-----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, HhPlE6sGT/2THA2jK1muf2gv4K0K4S01Cae6zQlXuFZcSNZsC5oi1smXAdSBa5M6 5fDTIY+7nG0VojP8R/Syow== 0000039273-97-000008.txt : 19970711 0000039273-97-000008.hdr.sgml : 19970711 ACCESSION NUMBER: 0000039273-97-000008 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FROZEN FOOD EXPRESS INDUSTRIES INC CENTRAL INDEX KEY: 0000039273 STANDARD INDUSTRIAL CLASSIFICATION: 4213 IRS NUMBER: 751301831 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10006 FILM NUMBER: 97571656 BUSINESS ADDRESS: STREET 1: 1145 EMPIRE CENTRAL PLACE CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146308090 10-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (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, 1996 [ ] 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 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 [ ] As of March 19, 1997, 16,701,063 shares of the registrant's common stock, $l.50 par value, were outstanding. Item 8 of the Form 10-K is amended by adding the financial statement and supplementary data required to be filed on Form 10-K for the fiscal year ended December 31, 1996. On March 31, 1997, it came to the Registrant's attention that the Registrant's Form 10-K which was filed with the Commission on March 27, 1997 omitted the information contained in Exhibit 13.1 filed herewith. Said Exhibit is incorporated by reference into Registrant's Form 10-K filed with the Commission on March 27, 1997, SEC File Number 1-10006. 1 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 7 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 Wells Fargo Bank (formerly 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).
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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). 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).
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10.12 Frozen Food Express Industries, Inc. Employee Stock Option Plan (filed as Exhibit 4.1 to Registrant's Registration #333-21831 as filed with the Commission, and incorporated herein by reference). 10.13 FFE Transportation Services, Inc. 401(k) Wrap Plan (filed as Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996; SEC File Number 1-10006 and incorporated herein by reference). 10.14 First through Sixth Amendments to Savings Plan for Employees of Frozen Food Express Industries, Inc. (filed as Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996; 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, 1996). 13.1 Annual Report to Shareholders of the Registrant for the year ended December 31, 1996. (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. (filed as Exhibit 21.1 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996; SEC File Number 1-10006 and incorporated herein by reference). 25.1 A Power of Attorney is found on page 14 of this Report (filed as Exhibit 25.1 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996; SEC File Number 1-10006 and incorporated herein by reference).
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27 Financial Data Schedule (filed as Exhibit 27 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996; SEC File Number 1-10006 and incorporated herein by reference).
(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. 5 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, 21 1996, 1995 and 1994 Consolidated Balance Sheets -- December 31, 1996 and 1995 22 Consolidated Statements of Cash Flows -- Years ended December 31, 23 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity -- Years ended 24 December 31, 1996, 1995 and 1994 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, 1996, are hereby incorporated by reference, and are filed herewith as Exhibit 13.1. 6 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 31, 1997 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 31, 1997 By /s/ Stoney M. Stubbs, Jr. * -------------- ------------------------------------------------ Stoney M. Stubbs, Jr., Chairman of the Board of Directors and President (Principal Executive Officer) Date: March 31, 1997 /s/ Charles G. Robertson * -------------- ------------------------------------------------ Charles G. Robertson Executive Vice President and Director Date: March 31, 1997 /s/ Edgar O. Weller * -------------- ------------------------------------------------ Edgar O. Weller Vice Chairman of the Board of Directors Date: March 31, 1997 /s/ Brian R. Blackmarr * -------------- ------------------------------------------------ Brian R. Blackmarr, Director Date: March 31, 1997 /s/ Leroy Hallman * -------------- ------------------------------------------------ Leroy Hallman, Director Date: March 31, 1997 /s/ W. Grogan Lord * -------------- ------------------------------------------------ W. Grogan Lord, Director Date: March 31, 1997 /s/ T. Michael O'Connor * -------------- ------------------------------------------------ T. Michael O'Connor, Director * By: /s/Burl G. Cott --------------- Burl G. Cott Attorney-in-Fact 7 EX-13 2 EXHIBIT 13.1 THIS FORM 10-K INCORPORATES CERTAIN SECTIONS OF THE REGISTRANT'S 1996 ANNUAL REPORT TO SHAREHOLDERS. ACCORDINGLY, ONLY THE PORTIONS OF REGISTRANT'S 1996 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 1996 1995 1994 1993 (in thousands, except ratio, rates, equipment and per-share amounts) Summary of Operations Revenue 311,428 292,345 274,620 227,389 Operating expenses 296,283 276,961 255,484 211,999 Net income 8,533 9,253 11,874 9,441 Net margin 2.7% 3.2% 4.3% 4.2% After-tax return on equity 10.7% 13.3% 20.4% 20.1% Net income per common share, fully diluted .52 .57 .72 .58 Financial Data Working capital 34,162 25,024 25,623 20,823 Current ratio 2.1 1.7 1.8 1.8 Cash provided by operations 10,800 24,180 20,025 17,482 Capital expenditures, net 7,191 8,383 8,160 18,453 Long-term debt -- -- 9,000 17,000 Shareholders' equity 83,953 75,021 64,288 51,983 Long-term debt-to-equity ratio -- -- .1 .3 Common Stock Average shares outstanding, fully diluted 16,473 16,132 16,451 16,276 Book value per share 5.04 4.59 4.03 3.31 Market value per share High 13 7/8 13 7/8 15 15 Low 7 7/8 8 1/2 11 7 1/4 Cash dividends per share .12 .12 .096 .096 Revenue Table Full truckload 195,458 180,598 163,988 129,549 Less-than-truckload 92,496 87,783 88,328 80,965 TL/LTL % revenue contribution 63/30 62/30 60/32 57/36 Equipment in Service at Yearend Tractors Company operated 1,202 1,149 1,099 945 Provided by owner-operators 703 667 505 457 Total 1,905 1,816 1,604 1,402 Trailers Company provided 2,998 2,770 2,406 2,027 Provided by owner-operators 20 27 21 32 Total 3,018 2,797 2,427 2,059 Full-Truckload Revenue 195,458 180,598 163,988 129,549 Loaded miles 145,785 135,469 121,106 97,753 Shipments 158.1 142.9 128.1 106.6 Revenue per shipment 1,236 1,264 1,280 1,215 Loaded miles per shipment 922 948 945 917 Revenue per loaded mile 1.34 1.33 1.35 1.33 Number of loads per business day 627 567 508 423 Revenue per business day 776 717 651 514 Less-than-Truckload Revenue 92,496 87,783 88,328 80,965 Hundredweight 8,652 8,296 8,670 8,116 Shipments 304.6 292.1 305.2 292.0 Revenue per hundredweight 10.69 10.58 10.19 9.98 Revenue per shipment 304 301 289 277 Revenue per business day 367 348 351 321 Pounds per shipment 2,840 2,840 2,841 2,779
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ELEVEN-YEAR STATISTICS AND FINANCIAL DATA 1992 1991 1990 1989 (in thousands, except ratio, rates, equipment and per-share amounts) Summary of Operations Revenue 194,888 176,995 160,171 122,248 Operating expenses 183,179 167,033 152,370 115,769 Net income 7,144 5,202 3,618 3,779 Net margin 3.7% 2.9% 2.3% 3.1% After-tax return on equity 18.6% 16.0% 12.6% 14.6% Net income per common share, fully diluted .45 .34 .25 .26 Financial Data Working capital 16,949 15,612 13,085 9,567 Current ratio 1.8 2.1 1.9 2.0 Cash provided by operations 16,395 14,968 9,022 9,174 Capital expenditures, net 18,375 (2,423) 16,285 11,619 Long-term debt 12,000 5,000 19,200 12,500 Shareholders' equity 41,799 35,059 30,005 27,255 Long-term debt-to-equity ratio .3 .1 .6 .5 Common Stock Average shares outstanding, fully diluted 15,910 15,249 14,519 14,534 Book value per share 2.72 2.42 2.11 1.96 Market value per share High 11 1/2 4 1/8 2 3/4 2 7/8 Low 3 7/8 1 7/8 1 7/8 2 1/8 Cash dividends per share .079 .06 .06 .05 Revenue Table Full truckload 109,178 103,582 90,043 60,313 Less-than-truckload 72,864 65,068 64,589 60,114 TL/LTL % revenue contribution 56/37 59/37 56/40 49/49 Equipment in Service at Yearend Tractors Company operated 800 737 739 508 Provided by owner-operators 432 421 386 376 Total 1,232 1,158 1,125 884 Trailers Company provided 1,609 1,475 1,419 1,204 Provided by owner-operators 24 28 38 41 Total 1,633 1,503 1,457 1,245 Full-Truckload Revenue 109,178 103,582 90,043 60,313 Loaded miles 83,247 80,663 69,800 46,975 Shipments 92.9 85.5 75.8 51.9 Revenue per shipment 1,175 1,211 1,188 1,162 Loaded miles per shipment 896 943 921 905 Revenue per loaded mile 1.31 1.28 1.29 1.28 Number of loads per business day 367 339 301 206 Revenue per business day 431 411 357 239 Less-than-Truckload Revenue 72,864 65,068 64,589 60,114 Hundredweight 6,848 6,211 6,314 6,051 Shipments 253.3 231.3 241.7 253.4 Revenue per hundredweight 10.64 10.48 10.23 9.93 Revenue per shipment 288 281 267 237 Revenue per business day 288 258 256 239 Pounds per shipment 2,704 2,685 2,612 2,388
