<PAGE>
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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.
------------------------------------
(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:
Title of each class Name of each exchange on which registered
Common Stock $1.50 Par Value Nasdaq Stock Market
- -------------------------------- ----------------------------------------
Securities registered pursuant to section 12(g) of the Act:
None
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 filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
As of March 08, 1996, 16,394,484 shares of the registrant's common stock,
$l.50 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The sections "Outstanding Capital Stock; Principal Shareholders",
"Nominees for Directors", "Executive Compensation", and "Transactions with
Management" of the Proxy Statement for the Annual Meeting of Shareholders to
be held April 25, 1996, are incorporated by reference into Part III of this
Form 10-K.
Portions of the Annual Report to Shareholders for the year ended December
31, 1995, are incorporated by reference into Parts I and II of this Form 10-K.
<PAGE>
FROZEN FOOD EXPRESS INDUSTRIES, INC.
Form 10-K
For the Fiscal Year Ended December 31, 1995
PART I
ITEM 1. BUSINESS.
Frozen Food Express Industries, Inc. (the company) is the largest
temperature-controlled trucking company in North America. References to the
company herein, unless the context requires otherwise, include Frozen Food
Express Industries, Inc., and its subsidiaries, all of which are wholly owned.
In its 49 years of operation, the company has not experienced an unprofitable
year. The company is also the only nationwide, full-service, temperature-
controlled trucking company in the United States offering all of the following
services:
- LESS-THAN-TRUCKLOAD: A load, typically consisting of 18 to 30
shipments, weighing as little as 50 pounds or as much as 20,000 pounds, from
multiple shippers destined for various deliveries across the United States,
Canada and Mexico. The company's temperature-controlled "LTL" operation is
the largest in the United States and the only one offering regularly scheduled
nationwide LTL service. The company is the only major LTL carrier which uses
multi-compartment refrigerated trailers to carry goods requiring different
temperatures on one trailer, enhancing customer service and operating
efficiencies.
- FULL-TRUCKLOAD: A load, typically weighing between 20,000 and 40,000
pounds and usually from a single shipper, filling the trailer. Normally, a
full-truckload has a single destination, although the company is also able to
provide multiple deliveries. Management believes the company is one of the
five largest temperature-controlled, full-truckload carriers in North America.
- DISTRIBUTION: Distribution generally involves the delivery of cargo
within a 50-to-75-mile radius of a company terminal. Full-truckload or large
LTL loads are divided into smaller shipments at a terminal and delivered by
distribution trucks to "end users," such as grocery stores, food brokers or
drug stores, typically within a single metropolitan area.
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Following is a summary of certain financial and statistical data for the
years ended December 31, 1991 through 1995 (LTL data also includes
distribution shipments):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue*
Full-truckload $180,598 $163,988 $129,549 $109,178 $103,582
Less-than-truckload 87,783 88,328 80,965 72,864 65,068
Other 23,964 22,304 16,875 12,846 8,345
------- ------- ------- ------- -------
Total $292,345 $274,620 $227,389 $194,888 $176,995
======= ======= ======= ======= =======
Operating ratio 94.7% 93.0% 93.2% 94.0% 94.4%
Full-truckload
Loaded miles* 135,469 121,106 97,753 83,247 80,663
Loads* 142.9 128.1 106.6 92.9 85.5
Revenue per shipment 1,264 1,280 1,215 1,175 1,211
Loaded miles per load 948 945 917 896 943
Less-than-truckload
Hundredweight* 8,296 8,670 8,116 6,848 6,211
Revenue per hundredweight 10.58 10.19 9.98 10.64 10.48
Shipments* 292.1 305.2 292.0 253.3 231.3
Revenue per shipment 301 289 277 288 281
* In thousands
</TABLE>
Freight revenue, from motor carrier operations, has accounted for more
than 90% of total operating revenue during each of the last five years. The
percent of total freight revenue contributed by full-truckload operations and
by LTL operations during the past five years is summarized below:
<TABLE>
<CAPTION>
Percent of Total Freight Revenue
-------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Full-truckload 67% 65% 62% 60% 61%
LTL and distribution 33 35 38 40 39
--- --- --- --- ---
Total 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
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The company offers nationwide "one call does all" services to about 7,000
customers, none of which accounted for more than 10% of total revenue during
any of the past five years.
During 1994, the company commenced significant expansion of
transportation services for customers shipping products to and from Mexico and
Canada. Canadian operations are conducted with equipment operating directly
under authority of the company. The company does not presently operate its
tractors in Mexico. To provide service in Mexico, the company has
arrangements with a railroad and Mexico-based motor carriers. Pursuant to
these arrangements, the company interchanges its trailers with the Mexico
freight service provider for movement within Mexico. During 1994,
approximately 6% of freight revenue was derived from international activities,
for which the company collects primarily United States currency, principally
from United States-based customers. During 1995, continuing efforts to expand
international activities were negatively impacted by the late 1994 devaluation
of the Mexican peso, which significantly reduced the amount of United States
freight destined by all motor carriers to Mexico.
TEMPERATURE-SENSITIVE MARKET
More than 80% of the cargo transported by the company is temperature-
sensitive. Examples are meat, poultry, seafood, processed foods, candy and
other confectioneries, dairy products, pharmaceuticals, medical supplies,
fruits and vegetables, cosmetics, film, and heat-sensitive aerospace
manufacturing materials.
The common and contract hauling of temperature-sensitive cargo is highly
fragmented, comprised primarily of carriers generating less than $50 million
in annual revenue. Industry publications report that only 10 temperature-
controlled carriers generated $100 million or more of revenue in 1994. In
addition, many major food companies, food distribution firms and grocery
chains continue to transport their products with their own fleets ("private
carriage").
Increasingly, large shippers are seeking to lower their cost structures
by reducing their private carriage capabilities and turning to common and
contract carriers ("core carriers") for their transportation needs. As these
core carriers continue to improve their service capabilities through such
means as satellite tracking and communications systems and electronic data
interchange, shippers are expected to reduce their private carriage fleets in
favor of common or contract carriage. Management believes that the temperature-
controlled private carriage segment accounts for approximately 45% of the
total temperature-controlled segment of the motor carrier industry.
GROWTH STRATEGY
The company has pursued a growth strategy that combines both internal
growth and selected acquisitions. Since 1983, the company has purchased
certain operating assets of several trucking companies. Among the purchased
operations have been four LTL companies, four full-truckload companies and the
LTL and distribution assets of a regional company offering temperature-
controlled service in the Southeast.
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During 1987-1988 the company began to commit its own equipment to the
temperature-controlled, full-truckload segment. From the beginning of 1988
through 1995, the company-operated, full-truckload tractor fleet increased
from 22 units to approximately 1,060 units. Recently, the company has placed
renewed emphasis on expanding its fleet of independent contractor ("owner-
operator") provided full-truckload tractors. As of December 31, 1995, the
company's full-truckload fleet included 407 tractors provided by owner-
operators. From 1991 through 1995, revenue from full-truckload operations
increased from 61% to 67% of total freight revenue.
The management of a number of factors is critical to a trucking company's
growth and profitability, including:
- DRIVERS: Driver shortages and high turnover can reduce revenue and
increase operating expenses through reduced operating efficiency and higher
recruiting costs. During the first half of 1992, the company experienced a
driver shortage that at various times kept as many as 40 tractors off the
road. The company's operations were not significantly affected by driver
shortages during 1993, 1994 or 1995. The company maintains an active driver
recruiting program and bases its employee-driver incentive pay package on
longevity, safety, fuel efficiency and other operational goals. In addition,
the company has continued to intensify its recruitment of truck driving school
graduates. These "student-drivers" train with an experienced instructor-
driver by riding as "second driver" and are paid student-driver wages by the
company. They are assigned a tractor only after they have been qualified to
become single drivers. At the end of 1995, the company had drivers for all of
its tractors and had about 100 student drivers undergoing over-the-road
training.
- OWNER-OPERATORS: The company actively seeks to expand its fleet with
equipment provided by owner-operators. The owner-operator provides the
tractor and driver to pull the company's loaded trailer. The owner-operator
pays the drivers' wages, fuel, equipment-related expenses and other
transportation expenses and receives a percentage of the revenue from each
load. At the end of 1995, the company had contracts for 407 owner-operator
tractors in its full-truckload divisions and 260 in its LTL operations.
The percent of full-truckload and LTL revenue generated from shipments
transported by owner-operators during each of the last five years is
summarized below:
<TABLE>
<CAPTION>
Percent of Revenue from Shipments
Transported by Owner-Operators
--------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Full-truckload revenue 24% 22% 23% 26% 25%
Less-than-truckload revenue 68% 65% 67% 68% 70%
</TABLE>
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- FUEL: Fuel costs (including fuel taxes) have been relatively stable
during the past three years. During previous periods in which fuel prices
dramatically increased, the company successfully instituted "fuel adjustment"
charges which enabled the company to pass on most fuel price increases to its
customers. However, the company's experience is that gradual upward trends in
fuel prices are difficult to recover through fuel adjustment charges. Instead,
gradually increasing fuel costs must generally be recovered through freight
rate increases that, for competitive reasons, may be difficult to obtain.
Average per-gallon fuel costs paid by the company declined by 1% during 1994
and were virtually unchanged during 1995. Management's goal is to improve the
fuel efficiency of the company's tractors through a combination of purchasing
modern equipment with electronically controlled engines and improved vehicular
aerodynamics, fuel purchasing programs and employee-driver bonuses based upon
fuel efficiency.
- RISK MANAGEMENT: Liability for accidents is a significant concern in
the trucking industry. Exposure can be large and occurrences unpredictable.
