-----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, B0SQ7Yn+Cq8X3pyKUvEQBaYhef5t0Sw7A2MMLeIDJPIka1+Ow0lkIORBouFqXdYX T7vtCresk4XLHKneGbENKA== 0001019687-04-001771.txt : 20040813 0001019687-04-001771.hdr.sgml : 20040813 20040813161007 ACCESSION NUMBER: 0001019687-04-001771 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040813 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: 1934 Act SEC FILE NUMBER: 001-10006 FILM NUMBER: 04974490 BUSINESS ADDRESS: STREET 1: 1145 EMPIRE CENTRAL PLACE CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146308090 10-Q 1 frozenfoods_10q-063004.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ COMMISSION FILE NUMBER 1-10006 FROZEN FOOD EXPRESS INDUSTRIES, INC. ------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 75-1301831 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1145 EMPIRE CENTRAL PLACE, DALLAS, TEXAS 75247-4309 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (214) 630-8090 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to section 12(g) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED i) Common Stock $1.50 par value The Nasdaq Stock Market ii) Rights to purchase Common Stock The Nasdaq Stock Market 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 filingrequirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT AUGUST 6, 2004 ----- ----------------------------- Common Stock, $1.50 par value 17,396,352 INDEX Page No. -------- PART I FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Condensed Balance Sheets - June 30, 2004 and December 31, 2003................................1 Consolidated Condensed Statements of Income - Three and six months ended June 30, 2004 and 2003..................2 Consolidated Condensed Statements of Cash Flows - Six months ended June30, 2004 and 2003.............................3 Notes to Consolidated Condensed Financial Statements..................4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................7 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk...........16 ITEM 4. Controls and Procedures..............................................17 PART II OTHER INFORMATION ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.............................18 ITEM 4. Submission of Matters to a Vote of Security Holders..................18 ITEM 6. Exhibits and Reports on Form 8-K.....................................19 i PART I - FINANCIAL INFORMATION --------------------- Item 1. Financial Statements -------------------- FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED) June 30, Dec. 31, 2004 2003 --------- --------- Assets Current assets Cash and cash equivalents $ 2,852 $ 1,396 Accounts receivable, net 55,159 55,094 Inventories 3,222 4,054 Tires on equipment in use 4,819 5,657 Deferred income taxes 1,267 2,657 Other current assets 6,096 7,843 --------- --------- Total current assets 73,415 76,701 Property and equipment, net 64,279 66,551 Other assets 13,231 12,358 --------- --------- $150,925 $155,610 ========= ========= Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 24,758 $ 25,045 Accrued claims 7,213 7,195 Accrued payroll 6,675 3,813 Accrued liabilities 2,301 2,907 --------- --------- Total current liabilities 40,947 38,960 Long-term debt 1,000 14,000 Deferred income taxes 4,246 2,878 Accrued claims and liabilities 14,642 15,718 --------- --------- 60,835 71,556 --------- --------- Shareholders' equity Par value of common stock (17,379 and 17,281 shares issued) 26,069 25,921 Capital in excess of par value 1,192 1,097 Retained earnings 63,281 57,849 --------- --------- 90,542 84,867 Less - Treasury stock (128 and 195 shares), at cost 452 813 --------- --------- Total shareholders' equity 90,090 84,054 --------- --------- $150,925 $155,610 ========= ========= See accompanying notes to consolidated condensed financial statements. **************************************************** Page 1
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) (UNAUDITED) Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 2004 2003 2004 2003 ---- ---- ---- ---- Revenue Freight revenue $ 109,819 $ 97,695 $ 212,235 $ 187,420 Non-freight revenue 3,516 6,036 5,988 8,969 ---------- ---------- ---------- ---------- 113,335 103,731 218,223 196,389 ---------- ---------- ---------- ---------- Costs and expenses Freight operating expenses Salaries, wages and related expenses 26,744 26,787 52,293 50,565 Purchased transportation 27,354 23,673 53,693 45,407 Supplies and expenses 32,160 26,768 61,021 53,223 Revenue equipment rent 7,888 8,359 16,138 16,241 Depreciation 4,878 3,239 9,490 6,751 Communications and utilities 942 950 1,916 2,023 Claims and insurance 2,910 2,805 5,798 5,796 Operating taxes and licenses 1,163 817 2,291 1,891 Miscellaneous expense 1,193 1 ,439 1,698 2,576 ---------- ---------- ---------- ---------- 105,232 94,837 204,338 184,473 Non-freight costs and operating expenses 2,960 6,417 5,422 9,945 ---------- ---------- ---------- ---------- 108,192 101,254 209,760 194,418 ---------- ---------- ---------- ---------- Income from operations 5,143 2,477 8,463 1,971 Interest and other (225) (1,124) 1 (761) ---------- ---------- ---------- ---------- Income before income tax 5,368 3,601 8,462 2,732 Provision for income tax 1,876 1,054 3,030 853 ---------- ---------- ---------- ---------- Net income $ 3,492 $ 2,547 $ 5,432 $ 1,879 ========== ========== ========== ========== Net income per share of common stock Basic $ .20 $ .15 $ .32 $ .11 ========== ========== ========== ========== Diluted $ .19 $ .15 $ .30 $ .11 ========== ========== ========== ========== Weighted average shares outstanding Basic 17,209 16,762 17,174 16,736 ========== ========== ========== ========== Diluted 17,937 16,999 17,894 16,951 ========== ========== ========== ========== See accompanying notes to consolidated condensed financial statements. ****************************************************
Page 2 FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, (IN THOUSANDS) (UNAUDITED) 2004 2003 --------- --------- Net cash provided by operating activities $ 22,418 $ 2,088 --------- --------- Cash flows from investing activities Expenditures for property and equipment (12,747) (10,186) Proceeds from sale of property and equipment 4,812 7,404 Life insurance and other (275) 638 --------- --------- Net cash used in investing activities (8,210) (2,144) --------- --------- Cash flows from financing activities Borrowings and revolving credit agreement 18,400 23,200 Payments against revolving credit agreement (31,400) (21,200) Capital leases and other, net 248 (2,550) --------- --------- Net cash used in financing activities (12,752) (550) --------- --------- Net increase (decrease) in cash and cash equivalents 1,456 (606) Cash and cash equivalents at January 1 1,396 2,861 --------- --------- Cash and cash equivalents at June 30 $ 2,852 $ 2,255 ========= ========= See accompanying notes to consolidated condensed financial statements. **************************************************** Page 3 Frozen Food Express Industries, Inc. And Subsidiaries Notes to Consolidated Condensed Financial Statements June 30, 2004 and 2003 (Unaudited) 1. BASIS OF PRESENTATION --------------------- These consolidated financial statements include Frozen Food Express Industries, Inc. and its subsidiary companies, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, all adjustments (which consisted only of normal recurring accruals) necessary to present fairly our financial position, cash flows and results of operations have been made. Pursuant to SEC rules and regulations, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted from these statements unless significant changes have taken place since the end of the most recent fiscal year. We believe that the disclosures contained herein, when read in conjunction with the financial statements and notes included, or incorporated by reference, in our Form 10-K filed with the SEC on March 25, 2004, are adequate to make the information presented not misleading. It is suggested, therefore, that these statements be read in conjunction with the statements and notes (included, or incorporated by reference), in our most recent Annual Report on Form 10-K. 2. REVENUE AND EXPENSE RECOGNITION ------------------------------- Freight revenue and associated direct operating expenses are recognized on the date the freight is picked up from the shipper in accordance with the FASB's Emerging Issues Task Force's Issue No. 91-9 "REVENUE AND EXPENSE RECOGNITION FOR FREIGHT SERVICES IN PROGRESS" ("EITF No. 91-9"). One of the preferable methods outlined in EITF No. 91-9 provides for the allocation of revenue between reporting periods based on relative transit time in each reporting period with expense recognized as incurred. Changing to this method would not have a material impact on our quarterly or annual financial statements. We are the sole obligor with respect to the performance of our freight services and we assume all of the related credit risk. Accordingly, our freight revenue and our related direct expenses are recognized on a gross basis. Payments we make to independent contractors for the use of their trucks in transporting freight are typically calculated based on the gross revenue generated by their trucks. Such payments to independent contractors are recorded as purchased transportation expense. 3. STOCK-BASED COMPENSATION ------------------------ In March of 2004, the Financial Accounting Standards Board ("FASB") announced that it had voted to rescind the alternative that companies have to apply APB Opinion No. 25 to account for stock-based compensation. If adopted, the new standard will affect periods beginning in fiscal 2005. Until such time as any such new accounting standard takes effect, we will continue to apply APB Opinion No. 25 to Page 4 account for our stock options. Accordingly, no expense has been recognized for stock option grants to employees. The following table illustrates how our net income and our basic and diluted net income per share would have been impacted for each of the three and six month periods ended June 30, 2004 and 2003 had we elected to apply FASB Statement of Financial Accounting Standards No. 123 ("SFAS No. 123") to account for our stock options (in millions, except per-share amounts): Three Months Six Months ------------ ---------- 2004 2003 2004 2003 -------- -------- -------- -------- Net income: As reported $ 3.5 $ 2.5 $ 5.4 $ 1.9 Impact of SFAS No. 123 (0.2) (0.1) (0.3) (0.2) -------- -------- -------- -------- $ 3.3 $ 2.4 5.1 $ 1.7 ======== ======== ======== ======== Net income per share: As reported $ 0.19 $ 0.15 $ 0.30 $ 0.11 Impact of SFAS No. 123 (0.01) -- (0.01) (0.02) -------- -------- -------- -------- $ 0.18 $ 0.15 $ 0.29 $ 0.09 ======== ======== ======== ======== In calculating the above amounts we assumed that expenses from employee stock options would accrue over each option's vesting period. 