UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________
Commission File Number 1-10006
Frozen Food Express Industries, Inc.
______________________________________________________________________________
(Exact name of registrant as specified on its charter)
Texas 75-1301831
______________________________________________________________________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1145 Empire Central Place Dallas, Texas 75247-4309
______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(2l4) 630-8090
______________________________________________________________________________
(Registrant's telephone number, including area code)
None
______________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
[X] Yes [ ] No
As of May 4, 1998, 16,893,007 shares of the Registrant's Common Stock,
$1.50 par value, were outstanding.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Page No.
<S> <C> <C>
Item l. Financial Statements
Consolidated Condensed Balance Sheets -
March 31, 1998 and December 31, 1997 2
Consolidated Statements of Income -
Three months ended March 31, 1998 and 1997 3
Consolidated Condensed Statements of Cash Flows-
Three months ended March 31, 1998 and 1997 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Exhibit 27.1 - Financial Data Schedule 12
</TABLE>
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<PAGE>
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, Dec. 31,
1998 1997
--------- --------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 17,149 $ 23,318
Accounts receivable, net 39,057 35,028
Inventories 9,913 10,608
Tires on equipment in use 4,717 4,775
Other current assets 4,647 3,253
------- -------
Total current assets 75,483 76,982
Property and equipment, net 55,219 53,333
Other assets 12,578 12,433
------- -------
$143,280 $142,748
======= =======
Liabilities and Shareholders' Equity
Current liabilities
Trade accounts payable $ 17,022 $ 14,389
Accrued claims liabilities 5,633 5,843
Accrued payroll 3,832 5,242
Other 4,308 6,529
------- -------
Total current liabilities 30,795 32,003
Long-term debt -- --
Deferred credits and non-current liabilities 17,923 17,668
------- -------
Total liabilities and deferred credits 48,718 49,671
------- -------
Shareholders' equity
Common stock 25,921 25,921
Paid-in capital 5,260 4,779
Retained earnings 65,926 65,038
------- -------
97,107 95,738
Less - Treasury stock 2,545 2,661
------- -------
Total shareholders' equity 94,562 93,077
------- -------
$143,280 $142,748
======= =======
</TABLE>
See accompanying notes.
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<PAGE>
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
Revenue
Freight revenue $70,641 $67,826
Non-freight revenue 6,870 4,860
------ ------
77,511 72,686
------ ------
Operating Expenses
Freight operating expenses
Salaries, wages and related expenses 18,997 16,517
Purchased transportation 15,648 15,924
Supplies and expenses 19,780 19,069
Revenue equipment rent 5,999 5,612
Communications and utilities 959 833
Insurance and claims 2,842 2,925
Depreciation 2,346 2,432
Operating taxes and licenses 1,282 1,193
Gain on sale of equipment (236) (552)
Miscellaneous expense 560 811
------ ------
68,177 64,764
------ ------
Non-freight costs and operating expenses 7,177 4,974
------ ------
75,354 69,738
------ ------
Income from operations 2,157 2,948
Interest and other expense 106 978
------ ------
Income before income tax 2,051 1,970
Provision for income tax 656 599
------ ------
Net income $ 1,395 $ 1,371
====== ======
Net income per share of common stock
Basic and diluted $ .08 $ .08
====== ======
Weighted average diluted shares 17,154 16,971
====== ======
</TABLE>
See accompanying notes.
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<PAGE>
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------
1998 1997
------- ---------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 607 $ (5,176)
------ -------
Cash flows from investing activities
Expenditures for property and equipment (7,282) (10,615)
Proceeds from sale of property and equipment 1,364 1,800
Company-owned life insurance and other (131) (466)
------ -------
Net cash used in investing activities (6,049) (9,281)
------ -------
Cash flows from financing activities
Borrowings under revolving credit agreement -- 10,000
Payments against revolving credit agreement -- (1,000)
Dividends paid (507) (500)
Net treasury stock activity (220) 307
------ -------
Net cash (used in) provided by financing activities (727) 8,807
------ -------
Net decrease in cash and cash equivalents (6,169) (5,650)
Cash and cash equivalents at beginning of year 23,318 6,670
------ -------
Cash and cash equivalents at end of quarter $17,149 $ 1,020
====== =======
</TABLE>
See accompanying notes.
