-----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, DDMeuNMQNuZtg9B/W+gQSLjm9CHSA+lfb9Ssh/4upiVKl+oZ8NlK9+Uhqib5K1ks Innr5l+D8zvESrs5ejAyfg== 0000930661-99-001194.txt : 19990517 0000930661-99-001194.hdr.sgml : 19990517 ACCESSION NUMBER: 0000930661-99-001194 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99624487 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 March 31, 1999 -------------- or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from 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 May 3, 1999, 16,338,752 shares of the Registrant's Common Stock, $1.50 par value, were outstanding. PART I - FINANCIAL INFORMATION Page No. -------- Item l. Financial Statements Consolidated Condensed Balance Sheets - March 31, 1999 and December 31, 1998 2 Consolidated Statements of Income - Three months ended March 31, 1999 and 1998 3 Consolidated Condensed Statements of Cash Flows - Three months ended March 31, 1999 and 1998 4 Notes to Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosure about Market Risk 11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 Exhibit 27.1 - Financial Data Schedule 14 1 FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Condensed Balance Sheets (In thousands) (Unaudited)
Mar. 31, Dec. 31, 1999 1998 -------- -------- Assets Current assets Cash $ 3,346 $ 6,023 Accounts receivable, net 45,625 43,802 Inventories 16,571 12,575 Tires 5,337 5,276 Other current assets 5,825 3,259 -------- -------- Total current assets 76,704 70,935 Property and equipment, net 66,571 64,405 Other assets 14,473 14,340 -------- -------- $157,748 $149,680 ======== ======== Liabilities and Shareholders' Equity Current liabilities Trade accounts payable $ 12,954 $ 17,153 Accrued claims liabilities 3,953 3,801 Accrued payroll 4,214 5,759 Other 5,181 4,869 -------- -------- Total current liabilities 26,302 31,582 Long-term debt 13,000 -- Other and deferred credits 20,549 19,821 -------- -------- Total liabilities and deferred credits 59,851 51,403 -------- -------- Shareholders' equity Common stock 25,921 25,921 Paid-in capital 5,230 5,323 Retained earnings 73,770 73,001 -------- -------- 104,921 104,245 Less - Treasury stock 7,024 5,968 -------- -------- Total shareholders' equity 97,897 98,277 -------- -------- $157,748 $149,680 ======== ========
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 Ended March 31, ---------------------------- 1999 1998 --------- --------- Revenue Freight revenue $73,824 $70,641 Non-freight revenue 14,433 6,870 ------- ------- 88,257 77,511 ------- ------- Costs and expenses Freight operating expenses Salaries, wages and related expenses 20,639 18,997 Purchased transportation 16,317 15,648 Supplies and expenses 19,517 19,780 Revenue equipment rent 6,470 5,999 Depreciation 2,696 2,346 Communications and utilities 916 959 Claims and insurance 3,062 2,842 Operating taxes and licenses 1,366 1,282 Gain on sale of equipment (261) (236) Miscellaneous expense 825 560 ------- ------- 71,547 68,177 Non-freight costs and operating expenses 14,275 7,177 ------- ------- 85,822 75,354 ------- ------- Income from operations 2,435 2,157 Interest and other expense, net 431 106 ------- ------- Income before income tax 2,004 2,051 Provision for income tax 741 656 ------- ------- Net income $ 1,263 $ 1,395 ======= ======= Net income per share of common stock Basic $.08 $.08 ======= ======= Diluted $.08 $.08 ======= ======= Weighted average shares outstanding Basic 16,439 16,854 ======= ======= Diluted 16,610 17,154 ======= =======
See accompanying notes. 3 FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (In thousands) (Unaudited)
For the Three Months Ended March 31, -------------------------------------------- 1999 1998 --------------------- --------------------- Net cash (used in) provided by operating activities $(9,857) $ 607 ------- ------- Cash flows from investing activities Expenditures for property and equipment (4,642) (7,282) Proceeds from sale of property and equipment 1,170 1,364 Company owned life insurance and other (706) (131) ------- ------- Net cash used in investing activities (4,178) (6,049) ------- ------- Cash flows from financing activities Borrowings under revolving credit agreement 19,000 -- Payments against revolving credit agreement (6,000) -- Dividends paid (494) (507) Net treasury stock activity (1,148) (220) ------- ------- Net cash provided by (used in) financing activities 11,358 (727) ------- ------- Net (decrease) in cash and cash equivalents (2,677) (6,169) Cash and cash equivalents at January 1 6,023 23,318 ------- ------- Cash and cash equivalents at March 31 $ 3,346 $17,149 ======= =======
