry. GROWTH STRATEGY The company has pursued a growth strategy that combines both internal growth and selected acquisitions. Since 1983, the company has purchased certain operating assets of several trucking companies. Among the purchased operations have been four LTL companies, four full-truckload companies and the LTL and distribution assets of a regional company offering temperature- controlled service in the Southeast. 3 During 1987-1988 the company began to commit its own equipment to the temperature-controlled, full-truckload segment. From the beginning of 1988 through 1995, the company-operated, full-truckload tractor fleet increased from 22 units to approximately 1,060 units. Recently, the company has placed renewed emphasis on expanding its fleet of independent contractor ("owner- operator") provided full-truckload tractors. As of December 31, 1995, the company's full-truckload fleet included 407 tractors provided by owner- operators. From 1991 through 1995, revenue from full-truckload operations increased from 61% to 67% of total freight revenue. The management of a number of factors is critical to a trucking company's growth and profitability, including: - DRIVERS: Driver shortages and high turnover can reduce revenue and increase operating expenses through reduced operating efficiency and higher recruiting costs. During the first half of 1992, the company experienced a driver shortage that at various times kept as many as 40 tractors off the road. The company's operations were not significantly affected by driver shortages during 1993, 1994 or 1995. The company maintains an active driver recruiting program and bases its employee-driver incentive pay package on longevity, safety, fuel efficiency and other operational goals. In addition, the company has continued to intensify its recruitment of truck driving school graduates. These "student-drivers" train with an experienced instructor- driver by riding as "second driver" and are paid student-driver wages by the company. They are assigned a tractor only after they have been qualified to become single drivers. At the end of 1995, the company had drivers for all of its tractors and had about 100 student drivers undergoing over-the-road training. - OWNER-OPERATORS: The company actively seeks to expand its fleet with equipment provided by owner-operators. The owner-operator provides the tractor and driver to pull the company's loaded trailer. The owner-operator pays the drivers' wages, fuel, equipment-related expenses and other transportation expenses and receives a percentage of the revenue from each load. At the end of 1995, the company had contracts for 407 owner-operator tractors in its full-truckload divisions and 260 in its LTL operations. The percent of full-truckload and LTL revenue generated from shipments transported by owner-operators during each of the last five years is summarized below:
Percent of Revenue from Shipments Transported by Owner-Operators -------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Full-truckload revenue 24% 22% 23% 26% 25% Less-than-truckload revenue 68% 65% 67% 68% 70%
4 - FUEL: Fuel costs (including fuel taxes) have been relatively stable during the past three years. During previous periods in which fuel prices dramatically increased, the company successfully instituted "fuel adjustment" charges which enabled the company to pass on most fuel price increases to its customers. However, the company's experience is that gradual upward trends in fuel prices are difficult to recover through fuel adjustment charges. Instead, gradually increasing fuel costs must generally be recovered through freight rate increases that, for competitive reasons, may be difficult to obtain. Average per-gallon fuel costs paid by the company declined by 1% during 1994 and were virtually unchanged during 1995. Management's goal is to improve the fuel efficiency of the company's tractors through a combination of purchasing modern equipment with electronically controlled engines and improved vehicular aerodynamics, fuel purchasing programs and employee-driver bonuses based upon fuel efficiency. - RISK MANAGEMENT: Liability for accidents is a significant concern in the trucking industry. Exposure can be large and occurrences unpredictable. The cost and human impact of work-related injury claims are also significant concerns. To address these concerns, the company maintains a risk management program designed to minimize the frequency and severity of accidents and to manage insurance coverage and claims to achieve the least possible cost. As part of the program, the company carries insurance policies under which it retains liability for up to $1 million on each property, casualty and general liability claim, substantially all individual work-related injury claims and $100,000 on each cargo claim. Because of this retained liability, a series of very serious traffic accidents, work-related injury claims or unfavorable developments in or outcomes of existing claims could materially adversely affect the company's operating results. When claims or potential claims arise, the company establishes reserves. As events related to claims evolve, the corresponding reserves are increased or decreased. The company believes that it maintains an effective risk management program and that its reserves are adequate. A major component of the company's risk management program is the enhancement of safety in its operations. The company has a safety department which conducts programs which include driver education and over-the-road observation. All drivers must meet or exceed specific guidelines relating to safety records, driving experience and personal standards, including a physical examination and mandatory drug testing. Drivers must also complete the company's training program, which includes tests for motor vehicle safety and over-the-road driving, and they must have a current Commercial Drivers License before being assigned a tractor. Student drivers undergo a more extensive training program as a second driver with an experienced instructor- driver. In accordance with federal regulations, the company conducts drug tests on all driver candidates and maintains an ongoing program of random testing for use of such substances. Persons who test positive for drugs are turned away and drivers who test positive for such substances are immediately disqualified from driving. OPERATING STRATEGY The company's "one call does all" full-service capability, combined with the service-oriented corporate culture it gained from its many years as a successful LTL carrier, enables it to compete primarily on the basis of service, rather than solely on price. Management also believes that major shippers will require increasing levels of service and that they will rely on 5 their core carriers to provide transportation and logistics solutions, such as providing the shipper real-time information about the movement and condition of any shipment. The company believes that it is well positioned to take advantage of the evolving market for solutions to shippers' needs. In order to improve its level of information services, the company is currently replacing its older mainframe computer-based Management Information System (MIS) with a more sophisticated, versatile and expandable "open system" with fully integrated local area networks. Integrated with the new system are plans to complete the installation of satellite tracking and communications equipment in company- operated equipment. That equipment is currently operating on about half of the company-operated, full-truckload fleet. - LESS-THAN-TRUCKLOAD: Temperature-controlled LTL trucking is service and capital intensive. LTL freight rates are higher than those for full- truckload and are based on mileage, weight, type of commodity, space required in the trailer, pick-up and delivery. Management believes that only one other refrigerated LTL motor carrier competes with the company on a nationwide basis. Temperature-controlled LTL trucking requires a system of terminals, capable of holding refrigerated and frozen products, located at strategic distribution points across the United States. The company has 15 such LTL terminals. Terminals are located in or near New York City, Philadelphia, Atlanta, Orlando, Memphis, Nashville, Cincinnati, Chicago, Kansas City, Dallas, Houston, Denver, Salt Lake City, Oakland, and Los Angeles. Several of these LTL terminals also serve as full-truckload driver centers where company- operated, full-truckload fleets are based. Efficient information management is essential to a successful temperature- controlled LTL operation. On a typical day, the company's LTL system handles about 5,000 shipments - about 3,000 on the road, 1,000 being delivered and 1,000 being picked up. In 1995, the LTL operation handled about 292,000 individual shipments. - FULL-TRUCKLOAD: Temperature-controlled, full-truckload service requires a substantially lower capital investment for terminals and lower costs of shipment handling and information management than that of LTL. Pricing is based primarily on mileage, weight and type of commodity. At the end of 1995, the company's full-truckload tractor fleet consisted of about 1,060 tractors owned or leased by the company and about 400 tractors contracted to the company by owner-operators, making it one of the five largest temperature-controlled, full-truckload carriers in North America. The company is continuing to expand its international and domestic transportation and logistics services which involve railroad-based "intermodal" long-haul transportation. In providing such service, the company contracts with railroads to transport loaded full-truckload trailers on railroad flat cars. The railroad is paid a fee for this service and the company uses its tractors to transport the trailers to and from railroad pick- up and drop-off points. During 1995 and 1994, approximately 5% of the company's full-truckload shipments were transported in this manner. By providing intermodal transportation services, the company is able to transport more loaded trailers (which require relatively lower capital investment) while 6 engaging fewer tractors (which involve relatively higher capital investment). As a result of the expected continued emphasis on intermodal transportation, it is probable that the company's trailer fleet will continue to expand more rapidly than its tractor fleet. Also contributing to the increase in the trailer-to-tractor ratio from 1.3:1 at January 1, 1992, to 1.5:1 at yearend 1995 were continued expansion of dedicated fleet and short-haul, full- truckload services