4. LONG-TERM DEBT -------------- As of June 30, 2004, we had a $40 million secured line of credit pursuant to a revolving credit agreement with two commercial banks. In early July of 2004, the credit agreement was amended and the line of credit was increased to $50 million. The amendment also, among other things, extended the expiration of the facility to May, 2007 and reduced our interest rate on borrowed funds. Interest is due monthly. We may elect to borrow at a daily interest rate based on the bank's prime rate or for specified periods of time at fixed interest rates which are based on the London Interbank Offered Rate in effect at the time of a fixed rate borrowing. At June 30, 2004, $1.0 million was borrowed against this facility and an additional $5.1 million was being used as collateral for letters of credit. Accordingly, at June 30, 2004 approximately $33.9 million (of the $40 million) was available under the agreement. To the extent that the line of credit is not used for borrowing or letters of credit, we pay a commitment fee to the banks. Loans may be secured by liens against our inventory, trade accounts receivable and over-the-road trucking equipment. The agreement also contains a pricing "grid" where increased levels of profitability and cash flows or reduced levels of indebtedness can reduce the rates of interest expense we incur. The agreement restricts, among other things, payments of cash dividends, repurchases of our stock and the amount of our capital expenditures. The amended agreement provides that the amount we may borrow under the facility may not exceed the lesser of $50 million, as adjusted for letters of credit and other debt as defined in the agreement, a borrowing base or a multiple of a measure of cash flow as described in the agreement. The agreement expires on May 30, 2007, at which time loans and letters of credit will become due. As of June 30, 2004, we were in compliance with the terms of the agreement. Page 5 5. COMMITMENTS AND CONTINGENCIES ----------------------------- We have accrued for costs related to public liability, cargo and work-related injury claims. When an incident occurs we record a reserve for the incident's estimated outcome. As additional information becomes available, adjustments are often made. Accrued claims liabilities include all such reserves and our estimate for incidents which have been incurred but not reported. 6. NET INCOME PER SHARE OF COMMON STOCK ------------------------------------ Our basic income per share was computed by dividing our net income or loss by the weighted average number of shares of common stock outstanding during the period. The table below sets forth information regarding weighted average basic and diluted shares for each of the three and six month periods ended June 30, 2004 and 2003 (in thousands): Three Months Six Months ------------ ---------- 2004 2003 2004 2003 ------- ------- ------- ------- Basic shares 17,209 16,762 17,174 16,736 Common stock equivalents 728 237 720 215 ------- ------- ------- ------- Diluted shares 17,937 16,999 17,894 16,951 ======= ======= ======= ======= For the quarters ended June 30, 2004 and 2003, respectively, we excluded 1.1 million and 2.0 million stock options from our calculation of common stock equivalents ("CSEs") because their exercise prices exceeded the market price of our stock, which would have caused anti-dilution. For the six months ended June 30, 2004 and 2003, respectively, we also excluded 1.1 million and 2.0 million stock options from our calculation of CSEs because their exercise prices exceeded the market price of our stock, which would have caused anti-dilution. 7. OPERATING SEGMENTS ------------------ We have two operating segments. The larger segment consists of our motor carrier operations, which are conducted in a number of divisions and subsidiaries and are similar in nature. Our primary motor carrier division provides both less-than-truckload ("LTL") and full-truckload refrigerated transportation services. Our full-truckload and LTL services are commonly managed and we constantly redeploy our trucks and trailers between these types of service. Many of the division's customers use both types of service throughout the year. Accordingly, we report all of our motor carrier operations as one segment. AirPro Holdings, Inc., our non-freight segment is engaged in the sale and service of air conditioning and refrigeration components. We have presented below financial information for each of the three and six month periods ended June 30, 2004 and 2003 (in millions): Page 6 Three Months Six Months ------------ ---------- 2004 2003 2004 2003 ---- ---- ---- ---- Freight operations Revenue $ 109.8 $ 97.7 $ 212.2 $ 187.4 Operating income 4.6 2.9 7.9 2.9 Total assets 153.0 142.3 153.0 142.3 Non-Freight operations Revenue $ 3.5 $ 6.0 $ 6.0 $ 9.0 Operating income (loss) 0.6 (0.4) 0.6 (1.0) Total assets 12.2 19.5 12.2 19.5 Intercompany eliminations Total assets $ (14.3) $ (19.0) $ (14.3) $ (19.0) Consolidated Revenue $ 113.3 $ 103.7 $ 218.2 $ 196.4 Operating income 5.1 2.5 8.5 2.0 Total assets 150.9 142.8 150.9 142.8 8. PRIOR-PERIOD AMOUNTS -------------------- Certain prior-period amounts have been reclassified to conform with current period presentation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- GENERAL - ------- The following management's discussion and analysis describes the principal factors affecting our results of operations, liquidity, and capital resources. This discussion should be read in conjunction with the accompanying unaudited consolidated condensed financial statements and our Annual Report on Form 10-K for the year ended December 31, 2003, which include additional information about our business, our significant accounting policies and other relevant information that underlies our financial results. Without limiting the foregoing, the "Overview" and "Critical Accounting Estimates" sections of our last Form 10-K should be read in conjunction with this Quarterly Report. Our website address is www.ffex.net. All of our filings with the SEC are available free of charge through our website as soon as reasonably practicable after we file them with the SEC. RESULTS OF OPERATIONS - THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2004 - --------------------- FREIGHT REVENUE: The following table summarizes and compares the components of as well as the impact of fuel adjustment charges on our freight revenue for the three and six month periods ended June 30, 2004 and 2003 (in millions): Page 7 Three Months Six Months ------------ ---------- 2004 2003 2004 2003 ------- ------- ------- ------- Full-Truckload Revenue: Excluding fuel adjustments $ 70.8 $ 63.4 $138.0 $120.7 Fuel adjustments 4.9 2.7 8.4 5.6 ------- ------- ------- ------- $ 75.7 $ 66.1 $146.4 $126.3 ======= ======= ======= ======= LTL Revenue: Excluding fuel adjustments $ 30.2 $ 29.3 $ 58.9 $ 56.3 Fuel adjustments 2.3 1.1 3.8 2.4 ------- ------- ------- ------- $ 32.5 $ 30.4 $ 62.7 $ 58.7 ======= ======= ======= ======= Freight Revenue: Excluding fuel adjustments $101.0 $ 92.7 $196.9 $177.0 Fuel adjustments 7.2 3.8 12.2 8.0 ------- ------- ------- ------- 108.2 96.5 209.1 185.0 Equipment rental income 1.6 1.2 3.1 2.4 ------- ------- ------- ------- $109.8 $ 97.7 $212.2 $187.4 ======= ======= ======= ======= The rates we charge for our freight transportation services include fuel adjustment charges. In periods when the price we incur for diesel fuel is high, we raise our prices to recover the majority of this increase from our customers. During the three and six month periods ended June 30, 2004, our freight revenue rose by 12% and 13%, respectively, to $109.8 million and $212.2 million, respectively, as compared to the same periods of 2003. Our freight business serves two related markets with separate revenues, but with many shared costs. Full-truckload freight services typically involve the transportation of a single shipment from a single origin to one or a few destinations. Full-truckload shipments typically weigh about 35,000 pounds. Although we principally transport full-truckload shipments of products that require temperature control while in transit, we also have a fleet of trucks that focuses on full-truckload transportation of non-perishable commodities. Less-than-truckload ("LTL") freight services typically involve the transportation of multiple shipments at the same time in one load. Loads of LTL freight involves multiple shipments, each with different origins and destinations. LTL shipments typically weigh 3,000 pounds or less. More than 90% of our LTL shipments are of commodities requiring temperature control. LTL shipments typically travel from the origin through one or more of our freight terminals and then to the destination. Our full-truckload and LTL services are commonly managed and we constantly redeploy our trucks and trailers between these types of service. Many of our customers use both types of service throughout the year. The following discussion of our freight revenue excludes fluctuations due to fuel adjustment charges and equipment rental income. The table below sets forth information regarding freight revenue from our full-truckload and LTL freight services for the three and six month periods ended June 30, 2004 and 2003: Page 8 Three Months Six Months ------------ ---------- 2004 2003 2004 2003 ---- ---- ---- ---- Full Truckload: Revenue (A) (B) $ 70.8 $ 63.4 $ 138.0 $ 120.7 Total miles (A) 55.6 48.2 110.2 97.5 Shipments (C) 51.3 52.1 104.9 99.1 Per-mile revenue (B) $ 1.27 $ 1.32 $ 1.25 $ 1.24 Per-shipment revenue (B) $ 1,380 $ 1,217 $ 1,315 $ 1,218 Miles per shipment 1,084 925 1,050 984 Empty mile ratio 8.3% 9.5% 8.6% 9.1% Less-than-truckload: Revenue (A) (B) $ 30.2 $ 29.3 $ 58.9 $ 56.3 Total miles (A) 10.3 10.3 19.9 19.8 Shipments (C) 87.7 80.4 172.7 158.2 Hundredweight (C) 2,614 2,378 5,181 4,713 Per-mile revenue (B) $ 2.93 $ 2.84 $ 2.96 $ 2.84 Per-shipment revenue $ 344 $364 $ 341 $ 356 Per-hundredweight revenue $ 11.55 $ 12.32 $ 11.36 $ 