Exhibit 99.1
Frozen Food Express Industries, Inc.
Third Quarter 2008 Report
The Chairman’s Report
To Our Shareholders and Other Friends:
For the first time in a couple of years, we have strung together two consecutive profitable quarters. And, very frankly, I’ll be disappointed if we don’t make it three in a row. Let me be quick to add that I’m not guaranteeing a profitable fourth quarter. After all, that quarter is typically one of our weakest and this economy is not likely to improve anytime soon.
Nevertheless, my expectations are high. As I wrote in last year’s annual report: “We don’t expect the economy to be any better in 2008 than it was in 2007.” What an understatement that was. “But we do expect our performance this year to be better than it was last year.” And, so far, that’s what has happened.
We didn’t improve our operations by finding a single silver bullet that has caused our operating results to substantially improve this year. We have an $800 thousand profit so far this year compared to a $4.1 million loss for the same 9 months of 2007. Instead, we put a bunch of new ideas into practice, beginning about two-and-a-half years ago with a fairly major shake-up of top management. There’s nothing new about new ideas at FFE. Although we’re 60-plus years old, we still are an entrepreneurial company. What is new, it seems to me, is the disciplined manner in which these new ideas have been implemented into our day-to-day operations.
I’ll talk more in this year’s annual report about what I consider to be a new management tough-mindedness. But, until then, let me give you just two examples.
The first example is our truckload operation. We did an analysis that showed us the areas of the country in which our trucks could operate the most profitably. Last year we challenged our marketing and our operations people to keep our trucks in this preferred network. This is not as easy as it sounds. When you’re in a soft market, the temptation to chase freight—wherever it is and regardless of its profitability—is great. You’re keeping your drivers happy and generating revenue, so that must be a good thing? Not so. Unprofitable revenue is never a good thing, so we are focused more on profit and less on revenue. As a result, our revenue per loaded mile is up, the number of loaded miles traveled is up and our empty-mile ratio is down.
Another example is our less-than-truckload operation, which we operate on a schedule, like a bus line. When one of our LTL trucks is scheduled to pull away from the loading dock, it leaves, on time. Full or not. The schedules complicate a pre-complicated business, but our customers—and their customers—appreciate our punctuality.
In last year’s annual report, I told you about an initiative to increase the load factor of our LTL operation. We were hauling too much air—empty space—in our LTL trailers. So, we began a system-wide overhaul of our LTL schedules. For example, if a two-trips-a-week schedule was running just 40% full, we cut it to once a week to increase that scheduled trip’s load factor. And so forth.
We’ve kept after it, have made a number of schedule changes and have learned enough to figure that our schedule tweaking will be a continuing activity.
In June, we raised our LTL rates. The results have been good. Third-quarter per-hundredweight revenue was $15.04 compared to $14.14 in last year’s third quarter. While our per-hundredweight revenue was up by about 6% over last year’s third quarter, our tonnage shipped was off by about 2% and LTL revenue was $32.9 million compared to $33.9 million for last year’s quarter. I’ll trade 2% revenue for 6% profit increase any time.
I mentioned the economy. It has been hard on this and virtually every other industry. So has the price of fuel, which has lately come down to more manageable levels. So far this year, truckers small and large have exited the market. That has made drivers a little more available to us, but it has made market stamina and perseverance precious. Truckers who specialize in non-perishable freight have suffered more than those who specialize in perishable freight, such as food. Truckers who carry too much debt and require massive amounts of new capital have also been hit harder than others. At FFE, we believe that our access to capital and our focus on perishable freight help to position us in a spot that is more resistant to the effects of the recession that we are already probably in. We’ll give you an update in a few months.
Stoney M. (Mit) Stubbs, Jr.
Chairman and CEO
Balance Sheets
(In thousands)
(Unaudited)
| Assets | | | | | | |
| Current assets | | | | | |
| Cash and cash equivalents | | $ | 2,243 | | | $ | 2,473 | |
| Accounts receivable, net | | | 62,942 | | | | 52,682 | |
| Tires on equipment in use, net | | | 5,210 | | | | 5,120 | |
| Deferred income taxes | | | 3,643 | | | | 2,978 | |
| Other current assets | | | 10,371 | | | | 14,607 | |
| Total current assets | | | 84,409 | | | | 77,860 | |
| | | | | | | | | |
| Property and equipment, net | | | 85,308 | | | | 90,309 | |
| Other assets | | | 5,083 | | | | 5,500 | |
| Total assets | | $ | 174,800 | | | $ | 173,669 | |
| | | | | | | | | |
| Liabilities and shareholders' equity | | | | | | | | |
| Current liabilities | | | | | | | | |
| Accounts payable | | $ | 24,333 | | | $ | 25,301 | |
| Accrued claims | | | 11,291 | | | | 12,342 | |
| Accrued payroll and deferred compensation | | | 6,755 | | | | 5,998 | |
| Income tax payable | | | 48 | | | | -- | |
| Accrued liabilities | | | 1,940 | | | | 1,964 | |
