UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-10006
FROZEN FOOD EXPRESS INDUSTRIES, INC.
(Exact name of registrant as specified 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 3, 1998, 16,902,217 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 23, 1998, 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, 1997, are incorporated by reference into Parts I and II of this Form 10-K.
<PAGE>
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 52 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, each 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.
<PAGE>
Following is a summary of certain financial and statistical data for the
years ended December 31, 1993 through 1997 (LTL data also includes distribution
shipments):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue*
Full-truckload $190,576 $195,458 $180,598 $163,988 $129,549
Less-than-truckload 95,522 92,496 87,783 88,328 80,965
Non-freight 30,470 23,474 23,964 22,304 16,875
------- ------- ------- ------- -------
Total $316,568 $311,428 $292,345 $274,620 $227,389
======= ======= ======= ======= =======
Operating ratio 95.2% 95.1% 94.7% 93.0% 93.2%
Full-truckload
Loaded miles* 143,902 145,785 135,469 121,106 97,753
Shipments* 156.9 158.1 142.9 128.1 106.6
Revenue per shipment 1,215 1,236 1,264 1,280 1,215
Loaded miles per load 917 922 948 945 917
Less-than-truckload
Hundredweight* 8,537 8,652 8,296 8,670 8,116
Revenue per hundredweight 11.19 10.69 10.58 10.19 9.98
Shipments* 293.1 304.6 292.1 305.2 292.0
Revenue per shipment 326 304 301 289 277
* 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
------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Full-truckload 67% 68% 67% 65% 62%
LTL and distribution 33 32 33 35 38
--- --- --- --- ---
Total 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
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.
<PAGE>
Freight revenue from international activities was less than 5% of total
freight revenue during each of the five years ending December 31, 1997
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 and comprised primarily of carriers generating less than $50 million
in annual revenue. Industry publications report that only 13 temperature-
controlled carriers generated $100 million or more of revenue in 1996. In
addition, many major food companies, food distribution firms and grocery chains
continue to transport a portion of their freight 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 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.
During 1987-1988 the company began to commit its own equipment to the
temperature-controlled, full-truckload segment. From the beginning of 1993
through 1997, the company-operated, full-truckload tractor fleet increased from
about 700 units to 1,130 units. During the same period, the company has
emphasized expansion of its fleet of independent contractor ("owner-operator")
provided full-truckload tractors. As of December 31, 1997, the company's full-
truckload fleet included 378 tractors provided by owner-operators as compared
to 217 at the beginning of 1993. From 1993 through 1997, revenue from full-
truckload operations increased from 62% to 67% of total freight revenue.
<PAGE>
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 five years ending December 31, 1997, operations
were not significantly affected by driver shortages. 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. Shortages of from 20 to 40 drivers on any
given day were experienced during the 1997 second half. At the end of 1997,
however, the company had drivers for all of its tractors and had about 225
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 portion of the revenue from each load. At the end of
1997, the company had contracts for 378 owner-operator tractors in its full-
truckload divisions and 250 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
------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Full-truckload revenue 26% 28% 24% 22% 23%
Less-than-truckload revenue 71% 71% 68% 65% 67%
revenue
</TABLE>
As competition for employee-drivers has increased, other trucking
companies have sought to initiate or expand owner-operator fleets. Due
primarily to the increased level of competition for owner-operator provided
equipment, the number of owner-operator-provided trucks declined by about 75
trucks during 1997 with most of this decrease occurring in the first half of
the year. The company is implementing programs designed to expand its fleet of
owner-operator-provided trucks during 1998.
<PAGE>
- FUEL: Average per-gallon fuel costs (including fuel taxes) paid by the
company decreased by 4% during 1997 as compared to 1996. Such costs increased
by 11% in 1996 over 1995. The company attempts to mitigate the effect of
fluctuating fuel costs primarily by using more fuel efficient tractors, by
aggressively managing fuel purchasing and, when market conditions allow, by
obtaining freight-rate increases and fuel-adjustment charges from its
customers. Fuel price fluctuations result from many external market factors,
most of which cannot be influenced or predicted by the company. In addition,
each year several states increase their per-gallon fuel taxes. Recovery of
future increases in fuel prices and fuel taxes, if any, will continue to depend
upon competitive freight-market conditions.
- 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. 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. Insurance claims expense can vary significantly from year to year.
Reserves representing the company's estimate of ultimate claims outcome are
established based on the information available at the time of an incident. As
additional information regarding the incident becomes available, any necessary
adjustments are 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.
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 a continuing program of random testing for use
of such substances. Applicants who test positive for drugs are turned away and
drivers who test positive for such substances are immediately disqualified from
driving.
For the last six years, the company's principal operating subsidiary has
placed among the top three of the Truckload Carriers Association safety
competition for fleets which travel more than 100 million miles. For 1996, the
company was named the first place winner in its category.
<PAGE>
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 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 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.
During 1996, the company completed the conversion of its full-truckload
fleets to the use of computer and satellite technology to enhance efficiency
and customer service. The satellite-based communications system provides
automatic hourly position updates of each full-truckload tractor and permits
real-time communication between operations personnel and drivers. Dispatchers
relay pick-up, delivery, weather, road and other information to the drivers
while shipment status and other information are relayed by the drivers to the
company's computers via the satellite.
The company plans to add about 100 tractors to its company-operated, full-
truckload fleet during 1998. Any other changes in the fleet will depend upon
acquisitions, if any, of other motor carriers, developments in the nation's
economy, demand for the company's services and the availability of qualified
employee drivers. Continued emphasis will be placed on improving the operating
efficiency and increasing the utilization of this fleet through enhanced driver
training and retention and reducing the percentage of empty, non-revenue
producing miles.
- 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 and 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 1997, the LTL operation handled about 293,100
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.
<PAGE>
At the end of 1997, the company's full-truckload tractor fleet consisted
of 1,130 tractors owned or leased by the company and 378 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 provides a wide range of transportation and logistics services
which include 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. During 1997, the company's ability
to offer intermodal service was negatively impacted by the reduced capacity of
railroad companies. Less than 5% of the company's domestic full-truckload
shipments is transported in this manner and this service is not expected to
expand until current problems affecting the rail service are resolved.
By providing intermodal transportation services, the company is able to
transport more loaded trailers (which require relatively lower capital
investment) while engaging fewer tractors (which involve relatively higher
capital investment). When the emphasis on intermodal transportation is
renewed, 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, 1993, to 1.5:1 at
yearend 1997 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 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-driver recruitment in El Paso, Tyler,
Wichita Falls and Waco, Texas; Phoenix, Arizona; Baton Rouge and Shreveport,
Louisiana; Tulsa, Oklahoma; Charlotte, North Carolina; and Carlisle,
Pennsylvania.
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. The company plans to add about 100 and replace about 350 of its
tractors during 1998. In addition, about 75 trailers will be added and about
250 will be replaced during the year. 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.
<PAGE>
REGULATION
The company's interstate operations are subject to regulation by the
United States Department of Transportation, which regulates driver
qualifications, safety, equipment standards and insurance requirements. The
company is also subject to regulation of various state regulatory agencies with
respect to certain aspects of its operations. State regulations generally
involve the weight and dimensions of equipment and safety.