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ELEVEN-YEAR STATISTICS AND FINANCIAL DATA 1988 1987 1986 (in thousands, except ratio, rates, equipment and per-share amounts) Summary of Operations Revenue 102,136 84,585 91,195 Operating expenses 96,558 81,278 89,618 Net income 3,660 2,373 1,055 Net margin 3.6% 2.8% 1.2% After-tax return on equity 16.5% 12.1% 5.6% Net income per common share, fully diluted .26 .18 .08 Financial Data Working capital 5,096 4,862 5,133 Current ratio 1.6 1.9 1.8 Cash provided by operations 9,191 7,320 7,398 Capital expenditures, net 15,060 3,454 2,332 Long-term debt 7,500 2,300 3,900 Shareholders' equity 24,348 20,121 19,105 Long-term debt-to-equity ratio .3 .1 .2 Common Stock Average shares outstanding, fully diluted 14,095 13,200 13,220 Book value per share 1.78 1.52 1.44 Market value per share High 2 3/8 1 5/8 1 3/8 Low 1 1 1 Cash dividends per share .038 .03 .006 Revenue Table Full truckload 42,947 26,226 30,157 Less-than-truckload 57,863 57,004 59,888 TL/LTL % revenue contribution 42/57 31/67 33/66 Equipment in Service at Yearend Tractors Company operated 256 98 75 Provided by owner-operators 496 421 541 Total 752 519 616 Trailers Company provided 876 698 720 Provided by owner-operators 49 49 74 Total 925 747 794 Full-Truckload Revenue 42,947 26,226 30,157 Loaded miles 33,762 18,872 21,741 Shipments 38.1 26.7 29.8 Revenue per shipment 1,127 982 1,010 Loaded miles per shipment 886 706 728 Revenue per loaded mile 1.27 1.39 1.39 Number of loads per business day 151 106 118 Revenue per business day 170 104 220 Less-than-Truckload Revenue 57,863 57,004 59,888 Hundredweight 5,816 5,983 6,417 Shipments 256.7 268.6 294.8 Revenue per hundredweight 9.95 9.53 9.33 Revenue per shipment 225 212 203 Revenue per business day 230 226 238 Pounds per shipment 2,266 2,227 2,177
3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Available trucking capacity exceeded the demand for that capacity during 1995 and 1996. Decreased utilization of trucks, caused by this industry-wide overcapacity, contributed to decreased productivity during both years and placed downward pressure on full-truckload freight rates. Demand for the company's services during most of 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 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 1994. Beginning in late 1994 and continuing throughout 1995 and 1996, 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 domestic transportation of 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 1994, thereby increasing trucking 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. During 1996, revenue increased by 6.5% to $311,428,000. For 1995, revenue totaled $292,345,000 and was 6.5% above 1994 revenue of $274,620,000. Full- truckload revenue rose during 1996 and 1995 by 8.2% and 10.1%, respectively, while less-than-truckload (LTL) revenue rose by 5.4% during 1996, but fell by 0.6% during 1995. The improved LTL revenue during 1996 resulted primarily from a 4.3% increase in the number of shipments transported. Due in part to the effect of fuel adjustment charges during 1996, average revenue per LTL shipment rose by 1%. 4 MANAGEMENT'S DISCUSSION, Continued Expansion of the full-truckload fleet increased full-truckload revenue during 1996 and 1995. During 1996, the size of the company-operated, full- truckload fleet rose by 53 tractors and average miles per full-truckload shipment decreased by 2.7% as compared to 1995. During 1996, the company continued to increase the number of tractors provided by owner-operators to its full-truckload operations. During 1996 and 1995, the number of full-truckload tractors provided by owner-operators increased by about 8% and 33%, respectively. During 1996 and 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 did not significantly fluctuate between the two years. The number of full- truckload shipments transported during 1996 and 1995 increased by approximately 11% and 12%, respectively, over previous year levels. During 1996, company- operated, full-truckload equipment accounted for 72% of total full-truckload revenue, while company-operated full-truckload equipment accounted for approximately 75% of such revenue during 1994 and 1995. Currently, the company does not plan to increase the size of its company- operated, full-truckload fleet during 1997. 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, and reducing the percentage of empty, non-revenue producing miles. During 1996, the company expanded its use of computer and satellite technology to enhance efficiency and customer service. The satellite-based tracking and communication system provides automatic hourly updates of the position of each full-truckload tractor and permits real-time communication between operations personnel and drivers. Dispatchers relay pick-up and delivery times, weather and road information, route and fueling directions, and other instructions to the drivers while shipment status and other information are relayed by the drivers to the company's computers via the satellite. The company provides a wide range of transportation and logistics services which include 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. Less than 5% of the company's domestic full-truckload shipments are transported in this manner and this service is not expected to expand until the current industry-wide oversupply of full-truckload trucks subsides. 