-----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, WPc2QFFnZy/QjeJBGbzRFu4fliytvCLUU+MDUqxlbJjth5d3WgUELp8tM/dw2ooq qShn4UcinSdX+pJPClabDg== 0000930661-98-001775.txt : 19980817 0000930661-98-001775.hdr.sgml : 19980817 ACCESSION NUMBER: 0000930661-98-001775 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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-Q SEC ACT: SEC FILE NUMBER: 001-10006 FILM NUMBER: 98687598 BUSINESS ADDRESS: STREET 1: 1145 EMPIRE CENTRAL PLACE CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146308090 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended June 30, 1998 ---------------------------------------- or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________ Commission File Number 1-10006 Frozen Food Express Industries, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified on its charter) Texas 75-1301831 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1145 Empire Central Place Dallas, Texas 75247-4309 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (2l4) 630-8090 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) None - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. [X] Yes [ ] No As of August 7, 1998, 16,873,079 shares of the Registrant's Common Stock, $1.50 par value, were outstanding. INDEX PART I - FINANCIAL INFORMATION Page No. -------- Item l. Financial Statements Consolidated Condensed Balance Sheets - June 30, 1998 and December 31, 1997 2 Consolidated Statements of Income - Three and six months ended June 30, 1998 and 1997 3 Consolidated Condensed Statements of Cash Flows - Six months ended June 30, 1998 and 1997 4 Notes to Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of 6 Financial Condition and Results of Operations PART II OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K 10 Exhibit 27.1 - Financial Data Schedule 12 -1- FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Condensed Balance Sheets (In thousands) (Unaudited) June 30, Dec. 31, 1998 1997 -------- -------- ASSETS Current assets Cash $ 8,241 $ 23,318 Accounts receivable, net 44,186 35,028 Inventories 12,640 10,608 Tires 4,399 4,775 Other current assets 5,017 3,253 -------- -------- Total current assets 74,483 76,982 Property and equipment, net 57,781 53,333 Other assets 15,514 12,433 -------- -------- $147,778 $142,748 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable $ 17,858 $ 14,389 Accrued claims liabilities 5,586 5,843 Accrued payroll 4,253 5,242 Other 4,961 6,529 -------- -------- Total current liabilities 32,658 32,003 Long-term debt -- -- Other and deferred credits 18,212 17,668 -------- -------- Total liabilities and deferred credits 50,870 49,671 -------- -------- Shareholders' equity Common stock 25,921 25,921 Paid-in capital 5,361 4,779 Retained earnings 68,458 65,038 -------- -------- 99,740 95,738 Less - Treasury stock 2,832 2,661 -------- -------- Total shareholders' equity 96,908 93,077 -------- -------- $147,778 $142,748 ======== ======== See accompanying notes. -2- FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per-share amounts) (Unaudited)
For the Three Months For the Six Months Ended June 30, Ended June 30, -------------------- -------------------- 1998 1997 1998 1997 ------- ------- -------- -------- Revenue Freight revenue $77,131 $72,017 $147,772 $139,843 Non-freight revenue 12,285 9,239 19,155 14,099 ------- ------- -------- -------- 89,416 81,256 166,927 153,942 ------- ------- -------- -------- Costs and expenses Freight operating expenses Salaries, wages and related expenses 20,803 18,170 39,800 34,687 Purchased transportation 16,729 16,665 32,377 32,589 Supplies and expenses 21,054 19,876 40,834 38,945 Revenue equipment rent 6,230 5,506 12,229 11,118 Depreciation 2,280 2,476 4,626 4,908 Communications and utilities 1,164 834 2,123 1,667 Insurance and claims 2,909 2,843 5,751 5,768 Operating taxes and licenses 1,079 1,184 2,361 2,377 Gain on sale of equipment (227) (113) (463) (665) Miscellaneous expense 882 918 1,442 1,729 ------- ------- -------- -------- 72,903 68,359 141,080 133,123 Non-freight costs and operating expenses 11,396 8,783 18,573 13,757 ------- ------- -------- -------- 84,299 77,142 159,653 146,880 ------- ------- -------- -------- Income from operations 5,117 4,114 7,274 7,062 Interest and other expense 247 161 353 1,139 ------- ------- -------- -------- Income before income tax 4,870 3,953 6,921 5,923 Provision for income tax 1,832 1,181 2,488 1,780 ------- ------- -------- -------- Net income $ 3,038 $ 2,772 $ 4,433 $ 4,143 ======= ======= ======== ======== Net income per share of common stock Basic $ .18 $ .17 $ .26 $ .25 ======= ======= ======== ======== Diluted $ .18 $ .16 $ .26 $ .24 ======= ======= ======== ======== Weighted average shares outstanding Basic 16,894 16,738 16,873 16,705 ======= ======= ======== ======== Diluted 17,169 17,112 17,251 17,042 ======= ======= ======== ========