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<PAGE>
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
March 31, 1998 and 1997
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include Frozen Food Express
Industries, Inc. (FFEX) and its subsidiary companies (the company), all of
which are wholly owned. All significant intercompany accounts and
transactions have been eliminated in consolidation. The financial
statements included herein have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and have not
been audited or reviewed by independent public accountants. In the opinion
of management, all adjustments (which consisted only of normal recurring
accruals) necessary to present fairly the financial position and results of
operations have been made. Pursuant to SEC rules and regulations, certain
information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted from these statements unless significant changes
have taken place since the end of the most recent fiscal year. FFEX
believes that the disclosures contained herein, when read in conjunction
with the financial statements and notes included, or incorporated by
reference, in FFEX's Form 10-K filed with the SEC on March 27, 1998, are
adequate to make the information presented not misleading. It is
suggested, therefore, that these statements be read in conjunction with the
statements and notes (included, or incorporated by reference), in the
aforementioned report on Form 10-K.
2. FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH
During the three months ended March 31, 1998 and 1997, the company funded
contributions to its Employee Savings Plan by transferring 86,671 and
27,052 shares, respectively, of treasury stock to the Plan trustee. The
fair market value of the transferred shares was approximately $819,000 for
1998 and approximately $250,000 for 1997.
3. SHAREHOLDERS' EQUITY
As of March 31, 1998 and December 31, 1997, respectively, there were
16,904,000 and 16,836,000 shares of stock outstanding.
4. COMMITMENTS AND CONTINGENCIES
The company has accrued for costs related to public liability and work-
related injury claims, some of which involve litigation. The aggregate
amount of these claims is significant. In the opinion of management, these
actions can be successfully defended or resolved, and any additional costs
incurred over amounts accrued will not have a material adverse effect on
the company's financial position or results of operations.
5. EARNINGS PER SHARE
During 1997, the company adopted Financial Accounting Standard No. 128,
"Earnings Per Share" (FAS 128). FAS 128 requires the replacement of
"primary" earnings per share with "basic" earnings per share and "fully
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<PAGE>
diluted" earnings per share with "diluted" earnings per share.
Accordingly, weighted average shares outstanding for 1997 have been
restated to conform with FAS 128. For the first three months of 1997 and
1998, basic shares outstanding were (in thousands) 16,671 and 16,860,
respectively. Differences between the number of basic and diluted weighted
average shares outstanding, all of which result from dilutive stock options
granted by the company, were (in thousands) 300 in 1997 and 294 in 1998
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The table below sets forth, as a percentage of freight revenue, certain
major operating expenses for the three-month periods ended March 31, 1998
and 1997.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------
1998 1997
----- -----
<S> <C> <C>
Salaries, wages and related expenses 26.9% 24.4%
Purchased transportation 22.2 23.5
Supplies and expenses 28.0 28.1
Revenue equipment rent 8.5 8.3
Insurance and claims 4.0 4.3
Depreciation 3.3 3.6
Other 3.6 3.3
---- ----
Total freight operating expenses 96.5% 95.5%
==== ====
</TABLE>
During the first quarter of 1998, revenue rose by 6.6% to $77,511,000 with
freight revenue up $2,815,000, or 4.2% and non-freight revenue up
$2,010,000. Less-than-truckload (LTL) revenue increased by 3.2% while full-
truckload revenue rose by 4.6% as compared to the same period of 1997.
During the first three months of 1997 freight revenue included fuel
adjustment charges, the amount of which was negligible during the 1998
quarter. These charges, which are triggered by increases in the market
price of fuel, impacted the percentage gain in freight revenue, which,
excluding 1997's fuel adjustment charges, rose by 5.2% during 1998.
The 1998 increase in non-freight revenue was primarily attributable to
increased sales of new trailers and refrigeration units.
The number of tractors in the fleet of company-operated, full-truckload
equipment rose by approximately 70 to about 1,200 by the end of the first
quarter of 1998, while the number of full-truckload tractors provided by
owner-operators fell by almost 40 to approximately 340.
Full-truckload activities, which contributed 68% of freight revenue during
both first quarters of 1998 and 1997, are conducted primarily with company-
operated equipment, while LTL activities are conducted primarily with
equipment provided by owner-operators. Fluctuations in the amount of total
freight handled by company-operated versus owner-operated provided
equipment impacted the percent of freight revenue absorbed by the various
categories of operating expenses between the two quarters. The proportion
of full-truckload revenue generated by company-operated trucks during the
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<PAGE>
first quarter of 1998 was 75.1%, as compared to 73.1% during the first
quarter of 1997. Company-operated trucks generated 29.9% and 27.2% of
total LTL revenue for the first three months of 1998 and 1997,
respectively.
During the first quarter of 1998, the percentage of freight revenue
absorbed by salaries, wages and related expenses was 26.9%, as compared to
24.4% during the year-ago quarter. This increase is primarily the result
of the increase in the percent of total freight hauled in company-operated
trucks, increased cost associated with work-related injuries and other
fringe benefits, and decreased revenue per mile (primarily related to the
decline in fuel adjustment charges).
