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, 1997
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 on its charter)
Texas 75-1301831
______________________________________________________________________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1145 Empire Central Place Dallas, Texas 75247-4309
______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(2l4) 630-8090
______________________________________________________________________________
(Registrant's telephone number, including area code)
None
______________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
[X] Yes [ ] No
As of November 7, 1997, 16,843,538 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 -
September 30, 1997 and December 31, 1996 2
Consolidated Statements of Income -
Three and nine months ended September 30, 1997 3
and 1996
Consolidated Condensed Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Exhibit 27.1 - Financial Data Schedule 12
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
Sept. 30, Dec. 31,
1997 1996
--------- --------
ASSETS
Current assets
Cash $ 17,291 $ 6,670
Accounts receivable, net 39,839 39,464
Inventories 9,307 8,440
Tires on equipment in use 4,681 5,517
Other current assets 2,585 5,395
------- -------
Total current assets 73,703 65,486
Property and equipment, net 54,497 51,880
Other assets 11,383 12,188
------- -------
$139,583 $129,554
======= =======
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Trade accounts payable $ 11,441 $ 13,997
Accrued claims liabilities 6,761 6,887
Accrued payroll 4,350 4,950
Other 9,221 5,490
------- -------
Total current liabilities 31,773 31,324
Long-term debt -- --
Other and deferred credits 16,912 14,277
------- -------
Total liabilities and deferred credits 48,685 45,601
------- -------
Shareholders' equity
Common stock 25,921 25,921
Paid-in capital 4,494 3,462
Retained earnings 62,967 57,386
------- -------
93,382 86,769
Less - Treasury stock 2,484 2,816
------- -------
Total shareholders' equity 90,898 83,953
------- -------
$139,583 $129,554
======= =======
See accompanying notes.
-2-
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per-share amounts)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1997 1996 1997 1996
------- ------- -------- --------
Revenue
Freight revenue $73,367 $74,802 $213,210 $215,273
Non-freight revenue 9,614 6,022 23,713 19,133
------ ------ ------- -------
82,981 80,824 236,923 234,406
------ ------ ------- -------
Costs and Expenses
Freight operating expenses
Salaries, wages and related expenses 19,174 18,150 53,861 53,650
Purchased transportation 16,757 18,212 49,346 51,739
Supplies and expenses 20,013 20,425 58,958 58,990
Revenue equipment rent 5,633 5,391 16,751 15,584
Communications and utilities 847 946 2,514 2,730
Insurance and claims 2,793 3,480 8,561 9,818
Depreciation 2,415 2,446 7,323 7,186
Operating taxes and licenses 1,240 1,198 3,617 3,756
Gain on sale of equipment (214) (283) (879) (768)
Miscellaneous expense 914 707 2,643 2,063
------ ------ ------- -------
69,572 70,672 202,695 204,748
Non-freight costs and operating expenses 9,055 5,839 22,812 18,431
------ ------ ------- -------
78,627 76,511 225,507 223,179
------ ------ ------- -------
Income from operations 4,354 4,313 11,416 11,227
Interest and other expense 144 928 1,283 2,431
------ ------ ------- -------
Income before income tax 4,210 3,385 10,133 8,796
Provision for income tax 1,266 931 3,046 2,238
------ ------ ------- -------
Net income $ 2,944 $ 2,454 $ 7,087 $ 6,558
====== ====== ======= =======
Net income per share of common stock
Primary and fully diluted $ .17 $ .15 $ .42 $ .39
====== ====== ======= =======
Weighted average fully diluted shares 17,083 16,892 17,039 16,803
====== ====== ======= =======
See accompanying notes.
-3-
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
For the Nine
Months Ended Sept. 30,
----------------------
1997 1996
-------- --------
Net cash provided by operating activities $ 22,495 $ 7,685
------- -------
Cash flows from investing activities
Business dispositions -- 375
Expenditures for property and equipment (12,932) (8,867)
Proceeds from sale of property and equipment 4,826 3,234
Company owned life insurance and other (2,258) (6,192)
------- -------
Net cash used in investing activities (10,364) (11,450)
------- -------
Cash flows from financing activities
Borrowings under revolving credit agreement 19,000 25,000
Payments against revolving credit agreement (19,000) (25,000)
Dividends paid (1,506) (1,479)
Net treasury stock activity (4) 540
------- -------
Net cash used in financing activities (1,510) (939)
------- -------
Net increase (decrease) in cash and cash equivalents 10,621 (4,704)
Cash and cash equivalents at beginning of year 6,670 7,480
------- -------
Cash and cash equivalents at end of quarter $ 17,291 $ 2,776
======= =======
See accompanying notes.