11.94 Empty mile ratio 8.1% 6.9% 8.0% 7.2% Other Information: As of June 30, Tractors in service 2,265 2,248 2,265 2,248 Trailers in service 3,861 3,670 3,861 3,670 (A) In millions (B) Excludes surcharge revenue (C) In thousands Compared to 2003, excluding the impact of fuel adjustment charges, our full-truckload revenue increased during the three and six month periods ended June 30, 2004 by $7.4 million (11.7%) and $17.3 million (14.3%), respectively. The increase resulted primarily from growth in the number of miles. LTL revenue excluding fuel adjustment charges rose by $0.9 million (3.1%) and $2.6 million (4.6%), respectively between the three and six month periods ended June 30, 2004 when compared to the comparable periods of the prior year. These increases were due to increases in the number of LTL shipments which were offset by decreases in average revenue per LTL shipment. As of June 30, 2004 we had about 1,450 tractors in our company-operated full-truckload fleet as compared to about 1,390 at June 30, 2003. As of June 30, 2004, the number of tractors in the fleet had increased by 25 trucks since the beginning of 2004. The number of full-truckload tractors provided to us by owner-operators decreased by about 35 during the first six months of 2004. At the end of 2004's second quarter, we had about 25 fewer independent contractor-provided full-truckload trucks than we did one year ago. Between June 30, 2003 and 2004 our number of company-operated LTL trucks declined by about 10% to 100. Full-truckload activities, which contributed about 70% and 68% of freight revenue during the second quarters of 2004 and 2003, respectively, are conducted primarily with company-operated equipment, while LTL activities are conducted primarily with equipment provided by owner-operators. Changes in the mix of LTL versus full-truckload revenue, as well as fluctuations in the amount of total freight handled on company-operated versus owner-operator provided equipment, impact the percent of freight revenue absorbed by the various categories of operating expenses. Page 9 Until the last half of 2003, capacity in the trucking industry often exceeded demand for trucking services. This imbalance was a result of generally weak economic conditions. In the temperature-controlled sector of the trucking industry, several of our competitors ceased or reduced the scope of their operations, but this reduced capacity had not yet enabled us to significantly increase the prices we charge for our trucking services. FREIGHT OPERATING EXPENSES: The following table sets forth, as a percentage of freight revenue (inclusive of fuel adjustment charges) certain major operating expenses for the three and six month periods ended June 30, 2004 and 2003: Three Months Six Months ------------ ---------- 2004 2003 2004 2003 -------- -------- -------- -------- Salaries, wages and related expenses 24.4% 27.8% 24.6% 27.0% Purchased transportation 24.9 24.6 25.3 24.2 Supplies and expenses 29.3 27.8 28.8 28.4 Revenue equipment rent and depreciation 11.6 10.7 12.1 12.3 Claims and insurance 2.6 2.9 2.7 3.1 Other 3.0 3.2 2.8 3.4 -------- -------- -------- -------- Total freight operating expenses 95.8% 97.0% 96.3% 98.4% ======== ======== ======== ======== SALARIES AND WAGES: Compared to the comparable periods in 2003, our salaries, wages and related expenses decreased by $100,000 (0.4%) and increased by $1.7 million (3.4%), respectively, during the three and six month periods ended June 30, 2004. The following table summarizes and compares the major components of these expenses between the 2004 and 2003 three and six month periods (in millions): Three Months Six Months ------------ ---------- Amounts of Salaries, Wages and 2004 2003 2004 2003 Related Expenses Incurred for: -------- -------- -------- -------- Driver salaries $ 14.0 $ 13.6 $ 27.5 $ 25.7 Non-driver salaries 8.7 7.9 17.0 15.3 Payroll taxes 2.0 2.3 4.3 4.4 Work-related injuries 0.8 1.1 1.4 1.9 Health insurance and other 1.2 1.9 2.1 3.3 -------- -------- -------- -------- $ 26.7 $ 26.8 $ 52.3 $ 50.6 ======== ======== ======== ========
Payroll expenses related to drivers rose by about $400,000 (2.9%) and $1.8 million (7%), respectively, between the three and six month periods ended June 30, 2003 and 2004, due to the increase in our company-operated tractor count. Non-driver salaries and wages increased by about $800,000 (10.1%) and $1.7 million (11.1%), respectively, due to the increase in our LTL business, our continuing efforts to refocus our marketing efforts and higher levels of incentive compensation accruals. Despite higher payrolls, expenses associated with payroll taxes declined between the three and six month periods ended June 30, 2003 and 2004. This was due in part to favorable experience regarding unemployment and other payroll-related matters. Favorable experience also helped reduce expenses related to work-related injuries, health insurance and other payroll related expenses. PURCHASED TRANSPORTATION: Compared to the comparable periods in 2003, our purchased transportation expenses increased by $3.7 million (15.6%) and $8.3 million (18.2%), respectively, during the three and six month periods ended June 30, 2004. The following table summarizes and compares the major components of these expenses between the 2004 and 2003 three and six month periods (in millions): Page 10 Three Months Six Months ------------ ---------- Amount of Purchased 2004 2003 2004 2003 Transportation Expense -------- -------- -------- -------- Incurred for: Full-truckload $ 14.6 $ 13.0 $29.2 $25.4 LTL 11.7 9.9 22.1 19.2 Intermodal and other 1.1 0.8 2.4 0.8 -------- -------- -------- -------- $ 27.4 $ 23.7 $ 53.7 $ 45.4 ======== ======== ======== ======== Independent contractors are entities that own tractors which are utilized by us to transport our customers' freight. As consideration for the use of their tractors, we pay the independent contractors amounts which are generally calculated based upon the revenue we receive from the freight they haul. The amounts we paid to independent contractors for purchased transportation, as a percent of revenue, has not changed appreciably since last year. The increase in purchased transportation expenses during 2004 is partially related to the higher volume of freight revenue and to the increased use of intermodal service providers to transport our freight. Independent contractors are responsible for paying for the fuel that is consumed by the trucks. We pay independent contractors amounts that are based upon the revenue we receive from the shipments hauled by their trucks. To the extent that our revenue from a shipment includes fuel adjustments charges, we pass the fuel adjustments through to the independent contractors to alleviate some of their increased cost of fuel. Higher fuel prices during 2004 have accordingly served to further increase purchased transportation expense. SUPPLIES AND EXPENSES: Compared to the comparable periods in 2003, supplies and expenses increased by $5.4 million (20.1%) and $7.8 million (14.7%), respectively, during the three and six month periods ended June 30, 2004. The following table summarizes and compares the major components of these expenses between the 2004 and 2003 three and six month periods (in millions): Three Months Six Months Amount Of Supplies and ------------ ---------- Expenses Incurred for: 2004 2003 2004 2003 -------- -------- -------- -------- Fuel $ 14.5 $ 10.3 $ 27.6 $ 23.3 Repairs and maintenance 4.9 4.1 8.3 7.8 Employee-driver travel expenses 4.6 4.1 8.7 7.8 Freight handling 2.8 2.4 5.4 4.7 Tires 1.5 1.3 3.2 2.8 Other 3.9 4.6 7.8 6.8 -------- -------- -------- -------- $ 32.2 $ 26.8 $ 61.0 $ 53.2 ======== ======== ======== ======== Nearly 80% of the 2004 second quarter's and 55% of the year-to-date increases in supplies and expenses were related to fuel consumed by our company-operated fleet. Per-gallon costs we paid for fuel rose by 21% during the second quarter of 2004 as compared to the second quarter of 2003. Page 11 Fuel price volatility impacts our profitability. We have in place a number of strategies that mitigate, but do not eliminate the impact of such volatility. Pursuant to the contracts and tariffs by which our freight rates are determined, those rates in most cases automatically fluctuate as diesel fuel prices rise and fall. Factors that prevent us from fully recovering fuel cost increases include the presence of deadhead (empty) miles, tractor engine idling and fuel to power our trailer refrigeration units. Such fuel consumption often cannot be attributable to a particular load and, therefore, there is no revenue to which a fuel adjustment may be applied. Also, our fuel adjustment charges are computed by reference to Federal government indices that are released weekly for the prior week. When prices are rising, the price we incur in a given week is more than the price the government reports for the preceding week. Accordingly, we are unable to recover the excess of the current week's actual price to the preceding week's indexed price. With regard to fuel expenses for company-operated equipment, we attempt to further mitigate the impact of fluctuating fuel costs by purchasing more fuel-efficient tractors and aggressively managing fuel purchasing. Also, owner-operators are responsible for all costs associated with their equipment, including fuel. Therefore, the cost of such fuel is not a direct expense of ours, but to the extent such fuel adjustment charges are passed through by us to owner-operators, fuel price volatility may impact purchased transportation expenses. RENTALS AND DEPRECIATION: Compared to the comparable periods in 2003, the total of equipment rental and depreciation expense increased by $1.2 million (10%) and $2.6 million (11.5%), respectively, during the three and six month periods ended June 30, 2004. The increases are primarily attributable to increases in the number of tractors we owned and leased. There were approximately 1,550 tractors in our company-operated fleets as of June 30, 2004, an increase of about 55 as compared to one year before. The number of tractors we own and lease to independent contractors increased by approximately 55. Therefore, we owned or were the lessee of about 110 more tractors as of June 30, 2004 than was the case as of June 30, 2003. Most of our company-operated tractors are the subject of an agreement between us and their manufacturer pursuant to which the manufacturer has conditionally