See accompanying notes. 4 FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements March 31, 1999 and 1998 (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 26, 1999, 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 three months ended March 31, 1998, the company funded contributions to its Employee Savings Plan by 86,671 shares of treasury stock to the Plan trustee. The fair market value of the transferred shares was $819,000. 3. SHAREHOLDERS' EQUITY -------------------- As of March 31, 1999 and December 31, 1998, respectively, there were 16,363,000 and 16,904,000 shares of stock outstanding. During both of the quarters ended March 31, 1999 and 1998, 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 ------------------ Common stock equivalents included in diluted weighted average shares, all of which result from dilutive stock options granted by the company, were as follows: 1999 1998 ------- ------- For the three months ended March 31 170,637 294,000 5 6. OPERATING SEGMENTS ------------------ The company's operations consist of two reportable segments. The freight segment is engaged primarily in the motor carrier freight transportation business. The smaller segment is primarily engaged in non-freight business relating to the sale and service of refrigeration equipment and of trailers used in freight transportation. Financial information for each reportable segment for the three month periods ended March 31, 1999 and 1998 is as follows (in millions): March 31, ------------------------------------ 1999 1998 ----------------- ----------------- Freight Operations Total Revenue $ 73.8 $ 70.6 Operating Income 2.3 2.5 Total Assets 145.7 137.0 Non-Freight Operations Total Revenue $ 18.1 $ 10.3 Operating Income .1 (.3) Total Assets 31.7 16.8 Intercompany Elimination Revenue $ (3.6) $ (3.4) Operating Income - - Assets (19.7) (10.5) Consolidated Revenue $ 88.3 $ 77.5 Operating Income 2.4 2.2 Assets 157.7 143.3 Intercompany elimination of revenue relates to transfers at cost of inventory such as trailers and refrigeration units from the non-freight segment for use by the freight segment. 6 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-month periods ended March 31, 1999 and 1998. Three Months Ended March. 31, ------------------------------------ 1999 1998 ----------------- ----------------- Salaries, wages and related expense 28.0% 26.9% Purchased transportation 22.1 22.2 Supplies and expenses 26.4 28.0 Revenue equipment rent 8.8 8.5 Depreciation 3.7 3.3 Claims and insurance 4.1 4.0 Other 3.8 3.6 ---- ---- Total freight operating expenses 96.9% 96.5% ==== ==== First Quarter of 1999 vs. 1998 During the first quarter of 1999, revenue increased by 13.9% to $88,257,000 with freight revenue up $3,183,000 million or 4.5%. Non-freight revenue aggregated 16.4% and 8.9% of total revenue during the first three months of 1999 and 1998, respectively. Less-than-truckload (LTL) revenue was 1.3% lower and full- truckload revenue increased by 7.2% as compared to the same period of 1998. The increase in full-truckload revenue was due primarily to a 2.6% improvement in the number of shipments transported and a 4.5% increase in average per- shipment revenue. During the 1999 first quarter, total LTL hundredweight declined by 6.1%, while revenue per LTL hundredweight improved by 5.1%. The 1999 increase in non-freight revenue was due to improvement in the market for refrigeration equipment and to the continued expansion of the company's non- freight subsidiary into new geographical and product market areas. The number of tractors in the fleet of company-operated, full-truckload equipment rose from approximately 1,230 at the beginning of 1999 to about 1,270 by the end of the first quarter. The number of full-truckload tractors provided by owner-operators had increased by 25 to 455. At the beginning of 1999, there were 430 full-truckload tractors provided by owner-operators. 7 Full-truckload activities, which contributed 70% and 68%, respectively, of freight revenue during the first quarter of 1999 and 1998, are conducted primarily with company-operated equipment, while LTL activities are conducted primarily with equipment provided by owner-operators. Changes in the mix of LTL versus full-truckload revenue as well as fluctuations in the amount of total freight handled on company-operated versus owner-operator provided equipment, 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 first quarter of 1999 was 74%, as compared to 75% during the first quarter of 1998. Company-operated trucks generated 30% of total LTL revenue for both the first quarters of 1999 and 1998. During the first quarter of 1999, the percent of freight revenue absorbed by salaries, wages and related expense was 28%, as compared to 26.9% 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 22.2% in the first quarter of 1998 to 1999's 22.1%. This decrease was due primarily to the proportional increase in the quantity of shipments transported by company-operated tractors. Per-gallon fuel costs paid by the company decreased by 10% during the first quarter of 1999 as compared to 1998. Due to a variety of factors, fuel price volatility does not significantly impact the company's cost structure or profitability. Owner-operators are responsible for all costs associated with their equipment, including fuel. Therefore, the cost of such fuel