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, 1997 and 1996, is
as follows:
<TABLE>
<CAPTION
Dec. 31, 1997 Dec. 31, 1996
------------- -------------
<S> <C> <C>
Freight Operations:
Drivers and Trainees 1,740 1,667
Non-driver personnel
Full time 668 658
Part time 149 147
----- -----
Total Freight Operations 2,557 2,472
Non-freight Operations 181 132
----- -----
Total 2,738 2,604
===== =====
</TABLE>
NON-FREIGHT BUSINESSES
The company is engaged in a number of non-freight businesses. The largest
such enterprise is a franchised dealer and repair facility for Wabash trailers
and Carrier-Transicold brand truck and trailer refrigeration equipment. This
dealer also provides refrigeration units and repair service for the company's
trailers. Other businesses are engaged in the rental of trailers, used tractor
and trailer sales, wholesale distribution of motor vehicle air conditioning
parts and the remanufacturing of mechanical air conditioning and refrigeration
components.
<PAGE>
Collectively, these non-freight businesses contributed 9.6% of the
company's 1997 consolidated revenue and 7.1% of the consolidated operating
profit (after elimination of inter-company transactions).
OUTLOOK
Certain statements contained in this Report on Form 10-K, including the
portions of the Company's Annual Report to Shareholders which are incorporated
herein by reference, 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 this Report on Form
10-K, including the portions of the Company's Annual Report to Shareholders
which are incorporated herein by reference.
YEAR 2000
During 1997, progress was made in the project to convert and update the
company's computer systems. The primary objectives of the conversion and update
efforts include:
- To enhance the ability of the company to deliver interactive shipment,
dispatch and billing information to customers with electronic data
interchange ("EDI") capabilities.
- To automate certain tasks that have traditionally been performed
manually by drivers, dispatchers and office employees.
- To provide management and other system users with improved and more
current information regarding fleet operations, order status and
financial results.
The company is aware of potential problems associated with existing
computer systems as the millennium year (Year 2000) approaches. Systems that
do not properly recognize the Year 2000 could generate erroneous data or cause
the system to fail.
The computer systems currently in use by the company are primarily
mainframe-based, "old" technology systems. The new systems being developed are
based on more current technology which provide the aforementioned enhancements
to functionality while at the same time addressing most issues associated with
the millennium year. Accordingly, it is not practicable to isolate the portion
of "new" system development costs that are specifically associated with the
"Year 2000" problem.
<PAGE>
During the fourth quarter of 1997, one of the company's full-truckload
fleets was successfully converted to the system currently being developed. The
operations of the converted fleet are not as complex as the operations of other
fleets, primarily in the areas of rating, billing, LTL operations, owner-
operator settlements, and EDI. In order to complete the conversion, the
development and testing of these new systems must be completed. Management
expects the conversion to the "new" Year 2000 compliant system to be complete
by December 31, 1998.
Efforts to evaluate and resolve the company's exposure to "Year 2000"
problems in other areas are continuing. Areas being addressed include the
millennium problem as it affects the operation of trucks and trailers,
environmental systems, non-freight operations, and the systems of service
providers (such as banks) and of key vendors and customers. At this point, an
estimate of future costs to be incurred has not been developed.
If the company's remediation plans are not successful, there could be a
significant disruption of the company's ability to transact business with its
major customers and suppliers.
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 three structures totaling 34,000 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, Florida, 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.
<PAGE>
At December 31, 1997, the company also maintained leased terminal or
office facilities in or near the following cities:
Atlanta, GA Nashville, TN
Baton Rouge, LA Norman, OK
Cincinnati, OH Oakland, CA
Denver, CO Oklahoma City, OK
Fort Worth, TX Philadelphia, PA
Harlingen, TX Phoenix, AZ
Houston, TX Salt Lake City, UT
Kansas City, MO Shreveport, LA
Laredo, TX Tulsa, OK
Los Angeles, CA Waco, TX
Lufkin, TX Wichita Falls, TX
Memphis, TN
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, 1997 and 1996:
<TABLE>
<CAPTION>
Age in Years
----------------------------------------
Tractors Less than 1 1 thru 3 4 or more Total
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ----- ---- ---- ---- ----- -----
Company-operated 344 477 851 722 25 3 1,220 1,202
Owner-operator provided 62 90 197 219 369 394 628 703
--- --- ----- --- --- --- ----- -----
Total 406 567 1,048 941 394 397 1,848 1,905
=== === ===== === === === ==== =====
</TABLE>
<TABLE>
<CAPTION>
Age in Years
----------------------------------------
Trailers Less than 1 1 thru 5 6 or more Total
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ----- ----- ---- ---- ----- -----
Company-provided 397 414 2,120 1,823 267 761 2,784 2,998
Owner-operator provided -- -- 9 13 14 7 23 20
---- ---- ----- ----- ---- ---- ----- -----
Total 397 414 2,129 1,836 281 768 2,807 3,018
==== ==== ===== ===== ==== ==== ===== =====
</TABLE>
<PAGE>
The increases in the number of company-operated tractors and trailers
during 1997 and 1996 resulted primarily from the addition of new equipment
during each year for use in the company's full-truckload operations.
Approximately 80% of the company's 2,784 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. Full-truckload trailers used in dry freight operations are 53 feet long,
while temperature controlled operations are conducted with both 48 and 53 foot
refrigerated trailers.
The company's general policy is to replace its company-operated, heavy-
duty tractors every three years. 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 1997.
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, 1997, 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 18 and 19 of the Annual Report to
Shareholders for the year ended December 31, 1997, is incorporated by reference
into this Report.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS 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
15 through 17 of the Annual Report to Shareholders for the year ended December
31, 1997, 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 20 through 28 of the
Annual Report to Shareholders for the year ended December 31, 1997, are
incorporated by reference into this Report:
Consolidated Statements of Income -- Years ended December 31, 1997, 1996 and
1995.
Consolidated Balance Sheets -- December 31, 1997 and 1996.
Consolidated Statements of Cash Flows -- Years ended December 31, 1997, 1996
and 1995.
Consolidated Statements of Shareholders' Equity -- Years ended December 31,
1997, 1996 and 1995.
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 23, 1998, 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 23, 1998 appearing under the captions "Executive Compensation" and
"Transactions with Management".
<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 23, 1998, 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 23, 1998, appearing under the captions "Nominees for Directors",
"Transactions with Management" and "Executive Compensation".
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<TABLE>
<CAPTION>
(a) 1. & 2. Financial Statements and Financial Statement Schedules:
<S> <C> <C>
The financial statements listed in the index to financial
statements and financial statement schedules in Item 8 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).
<PAGE>
10.2 Amended and Restated Credit Agreement, dated December 30, 1992,
among the registrant and its subsidiaries and Wells Fargo Bank
(Texas, National Association) (formerly First Interstate Bank
of Texas, N.A.), as agent; Chase Bank of Texas, N.A. (formerly
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).
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).
<PAGE>
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).
10.12 Frozen Food Express Industries, Inc. Employee Stock Option Plan
(filed as Exhibit 4.1 to Registrant's Registration #333-21831
as filed with the Commission, and incorporated herein by
reference).
10.13 FFE Transportation Services, Inc. 401(k) Wrap Plan (filed as
Exhibit 10.13 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996; SEC File Number 1-
10006 and incorporated herein by reference).
10.14 First through Sixth Amendments to Savings Plan for Employees of
Frozen Food Express Industries, Inc. (filed as Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996; SEC File Number 1-10006 and
incorporated herein by reference).
11.1 Computation of net income per diluted share of common stock
(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, 1997).
13.1 Annual Report to Shareholders of the Registrant for the year
ended December 31, 1997. (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 16 of this Report.
27.1 Financial Data Schedule for the fiscal year ending December 31,
1997.
27.2 Restated Financial Data Schedule for the three, six and nine
month reporting periods ended March 31, June 30 and September
30, 1997, respectively and for the fiscal year ending December
31, 1996.
27.3 Restated Financial Data Schedule for the three, six and nine
month reporting periods ended March 31, June 30 and September
30, 1996, respectively and for the fiscal year ending December
31, 1995.