5 MANAGEMENT'S DISCUSSION, Continued 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 makes arrangements with railroads and Mexico- based motor carriers. Pursuant to these arrangements, the company interchanges its trailers with the Mexico freight service providers 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 and 1996, 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. 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 1.5:1 at January 1, 1994, to 1.6:1 at yearend 1996, 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. 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 compensation, training and recruiting. During 1995 and 1996, the company did not experience a shortage of employee-drivers, although employee-driver turnover continued at a high rate. Significant efforts are continually 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. Recovery of future cost increases, if any, associated with driver turnover and compensation will depend upon competitive freight market conditions. Income from operations declined by 1.6% during 1996 to $15,145,000 as compared to $15,384,000 in 1995 and $19,136,000 in 1994. The industry-wide over- capacity, particularly in the full-truckload segment, 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 1996, 1995 and 1994 was 2.7%, 3.2% and 4.3%, respectively. 6 MANAGEMENT'S DISCUSSION, Continued 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. Salaries, wages and related expenses, as a percentage of freight revenue, for 1996, 1995 and 1994 were 24.7%, 25.6% and 24.9%, respectively. The 1996 decline was attributable primarily to the company's continued efforts to increase the number of tractors provided by owner-operators. As the percentage of total freight handled by company-operated equipment declined, the percent of freight revenue absorbed by purchased transportation (primarily payments to owner-operators) rose from 21.1% in 1994, to 21.9% in 1995 and 24.0% in 1996, due to the more rapid expansion of the owner-operator provided fleet of trucks. Average per-gallon fuel costs (including fuel taxes) paid by the company were relatively stable during 1994 and 1995 but increased by 11% during 1996. The company attempts to mitigate the effect of increases in fuel costs primarily through the utilization of more fuel efficient tractors, by aggressively managing its fuel purchasing and, when market conditions allow, by obtaining freight rate increases and fuel adjustment charges from its customers. Due to competitive pressures resulting from the industry-wide oversupply of trucks, only about half of the increase in per-gallon fuel costs was recovered through such fuel adjustment charges during 1996. Fuel price fluctuations result from many external market factors, most of which cannot be influenced or forecasted by the company. In addition, each year several states increase their per-gallon fuel taxes. Recovery of future fuel tax or price increases, if any, will continue to depend upon competitive freight market conditions. The total of revenue equipment rent and depreciation expense increased from 10.2% of freight revenue in 1994 to 10.5% for 1995 and 10.7% for 1996. These increases were due in part to the increased use of leasing to finance the expansion of the company's fleet of trailers. Equipment rent and depreciation is also affected by the replacement of less expensive (3 year old) tractors and (7 year old) trailers with more expensive new equipment. Tractors and trailers acquired during 1996 were more costly than the tractors and trailers they replaced. Insurance and claims expense, as a percentage of freight revenue, was 4.5% in 1996, 5.4% in 1995 and 5.2% in 1994. 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 highway accidents are the primary component of insurance and claims expense. 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 7 MANAGEMENT'S DISCUSSION, Continued 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. During 1996, these costs on a per-mile basis fell by 16% as compared to 1995, resulting in the overall decrease in insurance and claims expense. 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. 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. FFE Transportation Services, Inc. (FFE), the company's largest subsidiary, was awarded first place among trucklines which run over 100 million miles annually in the Truckload Carriers Association's 1996 National Fleet Safety Contest. FFE's safety record has placed it in the top three competitors among the largest full-truckload motor carriers in each of the past five years. Gains from the sale of equipment rose from $405,000 in 1994, to $706,000 in 1995 and then to $1,069,000 in 1996. 