is not a direct expense of the company. With regard to fuel expenses for company- operated equipment, the company attempts to mitigate the effect of fluctuating fuel costs by purchasing more fuel-efficient tractors and aggressively managing fuel purchasing. Also, certain rates charged by the company for its service are adjustable by reference to market fuel prices. Relatively high or low per- gallon market fuel prices can result in upward or downward adjustment of freight rates, further mitigating the impact of such volatility on the company's profits. The sum of revenue equipment rent and depreciation rose by 9.8% during 1999's first quarter to $9,166,000. This increase is the result of increases in the quantities of company-owned tractors and trailers. Claims and insurance expense rose from 4% of freight revenue during the first quarter of 1998, to 4.1% for 1999. The increase resulted from a variety of factors, including but not limited to an increase in the frequency of physical damage losses. Income from operations rose by 12.9% during the first quarter of 1999 as compared to 1998. Interest and other expense, net rose from $106,000 to $431,000 between the two quarters. Reduced interest income on cash equivalents was the principal factor affecting this net increase. Pre-tax income fell by 2.3% during the first quarter of 1999 as compared to 1998. The provision for income tax was 37% of pre-tax income for the first quarter of 1999, as compared to 32% for 1998. The higher 1998 effective income tax rate is primarily attributable to reduced permanent tax savings resulting from the COLI program. Recent legislation 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. 8 LIQUIDITY AND CAPITAL RESOURCES The company's primary needs for capital resources are to finance working capital, capital expenditures and, from time to time, acquisitions. Working capital investment typically increases during periods of sales expansion when higher levels of receivables, with regard to non-freight operations inventory are present. The company had long-term debt of $13,000,000 as of March 31, 1999. The unused portion of the company's $50,000,000 revolving credit facility was approximately $32 million. Net cash used in by operating activities was $9.9 million and cash provided by operating activities was $607,000 for the three months ending March 31, 1999 and 1998, respectively. This change was primarily attributable to increased inventories related to the company's non-freight business, the timing of certain payments to vendors during the quarters and other fluctuations in other components of working capital. Net capital expenditures were $3.5 million and $5.9 million for the three months ended March 31, 1999 and 1998, respectively. The company believes that its current cash position, funds from operations, and the availability of funds under its credit agreements will be sufficient to meet anticipated liquidity requirements for the next twelve months. At March 31, 1999, working capital was $50.4 million as compared to $39.4 million at December 31, 1998. YEAR 2000 The company is aware of the potential problems associated with existing information technology systems ("IT systems") as the millennium year (Year 2000) approaches. The company's exposure to such problems does not involve significant date-sensitive financial computations. Rather, problems may occur with regard to IT systems and the impact erroneous dates may have on core business operating activities such as the company's ability to process customer orders, track and manage equipment, and generate customer invoices. Disruptions in any such activity could have a significant negative impact on the company's ability to conduct its routine business operations. New systems are being developed based on more current technology, which address the issues associated with the millennium year. Accordingly, it is not practicable to isolate the portion of "new" system development costs, which are specifically associated with the Year 2000 ("Y2K") problem. Such development costs have, to date, been financed by internally generated funds. Incremental costs associated with the development effort have been capitalized by the company and will be amortized against post- conversion income. The company also uses a variety of assets that are operated by or reliant upon non-information technology systems ("non-IT systems"), such as equipment or refrigeration systems that contain embedded technology. Modification or replacement would be necessary for proper performance of any IT or non-IT system that is unable to properly interpret and process the Y2K. STATE OF READINESS. The company is actively engaged in the process of evaluating the status of the company's systems for Y2K compliance. In addition, the company will verify the Y2K compliance of third parties with whom the company has a material relationship, such as customers, suppliers and service providers such as financial institutions. The first phase, evaluating the company's systems, is substantially complete. The second phase, evaluating third party systems, was commenced in the third quarter of 1998 and is expected to be substantially completed during the first half of 1999. To date, no significant Y2K problems have been identified by these evaluations. 