The cost and human impact of work-related injury claims are also significant
concerns. To address these concerns, the company maintains a risk management
program designed to minimize the frequency and severity of accidents and to
manage insurance coverage and claims to achieve the least possible cost. As
part of the program, the company carries insurance policies under which it
retains liability for up to $1 million on each property, casualty and general
liability claim, substantially all individual work-related injury claims and
$100,000 on each cargo claim. Because of this retained liability, a series of
very serious traffic accidents, work-related injury claims or unfavorable
developments in or outcomes of existing claims could materially adversely
affect the company's operating results. When claims or potential claims
arise, the company establishes reserves. As events related to claims evolve,
the corresponding reserves are increased or decreased. The company believes
that it maintains an effective risk management program and that its reserves
are adequate.
A major component of the company's risk management program is the
enhancement of safety in its operations. The company has a safety department
which conducts programs which include driver education and over-the-road
observation. All drivers must meet or exceed specific guidelines relating to
safety records, driving experience and personal standards, including a
physical examination and mandatory drug testing. Drivers must also complete
the company's training program, which includes tests for motor vehicle safety
and over-the-road driving, and they must have a current Commercial Drivers
License before being assigned a tractor. Student drivers undergo a more
extensive training program as a second driver with an experienced instructor-
driver. In accordance with federal regulations, the company conducts drug
tests on all driver candidates and maintains an ongoing program of random
testing for use of such substances. Persons who test positive for drugs are
turned away and drivers who test positive for such substances are immediately
disqualified from driving.
OPERATING STRATEGY
The company's "one call does all" full-service capability, combined with
the service-oriented corporate culture it gained from its many years as a
successful LTL carrier, enables it to compete primarily on the basis of
service, rather than solely on price. Management also believes that major
shippers will require increasing levels of service and that they will rely on
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their core carriers to provide transportation and logistics solutions, such as
providing the shipper real-time information about the movement and condition
of any shipment.
The company believes that it is well positioned to take advantage of the
evolving market for solutions to shippers' needs. In order to improve its
level of information services, the company is currently replacing its older
mainframe computer-based Management Information System (MIS) with a more
sophisticated, versatile and expandable "open system" with fully integrated
local area networks. Integrated with the new system are plans to complete the
installation of satellite tracking and communications equipment in company-
operated equipment. That equipment is currently operating on about half of the
company-operated, full-truckload fleet.
- LESS-THAN-TRUCKLOAD: Temperature-controlled LTL trucking is service
and capital intensive. LTL freight rates are higher than those for full-
truckload and are based on mileage, weight, type of commodity, space required
in the trailer, pick-up and delivery. Management believes that only one other
refrigerated LTL motor carrier competes with the company on a nationwide
basis.
Temperature-controlled LTL trucking requires a system of terminals,
capable of holding refrigerated and frozen products, located at strategic
distribution points across the United States. The company has 15 such LTL
terminals. Terminals are located in or near New York City, Philadelphia,
Atlanta, Orlando, Memphis, Nashville, Cincinnati, Chicago, Kansas City,
Dallas, Houston, Denver, Salt Lake City, Oakland, and Los Angeles. Several of
these LTL terminals also serve as full-truckload driver centers where company-
operated, full-truckload fleets are based.
Efficient information management is essential to a successful temperature-
controlled LTL operation. On a typical day, the company's LTL system handles
about 5,000 shipments - about 3,000 on the road, 1,000 being delivered and
1,000 being picked up. In 1995, the LTL operation handled about 292,000
individual shipments.
- FULL-TRUCKLOAD: Temperature-controlled, full-truckload service
requires a substantially lower capital investment for terminals and lower
costs of shipment handling and information management than that of LTL.
Pricing is based primarily on mileage, weight and type of commodity.
At the end of 1995, the company's full-truckload tractor fleet consisted
of about 1,060 tractors owned or leased by the company and about 400 tractors
contracted to the company by owner-operators, making it one of the five
largest temperature-controlled, full-truckload carriers in North America.
The company is continuing to expand its international and domestic
transportation and logistics services which involve railroad-based
"intermodal" long-haul transportation. In providing such service, the company
contracts with railroads to transport loaded full-truckload trailers on
railroad flat cars. The railroad is paid a fee for this service and the
company uses its tractors to transport the trailers to and from railroad pick-
up and drop-off points. During 1995 and 1994, approximately 5% of the
company's full-truckload shipments were transported in this manner. By
providing intermodal transportation services, the company is able to transport
more loaded trailers (which require relatively lower capital investment) while
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engaging fewer tractors (which involve relatively higher capital investment).
As a result of the expected continued emphasis on intermodal transportation,
it is probable that the company's trailer fleet will continue to expand more
rapidly than its tractor fleet. Also contributing to the increase in the
trailer-to-tractor ratio from 1.3:1 at January 1, 1992, to 1.5:1 at yearend
1995 were continued expansion of dedicated fleet and short-haul, full-
truckload services and, in general, the more rapid expansion of the company's
full-truckload services in relation to its LTL service. Full-truckload
services generally involve the utilization of more trailers to enable tractors
to remain in service while idle trailers are being loaded and unloaded.
In addition to the LTL terminals, which also serve as full-truckload
employee-driver centers, full-truckload activities are conducted from
terminals in Dallas, Fort Worth and Laredo, Texas. Laredo, located on the
Texas-Mexico border, is the drop-off point for company trailers, which are
picked up by a Mexican trucking company for movement into Mexico's interior.
The company also maintains small centers for employee-drivers in Waco and
Amarillo, Texas; Phoenix, Arizona; and Shreveport, Louisiana.
EQUIPMENT
The company acquires premium company-operated tractors in order to help
attract and retain qualified employee-drivers, promote safe operations,
minimize maintenance and repair costs and assure dependable service to its
customers. Management believes that the higher initial investment for its
equipment is recovered through more efficient vehicle performance and improved
resale value. The company has a three-year replacement policy for its full-
truckload tractors. As a result, most repair costs are recovered through
efficient vehicle performance and manufacturers' warranties. The three-year
replacement policy also enables the company to maximize its fuel efficiency by
benefiting from technological improvements in both engine efficiency and
aerodynamics. During 1996, the company plans to replace about 500 tractors.
Management expects that the new tractors' average miles-per-gallon will
improve over that of the tractors being replaced. In order to minimize fuel
consumption, the company includes a fuel efficiency driving bonus in its
employee-driver incentive pay package.
REGULATION
The company's interstate operations are subject to regulation by the
United States Department of Transportation ("DOT"), which regulates entry into
motor carrier operation as well as certain rates and tariffs. The DOT also
regulates driver qualifications and safety and equipment standards. The
company is also subject to state public utilities commissions and similar
state regulatory agencies with respect to certain aspects of its intrastate
operations. State regulations generally involve the weight and dimensions of
equipment and safety. Effective January 1, 1995, the United States government
rescinded the authority of states to restrict intrastate operating authority
or to regulate rates and tariffs with regard to intrastate operations. The
company does not anticipate that this will significantly affect its operating
results.
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SEASONALITY
The company's full-truckload operations are somewhat affected by seasonal
changes. The early winter, late spring and summer growing seasons for fruits
and vegetables in California and Texas typically create increased demand for
trailers equipped to transport cargo requiring refrigeration. In addition,
winter driving conditions can be hazardous and impair the company's operations
from time to time in certain portions of the company's service areas. The
company's LTL operations are also impacted by the seasonality of certain
commodities. As a result, LTL shipment volume during the winter months is
normally lower than other months. Shipping volumes of LTL freight are usually
highest during July through October.
EMPLOYEES
A comparison of company's employees as of December 31, 1995 and 1994, is
as follows:
<TABLE>
<CAPTION>
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
<S> <C> <C>
Freight Operations:
Drivers and Trainees 1,614 1,394
Non-driver personnel
Full time 653 622
Part time 150 161
----- -----
Total Freight Operations 2,417 2,177
Non-freight Operations 136 111
----- -----
Total 2,553 2,288
===== =====
</TABLE>
The increase in non-driver personnel resulted primarily from the
increased use of employee-driver recruiting, safety, sales, dispatch and other
operations support personnel associated with the increased size of the
company-operated, full-truckload fleet. The increase in employee-drivers is
the result of the addition of company-operated equipment during 1995.
REFRIGERATION EQUIPMENT SALES AND SERVICE
The company, through a subsidiary, is a franchised distributor for
Carrier-Transicold brand truck and trailer refrigeration equipment. Its
primary area of sales and service responsibility is Texas. This subsidiary is
engaged in the sales, service and rental of a variety of refrigeration and air
conditioning equipment and provides refrigeration units and service for the
company's trailers. Such operations contributed 8% of the company's 1995
consolidated revenue and 11% of the consolidated operating profit (after
elimination of inter-company transactions). The company competes in its
service area with several other dealers and distributors of similar
refrigeration equipment, but is the only distributor for Carrier-Transicold
products in portions of Texas.
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OUTLOOK
Matters of a forward-looking nature discussed in this Report on Form 10-K
involve risks and uncertainties including, but not limited to, economic
conditions, demand for the company's services and industry capacity,
competitive services and pricing, operating efficiencies, new market
development, availability of labor and fuel, the regulatory and trade
environment, and other risks indicated in filings with the Securities and
Exchange Commission.
ITEM 2. PROPERTIES.
The company's corporate office, which was purchased and remodeled during
1992, and is located on 1.7 acres of land in northwestern Dallas, Texas. The
building contains 34,000 useable square feet.
The company's primary terminal and maintenance facility is located near
Dallas on approximately 60 acres of land owned by the company in Lancaster,
Texas. The buildings, which are also owned by the company, contain
approximately 100,000 square feet, of which 60,000 square feet are used for
warehousing and distribution, 14,000 square feet are devoted to offices
housing the terminal dispatch, safety and related activities and 26,000 square
feet are used for maintenance and repair facilities. The company owns
approximately 20 acres of unimproved land abutting this facility.