agreed to repurchase the tractors from us after a specified number months of service. The conditions that could restrict our ability to sell these used tractors back to the manufacturer include specifications as to their physical condition, their mechanical performance, their mileage and the quantity of new tractors that we buy from that manufacturer to replace the old tractor to be retired from our fleet. Beginning in 2002, we extended the replacement cycle for our tractors from 36 months to as many as 48 months of service. Regarding purchased tractors, we had previously depreciated such tractors over 36 months to a salvage value generally equal to the manufacturer's repurchase price. With the extended replacement cycle, the amount of the manufacturer's repurchase price, which approximates the estimated salvage value, was lowered by an amount generally equal to one year's depreciation expense on each tractor. Therefore, this change has not, nor is it expected to, impact the periodic amount of depreciation expense for such tractors. Page 12 Regarding leased tractors, before 2003 we generally leased tractors for 36-month terms. As a result of extending our replacement cycle to 48 months, we typically buy the tractors at the end of the 36-month lease term at fair market value ("FMV") and depreciate them over their remaining useful life of 12 months. Consequently, we now incur depreciation expense during the 4th year of a tractor's life rather than leasing a new tractor. The increase in depreciation expense has generally equaled the resulting decrease in lease expense that would have been incurred under the 36-month replacement cycle. When a tractor which is the subject to the repurchase arrangement reaches the end of its service life, if we owned the tractor during its service life, we generally sell the tractor to the manufacturer for a FMV price that was agreed to at the time the tractor was placed into service. For tractors that were leased during their service lives, we typically exercise lease agreement FMV purchase options to acquire short-term ownership of the used tractor and then resell the used tractor to the manufacturer. In such transactions, the amount we pay to the lessor is generally equal to the amount we receive from the manufacturer. We are not obligated to sell any used tractors back to the manufacturer. If the amount we could recover by sale to another party is substantially more than the manufacturer's buy-back obligation to us, we may and do sell tractors to such other third parties. CLAIMS AND INSURANCE: Compared to the comparable periods in 2003, claims and insurance expense increased by $105,000 (3.7%) and $2,000 (0%), respectively, during the three and six month periods ending June 30, 2004. These expenses vary with miles traveled as well as the severity and frequency of personal injury and property damage claims. Effective June 1, 2004 we renewed our liability insurance. In connection with the renewal, we decreased our deductible from $5 million to $3 million. Because we retain a large deductible for our personal injury claims, the occurrence of any single event can significantly impact our periodic earnings. OTHER AND MISCELLANEOUS EXPENSES: Compared to the comparable periods in 2003, other and miscellaneous expenses decreased by $246,000 (17.1%) and $878,000 (34.1%), respectively, during the three and six month periods ended June 30, 2004. Legal fees associated with general corporate matters and reduced accruals for accounts receivable which may not ultimately be collected were the primary reasons for these decreases. Mitigating the decreases were significant expenditures related to our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002. Page 13 NON-FREIGHT OPERATIONS: For the three and six month periods ended June 30, 2004, revenue from AirPro Holdings, Inc. ("AirPro"), our non-freight business, declined by 42% and 33%, respectively, as compared to the comparable quarters of 2003. During the fourth quarter of 2003, Airpro sold one of its businesses that installs air-conditioning systems on large passenger vehicles, such as school buses. This transaction was a primary reason for the decline in our non-freight revenue throughout the first half of 2004. Our non-freight operating expenses for the three and six month periods of 2004 fell by 54% and 45%, respectively, when compared to the prior year periods, primarily for the same reason. AirPro earned an operating profit of $656,000 during the first six months of 2004, as compared to an operating loss of $976,000 during the comparable period of 2003. In November 2003, we engaged a consulting firm to manage AirPro and the principal of the consulting firm was appointed as AirPro's President. The consulting firm has been retained to lead our efforts to eliminate the potential for future losses from AirPro, and to conduct a review of strategic alternatives for AirPro. OPERATING INCOME OR LOSS: The following table summarizes and compares our operating results for the three and six month periods ended June 30, 2004 and 2003 (in millions): Three Months Six Months ------------ ---------- Income (Loss) From: 2004 2003 2004 2003 -------- -------- -------- -------- Freight operations $ 4.6 $ 2.9 $ 7.9 $ 2.9 Non-freight operations 0.5 (0.5) 0.6 (0.9) -------- -------- -------- -------- $ 5.1 $ 2.4 $ 8.5 $ 2.0 ======== ======== ======== ======== INTEREST AND OTHER: The following table summarizes and compares our interest and other expenses and income during the three and six month periods ended June 30, 2004 and 2003 (in thousands): Three Months Six Months ------------ ---------- 2004 2003 2004 2003 -------- -------- -------- -------- Interest expense $ 84 $ 135 $ 206 $ 237 Interest income (2) (71) (17) (87) Life insurance and other income (307) (1,188) (188) (911) -------- -------- -------- -------- $ (225) $(1,124) $ 1 $ (761) ======== ======== ======== ======== Compared to 2003 and primarily as a result of decreased income related to our life insurance investments, interest and other income, net, decreased between the three and six month periods ended June 30, 2004. PRE-TAX AND NET INCOME: Compared to the comparable periods in 2003, our pre-tax income increased by $1.8 million (49%) and $5.7 million (210%), respectively, during the three and six month periods ended June 30, 2004. Our provision for income tax was 35.8% of our pre-tax income for the first six months of 2004. For the comparable six months of 2003, our provision Page 14 for income tax was 31.2% of our pre-tax income. Our effective tax rate is impacted by the presence of expenses in our income statement which are not included in taxable income. Compared to the comparable periods in 2003, our net income increased by $945,000 (37%) and $3.6 million (189%) during the three and six month periods ended June 30, 2004. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- DEBT AND WORKING CAPITAL: Our primary needs for capital resources are to finance working capital, expenditures for property and equipment and, from time to time, acquisitions. Working capital investment typically increases during periods of sales expansion when higher levels of receivables and, with regard to non-freight operations, inventory are present. During July 2004, our credit agreement with our banks was amended. The amount of credit available to us was increased by $10 million to $50 million. The margins we pay to borrow under the facility generally were reduced by 50 basis points and the maturity date of the facility has been extended by two years to June 1, 2007. We had long-term debt of $1.0 million as of June 30, 2004. At June 30, 2004, the unused portion of the company's then $40 million revolving credit facility was approximately $33.9 million. We believe that the funds available to us from our working capital, future operating cash flows and our credit and leasing facilities will be sufficient to finance our operation during the next twelve months. CASH FLOWS: During the six month period ended June 30, 2004 net cash provided by operation activities was $22.4 million as compared to $2.1 million during the year-ago six-month period. During 2003, our LTL revenues and receivables increased significantly due to one of our competitors having ceased operations. During the first six months of 2004, our accounts receivable did not fluctuate as they did last year. Improved profitability and higher non-cash expenses such as depreciation and amortization were also significant contributors to this increase. On August 11, 2004, our Board of Directors authorized the purchase of up to 750,000 shares of common stock from time to time on the open market at such times as management deems appropriate. OBLIGATIONS AND COMMITMENTS: As of June 30, 2004, our debt was $1.0 million and letters of credit issued by us for insurance purposes and to equipment leasing companies were $5.1 million in total. As of June 30, 2004, we had contracts to purchase tractors and trailers later in 2004 totaling approximately $35.2 million. We expect to lease most of the tractors and trailers when they are placed into service. We lease equipment and real estate. Rentals are due under non-cancelable operating leases for facilities, tractors and trailers. Facility and trailer leases do not contain guaranteed residual values in favor of the lessors. Most of the tractors we leased prior to 2003 and many of the tractors we leased since 2002 are leased pursuant to agreements under which we have partially guaranteed the assets end-of lease-term residual value. Tractor leases entered into before 2003 typically have 36-month terms, and tractor leases entered into after 2002 have either 42 or 48-month terms. The portions of the Page 15 residuals we have guaranteed vary from lessor to lessor. Gross residuals are between 40% and 55% of the leased asset's historical cost, of which we have guaranteed the first 27% to 40% of the leased asset's historical cost. The lessors remain at risk for between 13% and 15% of the remainder of such leased asset's historical cost. Because our lease payments and residual guarantees do not exceed 90% of the tractor's cost, the leases are accounted for as operating leases and rentals are recorded as rent expense over the term of the leases. The table below sets forth information as to the amounts of our obligations and commitments as well as the year in which they will become due (in millions):