and, in general, the more rapid expansion of the company's full-truckload services in relation to its LTL service. Full-truckload services generally involve the utilization of more trailers to enable tractors to remain in service while idle trailers are being loaded and unloaded. In addition to the LTL terminals, which also serve as full-truckload employee-driver centers, full-truckload activities are conducted from terminals in Dallas, Fort Worth and Laredo, Texas. Laredo, located on the Texas-Mexico border, is the drop-off point for company trailers, which are picked up by a Mexican trucking company for movement into Mexico's interior. The company also maintains small centers for employee-drivers in Waco and Amarillo, Texas; Phoenix, Arizona; and Shreveport, Louisiana. EQUIPMENT The company acquires premium company-operated tractors in order to help attract and retain qualified employee-drivers, promote safe operations, minimize maintenance and repair costs and assure dependable service to its customers. Management believes that the higher initial investment for its equipment is recovered through more efficient vehicle performance and improved resale value. The company has a three-year replacement policy for its full- truckload tractors. As a result, most repair costs are recovered through efficient vehicle performance and manufacturers' warranties. The three-year replacement policy also enables the company to maximize its fuel efficiency by benefiting from technological improvements in both engine efficiency and aerodynamics. During 1996, the company plans to replace about 500 tractors. Management expects that the new tractors' average miles-per-gallon will improve over that of the tractors being replaced. In order to minimize fuel consumption, the company includes a fuel efficiency driving bonus in its employee-driver incentive pay package. REGULATION The company's interstate operations are subject to regulation by the United States Department of Transportation ("DOT"), which regulates entry into motor carrier operation as well as certain rates and tariffs. The DOT also regulates driver qualifications and safety and equipment standards. The company is also subject to state public utilities commissions and similar state regulatory agencies with respect to certain aspects of its intrastate operations. State regulations generally involve the weight and dimensions of equipment and safety. Effective January 1, 1995, the United States government rescinded the authority of states to restrict intrastate operating authority or to regulate rates and tariffs with regard to intrastate operations. The company does not anticipate that this will significantly affect its operating results. 7 SEASONALITY The company's full-truckload operations are somewhat affected by seasonal changes. The early winter, late spring and summer growing seasons for fruits and vegetables in California and Texas typically create increased demand for trailers equipped to transport cargo requiring refrigeration. In addition, winter driving conditions can be hazardous and impair the company's operations from time to time in certain portions of the company's service areas. The company's LTL operations are also impacted by the seasonality of certain commodities. As a result, LTL shipment volume during the winter months is normally lower than other months. Shipping volumes of LTL freight are usually highest during July through October. EMPLOYEES A comparison of company's employees as of December 31, 1995 and 1994, is as follows:
Dec. 31, 1995 Dec. 31, 1994 ------------- ------------- Freight Operations: Drivers and Trainees 1,614 1,394 Non-driver personnel Full time 653 622 Part time 150 161 ----- ----- Total Freight Operations 2,417 2,177 Non-freight Operations 136 111 ----- ----- Total 2,553 2,288 ===== =====
The increase in non-driver personnel resulted primarily from the increased use of employee-driver recruiting, safety, sales, dispatch and other operations support personnel associated with the increased size of the company-operated, full-truckload fleet. The increase in employee-drivers is the result of the addition of company-operated equipment during 1995. REFRIGERATION EQUIPMENT SALES AND SERVICE The company, through a subsidiary, is a franchised distributor for Carrier-Transicold brand truck and trailer refrigeration equipment. Its primary area of sales and service responsibility is Texas. This subsidiary is engaged in the sales, service and rental of a variety of refrigeration and air conditioning equipment and provides refrigeration units and service for the company's trailers. Such operations contributed 8% of the company's 1995 consolidated revenue and 11% of the consolidated operating profit (after elimination of inter-company transactions). The company competes in its service area with several other dealers and distributors of similar refrigeration equipment, but is the only distributor for Carrier-Transicold products in portions of Texas. 8 OUTLOOK Matters of a forward-looking nature discussed in this Report on Form 10-K involve risks and uncertainties including, but not limited to, economic conditions, demand for the company's services and industry capacity, competitive services and pricing, operating efficiencies, new market development, availability of labor and fuel, the regulatory and trade environment, and other risks indicated in filings with the Securities and Exchange Commission. ITEM 2. PROPERTIES. The company's corporate office, which was purchased and remodeled during 1992, and is located on 1.7 acres of land in northwestern Dallas, Texas. The building contains 34,000 useable square feet. The company's primary terminal and maintenance facility is located near Dallas on approximately 60 acres of land owned by the company in Lancaster, Texas. The buildings, which are also owned by the company, contain approximately 100,000 square feet, of which 60,000 square feet are used for warehousing and distribution, 14,000 square feet are devoted to offices housing the terminal dispatch, safety and related activities and 26,000 square feet are used for maintenance and repair facilities. The company owns approximately 20 acres of unimproved land abutting this facility. The company also owns a facility consisting of a terminal, offices and a repair shop in Fort Worth, Texas. This property is used by Lisa Motor Lines, Inc. ("Lisa"), a wholly-owned subsidiary of the company, and its divisions, Middleton Transportation Company and Great Western Express. This facility consists of two structures totaling 23,000 square feet on approximately seven acres of land. The company owns a cold storage LTL terminal located in Bridgeview, Illinois, near Chicago. The terminal includes approximately 37,000 square feet of office, dock and storage facilities. The Florida terminal, which is near Orlando, is owned by the company and consists of three buildings on approximately 15 acres of land, a dock facility of approximately 16,000 square feet, a shop of approximately 4,000 square feet and an office building. The company also owns a terminal and land in Avenel, New Jersey, which is near New York City. The building, on about five acres of land, contains approximately 17,000 square feet. 9 At December 31, 1995, the company also maintained leased terminal or office facilities in or near the following cities: Amarillo, TX Nashville, TN Atlanta, GA Norman, OK Cincinnati, OH Oakland, CA Denver, CO Philadelphia, PA Houston, TX Phoenix, AZ Kansas City, MO Salt Lake City, UT Laredo, TX Shreveport, LA Los Angeles, CA Waco, TX Memphis, TN
Lease terms range from one month to six years. These terminals range in size from a small amount of office space to a terminal with office and dock facilities totaling approximately 44,000 square feet. The company expects that present facilities will be sufficient to support its operations in the near term. The following table sets forth certain information regarding revenue equipment utilized by the company at December 31, 1995 and 1994:
Age in Years ----------------------------------------- Tractors Less than 1 1 thru 3 4 or more Total ------------- ------------- ------------- ------------ 1995 1994 1995 1994 1995 1994 1995 1994 ---- ---- ----- ---- ---- ---- ----- ----- Company-operated 150 341 949 751 50 7 1,149 1,099 Owner-operator provided 91 25 221 134 355 346 667 505 --- --- ----- --- --- --- ----- ----- Total 241 366 1,170 885 405 353 1,816 1,604 === === ===== === === === ===== ===== Age in Years ----------------------------------------- Trailers Less than 1 1 thru 5 6 or more Total ------------- ------------- ------------- ------------ 1995 1994 1995 1994 1995 1994 1995 1994 ---- ---- ----- ---- ---- ---- ----- ----- Company-provided 163 829 1,916 645 691 932 2,770 2,406 Owner-operator provided 2 1 15 11 10 9 27 21 --- --- ----- --- --- --- ----- ----- Total 165 830 1,931 656 701 941 2,797 2,427 === === ===== === === === ===== =====
10 The increases in the number of company-operated tractors and trailers during 1995 and 1994 resulted primarily from the addition of new equipment during each year for use in the company's full-truckload operations. Approximately 85% of the company's 2,797 trailers are insulated and equipped with refrigeration units capable of providing the temperature control necessary to handle perishable freight. Trailers that are used primarily in LTL operations are equipped with movable partitions permitting the transportation of goods requiring maintenance of different temperatures. The company also operates a fleet of non-refrigerated trailers in its "dry freight" full-truckload operation. Company-operated trailers are primarily 102 inches wide. Refrigerated trailers are 48 feet long, while non-refrigerated trailers are primarily 53 feet long. The company's general policy is to replace its company-operated, heavy- duty tractors used in full-truckload operations every three years, while tractors used in LTL operations are generally replaced after five years of service. Company-operated, full-truckload trailers are usually retired after seven years of service. Occasionally, retired equipment is kept by the company for use in local delivery operations. ITEM 3. LEGAL PROCEEDINGS. The company is party to routine litigation incidental to its businesses, primarily involving claims for personal injury and property damage incurred in the transportation of freight. The aggregate amount of these claims is significant. The company maintains insurance programs and accrues for expected losses in amounts designed to cover liability resulting from personal injury and property damage claims. The company does not believe that adverse results in one or more of these pending cases would have a material effect on the financial condition of the company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of shareholders of the company during the fourth quarter of 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The information regarding cash dividends, common stock price per share and common stock trading volume set forth under the caption "Quarterly Financial, Stock and Dividend Information" appearing on page 28 of the Annual Report to Shareholders for the year ended December 31, 1995, is incorporated by reference into this Report. ITEM 6. SELECTED FINANCIAL DATA. The information set forth under the caption "Eleven-Year Statistics and Financial Data" appearing on pages 16 and 17 of the Annual Report to Shareholders for the year ended December 31, 1995, is incorporated by reference into this Report. 