UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period ended September 30, 1995
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.
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(Exact name of registrant as specified on its charter)
Texas 75-1301831
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1145 Empire Central Place Dallas, Texas 75247-4309
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(Address of principal executive offices) (Zip Code)
(2l4) 630-8090
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
[X] Yes [ ] No
As of November 8, 1995, 16,242,411 shares of the Registrant's Common Stock,
$1.50 par value, were outstanding.
<PAGE 1>
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item l. Financial Statements
Consolidated Condensed Balance Sheets -
September 30, 1995 and December 31, 1994 2
Consolidated Statements of Income -
Three and nine months ended September 30, 1995
and 1994 4
Consolidated Condensed Statements of Cash Flows -
Nine months ended September 30, 1995 and 1994 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Exhibit 27.1 - Financial Data Schedule 13
<PAGE 2>
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
Sept.30, Dec. 31,
1995 1994
-------- --------
Assets
Current assets
Cash and cash equivalents $ 3,591 $ 4,381
Accounts receivable, net 41,319 36,643
Inventories 7,917 8,006
Tires 4,629 4,334
Other 4,044 3,692
------- -------
Total current assets 61,500 57,056
------- -------
Property and equipment
Revenue equipment 63,276 64,401
Other 34,959 32,439
------- -------
98,235 96,840
Less depreciation 44,441 42,679
------- -------
Net property and equipment 53,794 54,161
------- -------
Other assets 8,731 5,619
------- -------
$124,025 $116,836
======= =======
See accompanying notes.
<PAGE 3>
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets, Continued
(In thousands)
(Unaudited)
Sept.30, Dec. 31,
1995 1994
-------- --------
Liabilities and Shareholders' Equity
Current liabilities
Trade accounts payable $ 12,839 $ 12,580
Accrued claims liabilities 8,400 7,712
Accrued payroll 4,238 5,006
Federal income tax payable 466 --
Other 6,090 6,135
------- -------
Total current liabilities 32,033 31,433
Long-term debt 6,000 9,000
Other and deferred credits 13,157 12,115
------- -------
Total liabilities and deferred credits 51,190 52,548
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Shareholders' equity
Common stock 25,921 25,921
Paid-in capital 1,505 --
Retained earnings 49,761 43,513
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77,187 69,434
Less - Treasury stock and receivable from ESOP 4,352 5,146
------- -------
Total shareholders' equity 72,835 64,288
------- -------
$124,025 $116,836
======= =======
See accompanying notes.
<PAGE 4>
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per-share amounts)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
Revenue
Freight revenue $68,646 $65,273 $197,614 $186,531
Non-freight revenue 7,132 7,262 18,979 16,608
------ ------ ------- -------
75,778 72,535 216,593 203,139
------ ------ ------- -------
Operating Expenses
Freight operating expenses
Salaries, wages and related
expenses 17,346 15,987 50,270 46,267
Purchased transportation 15,364 14,012 42,771 39,821
Supplies and expenses 19,315 17,836 54,533 50,591
Revenue equipment rent 3,647 4,016 12,357 11,512
Communications and utilities 935 880 2,592 2,469
Insurance and claims 4,622 3,341 11,213 9,723
Depreciation 2,671 2,365 8,003 7,342
Operating taxes and licenses 1,252 1,280 3,756 3,656
Gain on sale of equipment (191) (158) (659) (382)
Miscellaneous expense 620 586 1,822 1,759
------ ------ ------- -------
65,581 60,145 186,658 172,758
Non-freight costs and operating
expenses 6,614 6,913 17,313 15,984
------ ------ ------- -------
72,195 67,058 203,971 188,742
------ ------ ------- -------
Income from operations 3,583 5,477 12,622 14,397
Interest and other (634) (382) (1,614) (1,041)
------ ------- ------- -------
Income before income tax 2,949 5,095 11,008 13,356
Provision for income tax 847 1,661 3,311 4,390
------ ------ ------- -------
Net income $ 2,102 $ 3,434 $ 7,697 $ 8,966
====== ====== ======= =======
Net income per share of common
stock
Primary and fully diluted $ .13 $ .21 $ .47 $ .55
====== ====== ======= =======
Weighted average fully diluted
shares 16,538 16,503 16,494 16,443
====== ====== ======= =======
See accompanying notes.
<PAGE 5>
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
For the Nine
Months Ended Sept. 30,
----------------------
1995 1994
-------- --------
Net cash provided by operating activities $ 12,548 $ 9,508
------- -------
Cash flows from investing activities
Business dispositions (acquisitions) 2,050 (937)
Expenditures for property and equipment (9,328) (6,939)
Proceeds from sale of property and equipment 1,735 5,385
Company owned life insurance (3,410) (978)
Other (830) 125
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Net cash used in investing activities (9,783) (3,344)
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Cash flows from financing activities
Borrowings under revolving credit agreement 29,000 20,000
Payments against revolving credit agreement (32,000) (25,000)
Dividends paid (1,449) (1,139)
Net treasury stock activity 894 929
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Net cash provided by (used in)
financing activities (3,555) (5,210)
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Net increase in cash and cash equivalents (790) 954
Cash and cash equivalents at beginning of year 4,381 3,834
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Cash and cash equivalents at end of quarter $ 3,591 $ 4,788
======= =======
See accompanying notes.
