UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period ended June 30, 1996
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 August 1, 1996, 16,507,041 shares of the Registrant's Common Stock, $1.50
par value, were outstanding.
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item l. Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 1996 and December 31, 1995 2
Consolidated Statements of Income -
Three and six months ended June 30, 1996 and 1995 3
Consolidated Condensed Statements of Cash Flows -
Six months ended June 30, 1996 and 1995 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Exhibit 27.1 - Financial Data Schedule 11
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FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
June 30, Dec. 31,
1996 1995
-------- --------
ASSETS
Current assets
Cash $ 4,232 $ 7,480
Accounts receivable, net 40,925 37,093
Inventories 8,504 8,221
Tires 5,076 5,217
Other current assets 6,234 3,636
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Total current assets 64,971 61,647
Property and equipment, net 48,372 52,430
Other assets 14,610 9,585
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$127,953 $123,662
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 12,635 $ 17,529
Accrued claims liabilities 7,521 8,401
Accrued payroll 5,779 4,679
Other 6,971 6,014
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Total current liabilities 32,906 36,623
Long-term debt 5,000 --
Other and deferred credits 10,976 12,018
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Total liabilities and deferred credits 48,882 48,641
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Shareholders' equity
Common stock 25,921 25,921
Paid-in capital 2,737 1,992
Retained earnings 53,949 50,830
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82,607 78,743
Less - Treasury stock 3,536 3,722
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Total shareholders' equity 79,071 75,021
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$127,953 $123,662
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See accompanying notes.
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FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per-share amounts)
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
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1996 1995 1996 1995
------- ------- -------- --------
Revenue
Freight revenue $72,662 $66,926 $140,471 $128,968
Non-freight revenue 6,747 6,911 13,111 11,847
------ ------ ------- -------
79,409 73,837 153,582 140,815
------ ------ ------- -------
Costs and expenses
Freight operating expenses
Salaries, wages and related expenses 18,273 16,566 35,500 32,924
Purchased transportation 17,775 14,457 33,527 27,407
Supplies and expenses 19,375 17,968 38,565 35,218
Revenue equipment rent 5,357 4,457 10,193 8,710
Communications and utilities 917 760 1,784 1,657
Insurance and claims 2,910 3,329 6,338 6,591
Depreciation 2,229 2,640 4,740 5,332
Operating taxes and licenses 1,277 1,271 2,558 2,504
Gain on sale of equipment (317) (305) (485) (468)
Miscellaneous expense 712 585 1,356 1,202
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68,508 61,728 134,076 121,077
Non-freight costs and operating expenses 6,330 6,043 12,592 10,699
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74,838 67,771 146,668 131,776
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Income from operations 4,571 6,066 6,914 9,039
Interest and other expense (921) (600) (1,503) (980)
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Income before income tax 3,650 5,466 5,411 8,059
Provision for income tax 896 1,657 1,307 2,464
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Net income $ 2,754 $ 3,809 $ 4,104 $ 5,595
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Net income per share of common stock
Primary and fully diluted $ .16 $ .23 $ .24 $ .34
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Weighted average fully diluted shares 16,840 16,489 16,801 16,484
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See accompanying notes.
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FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
For the Six
Months Ended June 30,
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1996 1995
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Net cash provided by operating activities $ 478 $ 5,645
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Cash flows from investing activities
Business dispositions 250 1,925
Expenditures for property and equipment (3,373) (6,959)
Proceeds from sale of property and equipment 944 889
Company owned life insurance and other (5,987) (4,471)
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Net cash used in investing activities (8,166) (8,616)
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Cash flows from financing activities
Borrowings under revolving credit agreement 20,000 26,000
Payments against revolving credit agreement (15,000) (22,000)
Dividends paid (985) (965)
Net treasury stock activity 425 677
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Net cash provided by (used in) financing activities 4,440 3,712
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Net increase in cash and cash equivalents (3,248) 741
Cash and cash equivalents at beginning of year 7,480 4,381
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Cash and cash equivalents at end of quarter $ 4,232 $ 5,122
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See accompanying notes.