11 ITEM 7. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 18 through 20 of the Annual Report to Shareholders for the year ended December 31, 1995, is incorporated by reference into this Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. (a) The following Consolidated Financial Statements of Frozen Food Express Industries, Inc., and Report of Arthur Andersen LLP, Independent Public Accountants, with respect thereto set forth on pages 21 through 28 of the Annual Report to Shareholders for the year ended December 31, 1995, are incorporated by reference into this Report: Consolidated Statements of Income -- Years ended December 31, 1995, 1994 and 1993. Consolidated Balance Sheets -- December 31, 1995 and 1994. Consolidated Statements of Cash Flows -- Years ended December 31, 1995, 1994 and 1993. Consolidated Statements of Shareholders' Equity -- Years ended December 31, 1995, 1994 and 1993. Notes to Consolidated Financial Statements. Report of Arthur Andersen LLP, Independent Public Accountants. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. In accordance with General Instruction G to Form 10-K, the information required by Item 10 is incorporated herein by reference from the portion of the company's Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 1996, appearing under the caption "Nominees for Directors". ITEM 11. EXECUTIVE COMPENSATION. In accordance with General Instruction G to Form 10-K, the information required by Item 11 is incorporated herein by reference from the portions of the company's Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 1996, appearing under the captions "Executive Compensation" and "Transactions with Management ". 12 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. In accordance with General Instruction G to Form 10-K, the information required by Item 12 is incorporated herein by reference from the portions of the company's Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 1996, appearing under the captions "Outstanding Capital Stock; Principal Shareholders" and "Nominees for Directors". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. In accordance with General Instruction G to Form 10-K, the information required by Item 13 is incorporated herein by reference from the portions of the company's Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 1996, appearing under the captions "Nominees for Directors", "Transactions with Management " and "Executive Compensation". 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. & 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES: The financial statements listed in the index to financial statements and financial statement schedules in Item 8 on page 12 hereof are filed as part of this Annual Report. Financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. 3. EXHIBITS: 3.l Articles of Incorporation of the Registrant and all amendments to date (filed as Exhibit 3.1 to Registrant's annual report on Form 10-K for the fiscal year ended December, 31, 1993; SEC File Number 1-10006 and incorporated herein by reference). 3.2 Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991; SEC File Number 1-10006 and incorporated herein by reference). 10.1 Frozen Food Express Industries, Inc., 1987 Non-Employee Director Stock Plan (filed as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991; SEC File Number 1-10006 and incorporated herein by reference). 10.2 Amended and Restated Credit Agreement, dated December 30, 1992, among the registrant and its subsidiaries and First Interstate Bank of Texas, N.A., as agent; Texas Commerce Bank, National Association; and The First National Bank of Boston (filed as Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992; SEC File Number 1-10006 and incorporated herein by reference). 10.3 First Amendment to amended and restated credit agreement described at Exhibit 10.5 (filed as Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993; SEC File Number 1-10006 and incorporated herein by reference). 10.4 Form of Master Lease Agreement by and between Stoney M. Stubbs, Jr., and Charles G. Robertson and Conwell Corporation. (Filed as Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991; SEC File Number 1- 10006 and incorporated herein by reference). 14 10.5 Frozen Food Express Industries, Inc., 1992 Incentive and Nonstatutory Stock Option Plan (filed as Exhibit 4.3 to Registrant's Registration #33-48494 as filed with the Commission, and incorporated herein by reference). 10.6 FFE Transportation Services, Inc., 1994 Incentive Bonus Plan, as amended (filed as Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994; SEC File Number 1-10006 and incorporated herein by reference). 10.7 FFE Transportation Services, Inc., Executive Bonus and Phantom Stock Plan, as amended (filed as Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994; SEC File Number 1-10006 and incorporated herein by reference). 10.8 FFE Transportation Services, Inc., Employee Stock Ownership Plan (filed as Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994; SEC File Number 1-10006 and incorporated herein by reference). 10.9 Savings Plan for Employees of Frozen Food Express Industries, Inc. (filed as Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994; SEC File Number 1-10006 and incorporated herein by reference). 10.10 Conwell Corporation Employee Stock Ownership Plan (filed as Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994; SEC File Number 1-10006 and incorporated herein by reference). 10.11 Amendment to Frozen Food Express Industries, Inc., 1992 Incentive and Nonstatutory Stock Option Plan (filed as Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994; SEC File Number 1-10006 and incorporated herein by reference). 11.1 Computation of net income per share of common stock, assuming full dilution (incorporated by reference to Footnote 8 to the financial statements appearing in the Annual Report to Shareholders of the Registrant for the year ending December 31, 1995). 13.1 Annual Report to Shareholders of the Registrant for the year ended December 31, 1995. Except for those portions of such Annual Report to Shareholders expressly incorporated by reference into this Report, such Annual Report to Shareholders is furnished solely for the information of the Securities and Exchange Commission and shall not be deemed a "Filed" Document. 21.1 Subsidiaries of Frozen Food Express Industries, Inc. 25.1 A Power of Attorney is found on page 18 of this Report. 27 Financial Data Schedule. 15 (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed by the company during the last quarter of the period covered by this Report. 16 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Annual Report to Shareholders Consolidated Statements of Income -- Years ended December 31, 1995, 1994 and 1993 21 Consolidated Balance Sheets -- December 31, 1995 and 1994 22 Consolidated Statements of Cash Flows -- Years ended December 31, 1995, 1994 and 1993 23 Consolidated Statements of Shareholders' Equity -- Years ended December 31, 1995, 1994 and 1993 24 Notes to Consolidated Financial Statements 25 Report of Arthur Andersen LLP, Independent Public Accountants 28 Supplementary information - Quarterly financial data (unaudited) 28 Financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. The financial statements listed in the above index, which are included in the Annual Report to Shareholders of Frozen Food Express Industries, Inc., for the year ended December 31, 1995, are hereby incorporated by reference, and are filed herewith as Exhibit 13.1. 17 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors and officers of Frozen Food Express Industries, Inc., hereby appoints Stoney M. Stubbs, Jr., and Burl G. Cott his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this Annual Report on Form 10-K and to file each such amendment to the Report, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue hereof. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FROZEN FOOD EXPRESS INDUSTRIES, INC. Date: March 29, 1996 By /s/ Burl G. Cott -------------- ------------------------------------------- Burl G. Cott Senior Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: March 29, 1996 /s/ Stoney M. Stubbs, Jr. -------------- -------------------------------------------- Stoney M. Stubbs, Jr., Chairman of the Board of Directors and President (Principal Executive Officer) Date: March 29, 1996 /s/ Burl G. Cott -------------- -------------------------------------------- Burl G. Cott, Senior Vice President and Director (Principal Financial and Accounting Officer) Date: March 29, 1996 /s/ Charles G. Robertson -------------- -------------------------------------------- Charles G. Robertson Executive Vice President and Director Date: March 29, 1996 /s/ Edgar O. Weller -------------- -------------------------------------------- Edgar O. Weller Vice Chairman of the Board of Directors 18 POWER OF ATTORNEY, Continued Date: March 29, 1996 /s/ Brian R. Blackmarr -------------- -------------------------------------------- Brian R. Blackmarr, Director Date: March 29, 1996 /s/ Leroy Hallman -------------- -------------------------------------------- Leroy Hallman, Director Date: March 29, 1996 /s/ W. Grogan Lord -------------- -------------------------------------------- W. Grogan Lord, Director Date: March 29, 1996 /s/ T. Michael O'Connor -------------- -------------------------------------------- T. Michael O'Connor, Director 19 EX-13.1 2 EXHIBIT 13.1 THIS FORM 10-K INCORPORATES CERTAIN SECTIONS OF THE REGISTRANT'S 1995 ANNUAL REPORT TO SHAREHOLDERS. ACCORDINGLY, ONLY THE PORTIONS OF REGISTRANT'S 1995 ANNUAL REPORT TO SHAREHOLDERS WHICH ARE INCORPORATED BY REFERENCE INTO THIS FORM 10-K ARE FILED AS THIS EXHIBIT 13.1.