See accompanying notes. -3- FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (In thousands) (Unaudited) For the Six Months Ended June 30, --------------------- 1998 1997 -------- -------- Net cash provided by operating activities $ 771 $ 10,216 -------- -------- Cash flows from investing activities Expenditures for property and equipment (13,671) (11,573) Proceeds from sale of property and equipment 2,633 2,868 Company owned life insurance and other (3,125) (2,747) -------- -------- Net cash used in investing activities (14,163) (11,452) -------- -------- Cash flows from financing activities Borrowings under revolving credit agreement -- 19,000 Payments against revolving credit agreement -- (18,000) Dividends paid (1,013) (1,003) Net treasury stock activity (672) 79 -------- -------- Net cash (used in) provided by financing activities (1,685) 76 -------- -------- Net decrease in cash and cash equivalents (15,077) (1,160) Cash and cash equivalents at January 1 23,318 6,670 -------- -------- Cash and cash equivalents at June 30 $ 8,241 $ 5,510 ======== ======== See accompanying notes. -4- FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements June 30, 1998 and 1997 (Unaudited) 1. BASIS OF PRESENTATION The consolidated financial statements include Frozen Food Express Industries, Inc. (FFEX) and its subsidiary companies (the company), all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and have not been audited or reviewed by independent public accountants. In the opinion of management, all adjustments (which consisted only of normal recurring accruals) necessary to present fairly the financial position and results of operations have been made. Pursuant to SEC rules and regulations, certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements unless significant changes have taken place since the end of the most recent fiscal year. FFEX believes that the disclosures contained herein, when read in conjunction with the financial statements and notes included, or incorporated by reference, in FFEX's Form 10-K filed with the SEC on March 27, 1998, are adequate to make the information presented not misleading. It is suggested, therefore, that these statements be read in conjunction with the statements and notes (included, or incorporated by reference), in the aforementioned report on Form 10-K. 2. FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH During the six months ended June 30, 1998 and 1997, the company funded contributions to its Employee Savings Plan by transferring 113,324 and 126,483 shares, respectively, of treasury stock to the Plan trustee. The fair market value of the transferred shares was approximately $1,078,000 for 1998 and approximately $1,137,000 for 1997. 3. SHAREHOLDERS' EQUITY As of June 30, 1998 and December 31, 1997, respectively, there were 16,901,000 and 16,836,000 shares of stock outstanding. During both of the quarters ended June 30, 1998 and 1997, the company declared dividends on the common stock of three cents per share. 4. COMMITMENTS AND CONTINGENCIES 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, cash flows or results of operations. 5. EARNINGS PER SHARE During 1997, the company adopted Financial Accounting Standard No. 128, "Earnings Per Share" (FAS 128). FAS 128 requires the replacement of "primary" earnings per share with "basic" earnings per share and "fully diluted" earnings per share with "diluted" earnings per share. Accordingly, weighted average shares outstanding for 1997 have been restated to conform with FAS 128. Common stock equivalents included in diluted weighted average shares, all of which result from dilutive stock options granted by the company were as follows (in thousands): 1998 1997 ---- ---- For the three months ended June 30 275 374 For the six months ended June 30 378 337 -5- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The table sets forth, as a percentage of freight revenue, certain major operating expenses for the three- and six-month periods ended June 30, 1998 and 1997. Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- Salaries, wages and related expense 27.0% 25.2% 26.9% 24.8% Purchased transportation 21.6 23.1 21.9 23.3 Supplies and expenses 27.2 27.6 27.6 27.8 Revenue equipment rent 8.1 7.6 8.3 8.0 Depreciation 3.0 3.4 3.1 3.5 Insurance and claims 3.8 3.9 3.9 4.1 Other 3.8 4.1 3.8 3.7 ---- ---- ---- ---- Total freight operating expenses 94.5% 94.9% 95.5% 95.2% ==== ==== ==== ==== SECOND QUARTER OF 1998 VS. 1997 During the second quarter of 1998, revenue increased by 10% to $89,416,000 with freight revenue up $5.1 million or 7.1% and non-freight revenue up 33%. Less- than-truckload (LTL) revenue was 8.6% higher and full-truckload revenue increased by 6.4% as compared to the same period of 1997. During the second quarter of 1997 freight revenue included fuel adjustment charges, the amount of which was negligible during the 1998 quarter due to lower fuel prices. These charges, which were triggered in 1997 by increases in the market price of fuel, impacted the percentage gain in freight revenue, which, excluding 1997's fuel adjustment charges, rose by 7.6% during 1998. The increase in full-truckload revenue was due primarily to a 7.3% improvement in the number of shipments transported. Per shipment revenue declined by 0.8%, due to reduced fuel adjustment charges during the 1998 quarter. The primary factor in 1998's higher LTL revenue was a 4.5% increase in the number of LTL shipments and a 7.3% increase in revenue per hundred weight. The 1998 increase in non-freight revenue was due to