<PAGE 6>
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
September 30, 1995 and 1994
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated condensed financial statements include Frozen Food Express
Industries, Inc. (FFEX) and its subsidiary companies (the company), all of
which are wholly owned. All significant intercompany accounts and
transactions have been eliminated in consolidation. The condensed financial
statements included herein have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and have not been
audited or reviewed by independent public accountants. In the opinion of
management, all adjustments (which consisted only of normal recurring
accruals) necessary to present fairly the financial position and results of
operations have been made. Pursuant to SEC rules and regulations, certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted from these statements unless significant changes have
taken place since the end of the most recent fiscal year. FFEX believes that
the disclosures contained herein, when read in conjunction with the financial
statements and notes included, or incorporated by reference, in FFEX's Form 10-
K filed with the SEC on March 29, 1995, are adequate to make the information
presented not misleading. It is suggested, therefore, that these statements
be read in conjunction with the statements and notes (included, or
incorporated by reference), in the aforementioned report on Form 10-K.
2. FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH
During the nine months ended September 30, 1995 and 1994, the company funded
contributions to its Employee Savings Plan by transferring 61,734 and 48,628
shares, respectively, of treasury stock to the Plan trustee. The fair market
value of the transferred shares was approximately $691,000 for 1995 and
approximately $779,000 for 1994.
3. SHAREHOLDERS' EQUITY
As of September 30, 1995 and 1994, respectively, there were 16,229,347 and
12,757,111 shares of stock outstanding.
4. COMMITMENTS AND CONTINGENCIES
The company has accrued for costs related to public liability and work-related
injury claims, some of which involve litigation. The aggregate amount of
these claims is significant. In the opinion of management, these actions can
be successfully defended or resolved, and any additional costs incurred over
amounts accrued will not have a material adverse effect on the company's
financial position or results of operations.
5. NET INCOME PER SHARE
For 1994, net income per share and weighted shares outstanding have been
restated to give effect to a 5-for-4 stock split effected in the form of a 25%
stock dividend paid during March, 1995.
<PAGE 7>
6. PRIOR PERIOD AMOUNTS
Certain prior period amounts have been reclassified to conform with current
year presentation.
<PAGE 8>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The table sets forth, as a percentage of freight revenue, certain major
operating expenses for the three- and nine-month periods ended September 30,
1995 and 1994.
Three Months Nine months
Ended Sept. 30, Ended Sept. 30,
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
Salaries, wages and related expense 25.3% 24.5% 25.4% 24.8%
Purchased transportation 22.4 21.5 21.6 21.3
Supplies and expenses 28.1 27.3 27.6 27.1
Revenue equipment rent 5.3 6.1 6.3 6.2
Insurance and claims 6.7 5.1 5.7 5.2
Depreciation 3.9 3.6 4.0 3.9
Other 3.8 4.0 3.9 4.1
------ ------ ------ ------
Total freight operating expenses 95.5% 92.1% 94.5% 92.6%
====== ====== ====== ======
Third Quarter of 1995 vs. 1994
During most of 1995 the motor carrier industry, including the temperature
controlled segment in which the company is primarily involved, has experienced
declines in productivity and equipment utilization due primarily to an
increase in the number of trucks compared to the amount of freight available
for transport.
During years prior to 1995, truck availability had been reduced by periodic
shortages of truck drivers. It has been estimated that as much as 5% to 8% of
the full-truckload fleets were parked during parts of 1994 due to a lack of
qualified driver personnel. Driver shortages have not been prevalent during
1995 which has increased the number of available trucks.
The devaluation of the Mexican peso during the latter part of 1994 has
significantly reduced the amount of U.S. freight transported by all motor
carriers to Mexico. Trucks which previously were devoted to these operations
now compete for domestic freight transportation further exacerbating the over-
supply of trucks.
The imbalance of trucks and freight causes per-truck utilization and freight
rates to decline resulting in a narrowing of profit margins.
<PAGE 9>
During the third quarter of 1995, revenue increased by 4.5% to $75,778,000
with freight revenue up $3.4 million or 5.2% and non-freight revenue down
$130,000 or 1.8%. Less-than-truckload (LTL) revenue was 2.9% lower while full-
truckload revenue increased by 9.8% as compared to the same quarter of 1994.
Full-truckload activities accounted for 67% and 64% of freight revenue during
the third quarter of 1995 and 1994, respectively.
The decrease in LTL revenue resulted primarily from a decrease in the number
of shipments transported. General softness in the perishable commodity
transportation industry resulted in decreased LTL shipments during 1995 as
compared to 1994.
The increase in full-truckload revenue resulted primarily from a 16% increase
in the number of shipments transported. The effect of this increased volume
was partially diminished by reduced average shipment revenue.