ELEVEN-YEAR STATISTICS AND FINANCIAL DATA 1995 1994 1993 1992 (in thousands, except ratio, rates, equipment and per share amounts) Summary of Operations Revenue 292,345 274,620 227,389 194,888 Operating expenses 276,961 255,484 211,999 183,179 Net income 9,253 11,874 9,441 7,144 Net margin 3.2% 4.3% 4.2% 3.7% After-tax return on equity 13.3% 20.4% 20.1% 18.6% Net income per common share, fully diluted .57 .72 .58 .45 Financial Data Working capital 25,024 25,623 20,823 16,949 Current ratio 1.7 1.8 1.8 1.8 Cash provided by operations 24,180 20,025 17,482 16,395 Capital expenditures, net 8,383 8,160 18,453 18,375 Long-term debt 0 9,000 17,000 12,000 Shareholders' equity 75,021 64,288 51,983 41,799 Long-term debt-to-equity ratio -- .1 .3 .3 Common Stock Average shares outstanding, fully diluted 16,132 16,451 16,276 15,910 Book value per share 4.59 4.03 3.31 2.72 Market value per share High 13 7/8 15 15 11 1/2 Low 8 1/2 11 7 1/4 3 7/8 Cash dividends per share .12 .096 .096 .079 Revenue Table Full truckload 180,598 163,988 129,549 109,178 Less-than-truckload 87,783 88,328 80,965 72,864 TL/LTL % revenue contribution 62/30 60/32 57/36 56/37 Equipment in Service at Yearend Tractors Company operated 1,149 1,099 945 800 Provided by owner-operators 667 505 457 432 Total 1,816 1,604 1,402 1,232 Trailers Company provided 2,770 2,406 2,027 1,609 Provided by owner-operators 27 21 32 24 Total 2,797 2,427 2,059 1,633 Full-Truckload Revenue 180,598 163,988 129,549 109,178 Loaded miles 135,469 121,106 97,753 83,247 Shipments 142.9 128.1 106.6 92.9 Revenue per shipment 1,264 1,280 1,215 1,175 Loaded miles per load 948 945 917 896 Revenue per loaded mile 1.33 1.35 1.33 1.31 Number of loads per business day 567 508 423 367 Revenue per business day 717 651 514 431 Less-than-Truckload Revenue 87,783 88,328 80,965 72,864 Hundredweight 8,296 8,670 8,116 6,848 Shipments 292.1 305.2 292.0 253.3 Revenue per hundredweight 10.58 10.19 9.98 10.64 Revenue per shipment 301 289 277 288 Revenue per business day 348 351 321 288 Pounds per shipment 2,840 2,841 2,779 2,704
2
ELEVEN-YEAR STATISTICS AND FINANCIAL DATA 1991 1990 1989 1988 (in thousands, except ratio, rates, equipment and per share amounts) Summary of Operations Revenue 176,995 160,171 122,248 102,136 Operating expenses 167,033 152,370 115,769 96,558 Net income 5,202 3,618 3,779 3,660 Net margin 2.9% 2.3% 3.1% 3.6% After-tax return on equity 16.0% 12.6% 14.6% 16.5% Net income per common share, fully diluted .34 .25 .26 .26 Financial Data Working capital 15,612 13,085 9,567 5,096 Current ratio 2.1 1.9 2.0 1.6 Cash provided by operations 14,968 9,022 9,174 9,191 Capital expenditures, net (2,423) 16,285 11,619 15,060 Long-term debt 5,000 19,200 12,500 7,500 Shareholders' equity 35,059 30,005 27,255 24,348 Long-term debt-to-equity ratio .1 .6 .5 .3 Common Stock Average shares outstanding, fully diluted 15,249 14,519 14,534 14,095 Book value per share 2.42 2.11 1.96 1.78 Market value per share High 4 1/8 2 3/4 2 7/8 2 3/8 Low 1 7/8 1 7/8 2 1/8 1 Cash dividends per share .06 .06 .05 .038 Revenue Table Full truckload 103,582 90,043 60,313 42,947 Less-than-truckload 65,068 64,589 60,114 57,863 TL/LTL % revenue contribution 59/37 56/40 49/49 42/57 Equipment in Service at Yearend Tractors Company operated 737 739 508 256 Provided by owner-operators 421 386 376 496 Total 1,158 1,125 884 752 Trailers Company provided 1,475 1,419 1,204 876 Provided by owner-operators 28 38 41 49 Total 1,503 1,457 1,245 925 Full-Truckload Revenue 103,582 90,043 60,313 42,947 Loaded miles 80,663 69,800 46,975 33,762 Shipments 85.5 75.8 51.9 38.1 Revenue per shipment 1,211 1,188 1,162 1,127 Loaded miles per load 943 921 905 886 Revenue per loaded mile 1.28 1.29 1.28 1.27 Number of loads per business day 339 301 206 151 Revenue per business day 411 357 239 170 Less-than-Truckload Revenue 65,068 64,589 60,114 57,863 Hundredweight 6,211 6,314 6,051 5,816 Shipments 231.3 241.7 253.4 256.7 Revenue per hundredweight 10.48 10.23 9.93 9.95 Revenue per shipment 281 267 237 225 Revenue per business day 258 256 239 230 Pounds per shipment 2,685 2,612 2,388 2,266
3
ELEVEN-YEAR STATISTICS AND FINANCIAL DATA 1987 1986 1985 (in thousands, except ratio, rates, equipment and per share amounts) Summary of Operations Revenue 84,585 91,195 86,916 Operating expenses 81,278 89,618 87,304 Net income 2,373 1,055 1,157 Net margin 2.8% 1.2% 1.3% After-tax return on equity 12.1% 5.6% 6.3% Net income per common share, fully diluted .18 .08 .09 Financial Data Working capital 4,862 5,133 6,046 Current ratio 1.9 1.8 1.7 Cash provided by operations 7,320 7,398 228 Capital expenditures, net 3,454 2,332 7,268 Long-term debt 2,300 3,900 10,630 Shareholders' equity 20,121 19,105 18,796 Long-term debt-to-equity ratio .1 .2 .6 Common Stock Average shares outstanding, fully diluted 13,200 13,220 13,140 Book value per share 1.52 1.44 1.42 Market value per share High 1 5/8 1 3/8 1 3/8 Low 1 1 7/8 Cash dividends per share .03 .006 .026 Revenue Table Full truckload 26,226 30,157 29,801 Less-than-truckload 57,004 59,888 56,286 TL/LTL % revenue contribution 31/67 33/66 34/65 Equipment in Service at Yearend Tractors Company operated 98 75 110 Provided by owner-operators 421 541 590 Total 519 616 700 Trailers Company provided 698 720 855 Provided by owner-operators 49 74 92 Total 747 794 947 Full-Truckload Revenue 26,226 30,157 29,801 Loaded miles 18,872 21,741 20,837 Shipments 26.7 29.8 29.0 Revenue per shipment 982 1,010 1,028 Loaded miles per load 706 728 719 Revenue per loaded mile 1.39 1.39 1.43 Number of loads per business day 106 118 115 Revenue per business day 104 220 118 Less-than-Truckload Revenue 57,004 59,888 56,286 Hundredweight 5,983 6,417 5,858 Shipments 268.6 294.8 299.0 Revenue per hundredweight 9.53 9.33 9.61 Revenue per shipment 212 203 188 Revenue per business day 226 238 223 Pounds per shipment 2,227 2,177 1,959
4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Demand for the company's services during most of 1993 and 1994 exceeded the capacity of its full-truckload fleet and equipment utilization was high. A strong market for transportation of both temperature controlled and general commodity freight was experienced by most of the nation's full-truckload motor carriers. Contributing to the shortage of available trucks was the continuing shortage of qualified drivers in most areas of the country. Although the company experienced sporadic driver shortages during 1993 and 1994, the industry-wide shortage was much more severe. It is estimated that as much as 5% to 8% of the nation's fleet of for-hire trucks was parked during much of 1994 due to a lack of drivers. The strong demand for trucking services coupled with a general undersupply of trucks provided for pricing stability and enabled the company to obtain selective rate increases during both 1993 and 1994. Beginning in late 1994 and continuing throughout most of 1995, several events occurred which significantly increased the supply of trucks and reduced the demand for trucking services. - The devaluation of the Mexican peso in December, 1994 significantly reduced the flow of consumer products from the United States to Mexico thereby increasing the number of trucks available for the transportation of domestic goods. - Softness in the construction industry and other alternative employment sources for truck drivers enabled trucking companies to employ sufficient numbers of drivers for trucks which had been underutilized during 1993 and 1994, thereby increasing truck capacity in 1995 by an estimated 5% to 8%. - Transportation companies such as Frozen Food Express which had near fully utilized capacity during 1994, added to their truck fleets during 1994 and 1995. - Many large shippers elected to reduce inventory levels during 1995 thereby decreasing their need for transportation services. Primarily as a result of these factors, available trucking capacity exceeded the demand for its services during 1995. This oversupply of trucks decreased utilization and productivity during the year and full-truckload freight rates came under pressure as the year progressed. During 1995, revenue increased by 6.5% to $292,345,000. For 1994, revenue totaled $274,620,000 and was 20.8% above 1993 revenue of $227,389,000. Full-truckload revenue rose during 1995 and 1994 by 10.1% and 26.6%, respectively, while less-than-truckload (LTL) revenue rose by 9.1% during 1994, but fell by 0.6% during 1995. The small decrease in LTL revenue during 1995 resulted primarily from a 4.3% reduction in the number of shipments transported. General softness in the perishable commodity transportation industry was the primary cause of the reduced quantity of shipments. Average revenue per LTL shipment, however, 5 MANAGEMENT'S DISCUSSION, Continued rose by 4.2%, which substantially offset the decline in LTL shipping activity. Expansion of the company-operated, full-truckload fleet increased full- truckload revenue during 1995 and 1994. During 1995, the size of the company- operated, full-truckload fleet rose by nearly 60 tractors and average miles per full-truckload shipment was substantially unchanged from 1994. During 1995, the general slowdown in the growth of demand for freight transportation services resulted in increased competition within the trucking industry. Accordingly, average revenue per full-truckload loaded mile fell by 1.5% to $1.33. During 1994, the size of the company-operated, full-truckload fleet rose by nearly 160 tractors, average miles per full-truckload shipment increased by 3% and revenue per loaded mile increased by 1.5%. The number of