The company also owns a facility consisting of a terminal, offices and a
repair shop in Fort Worth, Texas. This property is used by Lisa Motor Lines,
Inc. ("Lisa"), a wholly-owned subsidiary of the company, and its divisions,
Middleton Transportation Company and Great Western Express. This facility
consists of two structures totaling 23,000 square feet on approximately seven
acres of land.
The company owns a cold storage LTL terminal located in Bridgeview,
Illinois, near Chicago. The terminal includes approximately 37,000 square
feet of office, dock and storage facilities.
The Florida terminal, which is near Orlando, is owned by the company and
consists of three buildings on approximately 15 acres of land, a dock facility
of approximately 16,000 square feet, a shop of approximately 4,000 square feet
and an office building.
The company also owns a terminal and land in Avenel, New Jersey, which is
near New York City. The building, on about five acres of land, contains
approximately 17,000 square feet.
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At December 31, 1995, the company also maintained leased terminal or
office facilities in or near the following cities:
<TABLE>
<S> <C> <C>
Amarillo, TX Nashville, TN
Atlanta, GA Norman, OK
Cincinnati, OH Oakland, CA
Denver, CO Philadelphia, PA
Houston, TX Phoenix, AZ
Kansas City, MO Salt Lake City, UT
Laredo, TX Shreveport, LA
Los Angeles, CA Waco, TX
Memphis, TN
</TABLE>
Lease terms range from one month to six years. These terminals range in
size from a small amount of office space to a terminal with office and dock
facilities totaling approximately 44,000 square feet.
The company expects that present facilities will be sufficient to support
its operations in the near term.
The following table sets forth certain information regarding revenue
equipment utilized by the company at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Age in Years
-----------------------------------------
Tractors Less than 1 1 thru 3 4 or more Total
------------- ------------- ------------- ------------
1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ----- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Company-operated 150 341 949 751 50 7 1,149 1,099
Owner-operator provided 91 25 221 134 355 346 667 505
--- --- ----- --- --- --- ----- -----
Total 241 366 1,170 885 405 353 1,816 1,604
=== === ===== === === === ===== =====
<CAPTION>
Age in Years
-----------------------------------------
Trailers Less than 1 1 thru 5 6 or more Total
------------- ------------- ------------- ------------
1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ----- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Company-provided 163 829 1,916 645 691 932 2,770 2,406
Owner-operator provided 2 1 15 11 10 9 27 21
--- --- ----- --- --- --- ----- -----
Total 165 830 1,931 656 701 941 2,797 2,427
=== === ===== === === === ===== =====
</TABLE>
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The increases in the number of company-operated tractors and trailers
during 1995 and 1994 resulted primarily from the addition of new equipment
during each year for use in the company's full-truckload operations.
Approximately 85% of the company's 2,797 trailers are insulated and
equipped with refrigeration units capable of providing the temperature control
necessary to handle perishable freight. Trailers that are used primarily in
LTL operations are equipped with movable partitions permitting the
transportation of goods requiring maintenance of different temperatures. The
company also operates a fleet of non-refrigerated trailers in its "dry
freight" full-truckload operation. Company-operated trailers are primarily 102
inches wide. Refrigerated trailers are 48 feet long, while non-refrigerated
trailers are primarily 53 feet long.
The company's general policy is to replace its company-operated, heavy-
duty tractors used in full-truckload operations every three years, while
tractors used in LTL operations are generally replaced after five years of
service. Company-operated, full-truckload trailers are usually retired after
seven years of service. Occasionally, retired equipment is kept by the
company for use in local delivery operations.
ITEM 3. LEGAL PROCEEDINGS.
The company is party to routine litigation incidental to its businesses,
primarily involving claims for personal injury and property damage incurred in
the transportation of freight. The aggregate amount of these claims is
significant. The company maintains insurance programs and accrues for
expected losses in amounts designed to cover liability resulting from personal
injury and property damage claims. The company does not believe that adverse
results in one or more of these pending cases would have a material effect on
the financial condition of the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of shareholders of the company during
the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The information regarding cash dividends, common stock price per share
and common stock trading volume set forth under the caption "Quarterly
Financial, Stock and Dividend Information" appearing on page 28 of the Annual
Report to Shareholders for the year ended December 31, 1995, is incorporated
by reference into this Report.
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth under the caption "Eleven-Year Statistics and
Financial Data" appearing on pages 16 and 17 of the Annual Report to
Shareholders for the year ended December 31, 1995, is incorporated by
reference into this Report.
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ITEM 7. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing on pages
18 through 20 of the Annual Report to Shareholders for the year ended December
31, 1995, is incorporated by reference into this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) The following Consolidated Financial Statements of Frozen Food
Express Industries, Inc., and Report of Arthur Andersen LLP, Independent
Public Accountants, with respect thereto set forth on pages 21 through 28 of
the Annual Report to Shareholders for the year ended December 31, 1995, are
incorporated by reference into this Report:
Consolidated Statements of Income -- Years ended December 31, 1995, 1994
and 1993.
Consolidated Balance Sheets -- December 31, 1995 and 1994.
Consolidated Statements of Cash Flows -- Years ended December 31, 1995,
1994 and 1993.
Consolidated Statements of Shareholders' Equity -- Years ended
December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
Report of Arthur Andersen LLP, Independent Public Accountants.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
In accordance with General Instruction G to Form 10-K, the information
required by Item 10 is incorporated herein by reference from the portion of
the company's Proxy Statement for the Annual Meeting of Shareholders to be
held April 25, 1996, appearing under the caption "Nominees for Directors".
ITEM 11. EXECUTIVE COMPENSATION.
In accordance with General Instruction G to Form 10-K, the information
required by Item 11 is incorporated herein by reference from the portions of
the company's Proxy Statement for the Annual Meeting of Shareholders to be
held April 25, 1996, appearing under the captions "Executive Compensation" and
"Transactions with Management ".
12
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In accordance with General Instruction G to Form 10-K, the information
required by Item 12 is incorporated herein by reference from the portions of
the company's Proxy Statement for the Annual Meeting of Shareholders to be
held April 25, 1996, appearing under the captions "Outstanding Capital Stock;
Principal Shareholders" and "Nominees for Directors".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In accordance with General Instruction G to Form 10-K, the information
required by Item 13 is incorporated herein by reference from the portions of
the company's Proxy Statement for the Annual Meeting of Shareholders to be
held April 25, 1996, appearing under the captions "Nominees for Directors",
"Transactions with Management " and "Executive Compensation".
13
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. & 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:
The financial statements listed in the index to financial
statements and financial statement schedules in Item 8 on page
12 hereof are filed as part of this Annual Report.
Financial statement schedules are omitted since the required
information is not present or is not present in amounts
sufficient to require submission of the schedule, or because
the information required is included in the financial
statements and notes thereto.
3. EXHIBITS:
3.l Articles of Incorporation of the Registrant and all amendments
to date (filed as Exhibit 3.1 to Registrant's annual report on
Form 10-K for the fiscal year ended December, 31, 1993; SEC
File Number 1-10006 and incorporated herein by reference).
3.2 Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991; SEC File Number 1-10006 and
incorporated herein by reference).
10.1 Frozen Food Express Industries, Inc., 1987 Non-Employee
Director Stock Plan (filed as Exhibit 10.2 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1991; SEC File Number 1-10006 and incorporated herein by
reference).
10.2 Amended and Restated Credit Agreement, dated December 30, 1992,
among the registrant and its subsidiaries and First Interstate
Bank of Texas, N.A., as agent; Texas Commerce Bank, National
Association; and The First National Bank of Boston (filed as
Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992; SEC File Number 1-10006
and incorporated herein by reference).
10.3 First Amendment to amended and restated credit agreement
described at Exhibit 10.5 (filed as Exhibit 10.6 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993; SEC File Number 1-10006 and
incorporated herein by reference).
10.4 Form of Master Lease Agreement by and between Stoney M. Stubbs,
Jr., and Charles G. Robertson and Conwell Corporation. (Filed
as Exhibit 10.12 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991; SEC File Number 1-
10006 and incorporated herein by reference).
14
<PAGE>
10.5 Frozen Food Express Industries, Inc., 1992 Incentive and
Nonstatutory Stock Option Plan (filed as Exhibit 4.3 to
Registrant's Registration #33-48494 as filed with the
Commission, and incorporated herein by reference).
10.6 FFE Transportation Services, Inc., 1994 Incentive Bonus Plan,
as amended (filed as Exhibit 10.6 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994; SEC
File Number 1-10006 and incorporated herein by reference).
10.7 FFE Transportation Services, Inc., Executive Bonus and Phantom
Stock Plan, as amended (filed as Exhibit 10.7 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994; SEC File Number 1-10006 and incorporated herein by
reference).
10.8 FFE Transportation Services, Inc., Employee Stock Ownership
Plan (filed as Exhibit 10.8 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994; SEC File
Number 1-10006 and incorporated herein by reference).
10.9 Savings Plan for Employees of Frozen Food Express Industries,
Inc. (filed as Exhibit 10.9 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994; SEC File
Number 1-10006 and incorporated herein by reference).
10.10 Conwell Corporation Employee Stock Ownership Plan (filed as
Exhibit 10.10 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994; SEC File Number
1-10006 and incorporated herein by reference).
10.11 Amendment to Frozen Food Express Industries, Inc., 1992
Incentive and Nonstatutory Stock Option Plan (filed as Exhibit
10.11 to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994; SEC File Number 1-10006 and
incorporated herein by reference).