(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.
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<TABLE>
<CAPTION>
Annual
Report
to
Shareholders'
-------------
<S> <C>
Consolidated Statements of Income -- Years ended December 31,
1997, 1996 and 1995 20
Consolidated Balance Sheets -- December 31, 1997 and 1996 21
Consolidated Statements of Cash Flows -- Years ended December 31,
1997, 1996 and 1995 22
Consolidated Statements of Shareholders' Equity -- Years ended
December 31, 1997, 1996 and 1995 23
Notes to Consolidated Financial Statements 24
Report of Arthur Andersen LLP, Independent Public Accountants 28
Supplementary Information -- Quarterly financial data (unaudited) 28
</TABLE>
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, 1997, are hereby incorporated by reference, and are
filed herewith as Exhibit 13.1.
<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 26, 1998 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 26, 1998 /s/ Stoney M. Stubbs, Jr.
-------------- ------------------------------------------------
Stoney M. Stubbs, Jr.,
Chairman of the Board of Directors and President
(Principal Executive Officer)
Date: March 26, 1998 /s/ Burl G. Cott
-------------- -----------------------------------------------
Burl G. Cott,
Senior Vice President and Director
(Principal Financial and Accounting Officer)
Date: March 26, 1998 /s/ Charles G. Robertson
-------------- -----------------------------------------------
Charles G. Robertson
Executive Vice President and Director
Date: March 26, 1998 /s/ Edgar O. Weller
-------------- -----------------------------------------------
Edgar O. Weller
Vice Chairman of the Board of Directors
<PAGE>
Date: March 26, 1998 /s/ W. Mike Baggett
-------------- -----------------------------------------------
W. Mike Baggett, Director
Date: March 26, 1998 /s/ Brian R. Blackmarr
-------------- -----------------------------------------------
Brian R. Blackmarr, Director
Date: March 26, 1998 /s/ Leroy Hallman
-------------- -----------------------------------------------
Leroy Hallman, Director
Date: March 26, 1998 /s/ W. Grogan Lord
-------------- -----------------------------------------------
W. Grogan Lord, Director
Date: March 26, 1998 /s/ T. Michael O'Connor
-------------- -----------------------------------------------
T. Michael O'Connor, Director
EXHIBIT 13.1
THIS FORM 10-K INCORPORATES CERTAIN SECTIONS OF THE REGISTRANT'S 1997
ANNUAL REPORT TO SHAREHOLDERS. ACCORDINGLY, ONLY THE PORTIONS OF REGISTRANT'S
1997 ANNUAL REPORT TO SHAREHOLDERS WHICH ARE INCORPORATED BY REFERENCE INTO
THIS FORM 10-K ARE FILED AS THIS EXHIBIT 13.1.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Revenue (including revenue from non-freight activities) increased by 1.7%
in 1997 to $316,568,000. For 1996, revenue totaled $311,428,000 and was 6.5%
above 1995 revenue of $292,345,000. Freight revenue declined by 0.6% during
1997 after posting an increase of 7.3% in 1996. Net income for 1997, however,
increased by 13.3% after declining by 7.8% during 1996.
Available trucking capacity exceeded the demand for that capacity during
1995, 1996 and the early part of 1997. During that time, decreased utilization
of trucks, caused by this overcapacity in the refrigerated trucking industry,
contributed to decreased productivity and placed downward pressure on full-
truckload freight rates. To achieve more balance between capacity and the
demand for its services, the company reduced the expansion of its company-
operated, full-truckload fleet during 1997. Also, a net decline of about 75
owner-operator-provided, full-truckload trucks occurred during the first half
of 1997. At the end of 1997, the company's full-truckload fleet numbered just
over 1,500 trucks, as compared to about 1,600 in mid-1996. Primarily due to the
reduced number of trucks, the number of full-truckload shipments declined by
0.8% during 1997 as compared to a 10.6% increase during 1996.
During the 1995-1997 period, fluctuations in the demand for the company's
less-than-truckload (LTL) services were less pronounced. LTL revenue posted
increases of 3.3% in 1997 and 5.4% in 1996. After remaining essentially
unchanged during 1996, revenue per LTL hundredweight increased by 4.7% and
revenue per LTL shipment increased by 7.2% in 1997, while the number of LTL
shipments increased by 4.3% in 1996 and declined by 3.8% during 1997.
The company plans to add about 100 trucks to its company-operated, full-
truckload fleet during 1998. Continued emphasis will be placed on improving the
operating efficiency and increasing the utilization of this fleet through
enhanced driver training and retention and reducing the percentage of empty,
non-revenue-producing miles.
The operation of the company's full-truckload fleets is facilitated by
computer and satellite technology that enhances efficiency and customer
service. The satellite-based communications system provides automatic hourly
position updates of each full-truckload tractor and permits real-time
communication between operations personnel and drivers. Dispatchers relay pick-
up, delivery, weather, road and other information to drivers while shipment
status and other information are relayed by the drivers to the company's
computers via satellite.
The company provides a wide range of transportation and logistics services
which include 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. During 1997, the company's ability to
offer intermodal service was negatively impacted by the reduced capacity of
railroad companies. Less than 5% of the company's domestic full-truckload
shipments is transported in this manner and this service is not expected to
expand until current problems affecting rail service are resolved.
<PAGE>
MANAGEMENT'S DISCUSSION, Continued
For several years, the company has experienced cyclical shortages and
surpluses of qualified employee-drivers for company-operated tractors. Employee-
driver turnover has been high. This situation, which has been typical in the
industry, increases costs of employee-driver compensation, training and
recruiting. During 1995, 1996 and the first half of 1997, the company did not
experience a shortage of employee-drivers, although employee-driver turnover
continued at a high rate. Shortages of from 20 to 40 drivers on any given day
were experienced during the 1997 second half. Significant efforts are
continually devoted to recruiting and retaining qualified employee-drivers and
to improving their job satisfaction. As a part of its driver recruiting and
training program, the company partners with selected driver training schools.
The company pre-qualifies prospective employee-drivers and agrees to assist in
funding their educational costs, contingent upon successful completion of the
training curriculum, final qualification as an employee-driver, and continuing
employment as a driver for the company. Monetary incentives are earned by
employee-drivers meeting certain targeted fuel economy, safety and tenure
goals. Employee-drivers, as well as all other qualified employees, participate
in stock option, 401(k), group health and other benefit programs. In the
future, certain aspects of employee-drivers' compensation will continue to be
tied to improvements in productivity and quality of service. Recovery of future
cost increases, if any, associated with driver turnover and compensation will
depend upon competitive freight-market conditions.
Income from operations declined by 0.6% during 1997 to $15,060,000 as
compared to $15,145,000 in 1996 and $15,384,000 in 1995. The net margin for
1997, 1996 and 1995 was 3.1%, 2.7% and 3.2%, respectively.
Changes in the percentage of total revenue generated from full-truckload
versus LTL shipments, as well as changes in the mix of company-provided versus
owner-operator-provided equipment and in the mix of leased versus owned
equipment, contributed to variations in related operating and interest expenses
during the three-year period.
Salaries, wages and related expenses, as a percentage of freight revenue,
for 1997, 1996 and 1995 were 25.5%, 24.7% and 25.6%, respectively. These
variations are attributable primarily to changes in the relative size of the
company-operated, full-truckload fleet as compared to the number of trucks
provided by owner-operators. The percentage of total full-truckload revenue
from shipments transported on company-operated trucks was 74.4% in 1997, 71.8%
in 1996 and 75.9% in 1995.