-4-
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
September 30, 1997 and 1996
(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 27,
1997, 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, 1997 and 1996, the company funded
contributions to its Employee Savings Plan by transferring 152,233 and 110,930
shares, respectively, of treasury stock to the Plan trustee. The fair market
value of the transferred shares was approximately $1,368,000 for 1997 and
$1,157,000 for 1996.
3. SHAREHOLDERS' EQUITY
As of September 30, 1997 and December 31, 1996, respectively, there were
16,815,000 and 16,642,000 shares of stock outstanding. During both of the
quarters ended September 30, 1997 and 1996, the company declared dividends on
the common stock of three cents per share.
4. COMMITMENTS AND CONTINGENCIES
The company has accrued for costs related to public liability and work-related
injury claims, some of which involve litigation. The aggregate amount of
these claims is significant. In the opinion of management, these actions can
be successfully defended or resolved, and any additional costs incurred over
amounts accrued will not have a material adverse effect on the company's
financial position or results of operations.
-5-
5. EARNINGS PER SHARE
The company is required to adopt Financial Accounting Standard No. 128,
"Earnings Per Share" (FAS 128) in its December 31, 1997, financial statements.
FAS 128 requires the replacement of "primary" earnings per share with "basic"
earnings per share and "fully diluted" earnings per share with "diluted"
earnings per share. Had FAS 128 been in effect for the quarter and nine months
ended September 30, 1997, reported earnings per share would have been as
follows:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
Basic $.18 $.15 $.42 $.40
Diluted $.17 $.15 $.42 $.39
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The table sets forth, as a percentage of freight revenue, certain major
operating expenses for the three- and nine-month periods ended September 30,
1997 and 1996.
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
----------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
Salaries, wages and related expense 26.1% 24.3% 25.3% 24.9%
Purchased transportation 22.8 24.3 23.1 24.0
Supplies and expenses 27.3 27.3 27.7 27.4
Revenue equipment rent 7.7 7.2 7.9 7.2
Insurance and claims 3.8 4.7 4.0 4.6
Depreciation 3.3 3.3 3.4 3.3
Other 3.8 3.4 3.6 3.7
---- ----- ---- -----
Total freight operating expenses 94.8% 94.5% 95.0% 95.1%
==== ===== ==== =====
THIRD QUARTER OF 1997 VS. 1996
During the third quarter of 1997, revenue increased by 2.7% to $82,981,000 with
freight revenue down $1.4 million or 1.9% and non-freight revenue up $3.6
million or 59.6%. Less-than-truckload (LTL) revenue was 2.8% higher while full-
truckload revenue declined by 4.2% as compared to the same quarter of 1996.
Increases in revenue per shipment and revenue per hundredweight contributed to
the increase in LTL revenue. The decrease in full-truckload revenue resulted
primarily from a 3.4% decrease in the number of shipments transported. This
decrease is directly related to a decline in the number of trucks in the
company's full-truckload fleet as it responded to the impact of an industry-
wide oversupply of trucks.
During 1995, 1996 and much of the 1997 first half, available refrigerated
trucking capacity exceeded the demand for refrigerated full-truckload
transportation services. This oversupply of trucks decreased utilization and
productivity, placed downward pressure on full-truckload freight rates and
contributed to a decline in number of tractors in the company's full-truckload
fleet. By the beginning of the 1997 third quarter, the company's full-truckload
fleet had decreased by about 6% from the number of trucks in service at the end
of the 1996 third quarter. Most of this reduction came in the owner-operator
fleet which had declined by almost 75 trucks.
-7-
By about midway through the 1997 second quarter the oversupply of trucks had
abated and the company began experiencing increased demand for its full-
truckload services. The strong demand continued throughout the third quarter
and the company increased its efforts to add capacity to its full-truckload
fleet. These efforts were only partially successful as thirteen owner-operator
trucks were added during the quarter. However, due to an industry-wide driver
shortage, no company-operated trucks were added to the fleet during the
quarter.