11.1 Computation of net income per share of common stock, assuming
full dilution (incorporated by reference to Footnote 8 to the
financial statements appearing in the Annual Report to
Shareholders of the Registrant for the year ending December 31,
1995).
13.1 Annual Report to Shareholders of the Registrant for the year
ended December 31, 1995. Except for those portions of such
Annual Report to Shareholders expressly incorporated by
reference into this Report, such Annual Report to Shareholders
is furnished solely for the information of the Securities and
Exchange Commission and shall not be deemed a "Filed" Document.
21.1 Subsidiaries of Frozen Food Express Industries, Inc.
25.1 A Power of Attorney is found on page 18 of this Report.
27 Financial Data Schedule.
15
<PAGE>
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the company during the last
quarter of the period covered by this Report.
16
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
Annual Report
to Shareholders
Consolidated Statements of Income -- Years ended
December 31, 1995, 1994 and 1993 21
Consolidated Balance Sheets -- December 31, 1995 and 1994 22
Consolidated Statements of Cash Flows -- Years ended
December 31, 1995, 1994 and 1993 23
Consolidated Statements of Shareholders' Equity -- Years ended
December 31, 1995, 1994 and 1993 24
Notes to Consolidated Financial Statements 25
Report of Arthur Andersen LLP, Independent Public Accountants 28
Supplementary information - Quarterly financial data (unaudited) 28
Financial statement schedules are omitted since the required information
is not present or is not present in amounts sufficient to require submission
of the schedule, or because the information required is included in the
financial statements and notes thereto.
The financial statements listed in the above index, which are included in
the Annual Report to Shareholders of Frozen Food Express Industries, Inc., for
the year ended December 31, 1995, are hereby incorporated by reference, and
are filed herewith as Exhibit 13.1.
17
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors and
officers of Frozen Food Express Industries, Inc., hereby appoints Stoney M.
Stubbs, Jr., and Burl G. Cott his true and lawful attorneys-in-fact and
agents, for him and in his name, place and stead, in any and all capacities,
with full power to act alone, to sign any and all amendments to this Annual
Report on Form 10-K and to file each such amendment to the Report, with all
exhibits thereto, and any and all other documents in connection therewith,
with the Securities and Exchange Commission, hereby granting unto said
attorneys-in-fact and agents full power and authority to do and perform any
and all acts and things requisite and necessary to be done in and about the
premises as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FROZEN FOOD EXPRESS INDUSTRIES, INC.
Date: March 29, 1996 By /s/ Burl G. Cott
-------------- -------------------------------------------
Burl G. Cott
Senior Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 /s/ Stoney M. Stubbs, Jr.
-------------- --------------------------------------------
Stoney M. Stubbs, Jr.,
Chairman of the Board of Directors and President
(Principal Executive Officer)
Date: March 29, 1996 /s/ Burl G. Cott
-------------- --------------------------------------------
Burl G. Cott,
Senior Vice President and Director
(Principal Financial and Accounting Officer)
Date: March 29, 1996 /s/ Charles G. Robertson
-------------- --------------------------------------------
Charles G. Robertson
Executive Vice President and Director
Date: March 29, 1996 /s/ Edgar O. Weller
-------------- --------------------------------------------
Edgar O. Weller
Vice Chairman of the Board of Directors
18
<PAGE>
POWER OF ATTORNEY, Continued
Date: March 29, 1996 /s/ Brian R. Blackmarr
-------------- --------------------------------------------
Brian R. Blackmarr, Director
Date: March 29, 1996 /s/ Leroy Hallman
-------------- --------------------------------------------
Leroy Hallman, Director
Date: March 29, 1996 /s/ W. Grogan Lord
-------------- --------------------------------------------
W. Grogan Lord, Director
Date: March 29, 1996 /s/ T. Michael O'Connor
-------------- --------------------------------------------
T. Michael O'Connor, Director
19
EXHIBIT 13.1
THIS FORM 10-K INCORPORATES CERTAIN SECTIONS OF THE REGISTRANT'S 1995
ANNUAL REPORT TO SHAREHOLDERS. ACCORDINGLY, ONLY THE PORTIONS OF REGISTRANT'S
1995 ANNUAL REPORT TO SHAREHOLDERS WHICH ARE INCORPORATED BY REFERENCE INTO
THIS FORM 10-K ARE FILED AS THIS EXHIBIT 13.1.
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR STATISTICS AND FINANCIAL DATA 1995 1994 1993 1992
(in thousands, except ratio, rates, equipment and per share amounts)
<S> <C> <C> <C> <C>
Summary of Operations
Revenue 292,345 274,620 227,389 194,888
Operating expenses 276,961 255,484 211,999 183,179
Net income 9,253 11,874 9,441 7,144
Net margin 3.2% 4.3% 4.2% 3.7%
After-tax return on equity 13.3% 20.4% 20.1% 18.6%
Net income per common share, fully diluted .57 .72 .58 .45
Financial Data
Working capital 25,024 25,623 20,823 16,949
Current ratio 1.7 1.8 1.8 1.8
Cash provided by operations 24,180 20,025 17,482 16,395
Capital expenditures, net 8,383 8,160 18,453 18,375
Long-term debt 0 9,000 17,000 12,000
Shareholders' equity 75,021 64,288 51,983 41,799
Long-term debt-to-equity ratio -- .1 .3 .3
Common Stock
Average shares outstanding, fully diluted 16,132 16,451 16,276 15,910
Book value per share 4.59 4.03 3.31 2.72
Market value per share
High 13 7/8 15 15 11 1/2
Low 8 1/2 11 7 1/4 3 7/8
Cash dividends per share .12 .096 .096 .079
Revenue Table
Full truckload 180,598 163,988 129,549 109,178
Less-than-truckload 87,783 88,328 80,965 72,864
TL/LTL % revenue contribution 62/30 60/32 57/36 56/37
Equipment in Service at Yearend
Tractors
Company operated 1,149 1,099 945 800
Provided by owner-operators 667 505 457 432
Total 1,816 1,604 1,402 1,232
Trailers
Company provided 2,770 2,406 2,027 1,609
Provided by owner-operators 27 21 32 24
Total 2,797 2,427 2,059 1,633
Full-Truckload
Revenue 180,598 163,988 129,549 109,178
Loaded miles 135,469 121,106 97,753 83,247
Shipments 142.9 128.1 106.6 92.9
Revenue per shipment 1,264 1,280 1,215 1,175
Loaded miles per load 948 945 917 896
Revenue per loaded mile 1.33 1.35 1.33 1.31
Number of loads per business day 567 508 423 367
Revenue per business day 717 651 514 431
Less-than-Truckload
Revenue 87,783 88,328 80,965 72,864
Hundredweight 8,296 8,670 8,116 6,848
Shipments 292.1 305.2 292.0 253.3
Revenue per hundredweight 10.58 10.19 9.98 10.64
Revenue per shipment 301 289 277 288
Revenue per business day 348 351 321 288
Pounds per shipment 2,840 2,841 2,779 2,704
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR STATISTICS AND FINANCIAL DATA 1991 1990 1989 1988
(in thousands, except ratio, rates, equipment and per share amounts)
<S> <C> <C> <C> <C>
Summary of Operations
Revenue 176,995 160,171 122,248 102,136
Operating expenses 167,033 152,370 115,769 96,558
Net income 5,202 3,618 3,779 3,660
Net margin 2.9% 2.3% 3.1% 3.6%
After-tax return on equity 16.0% 12.6% 14.6% 16.5%
Net income per common share, fully diluted .34 .25 .26 .26
Financial Data
Working capital 15,612 13,085 9,567 5,096
Current ratio 2.1 1.9 2.0 1.6
Cash provided by operations 14,968 9,022 9,174 9,191
Capital expenditures, net (2,423) 16,285 11,619 15,060
Long-term debt 5,000 19,200 12,500 7,500
Shareholders' equity 35,059 30,005 27,255 24,348
Long-term debt-to-equity ratio .1 .6 .5 .3
Common Stock
Average shares outstanding, fully diluted 15,249 14,519 14,534 14,095
Book value per share 2.42 2.11 1.96 1.78
Market value per share
High 4 1/8 2 3/4 2 7/8 2 3/8
Low 1 7/8 1 7/8 2 1/8 1
Cash dividends per share .06 .06 .05 .038
Revenue Table
Full truckload 103,582 90,043 60,313 42,947
Less-than-truckload 65,068 64,589 60,114 57,863
TL/LTL % revenue contribution 59/37 56/40 49/49 42/57
Equipment in Service at Yearend
Tractors
Company operated 737 739 508 256
Provided by owner-operators 421 386 376 496
Total 1,158 1,125 884 752
Trailers
Company provided 1,475 1,419 1,204 876
Provided by owner-operators 28 38 41 49
Total 1,503 1,457 1,245 925
Full-Truckload
Revenue 103,582 90,043 60,313 42,947
Loaded miles 80,663 69,800 46,975 33,762
Shipments 85.5 75.8 51.9 38.1
Revenue per shipment 1,211 1,188 1,162 1,127
Loaded miles per load 943 921 905 886
Revenue per loaded mile 1.28 1.29 1.28 1.27
Number of loads per business day 339 301 206 151
Revenue per business day 411 357 239 170
Less-than-Truckload
Revenue 65,068 64,589 60,114 57,863
Hundredweight 6,211 6,314 6,051 5,816
Shipments 231.3 241.7 253.4 256.7
Revenue per hundredweight 10.48 10.23 9.93 9.95
Revenue per shipment 281 267 237 225
Revenue per business day 258 256 239 230
Pounds per shipment 2,685 2,612 2,388 2,266
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR STATISTICS AND FINANCIAL DATA 1987 1986 1985
(in thousands, except ratio, rates, equipment and per share amounts)
<S> <C> <C> <C>
Summary of Operations
Revenue 84,585 91,195 86,916
Operating expenses 81,278 89,618 87,304
Net income 2,373 1,055 1,157
Net margin 2.8% 1.2% 1.3%
After-tax return on equity 12.1% 5.6% 6.3%
Net income per common share, fully diluted .18 .08 .09
Financial Data
Working capital 4,862 5,133 6,046
Current ratio 1.9 1.8 1.7
Cash provided by operations 7,320 7,398 228
Capital expenditures, net 3,454 2,332 7,268
Long-term debt 2,300 3,900 10,630
Shareholders' equity 20,121 19,105 18,796
Long-term debt-to-equity ratio .1 .2 .6
Common Stock
Average shares outstanding, fully diluted 13,200 13,220 13,140
Book value per share 1.52 1.44 1.42
Market value per share
High 1 5/8 1 3/8 1 3/8
Low 1 1 7/8
Cash dividends per share .03 .006 .026
Revenue Table
Full truckload 26,226 30,157 29,801
Less-than-truckload 57,004 59,888 56,286
TL/LTL % revenue contribution 31/67 33/66 34/65
Equipment in Service at Yearend
Tractors
Company operated 98 75 110
Provided by owner-operators 421 541 590
Total 519 616 700
Trailers
Company provided 698 720 855
Provided by owner-operators 49 74 92
Total 747 794 947
Full-Truckload
Revenue 26,226 30,157 29,801
Loaded miles 18,872 21,741 20,837
Shipments 26.7 29.8 29.0
Revenue per shipment 982 1,010 1,028
Loaded miles per load 706 728 719
Revenue per loaded mile 1.39 1.39 1.43
Number of loads per business day 106 118 115
Revenue per business day 104 220 118
Less-than-Truckload
Revenue 57,004 59,888 56,286
Hundredweight 5,983 6,417 5,858
Shipments 268.6 294.8 299.0
Revenue per hundredweight 9.53 9.33 9.61
Revenue per shipment 212 203 188
Revenue per business day 226 238 223
Pounds per shipment 2,227 2,177 1,959
</TABLE>
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RESULTS OF OPERATIONS
Demand for the company's services during most of 1993 and 1994 exceeded
the capacity of its full-truckload fleet and equipment utilization was high.