The company has traditionally relied on owner-operator-provided equipment
to transport much of its customers' freight. As competition for employee-
drivers has increased, other trucking companies have sought to initiate or
expand owner-operator fleets. Due primarily to the increased level of
competition for owner-operator-provided equipment, the number of owner-operator-
provided trucks declined by about 75 trucks during 1997 with most of this
decrease occurring in the first half of the year. As the percentage of total
freight handled by company-operated equipment rose during 1997, the percent of
freight revenue absorbed by purchased transportation (primarily payments to
owner-operators) declined from 24.0% in 1996 to 23.1% in 1997. Purchased
transportation expense was 21.9% in 1995. The company is implementing programs
designed to expand its fleet of owner-operator-provided trucks during 1998.
<PAGE>
MANAGEMENT'S DISCUSSION, Continued
Average per-gallon fuel costs (including fuel taxes) paid by the company
decreased by 4% during 1997 as compared to 1996. Such costs increased by 11% in
1996 over 1995. The company attempts to mitigate the effect of fluctuating fuel
costs primarily by using more fuel efficient tractors, by aggressively managing
fuel purchasing and, when market conditions allow, by obtaining freight rate
increases and fuel-adjustment charges from its customers. Fuel price
fluctuations result from many external market factors, most of which cannot be
influenced or predicted by the company. In addition, each year several states
increase their per-gallon fuel taxes. Recovery of future increases in fuel
prices and fuel taxes, if any, will continue to depend upon competitive freight-
market conditions.
The total of revenue equipment rent and depreciation expense increased to
11.2% of freight revenue in 1997 from 10.7% for 1996 and 10.5% for 1995. These
increases were due in part to the increased use of leasing to finance the
company's fleet. Equipment rental includes a component of interest-related
expense which is classified as non-operating expense when the company incurs
debt to acquire equipment. Equipment rent and depreciation also are affected by
the replacement of less expensive (three year old) company-operated tractors
and (seven year old) trailers with more expensive new equipment. The decreased
proportion of tractors provided by owner-operators was also a factor in the
proportional increase in equipment rental.
Insurance and claims expense, as a percentage of freight revenue, was 4.1%
in 1997, 4.5% in 1996 and 5.4% in 1995. Insurance premiums do not significantly
contribute to overall insurance costs, partially because the company carries
large deductibles under its policies of liability insurance. Claims against the
company for highway accidents are the primary component of insurance and claims
expense. These expenses tend to vary with miles traveled and with changes in
the mix of full-truckload versus LTL operations. Insurance costs on a per-mile
basis declined by 16% during 1996, and declined by an additional 10% during
1997. Favorable claims experience was a primary reason for these declines.
Driver selection, safety training, performance evaluations and rewards for
accident-free driving will continue to be major areas of concentration. FFE
Transportation Services, Inc. (FFE), the company's largest subsidiary, was
awarded first place among trucklines which run over 100 million miles annually
in the Truckload Carriers Association's 1996 National Fleet Safety Contest.
FFE's safety record has placed it in the top three competitors among the
largest full-truckload motor carriers in each of the past six years.
Insurance and claims expense can vary significantly from year to year.
Reserves representing the company's estimate of ultimate claims outcome are
established based on the information available at the time of an incident. As
additional information regarding the incident becomes available, any necessary
adjustments are 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.
Gains from the sale of equipment rose from $706,000 in 1995 to $1,069,000
in 1996 and then to $1,149,000 in 1997. The amount of gains from the sale of
equipment depends primarily upon conditions in the market for used equipment.
<PAGE>
MANAGEMENT'S DISCUSSION, Continued
The company also has operations engaged in the sale and service of
refrigeration equipment and in the sale and repair of trailers used in freight
transportation. Non-freight revenue associated with these operations totaled
$30,470,000 during 1997, $23,474,000 during 1996 and $23,964,000 during 1995.
The increase in non-freight revenue during 1997 is attributable to increased
sales of trailers, the initiation of an operation which rebuilds and
distributes refrigeration compressors and increased sales of trailer
refrigeration equipment. Operating profits from these operations of $1,076,000,
$942,000 and $1,753,000 were posted for 1997, 1996 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
during 1995 and 1996. The results of these programs, together with the new
operations and related increased revenue, improved non-freight operating
results in 1997.
For 1997, 1996 and 1995, interest and other expense was $1,244,000,
$3,370,000 and $2,136,000, respectively. During the three years ending December
31, 1997, bank debt was reduced from $9,000,000 to zero. The increase in
interest and other expenses during 1996 was primarily attributable to net pre-
tax expenses associated with a company-owned life insurance ("COLI") program
begun in 1994. During 1996, the President signed legislation which, effective
January 1, 1996, limits the deductibility of COLI-related interest. 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. The COLI phase-out is the primary reason for the 1997
decrease in interest and other expense.
Pre-tax income increased by 17.3% in 1997 and fell by 11.1% in 1996. Net
income increased by 13.3% in 1997 and decreased by 7.8% in 1996. The provision
for income tax was 30.1% of pre-tax income for 1997, as compared to 27.5% for
1996 and 30.2% for 1995. Fluctuations in effective income tax rates (as
compared to the statutory federal rate of approximately 34%) are primarily
attributable to the presence of non-taxable income from the COLI program.
Offsetting this non-taxable income are interest costs associated with the COLI
program. The combination of non-taxable COLI income and tax-deductible COLI
interest expense has negatively impacted pre-tax income since 1994. The effect
has been to reduce income tax expense through the deductibility of COLI
interest costs. Since 1994, the tax savings from COLI have more than offset net
pre-tax expense.
LIQUIDITY
The company continues to maintain a strong financial position. The table
on page 18 provides a summary of certain liquidity measures. The 1997 increase
in cash provided by operations is attributable primarily to improved net income
and reduced working capital requirements.
CAPITAL RESOURCES
Expenditures for property and equipment totaled $14.7 million during 1997,
$13.7 million during 1996 and $10.7 million in 1995. In addition, the company
financed, through operating leases, the acquisition of revenue equipment valued
at approximately $27 million during 1997, $40 million during 1996 and $30
million in 1995.
<PAGE>
MANAGEMENT'S DISCUSSION, Continued
In connection with the potential need for funds to finance the purchase of
acquired businesses and 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 $5 million at December 31, 1997. At the end of 1997,
approximately $45 million was available under the credit line.
The company plans to add about 100 and replace about 350 of its tractors
during 1998. In addition, about 75 trailers will be added and about 325 will be
replaced during the year. 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 1998.
At December 31, 1997 and 1996 there was no long-term debt outstanding.
YEAR 2000
During 1997, progress was made in the project to convert and update the
company's computer systems. The primary objectives of the conversion and update
efforts include:
- To enhance the ability of the company to deliver interactive
shipment, dispatch and billing information to customers with
electronic data interchange ("EDI") capabilities.
- To automate certain tasks that have traditionally been performed
manually by drivers, dispatchers and office employees.
- To provide management and other system users with improved and more
current information regarding fleet operations, order status and
financial results.
The company is aware of potential problems associated with existing
computer systems as the millennium year (Year 2000) approaches. Systems that do
not properly recognize the Year 2000 could generate erroneous data or cause the
system to fail.
The computer systems currently in use by the company are primarily
mainframe-based, "old" technology systems. The new systems being developed are
based on more current technology which provide the aforementioned enhancements
to functionality while at the same time addressing most issues associated with
the millennium year. Accordingly, it is not practicable to isolate the portion
of "new" system development costs that are specifically associated with the
"Year 2000" problem.