9 The failure of any internal non-IT system to become timely compliant for Y2K is not expected to have a material effect on the business, operations or financial condition of the company. Nevertheless, the company will continue to take steps to modify or replace all non-IT systems that are not Y2K compliant during the 1999 calendar year. The cost of such conversions is not expected to be material. During the first quarter of 1999, the company began converting from its non-Y2K compliant mainframe system, which had been in place for several years, to a newer technology which is believed to be substantially Y2K compliant. Completion of the conversion is expected during the second quarter of 1999. The new system is continually evaluated with respect to Y2K compliance. These evaluations are conducted by internal as well as external persons with requisite evaluation skills. To date, no significant Y2K problems have been identified by these evaluations. The new system is expected to improve and standardize company processes and apply technology to reduce operating costs. This project centers around modifications to software procured from third party systems vendors. The new IT system and related processes are also expected to enhance the Company's competitive position by improving customer service, pricing strategies and logistics management. The company has reviewed its telecommunications systems with its third party providers and has been assured that they are or will be Y2K compliant. The company is also assessing the requirements to make Y2K compliant all third party IT-system software used in desktop computers. These costs are not expected be material to the company. COSTS TO ADDRESS YEAR 2000 ISSUES. The company has projected $10 million for the cost of the system project. As of March 31, 1999, approximately $9 million has been expended. RISKS TO THE COMPANY FOR Y2K ISSUES. The mostly likely worst case scenario to the company associated with its Y2K compliance efforts would be the failure of the project to be completed by June, 1999. It is not feasible at this time to predict the impact, if any, on the company's financial condition or results of operations as a result of this scenario. However, management believes that the implementation of its contingency plan could be achieved with minimal to moderate disruption to the business and operations of the company. CONTINGENCY PLAN. If the new IT system is not implemented by June, 1999, the company will execute its contingency plan to meet a deadline of December 31, 1999. The scenario would require the company to make modifications to the mainframe system and other currently operating systems. Additionally, the company is considering alternatives such as manually processing certain transactions and outsourcing certain data processing functions. The cost of the mainframe upgrade would be material and could be completed by the required deadline. 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 10 the company operates, operational risks and insurance, risks associated with the technologies and systems used and being developed 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 26, 1999. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK As of March 31, 1999, long-term stood at $13 million, which approximates fair market value. No short-term debt was present. Also as of March 31, 1999, the Company held no material market risk sensitive instruments (for trading as well as non-trading purposes) which would involve significant foreign currency exchange rate risk, commodity price risk or other relevant market risks, such as equity price risk. Accordingly the potential loss to the Company in future earnings, fair values or cash flows of market risk sensitive investments resulting from changes in interest rates, foreign currency exchange rates, commodity prices and other relevant market rates or prices is not significant. 11 PART II - OTHER INFORMATION 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 March 31, 1999. 12 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) May 14, 1999 By: /s/Stoney M. Stubbs, Jr. ------------------------ Stoney M. Stubbs, Jr. Chairman of the Board May 14, 1999 By: /s/F. Dixon McElwee, Jr. ------------------------ F. Dixon McElwee, Jr. Senior Vice President Principal Financial and Accounting Officer 13 EX-27.1 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 MARCH 31, 1999, AND THE CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 3,346 0 49,400 3,775 16,571 76,704 112,248 45,677 157,748 26,302 13,000 0 0 25,921 71,976 157,748 14,433 88,257 0 85,822 431 503 0 2,004 741 1,263 0 0 0 1,263 .08 .08
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