The portion of freight revenue absorbed by purchased transportation, which
consists principally of payments to owner-operators, fell from 23.5% in
1997 to 22.2% in 1998. This decrease is the result of the decrease in the
percent of total freight hauled by owner-operator-provided trucks.
Supplies and expenses, which include costs associated with fuel for and
maintenance of company-operated equipment, fell from 28.1% of freight
revenue during the first three months of 1997 to 28.0% for the comparative
1998 period. Savings from 1998's falling per-gallon fuel prices were
substantially offset by increased expenditures related to maintenance of
company-operated equipment and increased costs associated with driver
recruiting.
Insurance and claims expenses fell from 4.3% to 4.0% of freight revenue
between the first quarters of 1997 and 1998 as a result of more favorable
experience with regard to claims associated with vehicular accidents.
Revenue equipment rent, which is primarily related to the company-operated,
full-truckload fleet, rose from 8.3% to 8.5% of freight revenue while
depreciation expense declined from 3.6% to 3.3% of freight revenue. These
changes resulted primarily from the addition of new leased tractors and
from the replacement of owned equipment with new leased tractors. Gains on
sale of equipment fell from $552,000 to $236,000 between the quarters. The
volume of owned equipment dispositions tends to vary between quarters.
Income from operations fell by 26.8% during the first quarter of 1998.
Interest and other expense declined from $978,000 to $106,000 between the
two quarters. This decrease is related to increased income from the
investment of cash during the 1998 quarter and to lower net expenses
associated with the company-owned life insurance (COLI) program.
Pre-tax income rose by 4.1% during the first quarter of 1998.
The provision for income tax was 32% of pre-tax income for the first
quarter of 1998, as compared to 30.4% for 1997. The increased effective
income tax rate is primarily attributable to reduced tax savings related to
the impact of legislation which limits deductibility of interest expenses
associated with COLI programs. In addition, the Internal Revenue Service
has initiated other challenges of COLI programs. In light of these
developments, the company has begun a phase-out of its COLI program.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The company continues to maintain a strong financial structure with a good
working capital position and strong capital resources. At March 31, 1998,
working capital was $44.7 million as compared to $45.0 million at December
31, 1997.
During the first quarter of 1997, net cash used in operating activities was
$5.2 million, as compared to net cash provided by operating activities of
$607,000 for 1998. This change is related primarily to fluctuations in
working capital requirements.
As of March 31, 1998 and December 31, 1997, the unused portion of the
company's $50,000,000 revolving credit facility totaled approximately
$45,000,000.
OUTLOOK
Certain statements contained in this Report on Form 10-Q, including
statements regarding the anticipated development and expansion of the
company's business or the industry in which the company operates, the
intent, belief or current expectations of the company, its directors or its
officers, primarily with respect to the future operating performance of the
company and other statements contained herein regarding matters that are
not historical facts, are "forward-looking" statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995). Because
such statements involve risks and uncertainties, actual results may differ
materially from those expressed or implied from such forward-looking
statements. These risks and uncertainties include demand for the company's
services and products, which may be affected by, among other things,
competition, weather conditions and the general economy, the availability
and cost of labor, equipment, fuel and supplies, the impact of changes in
the tax and regulatory environment in which the company operates,
operational risks and insurance, risks associated with the technologies and
systems used by the company and the other risks and uncertainties described
in the company's Annual Report on Form 10-K which was filed with the
Commission on March 27, 1998.
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<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the
quarter ended March 31, 1998.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of l934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
FROZEN FOOD EXPRESS INDUSTRIES, INC.
-----------------------------------------------
(Registrant)
May 08, 1998 By: /s/Stoney M. Stubbs, Jr.
------------------------------------------
Stoney M. Stubbs, Jr.
Chairman of the Board
May 08, 1998 By: /s/Burl G. Cott
------------------------------------------
Burl G. Cott
Senior Vice President
Principal Financial and Accounting Officer
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<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 MARCH 31, 1998, AND THE CONSOLIDATED STATEMENTS OF INCOME
AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 17,149
<SECURITIES> 0
<RECEIVABLES> 41,903
<ALLOWANCES> 2,846
<INVENTORY> 9,913
<CURRENT-ASSETS> 75,483
<PP&E> 97,984
<DEPRECIATION> 42,765
<TOTAL-ASSETS> 143,280
<CURRENT-LIABILITIES> 30,795
<BONDS> 0
0
0
<COMMON> 25,921
<OTHER-SE> 68,641
<TOTAL-LIABILITY-AND-EQUITY> 143,280
<SALES> 6,870
<TOTAL-REVENUES> 77,511
<CGS> 0
<TOTAL-COSTS> 75,354
<OTHER-EXPENSES> 106
<LOSS-PROVISION> 446
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,051
<INCOME-TAX> 656
<INCOME-CONTINUING> 1,395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,395
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