<PAGE>
MANAGEMENT'S DISCUSSION, Continued
During the fourth quarter of 1997, one of the company's full-truckload
fleets was successfully converted to the system currently being developed. The
operations of the converted fleet are not as complex as the operations of other
fleets, primarily in the areas of rating, billing, LTL operations, owner-
operator settlements, and EDI. In order to complete the conversion, the
development and testing of these new systems must be completed. Management
expects the conversion to the "new" Year 2000 compliant system to be complete
by December 31, 1998.
Efforts to evaluate and resolve the company's exposure to "Year 2000"
problems in other areas are continuing. Areas being addressed include the
millennium problem as it affects the operation of trucks and trailers,
environmental systems, non-freight operations, and the systems of service
providers (such as banks) and of key vendors and customers. At this point, an
estimate of future costs to be incurred has not been developed.
If the company's remediation plans are not successful, there could be a
significant disruption of the company's ability to transact business with its
major customers and suppliers.
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR STATISTICS AND FINANCIAL DATA 1997 1996 1995 1994
(in thousands, except ratio, rates, equipment and per share amounts)
<S> <C> <C> <C> <C>
Summary of Operations
Revenue 316,568 311,428 292,345 274,620
Operating expenses 301,508 296,283 276,961 255,484
Net income 9,664 8,533 9,253 11,874
Net margin 3.1% 2.7% 3.2% 4.3%
After-tax return on equity 10.9% 10.7% 13.3% 20.4%
Net income per common share, diluted .57 .52 .57 .72
Financial Data
Working capital 44,979 34,162 25,024 25,623
Current ratio 2.4 2.1 1.7 1.8
Cash provided by operations 28,460 10,800 24,180 20,025
Capital expenditures, net 7,955 7,191 8,383 8,160
Long-term debt -- -- 0 9,000
Shareholders' equity 93,077 83,953 75,021 64,288
Long-term debt-to-equity ratio -- -- -- .1
Common Stock
Average shares outstanding, diluted 17,056 16,473 16,132 16,451
Book value per share 5.53 5.04 4.59 4.03
Market value per share
High 10 1/4 13 7/8 13 7/8 15
Low 8 3/8 7 7/8 8 1/2 11
Cash dividends per share .12 .12 .12 .096
Revenue Table
Full truckload 190,576 195,458 180,598 163,988
Less-than-truckload 95,522 92,496 87,783 88,328
TL/LTL % revenue contribution 60/30 63/30 62/30 60/32
Equipment In Service At Yearend
Tractors
Company operated 1,220 1,202 1,149 1,099
Provided by owner-operators 628 703 667 505
Total 1,848 1,905 1,816 1,604
Trailers
Company provided 2,784 2,998 2,770 2,406
Provided by owner-operators 23 20 27 21
Total 2,807 3,018 2,797 2,427
Full-Truckload
Revenue 190,576 195,458 180,598 163,988
Loaded miles 143,902 145,785 135,469 121,106
Shipments 156.9 158.1 142.9 128.1
Revenue per shipment 1,215 1,236 1,264 1,280
Loaded miles per load 917 922 948 945
Revenue per loaded mile 1.32 1.34 1.33 1.35
Number of loads per business day 623 627 567 508
Revenue per business day 756 776 717 651
Less-Than-Truckload
Revenue 95,522 92,496 87,783 88,328
Hundredweight 8,537 8,652 8,296 8,670
Shipments 293.1 304.6 292.1 305.2
Revenue per hundredweight 11.19 10.69 10.58 10.19
Revenue per shipment 326 304 301 289
Revenue per business day 379 367 348 351
Pounds per shipment 2,913 2,840 2,840 2,841
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR STATISTICS AND FINANCIAL DATA 1993 1992 1991 1990
(in thousands, except ratio, rates, equipment and per share amounts)
<S> <C> <C> <C> <C>
Summary of Operations
Revenue 227,389 194,888 176,995 160,171
Operating expenses 211,999 183,179 167,033 152,370
Net income 9,441 7,144 5,202 3,618
Net margin 4.2% 3.7% 2.9% 2.3%
After-tax return on equity 20.1% 18.6% 16.0% 12.6%
Net income per common share, diluted .58 .45 .34 .25
Financial Data
Working capital 20,823 16,949 15,612 13,085
Current ratio 1.8 1.8 2.1 1.9
Cash provided by operations 17,482 16,395 14,968 9,022
Capital expenditures, net 18,453 18,375 (2,423) 16,285
Long-term debt 17,000 12,000 5,000 19,200
Shareholders' equity 51,983 41,799 35,059 30,005
Long-term debt-to-equity ratio .3 .3 .1 .6
Common Stock
Average shares outstanding, diluted 16,276 15,910 15,249 14,519
Book value per share 3.31 2.72 2.42 2.11
Market value per share
High 15 11 1/2 4 1/8 2 3/4
Low 7 1/4 3 7/8 1 7/8 1 7/8
Cash dividends per share .096 .079 .06 .06
Revenue Table
Full truckload 129,549 109,178 103,582 90,043
Less-than-truckload 80,965 72,864 65,068 64,589
TL/LTL % revenue contribution 57/36 56/37 59/37 56/40
Equipment in Service at Yearend
Tractors
Company operated 945 800 737 739
Provided by owner-operators 457 432 421 386
Total 1,402 1,232 1,158 1,125
Trailers
Company provided 2,027 1,609 1,475 1,419
Provided by owner-operators 32 24 28 38
Total 2,059 1,633 1,503 1,457
Full-Truckload
Revenue 129,549 109,178 103,582 90,043
Loaded miles 97,753 83,247 80,663 69,800
Shipments 106.6 92.9 85.5 75.8
Revenue per shipment 1,215 1,175 1,211 1,188
Loaded miles per load 917 896 943 921
Revenue per loaded mile 1.33 1.31 1.28 1.29
Number of loads per business day 423 367 339 301
Revenue per business day 514 431 411 357
Less-than-Truckload
Revenue 80,965 72,864 65,068 64,589
Hundredweight 8,116 6,848 6,211 6,314
Shipments 292.0 253.3 231.3 241.7
Revenue per hundredweight 9.98 10.64 10.48 10.23
Revenue per shipment 277 288 281 267
Revenue per business day 321 288 258 256
Pounds per shipment 2,779 2,704 2,685 2,612
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR STATISTICS AND FINANCIAL DATA 1989 1988 1987
(in thousands, except ratio, rates, equipment and per share amounts)
<S> <C> <C> <C>
Summary of Operations
Revenue 122,248 102,136 84,585
Operating expenses 115,769 96,558 81,278
Net income 3,779 3,660 2,373
Net margin 3.1% 3.6% 2.8%
After-tax return on equity 14.6% 16.5% 12.1%
Net income per common share, diluted .26 .26 .18
Financial Data
Working capital 9,567 5,096 4,862
Current ratio 2.0 1.6 1.9
Cash provided by operations 9,174 9,191 7,320
Capital expenditures, net 11,619 15,060 3,454
Long-term debt 12,500 7,500 2,300
Shareholders' equity 27,255 24,348 20,121
Long-term debt-to-equity ratio .5 .3 .1
Common Stock
Average shares outstanding, diluted 14,534 14,095 13,200
Book value per share 1.96 1.78 1.52
Market value per share
High 2 7/8 2 3/8 1 5/8
Low 2 1/8 1 1
Cash dividends per share .05 .038 .03
Revenue Table
Full truckload 60,313 42,947 26,226
Less-than-truckload 60,114 57,863 57,004
TL/LTL % revenue contribution 49/49 42/57 31/67
Equipment in Service at Yearend
Tractors
Company operated 508 256 98
Provided by owner-operators 376 496 421
Total 884 752 519
Trailers
Company provided 1,204 876 698
Provided by owner-operators 41 49 49
Total 1,245 925 747
Full-Truckload
Revenue 60,313 42,947 26,226
Loaded miles 46,975 33,762 18,872
Shipments 51.9 38.1 26.7
Revenue per shipment 1,162 1,127 982
Loaded miles per load 905 886 706
Revenue per loaded mile 1.28 1.27 1.39
Number of loads per business day 206 151 106
Revenue per business day 239 170 104
Less-than-Truckload
Revenue 60,114 57,863 57,004
Hundredweight 6,051 5,816 5,983