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 $23,474,000 during 1996, $23,964,000 during 1995 and $22,304,000 during 1994. Operating profits from these operations of $765,000, $1,753,000 and $942,000 were posted for 1994, 1995 and 1996, 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, while general softness in demand for many of the products distributed by this subsidiary resulted in lower non-freight revenue and operating income during 1996. For 1996, 1995 and 1994, interest and other expense was $3,370,000, $2,136,000 and $1,372,000, respectively. Prior to 1994, interest incurred on bank debt was the primary component of interest and other expenses. During the 8 MANAGEMENT'S DISCUSSION, Continued three years ending December 31, 1996, bank debt was reduced from $9,000,000 to zero. The increase in interest and other expenses during 1995 and 1996 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 and 11.1% during 1996. Net income decreased by 22.1% in 1995 and 7.8% in 1996. The provision for income tax was 27.5% of pre-tax income for 1996, as compared to 30.2% for 1995 and 33.2% for 1994. This reduced effective income tax rate is primarily attributable to the increased level of non-taxable book income from the company-owned life insurance (COLI) program. Offsetting this non-taxable income are interest costs associated with the COLI program. The combination of non-taxable COLI income and tax-deductible COLI interest expense has negatively impacted pre-tax income since 1994. The effect has been to reduce income tax expense through the deductibility of COLI interest costs. In years prior to 1996, the tax savings have more than offset net pre-tax expense, resulting in increased net income. During 1996, the President signed legislation which, effective January 1, 1996, limits the deductibility of COLI-related interest. The adverse effect on 1996 was minimal. The effect on years after 1996 could be significant if the present COLI program is continued into those years. In light of these developments, management is currently implementing plans to discontinue the COLI program. LIQUIDITY
(Dollars in Thousands) 1996 1995 1994 - - --------------------------- ------- ------- ------- Cash provided by operations $10,800 $24,180 $20,025 Working capital $34,162 $25,024 $25,623 Current ratio 2.1 1.7 1.8
The company continues to maintain a strong financial position. The table above provides a summary of certain liquidity measures. The decrease in cash provided by operations is attributable primarily to reduced net income, increased working capital and the settlement during 1996 of certain self-insured liability claims. CAPITAL RESOURCES Expenditures for property and equipment totaled $13.7 million during 1996, $10.7 million during 1995 and $13.6 million in 1994. In addition, the company financed, through operating leases, the acquisition of revenue equipment valued 9 MANAGEMENT'S DISCUSSION, Continued at approximately $40 million during 1996 and $30 million during each of 1995 and 1994. During recent years, the company has 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 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 $5 million at December 31, 1996. At the end of 1996, approximately $45 million was available under the credit line. The company plans to replace about 300 of its tractors during 1997. 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 1997. At December 31, 1996 and 1995 there was no long-term debt outstanding. 10 CONSOLIDATED STATEMENTS OF INCOME Frozen Food Express Industries, Inc. and Subsidiaries Years ended December 31, 1996, 1995 and 1994 (in thousands, except per-share amounts)
1996 1995 1994 -------- -------- -------- Revenue Freight revenue $287,954 $268,381 $252,316 Non-freight revenue 23,474 23,964 22,304 ------- ------- ------- 311,428 292,345 274,620 ------- ------- ------- Costs and expenses Freight operating expenses Salaries, wages and related expenses 71,049 68,692 62,900 Purchased transportation 69,172 58,876 53,340 Supplies and expenses 79,243 74,250 68,430 Revenue equipment rent 21,367 17,469 16,027 Communications and utilities 3,625 3,457 3,285 Insurance and claims 13,028 14,462 13,066 Depreciation 9,478 10,719 9,752 Operating taxes and licenses 4,979 5,060 4,988 Gain on sale of equipment (1,069) (706) (405) Miscellaneous expense 2,879 2,471 2,562 ------- ------- ------- 273,751 254,750 233,945 Non-freight costs and operating expenses 22,532 22,211 21,539 ------- ------- ------- 296,283 276,961 255,484 ------- ------- ------- Income from operations 15,145 15,384 19,136 Interest and other expense 3,370 2,136 1,372 ------- ------- ------- Income before income tax 11,775 13,248 17,764 Provision for income tax 3,242 3,995 5,890 ------- ------- ------- Net income $ 8,533 $ 9,253 $ 11,874 ======= ======= ======= Net income per share of common stock Primary and fully diluted $ .52 $ .57 $ .72 ======= ======= ======= See accompanying notes.