A strong market for transportation of both temperature controlled and general
commodity freight was experienced by most of the nation's full-truckload motor
carriers. Contributing to the shortage of available trucks was the continuing
shortage of qualified drivers in most areas of the country. Although the
company experienced sporadic driver shortages during 1993 and 1994, the
industry-wide shortage was much more severe. It is estimated that as much as
5% to 8% of the nation's fleet of for-hire trucks was parked during much of
1994 due to a lack of drivers. The strong demand for trucking services
coupled with a general undersupply of trucks provided for pricing stability
and enabled the company to obtain selective rate increases during both 1993
and 1994.
Beginning in late 1994 and continuing throughout most of 1995, several
events occurred which significantly increased the supply of trucks and reduced
the demand for trucking services.
- The devaluation of the Mexican peso in December, 1994 significantly
reduced the flow of consumer products from the United States to Mexico
thereby increasing the number of trucks available for the
transportation of domestic goods.
- Softness in the construction industry and other alternative employment
sources for truck drivers enabled trucking companies to employ
sufficient numbers of drivers for trucks which had been underutilized
during 1993 and 1994, thereby increasing truck capacity in 1995 by an
estimated 5% to 8%.
- Transportation companies such as Frozen Food Express which had near
fully utilized capacity during 1994, added to their truck fleets during
1994 and 1995.
- Many large shippers elected to reduce inventory levels during 1995
thereby decreasing their need for transportation services.
Primarily as a result of these factors, available trucking capacity
exceeded the demand for its services during 1995. This oversupply of trucks
decreased utilization and productivity during the year and full-truckload
freight rates came under pressure as the year progressed.
During 1995, revenue increased by 6.5% to $292,345,000. For 1994,
revenue totaled $274,620,000 and was 20.8% above 1993 revenue of $227,389,000.
Full-truckload revenue rose during 1995 and 1994 by 10.1% and 26.6%,
respectively, while less-than-truckload (LTL) revenue rose by 9.1% during
1994, but fell by 0.6% during 1995.
The small decrease in LTL revenue during 1995 resulted primarily from a
4.3% reduction in the number of shipments transported. General softness in
the perishable commodity transportation industry was the primary cause of the
reduced quantity of shipments. Average revenue per LTL shipment, however,
5
<PAGE>
MANAGEMENT'S DISCUSSION, Continued
rose by 4.2%, which substantially offset the decline in LTL shipping activity.
Expansion of the company-operated, full-truckload fleet increased full-
truckload revenue during 1995 and 1994. During 1995, the size of the company-
operated, full-truckload fleet rose by nearly 60 tractors and average miles
per full-truckload shipment was substantially unchanged from 1994. During
1995, the general slowdown in the growth of demand for freight transportation
services resulted in increased competition within the trucking industry.
Accordingly, average revenue per full-truckload loaded mile fell by 1.5% to
$1.33. During 1994, the size of the company-operated, full-truckload fleet
rose by nearly 160 tractors, average miles per full-truckload shipment
increased by 3% and revenue per loaded mile increased by 1.5%. The number of
full-truckload shipments transported during 1995 and 1994 increased by
approximately 12% and 20%, respectively, over previous year levels. During
each of 1995, 1994 and 1993, company-operated, full-truckload equipment
accounted for just over 75% of total full-truckload revenue.
The company currently does not plan to increase the size of its company-
operated, full-truckload fleet during 1996. Any expansion of the fleet will
depend upon acquisitions, if any, of other motor carriers, developments in the
nation's economy and demand for the company's services. Continued emphasis
will be placed on improving the operating efficiency and increasing the
utilization of this fleet through enhanced driver training and retention,
seeking longer haul and more specialized business, greater use of railroad
based "intermodal" transportation service for long-haul business and reducing
the percentage of empty, non-revenue producing miles.
The company is continuing to emphasize its transportation and logistics
services which involve railroad based intermodal long-haul transportation. In
providing such service, the company contracts with railroads to transport
loaded full-truckload trailers on railroad flat cars. Railroads are paid fees
for this service and the company uses its tractors to transport the trailers
to and from railroad pick-up and drop-off points. During 1994 and 1995, less
than 5% of the company's domestic full-truckload shipments were transported in
this manner.
During 1994 and 1995, the company expanded transportation services for
customers shipping products to and from Mexico and Canada. Canadian operations
are conducted with equipment operating directly under authority of the
company. The company does not presently operate its tractors in Mexico. To
provide service in Mexico, the company has arrangements with a railroad and
Mexico-based motor carriers. Pursuant to these arrangements, the company
interchanges its trailers with the Mexico freight service provider for
movement within Mexico. During 1994, approximately 6% of freight revenue was
derived from international activities, for which the company bills and
collects primarily United States currency, principally from United States-
based customers. During 1995, continuing efforts to expand international
activities were negatively impacted by the late 1994 devaluation of the
Mexican peso, which significantly reduced the amount of United States freight
transported by all motor carriers to Mexico.
6
<PAGE>
MANAGEMENT'S DISCUSSION, Continued
In providing certain international and intermodal transportation
services, the company transports more loaded trailers (which require
relatively lower capital investment) while engaging fewer tractors (which
involve relatively higher capital investment). It is probable that the
company's trailer fleet will continue to expand more rapidly than its tractor
fleet, if these activities continue to grow. Also contributing to the
increase in the trailer-to-tractor ratio, from 1.3:1 at January 1, 1993, to
1.5:1 at yearend 1995, was the continued expansion of dedicated fleet and
short-haul full-truckload services and, in general, the more rapid expansion
of the company's full-truckload services in relation to its LTL service. Full-
truckload services generally involve the utilization of more trailers to
enable tractors to remain in service while trailers are being loaded and
unloaded.
During 1995, the company continued to increase the number of tractors
provided by owner-operators to its full-truckload operations. During 1995 and
1994, the number of full-truckload tractors provided by owner-operators
increased by about 33% and 25%, respectively.
In years prior to 1995, the company experienced cyclical shortages and
surpluses of qualified employee-drivers for company-operated tractors and
employee-driver turnover has been high. This situation, which has been typical
in the industry, tends to increase costs associated with employee-driver
training and recruiting. During 1995, the company did not experience a
shortage of employee-drivers, although employee-driver turnover continued at a
high rate. Significant efforts are devoted to recruiting and retaining
qualified employee-drivers and to improving their job satisfaction. The
company offers monetary incentives to employee-drivers meeting certain
targeted fuel economy, safety, and tenure goals. In the future, certain
aspects of employee-drivers' compensation will continue to be tied to
improvements in productivity and quality of service.
Income from operations declined by 19.6% during 1995 to $15,384,000 as
compared to $19,136,000 in 1994 and $15,390,000 in 1993. The imbalance of
trucks against freight caused per-truck utilization and freight rates to
decline, resulting in a narrowing of profit margins. The net margin (net
income as a percent of total revenue) for 1995, 1994 and 1993 was 3.2%, 4.3%,
and 4.2%, respectively. Changes in the percentage of total revenue generated
from full-truckload versus LTL shipments, as well as changes in the mix of
company-operated versus owner-operated equipment and in the mix of leased
versus owned equipment, contributed to variations in related operating and
interest expenses during the three-year period.