Shipments 253.4 256.7 268.6
Revenue per hundredweight 9.93 9.95 9.53
Revenue per shipment 237 225 212
Revenue per business day 239 230 226
Pounds per shipment 2,388 2,266 2,227
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Frozen Food Express Industries, Inc. and Subsidiaries
Years ended December 31, 1997, 1996 and 1995
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Revenue
Freight revenue $286,098 $287,954 $268,381
Non-freight revenue 30,470 23,474 23,964
------- ------- -------
316,568 311,428 292,345
------- ------- -------
Costs and expenses
Freight operating expenses
Salaries, wages and related expenses 72,989 71,049 68,692
Purchased transportation 65,988 69,172 58,876
Supplies and expenses 78,854 79,243 74,250
Revenue equipment rent 22,349 21,367 17,469
Communications and utilities 3,294 3,625 3,457
Insurance and claims 11,634 13,028 14,462
Depreciation 9,643 9,478 10,719
Operating taxes and licenses 4,857 4,979 5,060
Gain on sale of equipment (1,149) (1,069) (706)
Miscellaneous expense 3,655 2,879 2,471
------- ------- -------
272,114 273,751 254,750
Non-freight costs and operating expenses 29,394 22,532 22,211
------- ------- -------
301,508 296,283 276,961
------- ------- -------
Income from operations 15,060 15,145 15,384
Interest and other expense 1,244 3,370 2,136
------- ------- -------
Income before income tax 13,816 11,775 13,248
Provision for income tax 4,152 3,242 3,995
------- ------- -------
Net income $ 9,664 $ 8,533 $ 9,253
======= ======= =======
Net income per share of common stock
Basic $ .58 $ .52 $ .57
Diluted $ .57 $ .51 $ .56
======= ======= =======
See accompanying notes.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
Frozen Food Express Industries, Inc. and Subsidiaries
December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 23,318 $ 6,670
Accounts receivable, net 35,028 39,464
Inventories 10,608 8,440
Tires on equipment in use 4,775 5,517
Deferred federal income tax 78 408
Other current assets 3,175 4,987
------- -------
Total current assets 76,982 65,486
Property and equipment, net 53,333 51,880
Other assets 12,433 12,188
------- -------
$142,748 $129,554
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 14,389 $ 13,997
Accrued claims 5,843 6,887
Accrued payroll 5,242 4,950
Federal income tax payable 799 155
Accrued liabilities 5,730 5,335
------- -------
Total current liabilities 32,003 31,324
Long-term debt -- --
Deferred federal income tax 7,711 6,962
Accrued claims and liabilities 9,957 7,315
------- -------
Total liabilities and deferred credits 49,671 45,601
------- -------
Commitments and contingencies -- --
Shareholders' equity
Common stock, 17,281 shares issued in 1997 and in 1996 25,921 25,921
Additional paid-in capital 4,779 3,462
Retained earnings 65,038 57,386
------- -------
95,738 86,769
Less - Treasury stock, at cost 2,661 2,816
------- -------
Total shareholders' equity 93,077 83,953
------- -------
$142,748 $129,554
======= =======
See accompanying notes.
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows
Frozen Food Express Industries, Inc. and Subsidiaries
Years ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 9,664 $ 8,533 $ 9,253
Non-cash items involved in net income
Depreciation and amortization 10,331 10,012 11,118
Provision for losses on accounts receivable 1,964 1,434 1,496
Deferred federal income tax 1,079 1,393 486
Gain on sale of equipment (1,149) (1,069) (706)
Non-cash contribution to employee benefit
plans 1,631 1,415 2,265
Change in assets and liabilities
Accounts receivable 2,508 (4,219) (2,488)
Inventories (2,168) (219) (1,520)
Tires on equipment in use 742 (300) (883)
Other current assets 2,313 (1,351) 931
Trade accounts payable (1,384) (3,520) 4,570
Accrued claims and liabilities 1,993 (1,735) (15)
Accrued payroll 292 271 (327)
Federal income tax payable 644 155 --
------- ------- -------
Net cash provided by operating activities 28,460 10,800 24,180
------- ------- -------
Cash flows from investing activities
Business dispositions -- 375 2,300
Expenditures for equipment (14,656) (13,734) (10,698)
Proceeds from sale of equipment 6,701 6,543 2,315
Other (1,686) (3,778) (5,214)
------- ------- -------
Net cash used in investing activities (9,641) (10,594) (11,297)
------- ------- -------
Cash flows from financing activities
Borrowings under revolving credit agreement 19,000 28,000 33,000
Payments against revolving credit agreement (19,000) (28,000) (42,000)
Dividends paid (2,012) (1,977) (1,936)
Proceeds from sale of treasury stock 1,513 1,521 1,644
Purchases of treasury stock (1,672) (560) (492)
------- ------- -------
Net cash used in financing activities (2,171) (1,016) (9,784)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 16,648 (810) 3,099
Cash and cash equivalents at beginning of year 6,670 7,480 4,381
------- ------- -------
Cash and cash equivalents at end of year $ 23,318 $ 6,670 $ 7,480
======= ======= =======
See accompanying notes.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Frozen Food Express Industries, Inc. and Subsidiaries
Years ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Shares Par
of Value Shares Cost
Common of Additional of of Total
Stock Common Paid-In Retained Treasury Treasury ESOP Shareholders'
Issued Stock Capital Earnings Stock Stock Debt Equity
------ ------- ---------- -------- -------- -------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net income -- -- -- 8,533 -- -- -- 8,533
Cash dividends paid
($.12 per share) -- -- -- (1,977) -- -- -- (1,977)
Treasury stock purchased -- -- -- -- 58 560 -- (560)
Treasury stock reissued -- -- 1,597 -- (267) (1,081) -- 2,678
Exercise of stock options -- -- (127) -- (95) (385) -- 258
------ ------ ----- ------ ----- ------ ---- ------
At December 31, 1996 17,281 25,921 3,462 57,386 639 2,816 -- 83,953
Net income -- -- -- 9,664 -- -- -- 9,664
Cash dividends paid
($.12 per share) -- -- -- (2,012) -- -- -- (2,012)
Treasury stock purchased -- -- -- -- 183 1,686 -- (1,686)
Treasury stock reissued -- -- 1,377 -- (304) (1,475) -- 2,852
Exercise of stock options -- -- (60) -- (73) (366) -- 306
------ ------ ----- ------ ----- ------ ---- ------
At December 31, 1997 17,281 $25,921 $4,779 $65,038 445 $ 2,661 $ -- $93,077
====== ====== ===== ====== ===== ====== ==== ======
See accompanying notes.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Frozen Food Express Industries, Inc. and Subsidiaries
December 31, 1997
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,
liabilities, revenue and expenses. Estimates and assumptions also influence the
disclosure of contingent assets, and liabilities at the date of the financial
statements. Actual outcomes may vary from these estimates and assumptions.
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 trade credit to its customers which are primarily located in
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 $2,876,000 and $2,390,000 as
of December 31, 1997 and 1996, 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 statutory tax rates
anticipated to be in effect when these temporary differences are expected to
reverse.