Remainder After Payments due by year Total of 2004 2005 2006 2007 2008 2008 - ----------------------------------------------------------------------------------------------------------------------- Debt and letters of credit $ 6.1 -- -- -- $ 6.1 -- -- Purchase obligations 35.2 $ 35.2 -- -- -- -- -- Operating leases for: Rentals 76.7 13.4 $ 22.2 $ 17.5 10.5 $ 6.4 $ 6.7 Residual guarantees 8.7 1.7 1.6 3.5 1.5 0.4 -- --------- -------- -------- -------- -------- ------- ------- Total $ 126.7 $ 50.3 $ 23.8 $ 21.0 $ 18.1 $ 6.8 $ 6.7 ========= ======== ======== ======== ======== ======= =======
Forward-looking Statements - -------------------------- This report contains information and forward-looking statements that are based on our current beliefs and expectations and assumptions we made based upon information currently available. Forward-looking statements include statements relating to our plans, strategies, objectives, expectations, intentions, and adequacy of resources, and may be identified by words such as "will", "could", "should", "believe", "expect", intend", "plan", "schedule", "estimate", "project" and similar expressions. These statements are based on current expectations and are subject to uncertainty and change. Although we believe that the expectations reflected in such forward-looking statements are reasonable, actual results could differ materially from the expectations reflected in such forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include demand for our services and products, and our ability to meet that demand, which may be affected by, among other things, competition, weather conditions and the general economy, the availability and cost of labor, our ability to negotiate favorably with lenders and lessors, the effects of terrorism and war, the availability and cost of equipment, fuel and supplies, the market for previously-owned equipment, the impact of changes in the tax and regulatory environment in which we operate, operational risks and insurance, risks associated with the technologies and systems used and the other risks and uncertainties described elsewhere in our filings with the Securities and Exchange Commission. We do not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- As of June 30, 2004, we held no market risk sensitive instruments for trading purposes. Page 16 For purposes other than trading, we held the following market risk sensitive instruments as of June 30, 2004: Description Discussion Long-term debt, The value of our debt at June 30, 2004 was $1.0 million $1.0 million, which approximates fair market value. Our debt is incurred pursuant to our credit agreement, which matures on May 30, 2007. Rabbi Trust Our consolidated financial statements investment in 128,000 include the assets and shares of liabilities shares of our stock, of a Rabbi Trust. As of June 30, 2004, the $866 thousand trust our stock, held 128,000 for benefit of participants in our 401(k) Wrap Plan. The plan participants control whether the trust's assets are invested in our stock or other instruments. Trust investments in our stock are required to be accounted for by us in a manner that reflects trust liabilities based on the market value of our stock, but precludes the valuation of trust assets based on the market value of our stock. Therefore, as of June 30, 2004 a $1.00 increase or decrease in the value of our stock would result in a $128,000 increase or decrease, respectively, in the amount of our salaries, wages and related expenses for the three-month period then ended. Cash surrender value of The cash surrender value of our life life insurance policies, insurance policies is a function of the $7.5 million amounts we pay to the insurance companies, the insurance charges taken by the insurance companies and the investment returns earned by or losses incurred by the insurance company. Changes in any of these factors will impact the cash surrender value of our life insurance policies. Insurance charges and investment performance have a proximate effect on the value of our life insurance assets and on our net income. We held no other material market risk-sensitive instruments (for trading or non-trading purposes) that would involve significant relevant market risks, such as equity price risk. Accordingly, the potential loss in our future earnings resulting from changes in such market rates or prices is not significant. Item 4. Controls and Procedures ----------------------- As of the end of the period covered by this report, we evaluated, under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, the effectiveness of the design and the operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for the purposes of gathering, analyzing and disclosing the information that we are Page 17 required to disclose in the reports we file under the Securities Exchange Act of 1934, within the time periods specified in the SEC's rules and forms. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation. PART II - OTHER INFORMATION - --------------------------- Items 1, 3 and 5 of Part II are omitted due to the lack of updated information to disclose pursuant to said items. Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities ---------------------------------------------------------------------
Issuer Purchases of Equity Securities for Quarter Ended June 30, 2004 - --------------------------------------------------------------------- Total Number Maximum Number of Shares (or Approximate Total Average Purchased as Dollar Value) of Number Price Part of Shares That May Yet Be of Shares Paid per Publicly Announced Purchased Under the Purchased Share Plans or Programs Plans or Programs(1) --------- ----- ----------------- ----------------- (None) ---- ---- ----
(1) On August 11, 2004, the Board of Directors authorized the purchase of up to 750,000 shares of common stock from time to time on the open market or through private transactions at such times as management deems appropriate. The authorization did not specify an expiration date. Purchases may be increased, decreased or discontinued by the Board of Directors at any time without prior notice. Item 4. Submission of Matters to Vote of Security Holders ------------------------------------------------- The Company held its Annual Meeting of Shareholders on April 29, 2004. The meeting was held to elect one Class I director for a two-year term and three incumbent Class II directors for a three-year term. There were 16,396,672 common stock represented at the meeting. With regard to the election of Class III directors, the following votes were cast: Broker Nominee For Withheld Abstained Non-Votes ------- --- -------- --------- --------- T. Michael O'Connor 14,739,028 1,657,644 - - Stoney M. Stubbs, Jr. 14,717,602 1,679,070 - - Charles G. Robertson 14,474,525 1,922,147 - - With regard to the amendment to the Company's 2002 Incentive and Non-Statutory Option Plan, increasing the number of shares available for the grant of options, the following votes were cast: Broker For Against Abstained Non-Votes --- ------- --------- --------- 8,420,211 4,301,920 296,541 3,373,599 Page 18 Item 6. Exhibits and Reports on Form 8-K. --------------------------------- (a) Exhibits 3.1 Articles of Incorporation of the Registrant and all amendments to date (filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference). 3.2 Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference). 10.1 Second Amendment to the Credit Agreement between Comerica Bank, successor-by-merger with Comerica Bank-Texas, as administrative agent for itself and other banks, LaSalle Bank National Association, as collateral agent and syndication agent for itself and other banks and FFE Transportation Services, Inc. as Borrower and certain of its affiliates as of May 30, 2002.* 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* *Filed herewith. (b) Reports on Form 8-K. On April 30, 2004 we filed a current report on Form 8-K announcing our results of operations for the quarter ended March 31, 2004. Page 19 SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Frozen Food Express Industries, Inc. (Registrant) August 13, 2004 By: /s/ Stoney M. Stubbs, Jr. --------------------------- Stoney M. Stubbs, Jr. Chairman of the Board and Chief Executive Officer August 13, 2004 By: /s/ F. Dixon McElwee, Jr. --------------------------- F. Dixon McElwee, Jr. Senior Vice President Principal Financial and Accounting Officer Page 20 EXHIBIT INDEX ------------- 3.1 Articles of Incorporation of the Registrant and all amendments to date (filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference). 3.2 Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference). 10.1 Second Amendment to the Credit Agreement between Comerica Bank, successor-by-merger with Comerica Bank-Texas, as administrative agent for itself and other banks, LaSalle Bank National Association, as collateral agent and syndication agent for itself and other banks and FFE Transportation Services, Inc. as Borrower and certain of its affiliates as of May 30, 2002.* 31.1 Certification of Chief Executive pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* *Filed herewith. Page 21 EX-10.1 2 frozenfoods_10qex10-1.txt EXHIBIT 10.1 [EXECUTION] SECOND AMENDMENT TO CREDIT AGREEMENT This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of June 30, 2004, (the "Effective Date") is among FFE TRANSPORTATION SERVICES, INC. (the "Borrower"), each of the other undersigned Companies, each of the banks or other lending institutions which is or may from time to time become a party to the Agreement (hereinafter defined) (each a "Bank" and collectively, the "Banks"), COMERICA BANK, successor-by-merger with Comerica Bank-Texas ("Comerica"), as administrative agent for the Banks (in such capacity, together with its successors in such capacity, the "Administrative Agent"), and as issuer of Letters of Credit under the Agreement (in such capacity, together with its successors in such capacity, the "Issuing Bank"), and LASALLE BANK NATIONAL ASSOCIATION, a national banking association ("LaSalle"), as Syndication Agent (in such capacity, together with its successors in such capacity, the "Syndication Agent"), and as Collateral Agent (in such capacity, together with its successors in such capacity, the "Collateral Agent"). RECITALS: A. The Borrower, the Banks, the Issuing Bank and the Administrative Agent have entered into that certain Credit Agreement dated as of May 30, 2002, which was subsequently amended by the First Amendment to Credit Agreement on December 11, 2003 (the "Credit Agreement"). B. The parties hereto now desire to amend the Credit Agreement as provided herein. AGREEMENTS: In consideration of the premises and the mutual agreements herein set forth, Borrower, Lenders and Administrative Agent hereby agree as follows: ARTICLE I. DEFINITIONS AND REFERENCES -------------------------- 1.1. TERMS DEFINED IN THE CREDIT AGREEMENT. Unless the context otherwise requires or unless otherwise expressly defined herein, the terms defined in the Credit Agreement shall have the same meanings whenever used in this Amendment. 