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FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
June 30, 1996 and 1995
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include Frozen Food Express Industries,
Inc. (FFEX) and its subsidiary companies (the company), all of which are
wholly owned. All significant intercompany accounts and transactions have
been eliminated in consolidation. The financial statements included herein
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and have not been audited or reviewed by independent
public accountants. In the opinion of management, all adjustments (which
consisted only of normal recurring accruals) necessary to present fairly the
financial position and results of operations have been made. Pursuant to SEC
rules and regulations, certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from these statements
unless significant changes have taken place since the end of the most recent
fiscal year. FFEX believes that the disclosures contained herein, when read
in conjunction with the financial statements and notes included, or
incorporated by reference, in FFEX's Form 10-K filed with the SEC on March 29,
1996, are adequate to make the information presented not misleading. It is
suggested, therefore, that these statements be read in conjunction with the
statements and notes (included, or incorporated by reference), in the
aforementioned report on Form 10-K.
2. FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH
During the six months ended June 30, 1996 and 1995, the company funded
contributions to its Employee Savings Plan by transferring 46,958 and 40,975
shares, respectively, of treasury stock to the Plan trustee. The fair market
value of the transferred shares was approximately $506,000 for 1996 and
approximately $484,000 for 1995.
3. SHAREHOLDERS EQUITY
As of June 30, 1996 and 1995, respectively, there were 16,482,383 and
16,103,001 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The table sets forth, as a percentage of freight revenue, certain major
operating expenses for the three- and six-month periods ended June 30, 1996 and
1995.
Three Months Six Months
Ended June 30, Ended June 30,
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1996 1995 1996 1995
----- ----- ----- -----
Salaries, wages and related expenses 25.1% 24.8% 25.3% 25.5%
Purchased transportation 24.5 21.6 23.9 21.3
Supplies and expenses 26.7 26.8 27.5 27.3
Revenue equipment rent 7.4 6.7 7.3 6.8
Insurance and claims 4.0 5.0 4.5 5.1
Depreciation 3.1 3.9 3.4 4.1
Other 3.5 3.4 3.5 3.8
---- ---- ---- ----
Total freight operating expenses 94.3% 92.2% 95.4% 93.9%
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<TABLE/>
SECOND QUARTER OF 1996 VS. 1995
During the second quarter of 1996, revenue increased by 7.5% to $79,409,000
with freight revenue up $5.7 million or 8.6% and non-freight revenue down about
2.3%. Less-than-truckload (LTL) revenue was 7% higher while full-truckload
revenue increased by 9.4% as compared to the same period of 1995.
An increased number of shipments transported and the initiation of fuel
adjustment charges combined to increase LTL revenue while the increase in full-
truckload revenue resulted primarily from fuel adjustment charges and an 11%
increase in the number of shipments transported partially offset by a decline
of about 2.4% in average length of haul.
During the second quarter of 1996 available trucking capacity exceeded the
demand for motor carrier transportation services. This industry-wide
oversupply of trucks decreased equipment utilization and productivity and
placed downward pressure on full-truckload freight rates. In addition, a rise
in diesel fuel prices beginning in the 1996 first quarter increased the
company's per-mile fuel costs by about 12% over 1995's second quarter.
The higher fuel costs, which were only partially recovered through fuel
adjustment charges, and the oversupply of trucks were the primary factors which
adversely impacted operating results during the 1996 second quarter as net
income declined by $1,055,000 or 28% from the all time quarterly record set
during the same quarter of 1995 despite an increase in revenue of 7.5%
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The number of tractors in the fleet of company-operated, full-truckload
equipment rose from approximately 1,060 at the beginning of 1996 to about 1,090
by the end of the quarter, while the number of full-truckload tractors provided
by owner-operators increased by about 30 units to a total of about 435 by
quarter end.
Full-truckload activities, which contributed 63% and 67% of freight revenue
during the second quarter of 1996 and 1995, respectively, are conducted
primarily with company-operated equipment, while LTL activities are conducted
primarily with equipment provided by owner-operators. The change in the
percentage of freight revenue derived from full-truckload shipments, as well as
fluctuations in the amount of total freight handled on company-operated versus
owner-operator provided equipment, impacted the percent of freight revenue
absorbed by the various categories of operating expenses between the two
quarters.