LONG-LIVED ASSETS - The Company periodically evaluates whether the
remaining useful life of long-lived assets may require revision or whether the
remaining unamortized balance is recoverable. When factors indicate that an
asset should be evaluated for possible impairment, the Company uses an estimate
of the asset's discounted cash flow in evaluating its recoverable value.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
PRIOR PERIOD AMOUNTS - As discussed in Note 8, certain prior period
amounts have been restated to conform with the current year presentation.
ACCOUNTING PRONOUNCEMENTS - During 1997, the Financial Accounting
Standards Board ("FASB") issued Financial Accounting Standard No. 131 ("FAS
131") - "Disclosures About Segments of an Enterprise and Related Information."
FAS 131 requires, beginning in 1998, disclosure of certain information
regarding each significant business segment in which operations are conducted.
Because the Company has only one reportable statement, the Company will not be
required to change its financial reporting under FAS 131. During 1999, the
Company plans to adopt Statement of Position 98-1 ("SOP 98-1"), "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use." The
Company has determined that SOP 98-1 will not materially affect the financial
statements of the Company.
2. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance and repairs are
charged to operations as incurred. Capitalized interest on funds borrowed to
finance the construction and development of major assets, replacements and
improvements was $136,000 during 1997 and $122,000 during 1996.
Property and equipment, net consists of the following (in thousands):
<TABLE>
1997 1996
------- -------
<S> <C> <C>
Land $ 3,223 $ 2,389
Buildings and improvements 14,740 13,251
Revenue equipment 50,134 59,106
Service equipment 13,641 10,070
Computer, software and related equipment 15,426 12,551
------ ------
97,164 97,367
Less accumulated depreciation 43,831 45,487
------ ------
$53,333 $51,880
====== ======
</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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. LONG-TERM DEBT
The Company has a $50 million line of credit pursuant to a revolving
credit agreement with three commercial banks. 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, 1997 or 1996.
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). At December 31, 1997, approximately $45 million was
available 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 on borrowings under this credit line during
1997, 1996 and 1995 were $149,000, $130,000, and $649,000, respectively.
4. FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH
During 1997, 1996 and 1995, the Company funded contributions to its
Employee Savings Plan and one of its Employee Stock Ownership Plans and Trusts
(ESOPs) by transferring 179,998, 141,112 and 159,236 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 $1,631,000,
$1,415,000 and $1,657,000, for 1997, 1996 and 1995, respectively.
As of December 31, 1997 and 1996, accounts payable included $1,789,000 and
$13,000, respectively, for the purchase of equipment delivered during 1997 and
1996. As of December 31, 1997 and 1996, accounts receivable included $982,000
and $891,000, respectively, from the sale of equipment retired and sold during
1997 and 1996.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. INCOME TAXES
The provision for income tax consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Taxes currently payable
Federal $2,531 $1,544 $3,234
State 542 305 275
Deferred federal taxes 1,079 1,393 486
----- ----- -----
$4,152 $3,242 $3,995
===== ===== =====
</TABLE>
The differences between the statutory federal income tax rate and the
Company's effective income tax rate are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate 34.3% 34.2% 34.2%
Company-owned life
Insurance (3.5) (8.1) (5.3)
Other, net (0.7) 1.4 1.3
---- ---- ----
30.1% 27.5% 30.2%
==== ==== ====
</TABLE>
Total income taxes paid by the Company were $832,000, $153,000 and
$2,012,000 for 1997, 1996 and 1995, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The following presents the changes in the primary components of the total
deferred tax liability (in thousands):
<TABLE>
<CAPTION>
Deferred
December (Provision) December
31, 1996 Benefit 31, 1997
-------- ----------- ---------
<S> <C> <C> <C>
Accrued claims $ 4,423 $ 347 $ 4,770
Allowance for bad debts 882 56 938
Prepaid expense (2,619) 156 (2,463)
Fixed assets (9,251) (1,257) (10,508)
Other 11 (381) (370)
------ ------ -------
$(6,554) $(1,079) $ (7,633)
====== ====== =======
</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.
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.
Additional contributions are made at the discretion of the Board of Directors.
Company contributions are made on a quarterly basis by transferring, at fair
market value, shares of FFEX stock to the Plan. For 1997, 1996 and 1995,
Company contributions to the Plan were approximately $1,631,000, $996,000, and
$941,000, 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, 1997, are (in thousands):
<TABLE>
<CAPTION>
Related Third
Parties Parties Total
------- ------- -------
<S> <C> <C> <C>
1998 $1,182 $20,198 $21,380
1999 829 14,978 15,807
2000 411 9,516 9,927
2001 -- 6,382 6,382
2002 -- 4,708 4,708
After 2002 -- 3,842 3,842
----- ------ ------
Total $2,422 $59,624 $62,046
===== ====== ======
</TABLE>
<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. Rentals are
determined by reference to amounts paid by the Company to unaffiliated third-
party lessors. For 1997, 1996 and 1995, payments under these leases were
$1,191,000, $1,028,000, and $750,000, respectively.
At December 31, 1997, the Company had purchase commitments of
approximately $32 million for the purchase of tractors, trailers and
information systems during 1998.
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, 1997, in
connection with its accrued claims liabilities, the Company had established
$5,000,000 of irrevocable letters of credit in favor of insurance companies and
pursuant to certain self-insurance agreements. The letters of credit may be
drawn upon in the event of default for failure to pay claims.
8. NET INCOME PER SHARE OF COMMON STOCK
In 1997, the Company adopted Financial Accounting Standard No. 128,
"Earnings per Share," (FAS 128). FAS 128 requires the Company to disclose basic
and diluted earnings per share ("EPS"). Basic EPS is computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the year. Diluted EPS is determined by dividing net income by the
weighted average shares outstanding assuming the exercise of all dilutive items
(using the treasury stock method). Basic and diluted shares outstanding were
(in thousands) 16,767 and 17,056, respectively in 1997, 16,473 and 16,838,
respectively in 1996 and 16,132 and 16,519, respectively in 1995. 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) 289 in 1997, 365 in 1996 and 387 in 1995. As a result of these
changes, the $.52 and $.57 previously reported as fully-diluted EPS for 1996
and 1995, respectively, were restated to $.51 and $.56, diluted, respectively.
These changes did not impact the previously reported primary EPS for 1996 or
1995.
9. SHAREHOLDERS' EQUITY
As of December 31, 1997, 1996 and 1995, there were authorized 40 million
shares of FFEX's $1.50 par value common stock.
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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 table below sets forth summarized
information regarding the stock option plans (in thousands except per-share
amounts):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Options outstanding at beginning of year 1,363 1,222 1,001
Cancelled (268) (23) (16)
Granted 1,307 259 454
Exercised (73) (95) (217)
----- ----- -----
Options outstanding at yearend 2,329 1,363 1,222
===== ===== =====
Exercisable options 1,031 1,114 781
Options available for future grants 1,262 55 296
Average price of options
Exercised during year $4.17 $2.72 $4.05
Outstanding at yearend $8.61 $8.23 $7.86
===== ===== =====
</TABLE>
At December 31, 1997, the prices at which options may be exercised ranged
from $1.00 to $12.40.