full-truckload shipments transported during 1995 and 1994 increased by approximately 12% and 20%, respectively, over previous year levels. During each of 1995, 1994 and 1993, company-operated, full-truckload equipment accounted for just over 75% of total full-truckload revenue. The company currently does not plan to increase the size of its company- operated, full-truckload fleet during 1996. Any expansion of the fleet will depend upon acquisitions, if any, of other motor carriers, developments in the nation's economy and demand for the company's services. Continued emphasis will be placed on improving the operating efficiency and increasing the utilization of this fleet through enhanced driver training and retention, seeking longer haul and more specialized business, greater use of railroad based "intermodal" transportation service for long-haul business and reducing the percentage of empty, non-revenue producing miles. The company is continuing to emphasize its transportation and logistics services which involve railroad based intermodal long-haul transportation. In providing such service, the company contracts with railroads to transport loaded full-truckload trailers on railroad flat cars. Railroads are paid fees for this service and the company uses its tractors to transport the trailers to and from railroad pick-up and drop-off points. During 1994 and 1995, less than 5% of the company's domestic full-truckload shipments were transported in this manner. During 1994 and 1995, the company expanded transportation services for customers shipping products to and from Mexico and Canada. Canadian operations are conducted with equipment operating directly under authority of the company. The company does not presently operate its tractors in Mexico. To provide service in Mexico, the company has arrangements with a railroad and Mexico-based motor carriers. Pursuant to these arrangements, the company interchanges its trailers with the Mexico freight service provider for movement within Mexico. During 1994, approximately 6% of freight revenue was derived from international activities, for which the company bills and collects primarily United States currency, principally from United States- based customers. During 1995, continuing efforts to expand international activities were negatively impacted by the late 1994 devaluation of the Mexican peso, which significantly reduced the amount of United States freight transported by all motor carriers to Mexico. 6 MANAGEMENT'S DISCUSSION, Continued In providing certain international and intermodal transportation services, the company transports more loaded trailers (which require relatively lower capital investment) while engaging fewer tractors (which involve relatively higher capital investment). It is probable that the company's trailer fleet will continue to expand more rapidly than its tractor fleet, if these activities continue to grow. Also contributing to the increase in the trailer-to-tractor ratio, from 1.3:1 at January 1, 1993, to 1.5:1 at yearend 1995, was the continued expansion of dedicated fleet and short-haul full-truckload services and, in general, the more rapid expansion of the company's full-truckload services in relation to its LTL service. Full- truckload services generally involve the utilization of more trailers to enable tractors to remain in service while trailers are being loaded and unloaded. During 1995, the company continued to increase the number of tractors provided by owner-operators to its full-truckload operations. During 1995 and 1994, the number of full-truckload tractors provided by owner-operators increased by about 33% and 25%, respectively. In years prior to 1995, the company experienced cyclical shortages and surpluses of qualified employee-drivers for company-operated tractors and employee-driver turnover has been high. This situation, which has been typical in the industry, tends to increase costs associated with employee-driver training and recruiting. During 1995, the company did not experience a shortage of employee-drivers, although employee-driver turnover continued at a high rate. Significant efforts are devoted to recruiting and retaining qualified employee-drivers and to improving their job satisfaction. The company offers monetary incentives to employee-drivers meeting certain targeted fuel economy, safety, and tenure goals. In the future, certain aspects of employee-drivers' compensation will continue to be tied to improvements in productivity and quality of service. Income from operations declined by 19.6% during 1995 to $15,384,000 as compared to $19,136,000 in 1994 and $15,390,000 in 1993. The imbalance of trucks against freight caused per-truck utilization and freight rates to decline, resulting in a narrowing of profit margins. The net margin (net income as a percent of total revenue) for 1995, 1994 and 1993 was 3.2%, 4.3%, and 4.2%, respectively. Changes in the percentage of total revenue generated from full-truckload versus LTL shipments, as well as changes in the mix of company-operated versus owner-operated equipment and in the mix of leased versus owned equipment, contributed to variations in related operating and interest expenses during the three-year period. During 1993 and 1994, the percentages of freight revenue absorbed by employee road driver payroll costs increased relative to previous years as the company-operated, full-truckload fleet had expanded more rapidly than had the independent contractor fleet. Partially offsetting the 1993 and 1994 increase was a gradual decline in the percent of freight revenue absorbed by payroll costs of non-driver employees. In addition, costs associated with fringe benefits, such as work-related injuries and non-driver incentive compensation declined during 1994 as a percent of freight revenue. As a result of these changes, salaries, wages and related expenses, as a percentage of freight revenue, for 1995, 1994 and 1993 were 25.6%, 24.9% and 25.2%, respectively. 7 MANAGEMENT'S DISCUSSION, Continued As the percentage of total freight handled by company-operated equipment fluctuated, the percent of freight revenue absorbed by purchased transportation (primarily payments to owner-operators) declined from 22.5% in 1993, to 21.1% in 1994 and rose to 21.9% in 1995, due to 1995's more rapid expansion of the independent contractor provided fleet of trucks. Fuel costs (including fuel taxes) have been relatively stable for the past three years despite an increase of 5 cents per gallon in federal taxes on diesel fuel and the federally-mandated use of more costly low-sulfur fuel effective during the 1994 fourth quarter. Each year, several states have also increased their per-gallon fuel taxes. The company has been able to mitigate the effect of increases in fuel taxes and the higher cost of low-sulfur fuel primarily through the utilization of more fuel efficient tractors, by aggressively managing its fuel purchasing and, prior to 1995, by obtaining freight rate increases from its customers. Fuel price fluctuations result from many external market factors, most of which cannot be influenced or forecasted by the company. Recovery of future fuel tax or price increases, if any, will continue to depend upon competitive market conditions. The total of revenue equipment rent and depreciation expense increased from 9.8% of freight revenue in 1993 to 10.2% for 1994 and 10.5% for 1995. The 1994 and 1995 increases were due primarily to 1994's higher interest rates, the cost of which is imbedded in equipment rental, and to the increased use of leasing to finance the expansion of the company's fleet of trailers. Insurance and claims expense, as a percentage of freight revenue, was 5.4% in 1995, 5.2% in 1994 and 4.8% in 1993. Premiums paid to insurance companies do not significantly contribute to overall insurance costs, partially because the company carries significant deductibles under its policies of liability insurance. Claims against the company for over-the-road accidents are the primary component of insurance and claims expense and these expenses tend to vary in relation to miles traveled. In recent years, full- truckload operations, from which per-mile revenue is relatively low, have been expanding more rapidly than LTL operations, from which per-mile revenue is relatively high. Accordingly, while insurance expense on a per-mile basis did not change significantly between 1994 and 1995, the increased percentage of full-truckload miles and revenue during 1995 resulted in the increase in insurance and claims expense as a percentage of combined full-truckload and LTL freight revenue. Insurance and claims expense can vary significantly from year to year. Reserves representing the company's estimate of total ultimate claims cost are established for potential claims based on the information available at the time of an incident. As additional information regarding the incident becomes available, adjustments may be made to previously recorded amounts. The aggregate amount of open claims, some of which involve litigation, is significant. In the opinion of management, however, these claims can be resolved without a material adverse effect on the company's financial position or its results of operations. 