1.2. OTHER DEFINED TERMS. Unless the context otherwise requires, the following terms when used in this Amendment shall have the meanings assigned to them in this Section 1.2. "AMENDMENT" means as defined in the Introductory Paragraph hereof. "AMENDMENT DOCUMENTS" means this Amendment and the Renewal Notes. "CREDIT AGREEMENT" means as defined in the Recitals of this Amendment. "ORIGINAL NOTES" means the "Revolving Credit Notes" referred to and defined as such in the Credit Agreement. "RENEWAL NOTES" means the renewal promissory notes of Borrower attached hereto as Exhibit A, expressly renewing and extending the Original Notes. ARTICLE II. AMENDMENTS TO CREDIT AGREEMENT ------------------------------ 2.1. DEFINED TERMS. The definition of "TERMINATION DATE" in Section 1.1 of the Credit Agreement is hereby amended in its entirety to read as follows: "'TERMINATION DATE' shall mean June 1, 2007, or such earlier date upon which the obligation of the Banks to make Loans is terminated pursuant to the terms of this Agreement." 2.2. DETERMINATION OF MARGINS AND FEES. Section 2.4(b) of the Credit Agreement is hereby amended in its entirety to read as follows: "(b) DETERMINATIONS OF MARGINS AND FEES. The margins identified in SECTION 2.4(A) and the fees payable under SECTION 2.11 shall be defined and determined as follows: (i) "BASE RATE MARGIN" shall mean during each period from and including one Adjustment Date to but excluding the next Adjustment Date (herein a "CALCULATION PERIOD"), the percent per annum set forth in the table below under the heading "BASE RATE MARGIN" and opposite the Leverage Ratio which corresponds to the Leverage Ratio set forth in, and as calculated in accordance with, the applicable Compliance Certificate. (ii) "LIBOR RATE MARGIN" shall mean during each Calculation Period, the percent per annum set forth in the table below under the heading "LIBOR RATE MARGIN" and opposite the Leverage Ratio which corresponds to the Leverage Ratio set forth in, and as calculated in accordance with, the applicable Compliance Certificate. (iii) "COMMITMENT FEE RATE" shall mean during each Calculation Period, the percent per annum set forth in the table below under the heading "COMMITMENT FEE RATE" and opposite the Leverage Ratio which corresponds to the Leverage Ratio set forth in, and as calculated in accordance with, the applicable Compliance Certificate. 2
- --------- --------------------- ---------- ---------- ----------------- --------------------- ------------------- L/C Fee Rate LIBOR Base Less than or Equal L/C Fee Rate Tier Leverage Ratio Rate Rate Commitment Fee to $5MM Greater than $5MM Margin Margin Rate Outstanding L/C's Outstanding L/C's - --------- --------------------- ---------- ---------- ----------------- --------------------- ------------------- I Greater than or 2.25% 0.875% 0.30% 1.50% 2.25% equal to 2.25 - --------- --------------------- ---------- ---------- ----------------- --------------------- ------------------- II Greater than or 2.00% 0.625% 0.20% 1.25% 2.00% equal to 1.75 but less than 2.25 - --------- --------------------- ---------- ---------- ----------------- --------------------- ------------------- III Greater than or 1.75% 0.375% 0.20% 1.00% 1.75% equal to 1.25 but less than 1.75 - --------- --------------------- ---------- ---------- ----------------- --------------------- ------------------- IV Less than 1.25 1.50% 0.125% 0.15% 0.75% 1.50% - --------- --------------------- ---------- ---------- ----------------- --------------------- -------------------
Commencing on the Effective Date of the Second Amendment to this Agreement, the Libor Rate Margin (for Interest Periods commencing thereafter), the Base Rate Margin and the Commitment Fee Rate shall be the same as listed opposite the Tier II Leverage Ratio on the table set forth above, but on the first Business Day after the delivery to the Administrative Agent of the Compliance Certificate for the period ending on June 30, 2004, the Libor Rate Margin (for Interest Periods commencing after such date of delivery), Base Rate Margin and Commitment Fee Rate shall automatically be adjusted in accordance with the Leverage Ratio set forth in such Compliance Certificate and in the table set forth above. Then upon the delivery of each Compliance Certificate thereafter pursuant to this Agreement, commencing with the Compliance Certificate delivered as of the period ending September 30, 2004,, the LIBOR Rate Margin (for Interest Periods commencing after the applicable Adjustment Date), the Base Rate Margin and the Commitment Fee Rate shall automatically be adjusted in accordance with the Leverage Ratio set forth therein and the table set forth above, such automatic adjustment to take effect as of the first Business Day after the receipt by the Administrative Agent of the related Compliance Certificate (each such Business Day when such margins or fees change pursuant to this sentence or the next following sentence, herein an "ADJUSTMENT DATE"). If Parent fails to deliver such Compliance Certificate which so sets forth the Leverage Ratio within the period of time required by this Agreement: (i) the LIBOR Rate Margin (for Interest Periods commencing after the applicable Adjustment Date) shall automatically be adjusted to 2.25% per annum; (ii) the Base Rate Margin shall automatically be adjusted to 0.875%; and (iii) the Commitment Fee Rate shall automatically be adjusted to 0.30%, such automatic adjustment to take effect as of the first Business Day after the last day on which Parent was required to deliver the applicable Compliance Certificate in accordance with this Agreement and to remain in effect until subsequently adjusted in accordance herewith upon the delivery of such Compliance Certificate." 2.3. LETTER OF CREDIT FEES. Section 2.11(b) of the Credit Agreement is hereby amended in its entirety to read as follows: "(b) A Letter of Credit fee is payable to the Administrative Agent for the account of the Banks in accordance with their respective Pro Rata Shares, for the term of each Letter of Credit at (i) the percent per annum set forth in the table set forth in Section 2.4(b) above under the heading "L/C FEE RATE LESS THAN OR EQUAL TO $5MM OUTSTANDING L/C'S" and opposite the Leverage Ratio which corresponds to 3 the Leverage Ratio set forth in, and as calculated in accordance with, the applicable Compliance Certificate multiplied by the aggregate undrawn amount of such Letter of Credit at all times when Letter of Credit Liabilities are equal to or less than $5,000,000 and (ii) the percent per annum set forth in the table set forth in Section 2.4(b) above under the heading "L/C RATE GREATER THAN $5MM OUTSTANDING L/C'S" and opposite the Leverage Ratio which corresponds to the Leverage Ratio set forth in, and as calculated in accordance with, the applicable Compliance Certificate multiplied by the aggregate undrawn amount of such Letter of Credit at all times when the Letter of Credit Liabilities exceed $5,000,000. Letter of Credit fees shall be payable quarterly in arrears on each Quarterly Payment Date;" 2.4. INSURANCE. Section 5.1(c) of the Credit Agreement is hereby amended to read in its entirety as follows: "(c) INSURANCE. (i) Maintain, and cause each other Company to maintain, insurance with such insurance companies, in such amounts, and covering such risks as shall be satisfactory to the Administrative Agent and the Collateral Agent, with a policy limit of not less than $25,000,000 per occurrence and with loss payable to the Administrative Agent and the Collateral Agent; provided that the Companies shall be permitted to self-insure for exposure up to $6,000,000 per occurrence of the first $10,000,000 of exposure of such occurrence but shall not self-insure for amounts in excess of $6,000,000 without the prior written consent of the Required Banks; provided further, that the Companies shall be permitted to 100% self-insure for the exposure that may arise from or relate in any respect to the physical damage to or loss of the Vehicles; (ii) deliver to the Administrative Agent certificates evidencing such insurance and, within ninety (90) days after the close of each fiscal year of Borrower, a report certified by the Chief Financial Officer or Vice President of Finance of Borrower describing all insurance of the Companies in force as of the close of the fiscal year just ended; and (iii) cause all fire and casualty insurance policies on Vehicles, to which Liens in favor of the Collateral Agent, for the benefit of the Banks have attached, to be made payable to the Companies, the Collateral Agent and the Administrative Agent, as their interests may appear, and in such event deliver certificates evidencing such insurance to the Administrative Agent." 2.5. FIXED CHARGE COVERAGE RATIO/ DEFINITION OF EBITDAR. The definition of EBITDAR in the third sentence of Section 5.1(f) of the Credit Agreement is hereby amended to read in its entirety as follows: "EBITDAR" means, for any period and any Person the total of the following, each calculated without duplication, for such Person on a consolidated basis for such period: (a) Net Income; PLUS (b) any provision for (or minus any benefit from) income or franchise taxes included in determining Net Income; PLUS (c) interest expense deducted in determining Net Income; PLUS (d) amortization and depreciation expense deducted in determining Net Income; PLUS (e) lease and rental expenses paid under operating leases or rental agreements involving assets that are intended to produce income and deducted in determining Net Income; plus (f) non-cash expenses from the granting, issuance or 4 exercise of stock options pursuant to the stock option plans of Parent (herein called "Stock Option Expense") in an amount not to exceed $3,000,000 during the term of this Amendment; provided, however, that (i) the amount of such Stock Option Expense to be included in the calculation of EBITDAR during the calendar year 2005 may not exceed $1,000,000, (ii) the amount of such Stock Option Expense to be included in the calculation of EBITDAR during the calendar year 2006 may not exceed $2,000,000 minus the amount of such Stock Option Expense previously included in the calculation of EBITDAR during calendar year 2005 and (iii) the amount of such Stock Option Expense to be included in the calculation of EBITDAR during calendar year 2007 may not exceed $3,000,000 minus the aggregate amount of such Stock Option Expense previously included in the calculation of EBITDAR during each of the calendar years 2005 and 2006, MINUS (g) any dividends or redemptions of capital stock paid in cash during such period." 