11 CONSOLIDATED BALANCE SHEETS Frozen Food Express Industries, Inc. and Subsidiaries December 31, 1996 and 1995 (in thousands)
1996 1995 -------- -------- ASSETS Current assets Cash and cash equivalents $ 6,670 $ 7,480 Accounts receivable, net 39,464 37,093 Inventories 8,440 8,221 Tires on equipment in use 5,517 5,217 Deferred federal income tax 408 -- Other current assets 4,987 3,636 ------- ------- Total current assets 65,486 61,647 Property and equipment, net 51,880 52,430 Other assets 12,188 9,585 ------- ------- $129,554 $123,662 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable $ 13,997 $ 17,529 Accrued claims liabilities 6,887 8,401 Accrued payroll 4,950 4,679 Federal income tax payable 155 -- Deferred federal income tax -- 850 Other accrued liabilities 5,335 5,164 ------- ------- Total current liabilities 31,324 36,623 Long-term debt -- -- Deferred federal income tax 6,962 4,311 Accrued claims and other liabilities 7,315 7,707 ------- ------- Total liabilities and deferred credits 45,601 48,641 ------- ------- Commitments and contingencies -- -- Shareholders' equity Common stock, 17,281 shares issued in 1996 and in 1995 25,921 25,921 Additional paid-in capital 3,462 1,992 Retained earnings 57,386 50,830 ------- ------- 86,769 78,743 Less - Treasury stock, at cost 2,816 3,722 ------- ------- Total shareholders' equity 83,953 75,021 ------- ------- $129,554 $123,662 ======= ======= See accompanying notes.
12 CONSOLIDATED STATEMENTS OF CASH FLOWS Frozen Food Express Industries, Inc. and Subsidiaries December 31, 1996, 1995 and 1994 (in thousands)
1996 1995 1994 -------- -------- -------- Cash flows from operating activities Net income $ 8,533 $ 9,253 $ 11,874 Non-cash items involved in net income Depreciation and amortization 10,012 11,118 10,224 Provision for losses on accounts receivable 1,434 1,496 1,136 Deferred federal income tax 1,393 486 233 Gain on sale of equipment (1,069) (706) (405) Non-cash contribution to employee benefit plans 1,415 2,265 1,609 Change in assets and liabilities, net of effects from acquired businesses Accounts receivable (4,219) (2,488) (6,420) Inventories (219) (1,520) (1,693) Tires on equipment in use (300) (883) (332) Other current assets (1,351) 931 (1,390) Trade accounts payable (3,520) 4,570 2,584 Accrued claims and other liabilities (1,906) 793 2,348 Accrued payroll 271 (327) 743 Federal income tax payable 155 -- (1,809) Other accrued liabilities 171 (808) 1,323 ------- ------- ------- Net cash provided by operating activities 10,800 24,180 20,025 ------- ------- ------- Cash flows from investing activities Business dispositions (acquisitions) 375 2,300 (937) Expenditures for equipment (13,734) (10,698) (13,615) Proceeds from sale of equipment 6,543 2,315 5,455 Other (3,778) (5,214) (1,223) ------- ------- ------- Net cash used in investing activities (10,594) (11,297) (10,320) ------- ------- ------- Cash flows from financing activities Borrowings under revolving credit agreement 28,000 33,000 25,000 Payments against revolving credit agreement (28,000) (42,000) (33,000) Dividends paid (1,977) (1,936) (1,520) Proceeds from sale of treasury stock 1,521 1,644 1,012 Purchases of treasury stock (560) (492) (650) ------- ------- ------- Net cash used in financing activities (1,016) (9,784) (9,158) ------- ------- ------- Net (decrease) increase in cash and cash equivalents (810) 3,099 547 Cash and cash equivalents at beginning of year 7,480 4,381 3,834 ------- ------- ------- Cash and cash equivalents at end of year $ 6,670 $ 7,480 $ 4,381 ======= ======= ======= See accompanying notes.