8 MANAGEMENT'S DISCUSSION, Continued In order to improve its safety performance, reduce accidents and lower insurance and claims expense, the company has strengthened restrictions on the manner in which equipment may be operated on its behalf. Driver selection, safety training, performance evaluations and rewards for accident-free driving will continue to be major areas of concentration. Gains from the sale of equipment totaled $629,000 in 1993, fell to $405,000 in 1994 and rose to $706,000 in 1995. The company generally replaces tractors and trailers after three and seven years of service, respectively. The amount of gains from the sale of equipment depends primarily upon market conditions for used equipment. The company also has operations engaged in the sale and service of refrigeration equipment. Non-freight revenue associated with these operations totaled $23,964,000 during 1995, $22,304,000 during 1994 and $16,875,000 in 1993. These operations generated a small operating profit in 1993. Operating profits of $765,000 and $1,753,000 were posted for 1994 and 1995, respectively. Programs designed to improve gross margins and to reduce overhead expenses were implemented and certain assets associated with unprofitable divisions were sold. The results of these programs, together with increased non-freight activity, combined to improve operating results in 1995. For 1995, 1994 and 1993, interest and other expense was $2,136,000, $1,372,000 and $963,000, respectively. Prior to 1994, interest incurred on bank debt was the primary component of interest and other expenses. During the two years ending December 31, 1995, bank debt was reduced from $17,000,000 to zero. The increase in interest and other expenses during the two year period is primarily attributable to net pre-tax expenses associated with the 1994 implementation of a company-owned life insurance program. Pre-tax income fell by 25.4% in 1995 after rising by 23.1% in 1994. Net income decreased by 22.1% in 1995 and rose by 25.8% in 1994. The provision for income tax, as a percent of income before income tax for 1995, 1994 and 1993 was 30.2%, 33.2% and 34.6%, respectively. The variances from the company's statutory rate for these years were principally due to decreased expenses which are only partially deductible for federal income tax purposes (such as road driver meals) and increased non-taxable income associated with the company-owned life insurance program. LIQUIDITY The company continues to maintain a strong financial position. Following is a summary of certain liquidity measures (dollars in thousands):
December 31, ------------------------------- 1995 1994 1993 ------- ------- ------- Cash provided by operations $24,180 $20,025 $17,482 Working capital $25,024 $25,623 $20,823 Current ratio 1.7 1.8 1.8
9 MANAGEMENT'S DISCUSSION, Continued The increase in cash provided by operations is attributable primarily to increased revenue, refinements in the company's cash management systems, and improvements in the accounts receivable collection cycle. CAPITAL RESOURCES Expenditures for property and equipment totaled $10.7 million during 1995, $13.6 million during 1994 and $23.6 million in 1993. In addition, the company financed, through operating leases, the acquisition of revenue equipment valued at approximately $30 million during each of these years. During recent years, the company has created and significantly expanded its fleet of company-operated tractors and trailers, and acquired the businesses and certain assets of other motor carriers in connection with the expansion of its activities. In connection with the need for funds to finance the purchase of assets from acquired businesses and the continuing expansion of the company-operated, full-truckload fleet, the company has in place a $50 million line of credit. Interest rates under the credit agreement are at prime or below. No commitment fee is charged on the unused portion of the credit line, and no compensating balances are required. This line of credit is also used to support letters of credit issued in connection with the company's insurance and risk management programs. The amount available for borrowing is reduced by such letters of credit which totaled approximately $7 million at December 31, 1995. At the end of 1995, approximately $43 million was available under the credit line. The company plans to replace about 600 of its tractors during 1996. These expenditures will be financed by internally generated funds, borrowings under the credit agreement and leasing. Management believes these sources of capital will be sufficient to finance the company's operations and capital expenditures during 1996. At December 31, 1994 and 1993, the ratios of long-term debt to total capitalization were 12.3% and 24.6%, respectively. No long-term debt was outstanding at December 31, 1995. 10
CONSOLIDATED STATEMENTS OF INCOME Frozen Food Express Industries, Inc. and Subsidiaries Years ended December 31, 1995, 1994 and 1993 (in thousands, except per share amounts) 1995 1994 1993 -------- -------- -------- Revenue Freight revenue $268,381 $252,316 $210,514 Non-freight revenue 23,964 22,304 16,875 ------- ------- ------- 292,345 274,620 227,389 ------- ------- ------- Costs and expenses Freight operating expenses Salaries, wages and related expenses 68,692 62,900 53,042 Purchased transportation 58,876 53,340 47,400 Supplies and expenses 74,250 68,430 55,471 Revenue equipment rent 17,469 16,027 10,757 Communications and utilities 3,457 3,285 2,753 Insurance and claims 14,462 13,066 10,020 Depreciation 10,719 9,752 9,941 Operating taxes and licenses 5,060 4,988 4,069 Gain on sale of equipment (706) (405) (629) Miscellaneous expense 2,471 2,562 2,394 ------- ------- ------- 254,750 233,945 195,218 Non-freight costs and operating expenses 22,211 21,539 16,781 ------- ------- ------- 276,961 255,484 211,999 ------- ------- ------- Income from operations 15,384 19,136 15,390 Interest and other expense 2,136 1,372 963 ------- ------- ------- Income before income tax 13,248 17,764 14,427 Provision for income tax 3,995 5,890 4,986 ------- ------- ------- Net income $ 9,253 $ 11,874 $ 9,441 ------- ------- ------- Net income per share of common stock Primary and fully diluted $ .57 $ .72 $ .58 See accompanying notes.
11
CONSOLIDATED BALANCE SHEETS Frozen Food Express Industries, Inc. and Subsidiaries December 31, 1995 and 1994 (in thousands) 1995 1994 -------- -------- ASSETS Current assets Cash and cash equivalents $ 7,480 $ 4,381 Accounts receivable, net 37,093 36,643 Inventories 8,221 8,006 Tires on equipment in use 5,217 4,334 Other current assets 3,636 3,692 ------- ------- Total current assets 61,647 57,056 Property and equipment, net 52,430 54,161 Other assets 9,585 5,619 ------- ------- $123,662 $116,836 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable $ 17,529 $ 12,580 Accrued claims liabilities 8,401 7,712 Accrued payroll 4,679 5,006 Deferred federal income tax 850 163 Other accrued liabilities 5,164 5,972 ------- ------- Total current liabilities 36,623 31,433 Long-term debt - 9,000 Deferred federal income tax 4,311 4,512 Accrued claims and other liabilities 7,707 7,603 ------- ------- Total liabilities and deferred credits 48,641 52,548 ------- ------- Commitments and contingencies - - Shareholders' equity Common stock, 17,281 shares issued in 1995 and in 1994 25,921 25,921 Additional paid-in capital 1,992 - Retained earnings 50,830 43,513 ------- ------- 78,743 69,434 Less - Treasury stock, at cost 3,722 4,538 Receivable from ESOP - 608 ------- ------- Total shareholders' equity 75,021 64,288 ------- ------- $123,662 $116,836 ======= ======= See accompanying notes.
12
CONSOLIDATED STATEMENTS OF CASH FLOWS Frozen Food Express Industries, Inc. and Subsidiaries Years ended December 31, 1995, 1994 and 1993 (in thousands) 1995 1994 1993 -------- -------- -------- Cash flows from operating activities Net income $ 9,253 $ 11,874 $ 9,441 Non-cash items involved in net income Depreciation and amortization 11,118 10,224 10,484 Provision for losses on accounts receivable 1,496 1,136 1,303 Deferred federal income tax 486 233 (814) Gain on sale of property and equipment (706) (405) (629) Non-cash contribution to employee benefit plans 2,265 1,609 2,202 Change in assets and liabilities, net of effects from acquired businesses Accounts receivable (2,488) (6,420) (9,413) Inventories (1,520) (1,693) (2,191) Tires on equipment in use (883) (332) (892) Other current assets 931 (1,390) 365 Trade accounts payable 4,570 2,584 1,632 Payable to owner-operators (581) (192) 540 Accrued claims and other liabilities 793 2,348 2,170 Accrued payroll (327) 743 1,312 Federal income tax payable - (1,809) 1,655 Other accrued liabilities (227) 1,515 317 ------- ------- ------- Net cash provided by operating activities 24,180 20,025 17,482 ------- ------- ------- Cash flows from investing activities Businesses dispositions (acquisitions) 2,300 (937) (2,636) Expenditures for property and equipment (10,698) (13,615) (23,562) Proceeds from sale of property and equipment 2,315 5,455 6,776 Other (5,214) (1,223) (1,523) ------- ------- ------- Net cash used in investing activities (11,297) (10,320) (20,945) ------- ------- ------- Cash flows from financing activities Borrowings under revolving credit agreement 33,000 25,000 22,600 Payments against revolving credit agreement (42,000) (33,000) (17,600) Dividends paid (1,936) (1,520) (1,494) Proceeds from sale of treasury stock 1,644 1,012 927 Purchases of treasury stock (492) (650) (813) ------- ------- ------- Net cash (used in) provided by financing activities (9,784) (9,158) 3,620 ------- ------- ------- Net increase in cash and cash equivalents 3,099 547 157 Cash and cash equivalents at beginning of year 4,381 3,834 3,677 ------- ------- ------- Cash and cash equivalents at end of year $ 7,480 $ 4,381 $ 3,834 ======= ======= ======= See accompanying notes.