2.6. BORROWING BASE REPORTS. Section 5.1(l) of the Credit Agreement is hereby amended in its entirety to read as follows: "(1) BORROWING BASE REPORTS. Deliver to each Bank, as soon as possible, and in any event within forty-five (45) days after and as of the end of each calendar quarter, a Borrowing Base Report dated as of the end of such calendar quarter; PROVIDED, however that if Borrowing Base Availability as determined on the most recent Borrowing Base Report is less than $10,000,000, thereafter monthly Borrowing Base Reports will be furnished within 30 days after the end of each calendar month and PROVIDED FURTHER that if such Borrowing Base Availability as determined on the most recent Borrowing Base Report is less than $3,000,000, thereafter weekly Borrowing Base Reports shall be furnished within five (5) days after the end of each week; however, if the Borrowing Base Availability as determined on a Borrowing Base Report is less than, respectively, $10,000,000 or $3,000,000, and as a result, the intervals for the delivery of Borrowing Base Reports become monthly or weekly respectively as provided above, but thereafter the Borrowing Base Availability (as determined upon the applicable Borrowing Base Report) returns respectively to $10,000,000 or more, or $3,000,000 or more, the applicable interval for the delivery of Borrowing Base Reports shall then immediately return to, as applicable, quarterly or monthly. For purposes of this Section of this Agreement, upon the Effective Date of the Second Amendment to this Agreement, the determination of the applicable interval for the delivery of the Borrowing Base Reports thereafter shall be based on the Borrowing Base Availability determined on the last Borrowing Base Report delivered by the Borrower prior to the Effective Date of the Second Amendment to this Agreement." 2.7. COMPLIANCE INCOME. Section 5.1(m) of the Credit Agreement is hereby amended to read in its entirety as follows: "(m) COMPLIANCE INCOME. Maintain a positive Compliance Income. The term "COMPLIANCE INCOME" means (a) Net Income of the Companies on a consolidated basis for each fiscal year, PLUS (b) any provision for (or less any benefit from) income or franchise taxes included in determining Net 5 Income for such period, PLUS (c) any nonrecurring, extraordinary expenses deducted in determining Net Income for such period, MINUS (d) any dividends and other distributions to shareholders of Parent declared during such period." 2.8. ACCOUNTS RECEIVABLE REPORT. Section 5.1(s) of the Credit Agreement is hereby amended in its entirety to read as follows: "(s) ACCOUNTS RECEIVABLE REPORT. As soon as available, and in any event within forty-five (45) days after the end of each calendar quarter a summary accounts receivable aging report for Borrower showing the aggregate amount of all accounts receivable of Borrower that are 1-30, 31-60, 61-90, and over 90 days past the invoice date; PROVIDED, however that if Borrowing Base Availability as determined on the most recent Borrowing Base Report is less than $10,000,000, thereafter monthly Accounts Receivable Reports will be furnished within 30 days after the end of each calendar month and PROVIDED FURTHER that if such Borrowing Base Availability as determined on the most recent Borrowing Base Report is less than $3,000,000, thereafter weekly Accounts Receivable Reports shall be furnished within five (5) days after the end of each week; however, if the Borrowing Base Availability as determined on a Borrowing Base Report is less than, respectively, $10,000,000 or $3,000,000, and as a result the intervals for the delivery of Accounts Receivable Reports become monthly or weekly respectively as provided above, but thereafter the Borrowing Base Availability as determined upon the Applicable Accounts Receivable Report returns respectively to $10,000,000 or more, or $3,000,000 or more, the applicable interval for the delivery of Accounts Receivable Reports shall then immediately return to, as applicable, quarterly or monthly. For purposes of this Section of this Agreement, upon the Effective Date of the Second Amendment to this Agreement, the determination of the applicable interval for the delivery of the Accounts Receivable Reports thereafter shall be based on the Borrowing Base Availability determined on the last Accounts Receivable Report delivered by the Borrower prior to the Effective Date of the Second Amendment to this Agreement." 2.9. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Section 5.2(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "(a) MINIMUM CONSOLIDATED TANGIBLE NET WORTH. "Permit, as of the last day of any fiscal quarter, Parent's Consolidated Tangible Net Worth to be less than the sum of (i) $70,000,000, plus (ii) fifty percent (50%) of the positive, Net Income of the Companies for each fiscal quarter ending after June 30, 2004 (i.e., any negative Net Income for a fiscal quarter shall not reduce the minimum Consolidated Tangible Net Worth ), PLUS (iii) one hundred percent (100%) of the net cash proceeds from any issuances of equity securities by Parent or any other Company or other contributions to the capital or equity of Parent or any other Company." 2.10 LOANS, INVESTMENTS AND MERGERS. Section 5.2(c) of the Credit Agreement is hereby amended to read in its entirety as follows: 6 "(c) LOANS, INVESTMENTS AND MERGERS. Make any loan to or investment in, nor purchase stock or other securities of, nor merge or consolidate with, nor purchase all or substantially all of the assets of, any Person other than Borrower or another Company, except (i) mergers and consolidations of two or more Companies or acquisitions of a Company by another Company, provided no Default or Potential Default exists, (ii) secured loans to owner-operators who have independent contractor agreements with Borrower or any other Company not to exceed $2,000,000 in the aggregate outstanding at any time, (iii) the W&B Note, (iv) indebtedness of purchasers to the Companies for the purchase price of Vehicles sold by the Companies to such purchasers, provided that such Indebtedness together with loans made pursuant to clause (v) of this Subsection (c) shall not exceed $2,000,000 in the aggregate outstanding at any time, (v) loans, other than the foregoing, provided that such loans together with indebtedness pursuant to clause (iv) of this Subsection (c) shall not exceed $1,000,000 in the aggregate outstanding at any time, (vi) Permitted Investments, (vii) other investments from time to time in an amount outstanding at any time less than or equal to $100,000. and (viii) expenditures for acquisitions involving a Person other than a Company in an amount not to exceed $5,000,000 during any fiscal year of Borrower." 2.11. DIVIDENDS AND DISTRIBUTIONS. Clause (iii) of Section 5.2(e) of the Credit Agreement is hereby amended by deleting the period at the end thereof and adding the following new clause (D) to read as follows: "and (D) if such dividend is made with any proceeds of death benefits received under life insurance policies, the amount of such dividend shall not exceed the amount of the after-tax proceeds of such death benefit." 2.12. INDEBTEDNESS. Section 5.2(f) of the Credit Agreement is hereby amended to read in its entirety as follows: "(f) INDEBTEDNESS. Assume, create or suffer to exist any Indebtedness except (i) Indebtedness owed to the Banks pursuant to this Agreement, (ii) additional Indebtedness not for borrowed money incurred in the ordinary course of business constituting trade payables not more than 90 days past due and accrued liabilities, including, without limitation, accrued Taxes and payroll obligations, (iii) Existing Indebtedness, (iv) Indebtedness under Hedge Agreements, and (v) additional Indebtedness for borrowed money incurred in the ordinary course of business not to exceed $5,000,000 in the aggregate outstanding at any time with respect to all Companies." 2.13. CAPITAL EXPENDITURES. Section 5.2(h) of the Credit Agreement is hereby amended to read in its entirety as follows: "(h) CAPITAL EXPENDITURES. Permit the aggregate amount of all Capital Expenditures made by the Companies, during any twelve (12) month period (net of the proceeds of the sale or exchange of any fixed assets), to exceed $35,000,000." 7 2.14. COMMITMENTS. Schedule 1.1 to the Credit Agreement is hereby amended in its entirety to read as set forth in Schedule 1.1 to this Amendment. 2.15. LITIGATION. Schedule 4.3 to the Credit Agreement is hereby amended in its entirety to read as set forth in Schedule 4.3 to this Amendment. 2.16. MATERIAL AGREEMENTS. Schedule 4.11 to the Credit Agreement is hereby amended in its entirety to read as set forth in Schedule 4.11 to this Amendment. 2.17. BORROWING BASE REPORT. Exhibit A to the Credit Agreement is hereby amended in its entirety to read as set forth in Exhibit A to this Amendment. 2.18. COMPLIANCE CERTIFICATE. Exhibit D to the Credit Agreement is hereby amended in its entirety to read as set forth in Exhibit D to this Amendment. ARTICLE III. CONDITIONS PRECEDENT -------------------- 3.1. EFFECTIVE DATE. This Amendment shall become effective as of the date first above written when, and only when: (i) Agent shall have received, at Agent's office, a counterpart of this Amendment executed and delivered by Borrower and each Bank, (ii) Agent shall have received, at Agent's office, the Renewal Notes executed and delivered by Borrower, and (iii) Borrower shall have paid, in connection with such Loan Papers, all recording, handling, amendment and other fees required to be paid to Agent pursuant to any Loan Papers, including Agent's reasonable attorney's fees. ARTICLE IV RATIFICATION, REPRESENTATIONS AND WARRANTIES -------------------------------------------- 4.1. RATIFICATION. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement and any other Loan Document, and except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. Borrower and Administrative Agent agree that the Credit Agreement, as amended hereby, and the other Loan Documents shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. The Liens are hereby ratified and confirmed as continuing to 8 secure payment of the Notes. Nothing herein shall in any manner diminish, impair or extinguish the Notes, any of the Indebtedness evidenced thereby, any of the other Loan Documents or the Liens. 4.2. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Administrative Agent that (i) the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of Borrower and will not violate any organizational document of Borrower, (ii) the representations and warranties contained in the Credit Agreement, as amended hereby, and any other Loan Document are true and correct on and as of the date hereof as though made on and as of the date hereof, except to the extent such representations and warranties relate to an earlier date (iii) Borrower is in full compliance with all covenants and agreements contained in the Credit Agreement, as amended hereby, and (iv) the audited annual consolidated balance sheet of Parent dated as of December 31, 2003, and the unaudited quarterly consolidated balance sheet of Parent dated as of March 31, 2004, fairly present the consolidated financial position at such dates and the consolidated statements of operations and the consolidated statements of cash flows for the periods ending on such dates for Parent. Copies of such financial statements have heretofore been delivered to each Bank. Since such dates no material adverse change has occurred in the financial condition or businesses or in the consolidated financial condition or businesses of any Company. ARTICLE V. MISCELLANEOUS ------------- 5.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in this Amendment, the Credit Agreement or any other document or documents relating thereto, including, without limitation, any Loan Document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by Administrative Agent or any closing shall affect the representations and warranties or the right of Administrative Agent to rely upon them. 5.2. REFERENCE TO CREDIT AGREEMENT. Each of the Loan Documents, including the Credit Agreement and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement, as amended hereby, are hereby amended so that any reference in such Loan Documents to the Credit Agreement shall mean a reference to the Credit Agreement, as amended hereby. 5.3. EXPENSES OF ADMINISTRATIVE AGENT. As provided in the Credit Agreement, Borrower agrees to pay on demand all reasonable costs and expenses incurred by Administrative Agent in connection with the preparation, negotiation and execution of this Amendment and the other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the reasonable costs and fees of Administrative Agent's legal counsel, and all reasonable costs and expenses incurred by Administrative Agent in connection with the enforcement or preservation of any rights under the Credit Agreement, as amended hereby, or any other Loan Document, including, without limitation, the reasonable costs and fees of Administrative Agent's legal counsel. 9 5.4. SEVERABILITY. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 5.5. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN DALLAS COUNTY, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 5.6. SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall inure to the benefit of Administrative Agent and Borrower and their respective successors and assigns, except Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Administrative Agent. 5.7. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. 5.8. EFFECT OF WAIVER. No consent or waiver, express or implied, by Administrative Agent to or for any breach of or deviation from any covenant or condition of the Credit Agreement shall be deemed a consent or waiver to or of any other breach of the same or any other covenant, condition or duty. 5.9. HEADINGS. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 5.10. NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SECTION 26.02 THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF, INCLUDING THE GUARANTY, TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 5.11. GUARANTORS. Each of the undersigned parties to a Guaranty Agreement, hereby (i) consents to the provisions of this Amendment and the transactions contemplated herein, (ii) ratifies and confirms the Guaranty Agreement and Security Agreement made by it for the benefit of Agent and Banks executed pursuant to the Credit Agreement and the other Loan Papers, (iii) agrees that all of its respective obligations and covenants thereunder shall remain unimpaired by the execution 10 and delivery of this Amendment and the other documents and instruments executed in connection herewith, and (iv) agrees that such Guaranty Agreement and such Security Agreement shall remain in full force and effect. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 11 IN WITNESS WHEREOF, this Amendment is executed as of the date first above written. FFE TRANSPORTATION SERVICES, INC. By: /S/ T. G. YETTER ------------------------------------- T. G. Yetter Vice President COMERICA BANK, as a Bank, Issuing Bank and Administrative Agent By: /S/ DONALD P. HELLMAN ------------------------------------- Donald P. Hellman Senior Vice President LA SALLE BANK, as Bank, Collateral Agent and Syndication Agent By: /S/ STEFAN LOEB ------------------------------------- Stefan Loeb Corporate Banking Officer 12 [Second Amendment] CONSENT AND AGREEMENT --------------------- Each of the undersigned ("each a Guarantor"), hereby (i) consents to the provisions of this Amendment and the transactions contemplated herein, (ii) ratifies and confirms the Guaranty and the Security Agreement, each dated as of May 30, 2002 made by it for the benefit of Agent and Banks executed pursuant to the Credit Agreement and the other Loan Papers, (iii) agrees that all of its respective obligations and covenants thereunder shall remain unimpaired by the execution and delivery of this Amendment and the other documents and instruments executed in connection herewith, and (iv) agrees that such Guaranty and such Security Agreement shall remain in full force and effect. FROZEN FOOD EXPRESS INDUSTRIES, INC. By: /S/ T. G. YETTER -------------------------------- T. G. Yetter Treasurer FFE, INC. By: /S/ T. G. YETTER -------------------------------- T. G. Yetter Vice President CONWELL CORPORATION By: /S/ T. G. YETTER -------------------------------- T. G. Yetter Vice President AIRPRO HOLDINGS, INC. By: /S/ F. DIXON MCELWEE, JR. -------------------------------- F. Dixon McElwee, Jr. Senior Vice President 13 LISA MOTOR LINES, INC. By: /S/ LEONARD W. BARTHOLOMEW -------------------------------- Leonard W. Bartholomew Corporate Secretary FROZEN FOOD EXPRESS, INC. By: /S/ F. DIXON MCELWEE, JR. --------------------------------- F. Dixon McElwee, Jr. Senior Vice President CONWELL CARTAGE, INC. By: /S/ LEONARD W. BARTHOLOMEW --------------------------------- Leonard W. Bartholomew Corporate Secretary MIDDLETON TRANSPORTATION COMPANY By: /S/ F. DIXON MCELWEE, JR. --------------------------------- F. Dixon McElwee, Jr. Senior Vice President COMPRESSORS PLUS, INC. By: /S/ LEONARD W. BARTHOLOMEW --------------------------------- Leonard W. Bartholomew Corporate Secretary FFE LOGISTICS, INC. By: /S/ LEONARD W. BARTHOLOMEW --------------------------------- Leonard W. Bartholomew Corporate Secretary 14 The undersigned ("Guarantor"), hereby (i) consents to the provisions of this Amendment and the transactions contemplated herein, (ii) ratifies and confirms the Guaranty and the Security Agreement, each as of March 31, 2003 made by it for the benefit of Agent and Banks executed pursuant to the Credit Agreement and the other Loan Papers, (iii) agrees that all of its respective obligations and covenants thereunder shall remain unimpaired by the execution and delivery of this Amendment and the other documents and instruments executed in connection herewith, and (iv) agrees that such Guaranty and such Security Agreement shall remain in full force and effect. CONWELL, LLC By: /S/ LEONARD W. BARTHOLOMEW ----------------------------------- Leonard W. Bartholomew Corporate Secretary 15 EX-31.1 3 frozenfoods_10qex31-1.txt EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Stoney M. Stubbs, Jr., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Frozen Food Express Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Stoney M. Stubbs, Jr. - ------------------------- Stoney M. Stubbs, Jr. Chairman of the Board and Chief Executive Officer See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002, which is filed as Exhibit 32.1 with this report. EX-31.2 4 frozenfoods_10qex31-2.txt EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, F. Dixon McElwee, Jr., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Frozen Food Express Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ F. Dixon McElwee, Jr. - ---------------------------------------- F. Dixon McElwee, Jr. Senior Vice President, Principal Financial Officer and Accounting Officer See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002, which is filed as Exhibit 32.2 with this report. EX-32.1 5 frozenfoods_10qex32-1.txt EXHIBIT 32.1 Frozen Food Express Industries, Inc. Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of Frozen Food Express Industries, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stoney M. Stubbs, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that (a) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. August 13, 2004 /s/ Stoney M. Stubbs, Jr. --------------------------------- Stoney M. Stubbs, Jr. Chief Executive Officer EX-32.2 6 frozenfoods_10qex32-2.txt EXHIBIT 32.2 Frozen Food Express Industries, Inc. Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of Frozen Food Express Industries, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, F. Dixon McElwee, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that (a) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. August 13, 2004 /s/ F. Dixon McElwee, Jr. ---------------------------------- F. Dixon McElwee, Jr. Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----