improvement in the market for refrigeration equipment related to the unusually hot weather in the company's service area and to the continued expansion of the company's non- freight subsidiary into new geographical market areas. The number of tractors in the fleet of company-operated, full-truckload equipment rose from approximately 1,130 at the beginning of 1998 to about 1,230 by the end of the second quarter, while the number of full-truckload tractors provided by owner-operators decreased by 20 units to a total of about 360 by quarter end. -6- Full-truckload activities, which contributed 68% of freight revenue during the second quarter of 1998 and 1997, are conducted primarily with company-operated equipment, while LTL activities are conducted primarily with equipment provided by owner-operators. Fluctuations in the amount of total freight handled on company-operated versus owner-operator provided equipment, impacted the percent of freight revenue absorbed by the various categories of operating expenses between the two quarters. The proportion of full-truckload revenue generated by company-operated trucks during the second quarter of 1998 was 76.8%, as compared to 74.2% during the second quarter of 1997. Company-operated trucks generated 29.6% and 28% of total LTL revenue for the second three months of 1998 and 1997, respectively. During the second quarter of 1998, the percent of freight revenue absorbed by salaries, wages and related expense was approximately 27%, as compared to 25.2% during the year-ago quarter, due primarily to the increased quantity of employee-driven, company-operated equipment. Conversely, purchased transportation expense as a percent of freight revenue fell from 23.1% in the second quarter of 1997 to 1998's 21.6%. Due primarily to the decline in the quantity of owner-operator provided tractors. During the second quarter of 1998, per-gallon fuel prices continued to fall to levels below prices incurred during 1997. The impact of the decreased price of fuel, which is included in supplies and expenses, has been partially offset during 1998 by increased costs associated with driver recruiting, retention and training. The percent of freight revenue absorbed by revenue equipment rent increased from 7.6% in the 1997 second quarter to 8.1% during the 1998 quarter while the percent of freight revenue absorbed by depreciation declined from 3.4% to 3.0% between the two quarters. These variations are related to the replacement of some owned equipment with equipment financed through operating leases. Income from operations rose by 24% during the second quarter of 1998 as compared to 1997. Interest and other expense rose from $161,000 to $247,000 between the two quarters. This increase is related to net pre-tax expenses associated with the company-owned life insurance (COLI) program, partially offset by increased interest income associated with short term cash investments. As a result of legislation that limits the deductibility of COLI-related interest, the company is phasing out its COLI program. Pre-tax income rose by 23.1% during the second quarter of 1998 as compared to 1997. The provision for income tax was 37.6% of pre-tax income for the second quarter of 1998, as compared to 29.9% for 1997. The higher 1998 effective income tax rate is primarily attributable to reduced permanent tax savings resulting from the COLI program. The increased 1998 tax provision resulted primarily from the impact of recent legislation which limits future deductibility of interest expenses associated with COLI programs. During 1998, the Internal Revenue Service indicated that it will attempt to retroactively limit COLI interest deductions to amounts which are less than the levels apparently allowed by the recent legislation. Due to these uncertainties, the company's effective tax rate has increased during 1998. -7- FIRST HALF 1998 VS. 1997 For the six months ended June 30,1998, revenue increased by 8.4%, and income from operations increased by 3.0%. Of the $12,985,000 increase in total revenue, revenue generated by the company-operated, full-truckload fleet increased by $6,220,000, and full-truckload revenue generated by owner-operator provided equipment fell by $920,000, or 3.7%. LTL revenue increased by $2,629,000, and non-freight revenue increased by $5,056,000. The increase in the percent of revenue absorbed by salaries, wages and related expenses and the decrease in the percent of freight revenue absorbed by purchased transportation are related to the change in the mix of company- operated versus owner-operator-provided trucks in the company's fleet as outlined above in the discussion of second quarter results. During the first half of 1998, revenue equipment rent expense, which is primarily related to the company-operated, full-truckload fleet, as a percentage of freight revenue was 8.3%, as compared to 8.0% during 1997. Depreciation expense, which is related to the company's operating fleets as well as other types of property, between the six-month periods fell from 3.5% to 3.1% of freight revenue. Fluctuations in these expenses are affected by changes in the proportion of owned tractors and trailers versus those which are leased pursuant to long-term