13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Frozen Food Express Industries, Inc. and Subsidiaries Years ended December 31, 1995, 1994 and 1993 (in thousands) Shares of Par Value of Additional Shares of Cost of Total Common Common Paid-in Retained Treasury Treasury ESOP Shareholders' Stock Issued Stock Capital Earnings Stock Stock Debt Equity ------------ ----------- ---------- -------- --------- -------- ------- ------------- At December 31, 1992 10,369 $15,553 $ 379 $31,462 1,164 $3,308 $ 2,287 $41,799 Net income - - - 9,441 - - - 9,441 Cash dividends paid ($.096 per share) - - - (1,494) - - - (1,494) Treasury stock purchased - - (3) - 101 1,708 - (1,711) Treasury stock reissued - - 1,522 - (119) (396) - 1,918 Exercise of stock options - - 300 - (207) (658) - 958 4-for-3 stock split in the form of a 33% stock dividend 3,456 5,184 (1,939) (3,245) 323 - - - Contributions/payments - - - - - - (1,072) 1,072 ------ ------ ------ ------ ----- ----- ------ ------ At December 31, 1993 13,825 20,737 259 36,164 1,262 3,962 1,215 51,983 Net income - - - 11,874 - - - 11,874 Cash dividends paid ($.096 per share) - - - (1,520) - - - (1,520) Treasury stock purchased - - - - 94 1,487 - (1,487) Treasury stock reissued - - 1,427 - (110) (358) - 1,785 Exercise of stock options - - 493 - (172) (553) - 1,046 Retroactive effect of a 5-for-4 stock split in the form of a 25% stock dividend 3,456 5,184 (2,179) (3,005) 268 - - - Contributions/payments - - - - - - (607) 607 ------ ------ ------ ------ ----- ----- ------ ------ At December 31, 1994 17,281 25,921 - 43,513 1,342 4,538 608 64,288 Net income - - - 9,253 - - - 9,253 Cash dividends paid ($.12 per share) - - - (1,936) - - - (1,936) Treasury stock purchased - - - - 102 1,012 - (1,012) Treasury stock reissued - - 1,881 - (279) (997) - 2,878 Exercise of stock options - - 111 - (222) (831) - 942 Contributions/payments - - - - - - (608) 608 ------ ------ ------ ------ ----- ----- ------ ------ At December 31, 1995 17,281 $25,921 $ 1,992 $50,830 943 $3,722 $ - $75,021 ====== ====== ====== ====== ===== ===== ====== ====== See accompanying notes.
14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Frozen Food Express Industries, Inc. and Subsidiaries December 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - Frozen Food Express Industries, Inc. (FFEX), a Texas corporation, and its subsidiaries, all of which are wholly- owned, are primarily engaged in motor carrier transportation of perishable commodities, providing direct service for both full-truckload and less-than- truckload shipments in all 48 contiguous states as well as Canada and Mexico. The consolidated financial statements include FFEX and all subsidiary companies (the Company). All significant intercompany balances and transactions have been eliminated in consolidation. ACCOUNTING ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual outcomes may vary from these estimates. CASH EQUIVALENTS - The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. ACCOUNTS RECEIVABLE - In the normal course of business, the Company extends unsecured credit to its customers which are located throughout the United States. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its estimate of amounts which will eventually become uncollectible. Accounts receivable from customers are stated net of allowances for doubtful accounts of $1,525,000 and $1,286,000 as of December 31, 1995, and 1994, respectively. INVENTORIES - Inventories are valued at the lower of cost (principally weighted average cost or specific identification method) or market. FREIGHT REVENUE AND EXPENSE RECOGNITION - Freight revenue and associated direct operating expenses are recognized on the date the freight is picked up from the shipper. INCOME TAXES - Deferred income taxes are provided for temporary differences between the tax basis of assets and liabilities and their financial reporting amounts. Deferred taxes are recorded based upon enacted tax rates anticipated to be in effect when these temporary differences are expected to reverse. 2. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Maintenance and repairs are charged to operations currently. Capitalized interest on funds borrowed to finance the construction and development of major assets, replacements and improvements was $295,000 during 1995 and $100,000 during 1994. No interest was capitalized during 1993. 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued Property and equipment, net consists of the following (in thousands):
1995 1994 ------- ------- Land $ 2,389 $ 2,389 Buildings and improvements 13,032 12,132 Revenue equipment 63,504 64,401 Service equipment 9,286 8,926 Computer, software and related equipment 11,079 8,992 ------ ------ 99,290 96,840 Less accumulated depreciation 46,860 42,679 ------ ------ $52,430 $54,161 ====== ======
Depreciation of property and equipment is calculated using the straight- line method generally over estimated useful lives of 20 to 30 years for buildings, 3 to 10 years for improvements to owned or leased facilities, 3 to 7 years for revenue equipment, 2 to 20 years for service equipment and 2 to 5 years for computer, software and related equipment. 3. LONG-TERM DEBT The Company has a $50 million line of credit pursuant to a revolving credit agreement with three commercial banks. As long as the Company maintains a required "borrowing base", payments on principal are not due until termination of the agreement. The agreement, which has no stated expiration date, can be terminated by either party upon sixty days' notice, with repayment due in 48 equal monthly payments commencing 13 months following the termination. The agreement provides for interest payable quarterly at the prime rate of one of the banks. The Company may elect to borrow for specified periods of time at fixed interest rates. The fixed interest rates are based on the London Interbank Offered Rate or specified 90-day or 180-day certificate of deposit rates. No borrowings were outstanding at December 31, 1995. At December 31, 1994, $9,000,000 was borrowed at fixed rates averaging 7%. The agreement sets certain minimum limits on consolidated net worth. Cash dividends paid during any four consecutive quarters may not exceed 40% of the total net income of the four quarters preceding the declaration of any cash dividend. In addition, the Company is required to maintain certain minimum financial and coverage ratios. Future investments, mergers and leases of property are also restricted. Additionally, the agreement provides that the amount the Company is permitted to borrow is reduced by outstanding letters of credit (see Note 7). Under the terms of the revolving credit agreement, the banks have the option to obtain liens on revenue equipment, accounts receivable and service equipment. The banks have made no request for such liens. At December 31, 1995, approximately $43 million was available 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued under the agreement. No commitment fees are charged on the unused portion of the credit line, and no compensating balances are required. Total interest payments made during 1995, 1994 and 1993 were $649,000, $809,000 and $755,000, respectively. 4. FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH During 1995, 1994 and 1993, the Company funded contributions to its Employee Savings Plan and one of its Employee Stock Ownership Plans and Trusts (ESOPs) by transferring 159,236, 78,035 and 109,680 shares, respectively, of treasury stock to the trustees of the plans. The fair market value of the shares, at the time of the contributions, was approximately $1,657,000, $1,002,000 and $1,130,000, for 1995, 1994 and 1993, respectively. During 1995, 1994 and 1993, $608,000, $607,000 and $1,072,000, respectively, of the Company's contribution to another ESOP was applied against amounts owed by the ESOP to the Company (see Note 6). As of December 31, 1994 and 1993, accounts payable included $25,000 and $1,553,000, respectively, for the purchase of equipment delivered during 1994 and 1993. As of December 31, 1995 and 1994, accounts receivable included $414,000 and $24,000, respectively, from the sale of equipment retired and sold during 1995 and 1994. 5. INCOME TAXES The provision for income tax consisted of the following (in thousands):
1995 1994 1993 ------ ------ ------ Taxes currently payable Federal $3,234 $5,337 $5,169 State 275 320 222 Deferred federal taxes 486 233 (405) ----- ----- ----- $3,995 $5,890 $4,986 ===== ===== =====
17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued The differences between the statutory federal income tax rate and the Company's effective income tax rate are as follows:
1995 1994 1993 ------ ------ ------ Statutory federal income tax rate 34.2% 34.9% 34.3% Company-owned life insurance (5.3) (2.9) - Non-deductible expenses 0.7 0.3 1.6 Other, net 0.6 0.9 (1.3) ---- ---- ---- 30.2% 33.2% 34.6% ==== ==== ====