During 1993 and 1994, the percentages of freight revenue absorbed by
employee road driver payroll costs increased relative to previous years as the
company-operated, full-truckload fleet had expanded more rapidly than had the
independent contractor fleet. Partially offsetting the 1993 and 1994 increase
was a gradual decline in the percent of freight revenue absorbed by payroll
costs of non-driver employees. In addition, costs associated with fringe
benefits, such as work-related injuries and non-driver incentive compensation
declined during 1994 as a percent of freight revenue. As a result of these
changes, salaries, wages and related expenses, as a percentage of freight
revenue, for 1995, 1994 and 1993 were 25.6%, 24.9% and 25.2%, respectively.
7
<PAGE>
MANAGEMENT'S DISCUSSION, Continued
As the percentage of total freight handled by company-operated equipment
fluctuated, the percent of freight revenue absorbed by purchased
transportation (primarily payments to owner-operators) declined from 22.5% in
1993, to 21.1% in 1994 and rose to 21.9% in 1995, due to 1995's more rapid
expansion of the independent contractor provided fleet of trucks.
Fuel costs (including fuel taxes) have been relatively stable for the
past three years despite an increase of 5 cents per gallon in federal taxes on
diesel fuel and the federally-mandated use of more costly low-sulfur fuel
effective during the 1994 fourth quarter. Each year, several states have also
increased their per-gallon fuel taxes. The company has been able to mitigate
the effect of increases in fuel taxes and the higher cost of low-sulfur fuel
primarily through the utilization of more fuel efficient tractors, by
aggressively managing its fuel purchasing and, prior to 1995, by obtaining
freight rate increases from its customers. Fuel price fluctuations result
from many external market factors, most of which cannot be influenced or
forecasted by the company. Recovery of future fuel tax or price increases, if
any, will continue to depend upon competitive market conditions.
The total of revenue equipment rent and depreciation expense increased
from 9.8% of freight revenue in 1993 to 10.2% for 1994 and 10.5% for 1995.
The 1994 and 1995 increases were due primarily to 1994's higher interest
rates, the cost of which is imbedded in equipment rental, and to the increased
use of leasing to finance the expansion of the company's fleet of trailers.
Insurance and claims expense, as a percentage of freight revenue, was
5.4% in 1995, 5.2% in 1994 and 4.8% in 1993. Premiums paid to insurance
companies do not significantly contribute to overall insurance costs,
partially because the company carries significant deductibles under its
policies of liability insurance. 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. In recent years, full-
truckload operations, from which per-mile revenue is relatively low, have been
expanding more rapidly than LTL operations, from which per-mile revenue is
relatively high. Accordingly, while insurance expense on a per-mile basis did
not change significantly between 1994 and 1995, the increased percentage of
full-truckload miles and revenue during 1995 resulted in the increase in
insurance and claims expense as a percentage of combined full-truckload and
LTL freight revenue.
Insurance and claims expense can vary significantly from year to year.
Reserves representing the company's estimate of total ultimate claims cost are
established for potential claims based on the information available at the
time of an incident. As additional information regarding the incident becomes
available, adjustments may be made to previously recorded amounts. The
aggregate amount of open claims, some of which involve litigation, is
significant. In the opinion of management, however, these claims can be
resolved without a material adverse effect on the company's financial position
or its results of operations.
8
<PAGE>
MANAGEMENT'S DISCUSSION, Continued
In order to improve its safety performance, reduce accidents and lower
insurance and claims expense, the company has strengthened restrictions on the
manner in which equipment may be operated on its behalf. Driver selection,
safety training, performance evaluations and rewards for accident-free driving
will continue to be major areas of concentration.
Gains from the sale of equipment totaled $629,000 in 1993, fell to
$405,000 in 1994 and rose to $706,000 in 1995. The company generally replaces
tractors and trailers after three and seven years of service, respectively.
The amount of gains from the sale of equipment depends primarily upon market
conditions for used equipment.
The company also has operations engaged in the sale and service of
refrigeration equipment. Non-freight revenue associated with these operations
totaled $23,964,000 during 1995, $22,304,000 during 1994 and $16,875,000 in
1993. These operations generated a small operating profit in 1993. Operating
profits of $765,000 and $1,753,000 were posted for 1994 and 1995,
respectively. Programs designed to improve gross margins and to reduce
overhead expenses were implemented and certain assets associated with
unprofitable divisions were sold. The results of these programs, together with
increased non-freight activity, combined to improve operating results in 1995.
For 1995, 1994 and 1993, interest and other expense was $2,136,000,
$1,372,000 and $963,000, respectively. Prior to 1994, interest incurred on
bank debt was the primary component of interest and other expenses. During
the two years ending December 31, 1995, bank debt was reduced from $17,000,000
to zero. The increase in interest and other expenses during the two year
period is primarily attributable to net pre-tax expenses associated with the
1994 implementation of a company-owned life insurance program.
Pre-tax income fell by 25.4% in 1995 after rising by 23.1% in 1994. Net
income decreased by 22.1% in 1995 and rose by 25.8% in 1994. The provision
for income tax, as a percent of income before income tax for 1995, 1994 and
1993 was 30.2%, 33.2% and 34.6%, respectively. The variances from the
company's statutory rate for these years were principally due to decreased
expenses which are only partially deductible for federal income tax purposes
(such as road driver meals) and increased non-taxable income associated with
the company-owned life insurance program.
LIQUIDITY
The company continues to maintain a strong financial position. Following
is a summary of certain liquidity measures (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash provided by operations $24,180 $20,025 $17,482
Working capital $25,024 $25,623 $20,823
Current ratio 1.7 1.8 1.8
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION, Continued
The increase in cash provided by operations is attributable primarily to
increased revenue, refinements in the company's cash management systems, and
improvements in the accounts receivable collection cycle.
CAPITAL RESOURCES
Expenditures for property and equipment totaled $10.7 million during
1995, $13.6 million during 1994 and $23.6 million in 1993. In addition, the
company financed, through operating leases, the acquisition of revenue
equipment valued at approximately $30 million during each of these years.
During recent years, the company has created and significantly expanded its
fleet of company-operated tractors and trailers, and acquired the businesses
and certain assets of other motor carriers in connection with the expansion of
its activities.
In connection with the need for funds to finance the purchase of assets
from acquired businesses and the continuing expansion of the company-operated,
full-truckload fleet, the company has in place a $50 million line of credit.
Interest rates under the credit agreement are at prime or below. No
commitment fee is charged on the unused portion of the credit line, and no
compensating balances are required. This line of credit is also used to
support letters of credit issued in connection with the company's insurance
and risk management programs. The amount available for borrowing is reduced by
such letters of credit which totaled approximately $7 million at December 31,
1995. At the end of 1995, approximately $43 million was available under the
credit line.
The company plans to replace about 600 of its tractors during 1996.
These expenditures will be financed by internally generated funds, borrowings
under the credit agreement and leasing. Management believes these sources of
capital will be sufficient to finance the company's operations and capital
expenditures during 1996.
At December 31, 1994 and 1993, the ratios of long-term debt to total
capitalization were 12.3% and 24.6%, respectively. No long-term debt was
outstanding at December 31, 1995.