operating lease agreements. The provision for income tax increased from 30% of 1997's first-half pre-tax income to 35.9% for 1998 (see above discussion of the second quarter effective income tax rate which is also applicable to the first half comparisons). First half 1998 net income rose by 7.0% to $4,433,000. LIQUIDITY AND CAPITAL RESOURCES The company continues to maintain a strong financial structure with a good working capital position and strong capital resources. At June 30, 1998, working capital was $42 million as compared to $45 million at December 31, 1997. During the first half of 1998, net cash provided by operating activities was $771,000 as compared to $10,216,000 in the same period of 1997. The reduced generation of cash was primarily attributable to the impact of increased revenue on accounts receivable, increased inventory levels in connection with the expansion of the company's non-freight activities and changes in the timing of transactions associated with the COLI program. As of June 30, 1998, the unused portion of the company's $50,000,000 revolving credit facility remained approximately $45,000,000 unchanged since December 31, 1997. YEAR 2000 The company is aware of potential problems associated with existing computer systems as the millennium year (Year 2000) approaches. Systems that do not properly recognize the Year 2000 could generate erroneous data or cause the system to fail. Most computer systems currently in use by the company are primarily mainframe based, "old" technology systems. The new systems being developed are based on more current technology, which provide enhancements to functionality while at the same time addressing most issues associated with the millennium -8- year. Accordingly, it is not practicable to isolate the portion of "new" system development costs that are specifically associated with the "Year 2000" problem. With regard to its principal operating subsidiary, management expects the conversion to the "new" Year 2000 compliant system to be complete by December 31, 1998. Efforts to evaluate and resolve the company's exposure to "Year 2000" problems in other areas are continuing. Areas being addressed include the millennium problem as it affects the operation of trucks and trailers, environmental systems, non-freight operations and the systems of service providers (such as banks) and key vendors and customers. At this point, an estimate of future costs to be incurred has not been developed. If the company's remediation plans are not successful, there could be a significant disruption of the company's ability to transact business with its major customers and suppliers. OUTLOOK Certain statements contained in this Report on Form 10-Q, including statements regarding the anticipated development and expansion of the company's business or the industry in which the company operates, the intent, belief or current expectations of the company, its directors or its officers, primarily with respect to the future operating performance of the company and other statements contained herein regarding matters that are not historical facts, are "forward- looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied from such forward-looking statements. these risks and uncertainties include demand for the company's services and products, which may be affected by, among other things, competition, weather conditions and the general economy, the availability and cost of labor, equipment, fuel and supplies, the impact of changes in the tax and regulatory environment in which the company operates, operational risks and insurance, risks associated with the technologies and systems used by the company and the other risks and uncertainties described in the company's Annual Report on Form 10-k which was filed with the Commission on March 27, 1998. -9- PART II - OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders The Annual Meeting of Shareholders of the company was held on April 23, 1998. At the meeting, the following persons were elected as directors of the company: Stoney M. Stubbs, Jr. T. Michael O'Connor W. Mike Baggett Edgar O. Weller Brian R. Blackmarr Charles G. Robertson Leroy Hallman Burl G. Cott W. Grogan Lord The above listed individuals comprise all directors of the company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended June 30, 1998. -10- SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. FROZEN FOOD EXPRESS INDUSTRIES, INC. -------------------------------------------------- (Registrant) August 11, 1998 By: /s/Stoney M. Stubbs, Jr. --------------------------------------------- Stoney M. Stubbs, Jr. Chairman of the Board August 11, 1998 By: /s/Burl G. Cott --------------------------------------------- Burl G. Cott Senior Vice President Principal Financial and Accounting Officer -11- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS OF FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES AS OF JUNE 30, 1998, AND THE CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JUN-30-1998 8,241 0 47,137 2,951 12,640 74,483 100,577 42,796 147,778 32,658 0 0 0 25,921 70,987 147,778 19,155 166,927 0 159,653 353 786 0 7,274 1,832 4,433 0 0 0 4,433 .26 .26
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