The number of tractors in the fleet of company-operated, full-truckload
equipment rose from approximately 1,000 at the beginning of 1995 to about
1,100 by the end of the quarter, while the number of full-truckload tractors
provided by owner-operators increased by about 130 units.
Full-truckload activities, which contributed 67% and 64% of freight revenue
during the third quarters of 1995 and 1994, respectively, are conducted
primarily with company-operated equipment, while LTL activities are conducted
primarily with equipment provided by owner-operators. This increase in the
percentage of freight revenue derived from full-truckload shipments impacted
the percent of freight revenue absorbed by the various categories of operating
expenses between the two quarters.
During 1994, the company expanded transportation services for customers
shipping products to and from Mexico and Canada. Approximately 6% of 1994's
freight revenue was derived from international activities. During 1995,
efforts to continue expanding international services have been negatively
affected by the devaluation of the Mexican peso.
As of September 30, 1995, approximately 26% of the full-truckload fleet
consisted of tractors provided by owner-operators as compared to 22% at
January 1, 1995, September 30, 1994 and January 1, 1994. This increased
participation by the owner-operator fleet has also affected the mix of
operating expenses as a percent of freight revenue. Purchased transportation,
which consists primarily of payments to owner-operators, increased from 21.5%
of freight revenue for the third quarter of 1994 to 22.4% for 1995. This
increase is primarily related to the less rapid expansion of the company-
operated, full-truckload fleet. Revenue equipment rent, which is primarily
related to the company-operated, full-truckload fleet, fell from 6.1% to 5.3%
of freight revenue while depreciation increased from 3.6% to 3.9% of freight
revenue.
Operating income declined from $5,477,000 to $3,583,000 between the two
quarters. Due primarily to the previously discussed decline in per-truck
utilization, weakened freight rates and to an increase in insurance costs.
Interest and other expense rose from $382,000 to $642,000 between the two
quarters. Due to substantially lower borrowings under the company's line of
credit, interest expense associated with bank debt was significantly less
during the 1995 quarter. This reduction was more than offset by net expenses
associated with the implementation during the 1994 third quarter of a company-
owned life insurance (COLI) program.
<PAGE 10>
The provision for income tax was 28.7% of pre-tax income for the third quarter
of 1995, as compared to 32.6% for 1994. This reduced effective income tax
rate is primarily attributable to increasing permanent tax savings resulting
from the COLI program. The amount of the tax reduction exceeds the
aforementioned net COLI expenses included in interest and other expenses.
First Three Quarters 1995 vs. 1994
For the nine months ended September 30, 1995, revenue increased by 6.6% while
income from operations fell by 12.3%. Of the $13,454,000 increase in total
revenue, revenue generated by the company-operated, full-truckload fleet
increased by $7,689,000, and full-truckload revenue generated by owner-
operator provided equipment rose by $3,631,000, or 13.2%. LTL revenue
decreased by $239,000 and non-freight revenue increased by $2,371,000.
Insurance and claims expense, as a percentage of freight revenue, was 5.7%
during the first three quarters of 1995 as compared to 5.2% during the first
three quarters of 1994. Partially because the company carries significant
deductibles under its policies of liability insurance, premiums paid to
insurance companies do not significantly contribute to overall insurance
costs. Claims against the company for over-the-road accidents are the primary
component of insurance and claims expense and these expenses tend to vary in
relation to miles traveled. During 1995, the increased magnitude of
potentially adverse claims has also impacted the company's operating results.
The provision for income tax decreased from 32.9% of 1994's first three
quarters' pre-tax income to 30.1% for 1995 (see above discussion of the third
quarter effective tax rate). First three quarters' 1995 net income fell by
14.2% to $7,697,000. Due primarily to the previously discussed decline in per-
truck utilization and weakened freight rates and to an increase in insurance
costs.
LIQUIDITY AND CAPITAL RESOURCES
The company continues to maintain a strong financial structure with a good
working capital position and strong capital resources. At September 30, 1995,
working capital was $29.5 million as compared to $25.6 million at December 31,
1994.
During the three quarters of 1995, net cash provided by operating activities
was $12,548,000, as compared to cash provided by operating activities of
$9,508,000 in the same period of 1994. The increased generation of cash was
related primarily to improved collections of accounts receivable and decreased
federal income tax payments.
As of September 30, 1995, the unused portion of the company's $50,000,000
revolving credit facility totaled approximately $37,000,000. This
availability was approximately $32,000,000 at December 31, 1994.
<PAGE 11>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1995.
<PAGE 12>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
FROZEN FOOD EXPRESS INDUSTRIES, INC.
------------------------------------
(Registrant)
November 13, 1995 By: /s/Stoney M. Stubbs, Jr.
------------------------
Stoney M. Stubbs, Jr.
Chairman of the Board
November 13, 1995 By: /s/Burl G. Cott
------------------------
Burl G. Cott
Senior Vice President
Principal Financial and Accounting Officer
Officer
<PAGE 13>