13 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY Frozen Food Express Industries, Inc. and Subsidiaries Years ended December 31, 1996, 1995 and 1994
Shares Par of Value Shares Cost Common of Additional of of Total Stock Common Paid-in Retained Treasury Treasury ESOP Shareholders' Issued Stock Capital Earnings Stock Stock Debt Equity ------ ------- ---------- -------- -------- -------- -------- ------------- 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 ($.12 per share) -- -- -- (1,936) -- -- -- (1,936) Treasury stock purchased -- -- -- -- 102 1,012 -- (1,012) Treasury stock reissued -- -- 1,881 -- (279) (997) -- 2,878 Exercise of stock options -- -- 111 -- (222) (831) -- 942 Contributions/payments -- -- -- -- -- -- (608) 608 ------ ------ ------ ------ ----- ------ ----- ------ At December 31, 1995 17,281 25,921 1,992 50,830 943 3,722 -- 75,021 Net income -- -- -- 8,533 -- -- -- 8,533 Cash dividends paid ($.12 per share) -- -- -- (1,977) -- -- -- (1,977) Treasury stock purchased -- -- -- -- 58 560 -- (560) Treasury stock reissued -- -- 1,597 -- (267) (1,081) -- 2,678 Exercise of stock options -- -- (127) -- (95) (385) -- 258 ------ ------ ------ ------ ----- ------ ----- ------ At December 31, 1996 17,281 $25,921 $ 3,462 $57,386 639 $ 2,816 $ -- $83,953 ====== ====== ====== ====== ===== ====== ===== ====== See accompanying notes.
14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Frozen Food Express Industries, Inc. and Subsidiaries December 31, 1996 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 revenue 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 $2,390,000 and $1,525,000 as of December 31, 1996 and 1995, 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. LONG-LIVED ASSETS -- The Company periodically evaluates whether the remaining useful life of long-lived assets may require revision or whether the remaining unamortized balance is recoverable. When factors indicate that an asset should be evaluated for possible impairment, the Company uses an estimate of the asset's cash flow in evaluating its fair value. 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 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 $122,000 during 1996 and $295,000 during 1995. Property and equipment, net consists of the following (in thousands):
1996 1995 Land $ 2,389 $ 2,389 Buildings and improvements 13,251 13,032 Revenue equipment 59,106 63,504 Service equipment 10,070 9,286 Computer, software and related equipment 12,551 11,079 ------ ------ 97,367 99,290 Less accumulated depreciation 45,487 46,860 ------ ------ $51,880 $52,430 ====== ======
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. 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, 1996 or 1995. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 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). At December 31, 1996, approximately $45 million was available 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 on borrowings under this credit line during 1996, 1995 and 1994 were $130,000, $649,000 and $809,000, respectively. 4. FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH During 1996, 1995 and 1994, the Company funded contributions to its Employee Savings Plan and one of its Employee Stock Ownership Plans and Trusts (ESOPs) by transferring 141,112, 159,236 and 78,035 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 $1,415,000, $1,657,000 and $1,002,000, for 1996, 1995 and 1994, respectively. During 1995 and 1994, $608,000 and $607,000, 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, 1996 and 1995, accounts payable included $13,000 and $25,000, respectively, for the purchase of equipment delivered during 1996 and 1995. As of December 31, 1996 and 1995, accounts receivable included $891,000 and $414,000, respectively, from the sale of equipment retired and sold during 1996 and 1995. 5. INCOME TAXES The provision for income tax consists of the following (in thousands): 1996 1995 1994 ----- ------ ------ Taxes currently payable Federal $1,544 $3,234 $5,337 State 305 275 320 Deferred federal taxes 1,393 486 233 ----- ----- ----- $3,242 $3,995 $5,890 ===== ===== =====
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:
1996 1995 1994 ----- ----- ----- Statutory federal income tax rate 34.2% 34.2% 34.9% Company-owned life insurance (8.1) (5.3) (2.9) Other, net 1.4 1.3 1.2 ---- ---- ---- 27.5% 30.2% 33.2% ==== ==== ====
Total income taxes paid by the Company were $153,000, $2,012,000 and $7,259,000 for 1996, 1995 and 1994, respectively. The following presents the changes in the primary components of the total deferred tax liability (in thousands):
Deferred December (Provision) December 31, 1995 Benefit 31, 1996 -------- ----------- -------- Accrued claims $ 4,961 $ (538) $ 4,423 Allowance for bad debts 668 214 882 Prepaid expense (2,369) (250) (2,619) Fixed assets (8,697) (554) (9,251) Other 276 (265) 11 ------ ------ ------ $(5,161) $(1,393) $(6,554) ====== ====== ======