10
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Frozen Food Express Industries, Inc. and Subsidiaries
Years ended December 31, 1995, 1994 and 1993
(in thousands, except per share amounts)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue
Freight revenue $268,381 $252,316 $210,514
Non-freight revenue 23,964 22,304 16,875
------- ------- -------
292,345 274,620 227,389
------- ------- -------
Costs and expenses
Freight operating expenses
Salaries, wages and related expenses 68,692 62,900 53,042
Purchased transportation 58,876 53,340 47,400
Supplies and expenses 74,250 68,430 55,471
Revenue equipment rent 17,469 16,027 10,757
Communications and utilities 3,457 3,285 2,753
Insurance and claims 14,462 13,066 10,020
Depreciation 10,719 9,752 9,941
Operating taxes and licenses 5,060 4,988 4,069
Gain on sale of equipment (706) (405) (629)
Miscellaneous expense 2,471 2,562 2,394
------- ------- -------
254,750 233,945 195,218
Non-freight costs and operating expenses 22,211 21,539 16,781
------- ------- -------
276,961 255,484 211,999
------- ------- -------
Income from operations 15,384 19,136 15,390
Interest and other expense 2,136 1,372 963
------- ------- -------
Income before income tax 13,248 17,764 14,427
Provision for income tax 3,995 5,890 4,986
------- ------- -------
Net income $ 9,253 $ 11,874 $ 9,441
------- ------- -------
Net income per share of common stock
Primary and fully diluted $ .57 $ .72 $ .58
See accompanying notes.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Frozen Food Express Industries, Inc. and Subsidiaries
December 31, 1995 and 1994
(in thousands)
1995 1994
-------- --------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 7,480 $ 4,381
Accounts receivable, net 37,093 36,643
Inventories 8,221 8,006
Tires on equipment in use 5,217 4,334
Other current assets 3,636 3,692
------- -------
Total current assets 61,647 57,056
Property and equipment, net 52,430 54,161
Other assets 9,585 5,619
------- -------
$123,662 $116,836
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 17,529 $ 12,580
Accrued claims liabilities 8,401 7,712
Accrued payroll 4,679 5,006
Deferred federal income tax 850 163
Other accrued liabilities 5,164 5,972
------- -------
Total current liabilities 36,623 31,433
Long-term debt - 9,000
Deferred federal income tax 4,311 4,512
Accrued claims and other liabilities 7,707 7,603
------- -------
Total liabilities and deferred credits 48,641 52,548
------- -------
Commitments and contingencies - -
Shareholders' equity
Common stock, 17,281 shares issued in 1995 and in 1994 25,921 25,921
Additional paid-in capital 1,992 -
Retained earnings 50,830 43,513
------- -------
78,743 69,434
Less - Treasury stock, at cost 3,722 4,538
Receivable from ESOP - 608
------- -------
Total shareholders' equity 75,021 64,288
------- -------
$123,662 $116,836
======= =======
See accompanying notes.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Frozen Food Express Industries, Inc. and Subsidiaries
Years ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 9,253 $ 11,874 $ 9,441
Non-cash items involved in net income
Depreciation and amortization 11,118 10,224 10,484
Provision for losses on accounts receivable 1,496 1,136 1,303
Deferred federal income tax 486 233 (814)
Gain on sale of property and equipment (706) (405) (629)
Non-cash contribution to employee benefit plans 2,265 1,609 2,202
Change in assets and liabilities,
net of effects from acquired businesses
Accounts receivable (2,488) (6,420) (9,413)
Inventories (1,520) (1,693) (2,191)
Tires on equipment in use (883) (332) (892)
Other current assets 931 (1,390) 365
Trade accounts payable 4,570 2,584 1,632
Payable to owner-operators (581) (192) 540
Accrued claims and other liabilities 793 2,348 2,170
Accrued payroll (327) 743 1,312
Federal income tax payable - (1,809) 1,655
Other accrued liabilities (227) 1,515 317
------- ------- -------
Net cash provided by operating activities 24,180 20,025 17,482
------- ------- -------
Cash flows from investing activities
Businesses dispositions (acquisitions) 2,300 (937) (2,636)
Expenditures for property and equipment (10,698) (13,615) (23,562)
Proceeds from sale of property and equipment 2,315 5,455 6,776
Other (5,214) (1,223) (1,523)
------- ------- -------
Net cash used in investing activities (11,297) (10,320) (20,945)
------- ------- -------
Cash flows from financing activities
Borrowings under revolving credit agreement 33,000 25,000 22,600
Payments against revolving credit agreement (42,000) (33,000) (17,600)
Dividends paid (1,936) (1,520) (1,494)
Proceeds from sale of treasury stock 1,644 1,012 927
Purchases of treasury stock (492) (650) (813)
------- ------- -------
Net cash (used in) provided by financing activities (9,784) (9,158) 3,620
------- ------- -------
Net increase in cash and cash equivalents 3,099 547 157
Cash and cash equivalents at beginning of year 4,381 3,834 3,677
------- ------- -------
Cash and cash equivalents at end of year $ 7,480 $ 4,381 $ 3,834
======= ======= =======
See accompanying notes.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Frozen Food Express Industries, Inc. and Subsidiaries
Years ended December 31, 1995, 1994 and 1993
(in thousands)
Shares of Par Value of Additional Shares of Cost of Total
Common Common Paid-in Retained Treasury Treasury ESOP Shareholders'
Stock Issued Stock Capital Earnings Stock Stock Debt Equity
------------ ----------- ---------- -------- --------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At December 31, 1992 10,369 $15,553 $ 379 $31,462 1,164 $3,308 $ 2,287 $41,799
Net income - - - 9,441 - - - 9,441
Cash dividends paid
($.096 per share) - - - (1,494) - - - (1,494)
Treasury stock purchased - - (3) - 101 1,708 - (1,711)
Treasury stock reissued - - 1,522 - (119) (396) - 1,918
Exercise of stock options - - 300 - (207) (658) - 958
4-for-3 stock split in
the form of a 33%
stock dividend 3,456 5,184 (1,939) (3,245) 323 - - -
Contributions/payments - - - - - - (1,072) 1,072
------ ------ ------ ------ ----- ----- ------ ------
At December 31, 1993 13,825 20,737 259 36,164 1,262 3,962 1,215 51,983
Net income - - - 11,874 - - - 11,874
Cash dividends paid
($.096 per share) - - - (1,520) - - - (1,520)
Treasury stock purchased - - - - 94 1,487 - (1,487)
Treasury stock reissued - - 1,427 - (110) (358) - 1,785
Exercise of stock options - - 493 - (172) (553) - 1,046
Retroactive effect of a
5-for-4 stock split in
the form of a 25%
stock dividend 3,456 5,184 (2,179) (3,005) 268 - - -
Contributions/payments - - - - - - (607) 607
------ ------ ------ ------ ----- ----- ------ ------
At December 31, 1994 17,281 25,921 - 43,513 1,342 4,538 608 64,288
Net income - - - 9,253 - - - 9,253
Cash dividends paid
($.12 per share) - - - (1,936) - - - (1,936)
Treasury stock purchased - - - - 102 1,012 - (1,012)
Treasury stock reissued - - 1,881 - (279) (997) - 2,878
Exercise of stock options - - 111 - (222) (831) - 942
Contributions/payments - - - - - - (608) 608
------ ------ ------ ------ ----- ----- ------ ------
At December 31, 1995 17,281 $25,921 $ 1,992 $50,830 943 $3,722 $ - $75,021
====== ====== ====== ====== ===== ===== ====== ======
See accompanying notes.
</TABLE>
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Frozen Food Express Industries, Inc. and Subsidiaries
December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - Frozen Food Express Industries, Inc.
(FFEX), a Texas corporation, and its subsidiaries, all of which are wholly-
owned, are primarily engaged in motor carrier transportation of perishable
commodities, providing direct service for both full-truckload and less-than-
truckload shipments in all 48 contiguous states as well as Canada and Mexico.
The consolidated financial statements include FFEX and all subsidiary
companies (the Company). All significant intercompany balances and
transactions have been eliminated in consolidation.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual outcomes may vary from these
estimates.
CASH EQUIVALENTS - The Company considers all highly liquid investments
with a maturity of three months or less at the time of purchase to be cash
equivalents.
ACCOUNTS RECEIVABLE - In the normal course of business, the Company
extends unsecured credit to its customers which are located throughout the
United States. Because of the credit risk involved, management has provided
an allowance for doubtful accounts which reflects its estimate of amounts
which will eventually become uncollectible. Accounts receivable from
customers are stated net of allowances for doubtful accounts of $1,525,000 and
$1,286,000 as of December 31, 1995, and 1994, respectively.
INVENTORIES - Inventories are valued at the lower of cost (principally
weighted average cost or specific identification method) or market.
FREIGHT REVENUE AND EXPENSE RECOGNITION - Freight revenue and associated
direct operating expenses are recognized on the date the freight is picked up
from the shipper.
INCOME TAXES - Deferred income taxes are provided for temporary
differences between the tax basis of assets and liabilities and their
financial reporting amounts. Deferred taxes are recorded based upon enacted
tax rates anticipated to be in effect when these temporary differences are
expected to reverse.
2. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance and repairs are
charged to operations currently. Capitalized interest on funds borrowed to
finance the construction and development of major assets, replacements and
improvements was $295,000 during 1995 and $100,000 during 1994. No interest
was capitalized during 1993.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Property and equipment, net consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Land $ 2,389 $ 2,389
Buildings and improvements 13,032 12,132
Revenue equipment 63,504 64,401
Service equipment 9,286 8,926
Computer, software and related equipment 11,079 8,992
------ ------
99,290 96,840
Less accumulated depreciation 46,860 42,679
------ ------
$52,430 $54,161
====== ======
</TABLE>
Depreciation of property and equipment is calculated using the straight-
line method generally over estimated useful lives of 20 to 30 years for
buildings, 3 to 10 years for improvements to owned or leased facilities, 3 to
7 years for revenue equipment, 2 to 20 years for service equipment and 2 to 5
years for computer, software and related equipment.
3. LONG-TERM DEBT
The Company has a $50 million line of credit pursuant to a revolving
credit agreement with three commercial banks. As long as the Company maintains
a required "borrowing base", payments on principal are not due until
termination of the agreement. The agreement, which has no stated expiration
date, can be terminated by either party upon sixty days' notice, with
repayment due in 48 equal monthly payments commencing 13 months following the
termination. The agreement provides for interest payable quarterly at the
prime rate of one of the banks. The Company may elect to borrow for specified
periods of time at fixed interest rates. The fixed interest rates are based
on the London Interbank Offered Rate or specified 90-day or 180-day
certificate of deposit rates. No borrowings were outstanding at December 31,
1995. At December 31, 1994, $9,000,000 was borrowed at fixed rates averaging
7%.
The agreement sets certain minimum limits on consolidated net worth.
Cash dividends paid during any four consecutive quarters may not exceed 40% of
the total net income of the four quarters preceding the declaration of any
cash dividend. In addition, the Company is required to maintain certain
minimum financial and coverage ratios. Future investments, mergers and leases
of property are also restricted. Additionally, the agreement provides that
the amount the Company is permitted to borrow is reduced by outstanding
letters of credit (see Note 7). Under the terms of the revolving credit
agreement, the banks have the option to obtain liens on revenue equipment,
accounts receivable and service equipment. The banks have made no request for
such liens. At December 31, 1995, approximately $43 million was available
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
under the agreement. No commitment fees are charged on the unused portion of
the credit line, and no compensating balances are required.
Total interest payments made during 1995, 1994 and 1993 were $649,000,
$809,000 and $755,000, respectively.
4. FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH
During 1995, 1994 and 1993, the Company funded contributions to its
Employee Savings Plan and one of its Employee Stock Ownership Plans and Trusts
(ESOPs) by transferring 159,236, 78,035 and 109,680 shares, respectively, of
treasury stock to the trustees of the plans. The fair market value of the
shares, at the time of the contributions, was approximately $1,657,000,
$1,002,000 and $1,130,000, for 1995, 1994 and 1993, respectively.
During 1995, 1994 and 1993, $608,000, $607,000 and $1,072,000,
respectively, of the Company's contribution to another ESOP was applied
against amounts owed by the ESOP to the Company (see Note 6).
As of December 31, 1994 and 1993, accounts payable included $25,000 and
$1,553,000, respectively, for the purchase of equipment delivered during 1994
and 1993. As of December 31, 1995 and 1994, accounts receivable included
$414,000 and $24,000, respectively, from the sale of equipment retired and
sold during 1995 and 1994.