| Total current liabilities | | | 44,367 | | | | 45,605 | |
| | | | | | | | | |
| Long-term debt | | | 5,800 | | | | -- | |
| Deferred income taxes | | | 12,975 | | | | 11,488 | |
| Accrued claims | | | 4,492 | | | | 9,317 | |
| Total liabilities | | | 67,634 | | | | 66,410 | |
| | | | | | | | | |
| Shareholders' equity | | | | | | | | |
| Par value of common stock (18,572 shares issued) | | | 27,858 | | | | 27,858 | |
| Paid in capital | | | 5,424 | | | | 5,682 | |
| Retained earnings | | | 87,809 | | | | 88,515 | |
| | | | 121,091 | | | | 122,055 | |
| Treasury stock (1,814 and 1,921 shares, respectively), at cost | | | (13,925 | ) | | | (14,796 | ) |
| Total shareholders' equity | | | 107,166 | | | | 107,259 | |
| Total liabilities and shareholders' equity | | $ | 174,800 | | | $ | 173,669 | |
Consolidated Condensed Statements of Profit and Loss
For the Three and Nine Months Ended September 30, 2008 and 2007
(In thousands, except per-share amounts)
(Unaudited)
| | | Three Months | | | Nine Months | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | | | | | | | | | | | | |
| Revenue | | $ | 132,451 | | | $ | 114,730 | | | $ | 378,206 | | | $ | 334,288 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | | | | |
| Salaries, wages and related expenses | | | 33,693 | | | | 31,893 | | | | 96,524 | | | | 97,101 | |
| Purchased transportation | | | 29,517 | | | | 30,813 | | | | 93,141 | | | | 83,216 | |
| Fuel | | | 32,130 | | | | 21,684 | | | | 88,694 | | | | 61,435 | |
| Supplies and expenses | | | 14,047 | | | | 13,911 | | | | 39,864 | | | | 40,926 | |
| Revenue equipment rent | | | 9,005 | | | | 7,640 | | | | 25,734 | | | | 22,885 | |
| Depreciation | | | 4,684 | | | | 4,592 | | | | 14,183 | | | | 14,697 | |
| Communications and utilities | | | 1,410 | | | | 1,169 | | | | 3,636 | | | | 3,213 | |
| Claims and insurance | | | 2,733 | | | | 3,125 | | | | 9,001 | | | | 12,212 | |
| Operating taxes and licenses | | | 1,163 | | | | 1,188 | | | | 3,431 | | | | 3,550 | |
| Gains on sale of operating assets | | | (491 | ) | | | (799 | ) | | | (1,096 | ) | | | (2,331 | ) |
| Miscellaneous expenses | | | 1,000 | | | | 772 | | | | 3,234 | | | | 2,501 | |
| Total operating expenses | | | 128,891 | | | | 115,988 | | | | 376,346 | | | | 339,405 | |
| Income (loss) from operations | | | 3,560 | | | | (1,258 | ) | | | 1,860 | | | | (5,117 | ) |
| Non-operating (income) expense | | | | | | | | | | | | | | | | |
| Equity in earnings of limited partnership | | | (200 | ) | | | (211 | ) | | | (511 | ) | | | (418 | ) |
| Interest income | | | (12 | ) | | | (189 | ) | | | (66 | ) | | | (571 | ) |
| Interest expense | | | 74 | | | | - | | | | 110 | | | | - | |
| Sale of non-operating assets and other | | | 200 | | | | 163 | | | | (108 | ) | | | 523 | |
| Total non-operating expense (income) | | | 62 | | | | (237 | ) | | | (575 | ) | | | (466 | ) |
| | | | | | | | | | | | | | | | | |
| Pre-tax income (loss) | | | 3,498 | | | | (1,021 | ) | | | 2,435 | | | | (4,651 | ) |
| Income tax expense (benefit) | | | 2,141 | | | | 2,214 | | | | 1,629 | | | | (522 | ) |
| Net income (loss) | | $ | 1,357 | | | $ | (3,235 | ) | | $ | 806 | | | $ | (4,129 | ) |
| | | | | | | | | | | | | | | | | |
| Net income (loss) per share of common stock | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.08 | | | $ | (0.19 | ) | | $ | 0.05 | | | $ | (0.24 | ) |
| Diluted | | $ | 0.08 | | | $ | (0.19 | ) | | $ | 0.05 | | | $ | (0.24 | ) |
| Weighted average shares outstanding | | | | | | | | | | | | | | | | |
| Basic | | | 16,737 | | | | 17,293 | | | | 16,699 | | | | 17,335 | |
| Diluted | | | 17,027 | | | | 17,293 | | | | 16,998 | | | | 17,335 | |
Corporate Information
Principal Subsidiaries and Divisions
FFE Transportation Services, Inc.
Lisa Motor Lines, Inc.
American Eagle Lines
FFE Logistics, Inc.
Telephone: (214) 630-8090
Internet: www.ffex.net
E-mail: ir@ffex.net
Common Stock Information
The company’s common stock trades on the Global Select Market tier of the Nasdaqâ Stock Market under the ticker FFEX.
The following is a summary of trading in our stock:
| | | Nine Months Ended | |
| | | September 30, | |
| | | 2008 | | | 2007 | |
| | High stock price | $ | 8.39 | | | $ | 10.91 | |
| | Low stock price | | 4.98 | | | | 6.41 | |
| | Trading volume (000’s) | | 3,438 | | | | 13,031 | |
Transfer Agent – Registrar and Transfer Company
This report contains information and forward-looking statements that are based on management’s current beliefs and expectations and assumptions which are based upon information currently available. Forward-looking statements include statements relating to 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 management believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will be realized. Should one or more of the risks or uncertainties underlying such expectations not materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected.
Among the key factors that are not within management’s control and that may cause actual results to differ materially from those projected in such forward-looking statements are national and global economic conditions, demand for the company’s 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 level of credit generally available in the capital markets, 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 the company operates, operational risks and insurance, risks associated with the technologies and systems we use and the other risks and uncertainties described in our filings with the SEC.