During 1996, the Company adopted a plan providing grants of non-qualified
stock options to substantially all of its employees. All grants under this plan
will be at market value on the date of the grant and will generally not vest
for five years following the grant. The Company has reserved for issuance
1,500,000 shares of common stock in connection with this plan. Initial grants
pursuant to this plan were made during 1997.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no expense has been recognized for stock
option grants to officers and other employees. The expense that has been
charged against income for grants to non-employee directors was $42,000,
$54,000 and $53,000 for 1997, 1996 and 1995, respectively. If expense for
grants under the Company's stock option plans was determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of FASB Statement 123, the Company's net income would have been reduced
to $8,784,000 ($.52 per share, diluted) for 1997, $7,570,000 ($.45 per share,
diluted) for 1996 and $8,184,000 ($.50 per share, diluted) for 1995.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Pro forma information regarding net income and earnings per share is
required and has been determined as if the Company had accounted for its
employee stock options under the fair value method. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Risk-free interest rate 6.25% 5.90% 6.50%
Dividend yield 1.36% 1.47% 1.20%
Volatility factor .368 .368 .361
Weighted average expected life (years) 6 6 6
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
During 1997, the FFEX Board of Directors authorized the repurchase in the
open market of up to an aggregate of 500,000 shares of FFEX common stock.
During 1997, $1,189,000 was expended to acquire 128,000 shares.
<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, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Dallas, Texas ARTHUR ANDERSEN LLP
February 11, 1998
<PAGE>
QUARTERLY FINANCIAL, STOCK AND DIVIDEND INFORMATION
(Unaudited)
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1997
Revenue $72,686 $81,256 $82,981 $79,645 $316,568
Income from operations 2,948 4,114 4,354 3,644 15,060
Net income 1,371 2,772 2,944 2,577 9,664
Net income per share of common stock
Basic .08 .17 .18 .15 .58
Diluted .08 .16 .17 .15 .57
Cash dividends per share .03 .03 .03 .03 .12
Common stock price per share
High 9 7/8 9 1/2 10 1/8 10 1/4 10 1/4
Low 8 3/8 8 5/8 8 1/2 8 3/4 8 3/8
Common stock trading volume 1,283 1,973 1,650 1,196 6,102
------ ------ ------ ------ ------
1996
Revenue $74,173 $79,409 $80,824 $77,022 $311,428
Income from operations 2,343 4,571 4,313 3,918 15,145
Net income 1,350 2,754 2,454 1,975 8,533
Net income per share of common stock
Basic .08 .17 .15 .12 .52
Diluted .08 .16 .15 .12 .51
Cash dividends per share .03 .03 .03 .03 .12
Common stock price per share
High 13 1/4 13 7/8 11 1/4 9 7/8 13 7/8
Low 8 1/2 10 3/8 9 3/8 7 7/8 7 7/8
Common stock trading volume 2,396 2,212 1,249 1,821 7,678
</TABLE>
As of March 3, 1998, the Company had approximately 7,500 beneficial
shareholders, including participants in the company's Employee Stock Ownership
Plans.
EXHIBIT 21.1
SUBSIDIARIES OF
FROZEN FOOD EXPRESS INDUSTRIES, INC.
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation
- ----------------------------------- ---------------
<S> <C>
FFE Transportation Services, Inc. Delaware
W & B Refrigeration Service Company Delaware
Conwell Corporation Delaware
Lisa Motor Lines, 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>
<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, 1997, AND THE CONSOLIDATED STATEMENTS OF INCOME,
CASH FLOWS AND STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1997, 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 23,318
<SECURITIES> 0
<RECEIVABLES> 37,904
<ALLOWANCES> 2,876
<INVENTORY> 10,608
<CURRENT-ASSETS> 76,982
<PP&E> 97,164
<DEPRECIATION> 43,831
<TOTAL-ASSETS> 142,748
<CURRENT-LIABILITIES> 32,003
<BONDS> 0
0
0
<COMMON> 25,921
<OTHER-SE> 67,156
<TOTAL-LIABILITY-AND-EQUITY> 142,748
<SALES> 30,470
<TOTAL-REVENUES> 316,568
<CGS> 0
<TOTAL-COSTS> 301,508
<OTHER-EXPENSES> 1,244
<LOSS-PROVISION> 1,964
<INTEREST-EXPENSE> 1,244
<INCOME-PRETAX> 13,816
<INCOME-TAX> 4,152
<INCOME-CONTINUING> 9,664
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,664
<EPS-PRIMARY> .58
<EPS-DILUTED> .57
</TABLE>
<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 THE PERIOD-END DATES INDICATED HEREIN AND THE CONSOLIDATED
STATEMENTS OF INCOME, CASH FLOWS AND STOCKHOLDERS' EQUITY FOR THE PERIODS ENDED
AS INDICATED HEREIN AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 6,670 1,020 5,510 17,291
<SECURITIES> 0 0 0 0
<RECEIVABLES> 41,854 39,811 43,546 42,767
<ALLOWANCES> 2,390 2,540 2,693 2,928
<INVENTORY> 8,440 7,807 9,491 9,307
<CURRENT-ASSETS> 65,486 64,230 63,381 73,703
<PP&E> 97,367 104,783 102,246 98,971
<DEPRECIATION> 45,487 46,254 44,730 44,474
<TOTAL-ASSETS> 129,554 135,242 134,693 139,583
<CURRENT-LIABILITIES> 31,324 26,164 29,686 31,773
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 25,921 25,921 25,921 25,921
<OTHER-SE> 58,032 59,457 62,388 64,977
<TOTAL-LIABILITY-AND-EQUITY> 129,554 135,242 134,693 139,583
<SALES> 23,474 4,860 14,099 23,713
<TOTAL-REVENUES> 311,428 72,686 153,942 236,923
<CGS> 0 0 0 0
<TOTAL-COSTS> 296,283 69,738 146,880 225,507
<OTHER-EXPENSES> 3,370 978 1,139 1,243
<LOSS-PROVISION> 1,434 576 786 1,262
<INTEREST-EXPENSE> 3,370 140 111 120
<INCOME-PRETAX> 11,775 1,970 5,923 10,133
<INCOME-TAX> 3,242 599 1,780 3,046
<INCOME-CONTINUING> 8,533 1,371 4,143 7,087
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 8,533 1,371 4,143 7,087
<EPS-PRIMARY> .52 .08 .17 .18
<EPS-DILUTED> .51 .08 .16 .17
</TABLE>
<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 THE PERIOD-END DATES INDICATED HEREIN, AND THE CONSOLIDATED
STATEMENTS OF INCOME, CASH FLOWS AND STOCKHOLDERS' EQUITY FOR THE PERIODS
ENDED AS INDICATED HEREIN, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 7,480 4,764 4,232 2,776
<SECURITIES> 0 0 0 0
<RECEIVABLES> 38,618 41,273 42,711 46,016
<ALLOWANCES> 1,525 1,715 1,786 2,087
<INVENTORY> 8,221 8,832 8,504 9,403
<CURRENT-ASSETS> 61,647 62,614 64,971 70,100
<PP&E> 99,290 100,888 94,652 96,463
<DEPRECIATION> 46,860 48,724 46,280 45,892
<TOTAL-ASSETS> 123,662 125,700 127,953 134,234
<CURRENT-LIABILITIES> 36,623 34,078 32,906 41,978
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 25,921 25,921 25,921 25,921
<OTHER-SE> 49,100 50,632 53,150 55,389
<TOTAL-LIABILITY-AND-EQUITY> 123,662 125,700 127,953 134,234
<SALES> 23,964 6,364 13,111 19,133
<TOTAL-REVENUES> 292,345 74,173 153,582 234,406
<CGS> 0 0 0 0
<TOTAL-COSTS> 276,961 71,830 146,668 223,179
<OTHER-EXPENSES> 2,136 582 1,503 2,431
<LOSS-PROVISION> 1,496 478 840 1,218
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> 13,248 1,761 5,411 8,796
<INCOME-TAX> 3,995 411 1,307 2,238
<INCOME-CONTINUING> 9,253 1,350 4,104 6,558
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 9,253 1,350 4,104 6,558
<EPS-PRIMARY> .57 .08 .17 .15
<EPS-DILUTED> .56 .08 .16 .15
</TABLE>