During both the second quarters of 1996 and 1995, the percentage of freight
revenue absorbed by salaries, wages and related expenses was approximately 25%,
while the portion of freight revenue absorbed by purchased transportation,
which consists principally of payment to owner-operators, rose from 21.6% in
1995 to 24.5% in 1996. These changes resulted primarily from more rapid growth
in the quantity of tractors provided by owner-operators as compared to the rate
of growth in the company-operated, full truckload fleet.
Revenue equipment rent, which is primarily related to the company-operated,
full-truckload fleet, rose from 6.7% to 7.4% of freight revenue while
depreciation expense declined from 3.9% to 3.1% of freight revenue. These
changes resulted primarily from the replacement of owned tractors and trailers
with new equipment financed with operating leases.
Interest and other expense rose from $600,000 to $921,000 between the two
quarters. This increase is related to net expenses associated with the company-
owned life insurance (COLI) program, partially offset by lower interest expense
associated with reduced borrowings under the company's line of credit.
The provision for income tax was 24.5% of pre-tax income for the second quarter
of 1996, as compared to 30.3% for 1995. This reduced effective income tax rate
is primarily attributable to 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 HALF 1996 VS. 1995
For the six months ended June 30,1996, revenue increased by 9.1%, but income
from operations fell by 23.5%. Of the $12,767,000 increase in total revenue,
revenue generated by the company-operated, full-truckload fleet increased by
$2,114,000, and full-truckload revenue generated by owner-operator provided
equipment rose by $6,882,000, or 34.2%. LTL revenue increased by $2,507,000,
and non-freight revenue increased by $1,264,000.
Supplies and expenses, which include the cost of fuel consumed by the company-
operated fleet rose to 27.5% of freight revenue during the first half of 1996
as compared to 27.3% during 1995's first six months. During early 1996, fuel
prices rose rapidly and have not appreciably relented. During the first six
months of 1996, the company's per-mile fuel cost was 12% above that of the
first half of 1995. The effect of the fuel price increase was mitigated in
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part by the more rapid increase in the fleet of tractors provided by owner-
operators, who directly incur the cost of fuel consumed by their tractors and
in part by fuel adjustment charges which were added to the company's freight
rates during a portion of the second quarter.
Insurance and claims expense, as a percentage of freight revenue, was 4.5%
during the first half of 1996 as compared to 5.1% during the first half of
1995. 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.
The provision for income tax decreased from 30.6% of 1995's first-half pre-tax
income to 24.2% for 1996 (see above discussion of the second quarter effective
tax rate which is also applicable to the first half comparisons). First half
1996 net income fell by 26.6% to $4,104,000.
LIQUIDITY AND CAPITAL RESOURCES
The company continues to maintain a strong financial structure with a good
working capital position and strong capital resources. At June 30, 1996,
working capital was $32.1 million as compared to $25.0 million at December 31,
1995.
During the first half of 1996, net cash provided by operating activities was
$478,000, as compared to cash provided by operating activities of $5,645,000 in
the same period of 1995. The decreased generation of cash was related
primarily to increased working capital requirements.
As of June 30, 1996, the unused portion of the company's $50,000,000 revolving
credit facility totaled approximately $38,000,000. This availability was
approximately $43,000,000 at December 31, 1995.
-8-
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
The Annual Meeting of Shareholders of the company was held on April 25, 1996.
At the meeting, the following persons were elected as directors of the company:
Stoney M. Stubbs, Jr. T. Michael O'Connor
Brian R. Blackmarr Edgar O. Weller
Leroy Hallman Charles G. Robertson
W. Grogan Lord Burl G. Cott
The above listed individuals comprise all directors of the company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
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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.
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(Registrant)
August 13, 1996 By: /s/Stoney M. Stubbs, Jr.
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Stoney M. Stubbs, Jr.
Chairman of the Board
August 13, 1996 By: /s/Burl G. Cott
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Burl G. Cott
Senior Vice President
Principal Financial and Accounting Officer
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