6. RETIREMENT PLANS The Company sponsors ESOPs for its employees. Contributions to the ESOPs are made at the discretion of the Board of Directors. Prior to 1994, one of the ESOPs financed purchases of FFEX stock with funds borrowed from the Company. 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 was 8.5%. The loans were fully retired during 1995. The following table sets forth a summary of ESOP related expense (in thousands): 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1996 1995 1994 ---- ----- ----- Level payments required $ -- $ -- $ -- Contribution in excess of required payments -- 963 1,296 Interest paid by Company on behalf of ESOP -- 67 85 --- ----- ----- $ -- $1,030 $1,381 === ===== ===== Dividends on ESOP shares used for debt service $ -- $ 19 $ 29 === ===== =====
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, 1996, the leveraged ESOP owned 2,703,614 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 1996, 1995 and 1994, Company contributions to the Plan were approximately $996,000, $941,000 and $1,002,000, 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, 1996, are (in thousands):
Related Third Parties Parties Total ------- ------- ------- 1997 $1,167 $18,318 $19,485 1998 438 15,537 15,975 1999 174 10,436 10,610 2000 -- 6,821 6,821 2001 -- 4,967 4,967 After 2001 -- 4,750 4,750 ----- ------ ------ Total $1,779 $60,829 $62,608 ===== ====== ======
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. Rentals are determined by reference to amounts paid by the Company to unaffiliated third- party lessors. For 1996, 1995 and 1994, payments under these leases were $1,028,000, $750,000 and $489,000, respectively. At December 31, 1996, the Company had purchase commitments of approximately $22 million for the purchase of tractors, trailers and information systems in 1997 and 1998. 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, 1996, in connection with its accrued claims liabilities, the Company had established approximately $5,000,000 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 is 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 and fully diluted weighted average number of shares were (in thousands) 16,473 in 1996, 16,132 in 1995 and 16,451 in 1994. 9. SHAREHOLDERS' EQUITY As of December 31, 1996, 1995 and 1994, there were authorized 40 million shares of FFEX's $1.50 par value common stock. 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. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 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 table below sets forth summarized information regarding the stock option plans (in thousands except per-share amounts):
1996 1995 1994 ------ ------ ------ Options outstanding at beginning of year 1,222 1,001 1,010 Cancelled (23) (16) (1) Granted 259 454 207 Exercised (95) (217) (215) ----- ----- ----- Options outstanding at yearend 1,363 1,222 1,001 ===== ===== ===== Exercisable options 1,114 781 795 Options available for future grants 55 296 708 Average price of options Exercised during year $2.72 $4.05 $4.87 Outstanding at yearend $8.23 $7.86 $6.10 ===== ===== =====
At December 31, 1996, the prices at which options may be exercised ranged from $1.00 to $12.40. During 1996, the Company adopted a plan providing grants of non-qualified stock options to substantially all employees of the Company. All grants under this plan will be at market value on the date of the grant and will generally not vest for five years following the grant. The Company has reserved for issuance 1,500,000 shares of common stock in connection with this plan. Initial grants pursuant to this plan were made during 1997. The Company applies APB Opinion 25 and related interpretations in accounting for its plans. Accordingly, no expense has been recognized for stock option grants to officers and key employees. The expense that has been charged against income for grants to non-employee directors was $54,000 and $53,000 for 1996 and 1995, respectively. If expense for grants under the Company's stock option plans was determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net income for 1996 and 1995 would have been reduced to $7,570,000 ($.46 per share) and $8,184,000 ($.51 per share), respectively. 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, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Dallas, Texas ARTHUR ANDERSEN LLP February 12, 1997 22 Quarterly Financial, Stock and Dividend Information (Unaudited) (in thousands, except per-share amounts)
First Second Third Fourth Quarter Quarter Quarter Quarter Year --------- -------- ------- -------- -------- 1996 Revenue $74,173 $79,409 $80,824 $77,022 $311,428 Income from operations 2,343 4,571 4,313 3,918 15,145 Net income 1,350 2,754 2,454 1,975 8,533 Net income per share of common stock Primary and fully diluted .08 .16 .15 .12 .52 Cash dividends per share .03 .03 .03 .03 .12 Common stock price per share High 13 1/4 13 7/8 11 1/4 9 7/8 13 7/8 Low 8 1/2 10 3/8 9 3/8 7 7/8 7 7/8 Common stock trading volume 2,396 2,212 1,249 1,821 7,678 ------ ------ ------ ------ ------- 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 1,540 7,049
As of March 7, 1997, the Company had approximately 6,500 beneficial shareholders, including participants in the Company's Employee Stock Ownership Plans. 23 -----END PRIVACY-ENHANCED MESSAGE-----