Total income taxes paid by the Company were $2,012,000, $7,259,000 and $3,477,000 for 1995, 1994 and 1993, respectively. The following presents the changes in the primary components of the total deferred tax liability (in thousands):
Deferred December (Provision) December 31, 1994 Benefit 31, 1995 -------- ----------- --------- Accrued claims $ 4,669 $ 292 $ 4,961 Allowance for bad debts 629 39 668 Prepaid expense (2,027) (342) (2,369) Fixed assets (8,002) (695) (8,697) Other 56 220 276 ------ ---- ------ $(4,675) $(486) $(5,161) ====== ==== =======
6. RETIREMENT PLANS The Company sponsors ESOPs for its employees. Contributions to the ESOPs are made at the discretion of the Board of Directors. One of the ESOPs financed purchases of FFEX stock with funds borrowed from the Company. No such purchases were made during 1995, 1994 or 1993. These loans matured in annual installments through 1999 and bore interest at the prime rate. The interest rate for these loans at December 31, 1994, 8.5%. The loans were fully 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued retired during 1995. The following table sets forth a summary of ESOP related expense (in thousands):
1995 1994 1993 ------ ------ ------ Level payments required $ - $ - $ - Contribution in excess of required payments 963 1,296 1,172 Interest paid by Company on behalf of ESOP 67 85 78 ----- ----- ----- $1,030 $1,381 $1,250 ===== ===== ===== Dividends on ESOP shares used for debt service $ 19 $ 29 $ 64 ===== ===== =====
The leveraged ESOP utilized dividends received on the shares pledged as collateral under the loan agreement to service the ESOP debt. To the extent these dividends were not sufficient to satisfy the full amount of the interest on the debt, the contribution required of the Company was increased. As of December 31, 1995, the leveraged ESOP owned 2,822,490 shares, all of which had been allocated to participants' accounts. The Company sponsors a Savings Plan (the Plan) for its employees. Contributions by the Company to the Plan for the benefit of employees are determined by reference to voluntary contributions made by each employee. Company contributions are made on a quarterly basis by transferring, at fair market value, shares of FFEX stock to the Plan. For 1995, 1994 and 1993, Company contributions to the Plan were approximately $941,000, $1,002,000 and $1,030,000, respectively. 7. COMMITMENTS AND CONTINGENCIES The Company leases certain office space, terminals, maintenance facilities and equipment. The aggregate future minimum rentals under non- cancelable operating leases at December 31, 1995, are (in thousands):
Related Third Parties Parties Total ------- ------- ------- 1996 $ 812 $17,047 $17,859 1997 565 10,521 11,086 1998 180 7,932 8,112 1999 - 5,008 5,008 2000 - 4,736 4,736 After 2000 - 4,461 4,461 ----- ------ ------ Total $1,557 $49,705 $51,262 ===== ====== ======
19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued Leases with related parties involve tractors leased from certain officers of the Company under three year non-cancelable operating leases. For 1995, 1994 and 1993, respectively, payments under these leases were $750,000, $489,000 and $191,000, respectively. At December 31, 1995, the Company had purchase commitments of approximately $50 million for the purchase of tractors, trailers and information systems in 1996 and 1997. The Company has accrued for costs related to public liability 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 the Company's financial position or results of operations. At December 31, 1995, in connection with its accrued claims liabilities, the Company had established approximately $7,000,000 of irrevocable letters of credit in favor of insurance companies and pursuant to certain self insurance agreements. Under the terms of the insurance agreements, the letters of credit may be drawn upon in the event of default for failure to pay claims (within retention levels specified in the policies). 8. NET INCOME PER SHARE OF COMMON STOCK Net income per share of common stock was computed using the weighted average number of common and common equivalent shares, (calculated using the treasury stock method) outstanding during the year. Computation of primary common stock equivalents assumes exercise of dilutive options at the average market price of FFEX's shares during each year. The computation of fully diluted common stock equivalents assumes exercise of dilutive options at the yearend market price. The primary weighted average number of shares were (in thousands) 16,132 in 1995, 16,451 in 1994 and 16,212 in 1993. The fully diluted weighted average number of shares were (in thousands) 16,132 in 1995, 16,451 in 1994 and 16,276 in 1993. 9. SHAREHOLDERS' EQUITY As of December 31, 1995, 1994 and 1993, there were authorized 40 million of FFEX's $1.50 par value common stock. ESOP debt represents the amount of the Company's receivable from one of its ESOPs. Current financial reporting practice requires this amount to be reflected as a reduction of shareholders' equity. FFEX has stock option plans adopted in 1994, 1993, 1987 and 1982 which provide that options for shares of FFEX common stock may be granted to officers and key employees of the Company at the fair market value on the date of grant and to non-employee directors of FFEX at the greater of 50% of the fair market value at date of grant or $1.00. The options expire 10 years from the date of grant. Under the 1994, 1993 and 1982 stock option plans, options may be granted for 10 years following shareholder ratification. Accordingly, no future options may be granted under the 1982 plan. The following table sets forth summarized information regarding the plans: 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1995 1994 1993 --------- --------- --------- Options outstanding at beginning of year 1,001,318 1,009,520 1,034,275 Surrendered, forfeited or expired (16,297) (938) (6,060) Granted 453,625 207,500 321,666 Exercised (217,069) (214,764) (340,361) --------- --------- --------- Options outstanding at end of year 1,221,577 1,001,318 1,009,520 ========= ========= ========= Average price of options exercised during the year $4.05 $4.87 $2.87 Average price of outstanding options at end of year ($1.00 to $12.40) $7.86 $6.10 $4.65 Exercisable options 781,080 794,756 689,553 Options available for future grants 295,700 708,075 102,138
21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Frozen Food Express Industries, Inc.: We have audited the accompanying consolidated balance sheets of Frozen Food Express Industries, Inc., and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frozen Food Express Industries, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Dallas, Texas ARTHUR ANDERSEN LLP February 15, 1996 22
QUARTERLY FINANCIAL, STOCK AND DIVIDEND INFORMATION (Unaudited) (in thousands, except per share amounts) First Second Third Fourth Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ------- 1995 Revenue $66,978 $73,837 $75,778 $75,752 $292,345 Income from operations 2,973 6,066 3,583 2,762 15,384 Net income 1,786 3,809 2,102 1,556 9,253 Net income per share of common stock Primary and fully diluted .11 .23 .13 .10 .57 Cash dividends per share .03 .03 .03 .03 .12 Common stock price per share High 13 7/8 13 10 3/4 10 1/8 13 7/8 Low 11 3/4 8 7/8 8 1/2 8 3/4 8 1/2 Common stock trading volume 979 2,937 1,593 1,539 7,049 1994 Revenue $60,301 $70,303 $72,535 $71,481 $274,620 Income from operations 2,934 5,986 5,477 4,739 19,136 Net income 1,745 3,787 3,434 2,908 11,874 Net income per share of common stock Primary and fully diluted .10 .23 .21 .18 .72 Cash dividends per share .024 .024 .024 .024 .096 Common stock price per share High 15 13 5/8 13 5/8 13 3/8 15 Low 11 12 12 3/8 11 7/8 11 Common stock trading volume 2,244 1,461 1,034 718 5,457
As of March 10, 1996, the company had approximately 6,000 beneficial shareholders, including participants in the company's Employee Stock Ownership Plans. 23 EX-21 3 EXHIBIT 21.1 SUBSIDIARIES OF FROZEN FOOD EXPRESS INDUSTRIES, INC. Jurisdiction of Name of Subsidiary Incorporation FFE Transportation Services, Inc. Delaware W & B Refrigeration Service Company Delaware Conwell Corporation Delaware Lisa Motor Lines, Inc. Delaware Global Refrigerant Management, Inc. * Texas Global Refrigerant Management, Inc. * Delaware FFE. Inc. Texas Conwell Cartage, Inc. * Texas Frozen Food Express, Inc. Texas Middleton Transportation Company * Texas Each active subsidiary does business under its corporate name. * Inactive EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS OF FROZEN FOOD EXPRESS INDUSTRIES, INC., AND SUBSIDIARIES AS OF DECEMBER 31, 1995, AND THE CONSOLIDATED STATEMENTS OF INCOME, CASH FLOW AND SHAREHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 DEC-31-1995 7,480 0 38,618 1,525 8,221 61,647 99,290 46,860 123,662 36,623 0 0 0 25,921 49,100 123,662 23,964 292,345 0 276,961 2,136 1,496 0 13,248 3,995 9,253 0 0 0 9,253 .57 .57
-----END PRIVACY-ENHANCED MESSAGE-----