5. INCOME TAXES
The provision for income tax consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Taxes currently payable
Federal $3,234 $5,337 $5,169
State 275 320 222
Deferred federal taxes 486 233 (405)
----- ----- -----
$3,995 $5,890 $4,986
===== ===== =====
</TABLE>
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The differences between the statutory federal income tax rate and the
Company's effective income tax rate are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate 34.2% 34.9% 34.3%
Company-owned life insurance (5.3) (2.9) -
Non-deductible expenses 0.7 0.3 1.6
Other, net 0.6 0.9 (1.3)
---- ---- ----
30.2% 33.2% 34.6%
==== ==== ====
</TABLE>
Total income taxes paid by the Company were $2,012,000, $7,259,000 and
$3,477,000 for 1995, 1994 and 1993, respectively.
The following presents the changes in the primary components of the total
deferred tax liability (in thousands):
<TABLE>
<CAPTION>
Deferred
December (Provision) December
31, 1994 Benefit 31, 1995
-------- ----------- ---------
<S> <C> <C> <C>
Accrued claims $ 4,669 $ 292 $ 4,961
Allowance for bad debts 629 39 668
Prepaid expense (2,027) (342) (2,369)
Fixed assets (8,002) (695) (8,697)
Other 56 220 276
------ ---- ------
$(4,675) $(486) $(5,161)
====== ==== =======
</TABLE>
6. RETIREMENT PLANS
The Company sponsors ESOPs for its employees. Contributions to the ESOPs
are made at the discretion of the Board of Directors. One of the ESOPs
financed purchases of FFEX stock with funds borrowed from the Company. No
such purchases were made during 1995, 1994 or 1993. These loans matured in
annual installments through 1999 and bore interest at the prime rate. The
interest rate for these loans at December 31, 1994, 8.5%. The loans were fully
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
retired during 1995. The following table sets forth a summary of ESOP related
expense (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Level payments required $ - $ - $ -
Contribution in excess of required payments 963 1,296 1,172
Interest paid by Company on behalf of ESOP 67 85 78
----- ----- -----
$1,030 $1,381 $1,250
===== ===== =====
Dividends on ESOP shares used for debt service $ 19 $ 29 $ 64
===== ===== =====
</TABLE>
The leveraged ESOP utilized dividends received on the shares pledged as
collateral under the loan agreement to service the ESOP debt. To the extent
these dividends were not sufficient to satisfy the full amount of the interest
on the debt, the contribution required of the Company was increased. As of
December 31, 1995, the leveraged ESOP owned 2,822,490 shares, all of which had
been allocated to participants' accounts.
The Company sponsors a Savings Plan (the Plan) for its employees.
Contributions by the Company to the Plan for the benefit of employees are
determined by reference to voluntary contributions made by each employee.
Company contributions are made on a quarterly basis by transferring, at fair
market value, shares of FFEX stock to the Plan. For 1995, 1994 and 1993,
Company contributions to the Plan were approximately $941,000, $1,002,000 and
$1,030,000, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain office space, terminals, maintenance
facilities and equipment. The aggregate future minimum rentals under non-
cancelable operating leases at December 31, 1995, are (in thousands):
<TABLE>
<CAPTION>
Related Third
Parties Parties Total
------- ------- -------
<S> <C> <C> <C>
1996 $ 812 $17,047 $17,859
1997 565 10,521 11,086
1998 180 7,932 8,112
1999 - 5,008 5,008
2000 - 4,736 4,736
After 2000 - 4,461 4,461
----- ------ ------
Total $1,557 $49,705 $51,262
===== ====== ======
</TABLE>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Leases with related parties involve tractors leased from certain officers
of the Company under three year non-cancelable operating leases. For 1995,
1994 and 1993, respectively, payments under these leases were $750,000,
$489,000 and $191,000, respectively.
At December 31, 1995, the Company had purchase commitments of
approximately $50 million for the purchase of tractors, trailers and
information systems in 1996 and 1997.
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. At December 31, 1995, in
connection with its accrued claims liabilities, the Company had established
approximately $7,000,000 of irrevocable letters of credit in favor of
insurance companies and pursuant to certain self insurance agreements. Under
the terms of the insurance agreements, the letters of credit may be drawn upon
in the event of default for failure to pay claims (within retention levels
specified in the policies).
8. NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock was computed using the weighted
average number of common and common equivalent shares, (calculated using the
treasury stock method) outstanding during the year. Computation of primary
common stock equivalents assumes exercise of dilutive options at the average
market price of FFEX's shares during each year. The computation of fully
diluted common stock equivalents assumes exercise of dilutive options at the
yearend market price. The primary weighted average number of shares were (in
thousands) 16,132 in 1995, 16,451 in 1994 and 16,212 in 1993. The fully
diluted weighted average number of shares were (in thousands) 16,132 in 1995,
16,451 in 1994 and 16,276 in 1993.
9. SHAREHOLDERS' EQUITY
As of December 31, 1995, 1994 and 1993, there were authorized 40 million
of FFEX's $1.50 par value common stock.
ESOP debt represents the amount of the Company's receivable from one of
its ESOPs. Current financial reporting practice requires this amount to be
reflected as a reduction of shareholders' equity.
FFEX has stock option plans adopted in 1994, 1993, 1987 and 1982 which
provide that options for shares of FFEX common stock may be granted to
officers and key employees of the Company at the fair market value on the date
of grant and to non-employee directors of FFEX at the greater of 50% of the
fair market value at date of grant or $1.00. The options expire 10 years from
the date of grant. Under the 1994, 1993 and 1982 stock option plans, options
may be granted for 10 years following shareholder ratification. Accordingly,
no future options may be granted under the 1982 plan. The following table
sets forth summarized information regarding the plans:
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding at beginning of year 1,001,318 1,009,520 1,034,275
Surrendered, forfeited or expired (16,297) (938) (6,060)
Granted 453,625 207,500 321,666
Exercised (217,069) (214,764) (340,361)
--------- --------- ---------
Options outstanding at end of year 1,221,577 1,001,318 1,009,520
========= ========= =========
Average price of options exercised during
the year $4.05 $4.87 $2.87
Average price of outstanding options at end
of year ($1.00 to $12.40) $7.86 $6.10 $4.65
Exercisable options 781,080 794,756 689,553
Options available for future grants 295,700 708,075 102,138
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Frozen Food Express Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Frozen
Food Express Industries, Inc., and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Frozen Food
Express Industries, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Dallas, Texas ARTHUR ANDERSEN LLP
February 15, 1996
22
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL, STOCK AND DIVIDEND INFORMATION
(Unaudited)
(in thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1995
Revenue $66,978 $73,837 $75,778 $75,752 $292,345
Income from operations 2,973 6,066 3,583 2,762 15,384
Net income 1,786 3,809 2,102 1,556 9,253
Net income per share of common stock
Primary and fully diluted .11 .23 .13 .10 .57
Cash dividends per share .03 .03 .03 .03 .12
Common stock price per share
High 13 7/8 13 10 3/4 10 1/8 13 7/8
Low 11 3/4 8 7/8 8 1/2 8 3/4 8 1/2
Common stock trading volume 979 2,937 1,593 1,539 7,049
1994
Revenue $60,301 $70,303 $72,535 $71,481 $274,620
Income from operations 2,934 5,986 5,477 4,739 19,136
Net income 1,745 3,787 3,434 2,908 11,874
Net income per share of common stock
Primary and fully diluted .10 .23 .21 .18 .72
Cash dividends per share .024 .024 .024 .024 .096
Common stock price per share
High 15 13 5/8 13 5/8 13 3/8 15
Low 11 12 12 3/8 11 7/8 11
Common stock trading volume 2,244 1,461 1,034 718 5,457
</TABLE>
As of March 10, 1996, the company had approximately 6,000 beneficial
shareholders, including participants in the company's Employee Stock Ownership
Plans.
23
EXHIBIT 21.1
SUBSIDIARIES OF
FROZEN FOOD EXPRESS INDUSTRIES, INC.
Jurisdiction of
Name of Subsidiary Incorporation
FFE Transportation Services, Inc. Delaware
W & B Refrigeration Service Company Delaware
Conwell Corporation Delaware
Lisa Motor Lines, Inc. Delaware
Global Refrigerant Management, Inc. * Texas
Global Refrigerant Management, Inc. * Delaware
FFE. Inc. Texas
Conwell Cartage, Inc. * Texas
Frozen Food Express, Inc. Texas
Middleton Transportation Company * Texas
Each active subsidiary does business under its corporate
name.
* Inactive
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF FROZEN FOOD EXPRESS INDUSTRIES, INC., AND
SUBSIDIARIES AS OF DECEMBER 31, 1995, AND THE CONSOLIDATED STATEMENTS OF
INCOME, CASH FLOW AND SHAREHOLDERS' EQUITY FOR THE YEAR ENDED
DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 7,480
<SECURITIES> 0
<RECEIVABLES> 38,618
<ALLOWANCES> 1,525
<INVENTORY> 8,221
<CURRENT-ASSETS> 61,647
<PP&E> 99,290
<DEPRECIATION> 46,860
<TOTAL-ASSETS> 123,662
<CURRENT-LIABILITIES> 36,623
<BONDS> 0
0
0
<COMMON> 25,921
<OTHER-SE> 49,100
<TOTAL-LIABILITY-AND-EQUITY> 123,662
<SALES> 23,964
<TOTAL-REVENUES> 292,345
<CGS> 0
<TOTAL-COSTS> 276,961
<OTHER-EXPENSES> 2,136
<LOSS-PROVISION> 1,496
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,248
<INCOME-TAX> 3,995
<INCOME-CONTINUING> 9,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,253
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