Full-truckload activities, which contributed 65.5% and 67.1% of freight revenue
during the third quarters of 1997 and 1996, respectively, are conducted
primarily with company-operated equipment, while LTL activities are conducted
primarily with equipment provided by owner-operators. This decrease in the
percentage of total freight revenue derived from full-truckload shipments, as
well as the change in mix of 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 the third quarters of 1997 and 1996, the percentage of freight revenue
absorbed by salaries, wages and related expenses was 26.1% and 24.3%,
respectively while the portion of freight revenue absorbed by purchased
transportation, which consists principally of payments to owner-operators,
decreased to 22.8% in 1997 from 24.3% in 1996. These changes resulted
primarily from the reduced quantity of tractors provided by independent
contractors during the 1997 quarter.
Insurance and claims expense, as a percentage of freight revenue, was 3.8%
during the third quarter of 1996 as compared to 4.7% during the third quarter
of 1996. 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.
Interest and other expense fell from $928,000 to $144,000 between the two
quarters. This decline is primarily due to significant reductions in pre-tax
expenses associated with the ongoing phase-out of a company-owned life
insurance (COLI) program.
The provision for income tax was 30.1% of pre-tax income for the third quarter
of 1997, as compared to 27.5% for the 1996 quarter. This higher effective
income tax rate is primarily attributable to the reduced level of non-taxable
book income and lower tax deductible interest costs associated with the phase-
out of the company's COLI program. The combination of non-taxable COLI income
and tax-deductible COLI interest expense has, since 1994, negatively impacted
pre-tax income, but the tax savings have more than offset net pre-tax expense,
resulting in increased net income. During 1996, the President signed
legislation which, effective January 1, 1996, limits the deductibility of COLI-
related interest. In light of these developments, management is currently
implementing options available to discontinue the COLI program.
FIRST THREE QUARTERS 1997 VS. 1996
For the nine months ended September 30, 1997, revenue fell by 1.0% while income
from operations rose by 1.7%. Revenue generated by the company-operated, full-
truckload fleet increased by $1,392,000 or 1.3%, and full-truckload revenue
-8-
generated by owner-operator provided equipment declined by $4,250,000, or
10.3%. LTL revenue increased by $795,000 and non-freight revenue increased by
$4,580,000.
Full-truckload activities contributed 67.3% and 68.0% of freight revenue during
the first three quarters of 1997 and 1996. This decrease in the percentage of
total freight revenue derived from full-truckload shipments, as well as the
change in mix of company-operated versus owner-operator-provided equipment,
impacted the percent of freight revenue absorbed by the various categories of
operating expenses between the two periods.
During the first nine months of 1997, revenue equipment rent, which is
primarily related to the company-operated, full-truckload fleet as a percentage
of freight revenue was 7.9%, as compared to 7.2% during 1996. Depreciation
expense, which is related to the company's operating fleets as well as other
types of property, rose from 3.3% to 3.4% of freight revenue. Increased
equipment rental expenses resulted primarily from increases in the proportion
of tractors and trailers which are leased pursuant to long-term operating
leases. The 1997 increase in depreciation expense is primarily due to the
implementation of satellite communications links in the company-operated, full-
truckload fleet.
Insurance and claims expense, as a percentage of freight revenue, was 4.0%
during the first nine months of 1997 as compared to 4.6% during the first nine
months of 1996. 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 increased from 25.4% of 1996's first three
quarters' pre-tax income to 30.0% for 1997 (see above discussion of the third
quarter effective tax rate). First three quarters' 1997 net income increased by
8.1% to $7,087,000.
LIQUIDITY AND CAPITAL RESOURCES
The company continues to maintain a strong financial structure with a good
working capital position and strong capital resources. At September 30, 1997,
working capital was $41.9 million as compared to $34.2 million at December 31,
1996.
During the first three quarters of 1997, net cash provided by operating
activities was $22,495,000, as compared to $7,685,000 in the same period of
1996. The increased generation of cash was related primarily to improved
operating results, the conversion to cash of certain types of current assets as
well as increased non-cash expenses which are involved in net income.
As of September 30, 1997 and December 31, 1996, the unused portion of the
company's $50,000,000 revolving credit facility totaled approximately
$45,000,000.
-9-
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, 1997.
-10-
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, 1997 By: /s/Stoney M. Stubbs, Jr.
------------------------------------------
Stoney M. Stubbs, Jr.
Chairman of the Board
November 13, 1997 By: /s/Burl G. Cott
------------------------------------------
Burl G. Cott
Senior Vice President
Principal Financial and Accounting Officer
-11-