UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the period ended
September 30, 2000
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ____________________ to ________________________________
Commission File Number 1-10006
Frozen Food Express Industries, Inc.
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(Exact name of registrant as specified on its charter)
Texas 75-1301831
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1145 Empire Central Place Dallas, Texas 75247-4309
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(Address of principal executive offices) (Zip Code)
(2l4) 630-8090
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to filing
requirements for the past 90 days.
[X] Yes [ ] No
As of November 3, 2000, 16,395,000 shares of the Registrant's Common
Stock, $1.50 par value, were outstanding.
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item l. Financial Statements
Consolidated Condensed Balance Sheets -
September 30, 2000 and December 31, 1999
2
Consolidated Statements of Income -
Three and Nine months ended September 30,
2000 and 1999 3
Consolidated Condensed Statements of Cash
Flows - Nine months ended September 30, 2000
and 1999 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Qualitative and Quantitative Disclosures 10
about Market Risk
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Exhibit 27.1 - Financial Data Schedule 13
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
Sept. 30, Dec. 31,
2000 1999
---- ----
Assets
Current assets
Cash $ 2,813 $ 1,613
Accounts receivable, net 47,981 52,312
Inventories 19,156 17,719
Tires 4,405 5,036
Other current assets 6,760 4,267
------ ------
Total current assets 81,115 80,947
Property and equipment, net 64,026 73,640
Other assets 15,678 15,496
------- -------
$160,819 $170,083
======= =======
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 21,391 $ 24,797
Accrued claims 6,933 6,631
Accrued payroll 7,073 5,890
Short-term debt - 26,500
Other 5,792 5,075
------- -------
Total current liabilities 41,189 68,893
Long-term debt 20,000 -
Deferred federal income tax 1,675 2,795
Other and deferred credits 16,178 15,274
------- -------
Total liabilities & deferred credits 79,042 86,962
------- -------
Shareholders' equity
Common stock 25,921 25,921
Paid-in capital 4,902 5,056
Retained earnings 58,120 59,399
------- -------
88,943 90,376
Less - Treasury stock 7,166 7,255
------- -------
Total shareholders' equity 81,777 83,121
------- -------
$160,819 $170,083
======= =======
See accompanying notes.
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per-share amounts)
(Unaudited)
For the Three For the Nine
Months Ended Months Ended
Sept. 30, Sept. 30,
------------- -------------
2000 1999 2000 1999
Revenue ------ ------ ------ ------
Freight revenue $ 82,189 $ 79,346 $240,113 $232,013
Non-freight revenue 19,213 17,825 53,704 50,233
------- ------ ------- -------
101,402 97,171 293,817 282,246
------- ------ ------- -------
Costs and expenses
Freight operating expenses
Salaries, wages and
related expenses 22,884 22,711 65,785 65,006
Purchased transportation 20,012 18,285 58,082 51,971
Supplies and expenses 25,126 22,590 69,385 63,863
Revenue equipment rent 6,321 6,568 18,902 19,457
Depreciation 2,848 3,048 8,743 8,662
Communications & utilities 977 1,029 3,332 2,761
Claims and insurance 5,037 4,180 12,257 11,643
Operating taxes & licenses 444 1,485 3,210 4,031
Gain on sale of equipment (108) (25) (1,128) (736)
Miscellaneous expense 778 1,067 2,602 2,807
------- ------- ------- -------
84,319 80,938 241,170 229,465
Non-freight costs
and operating expenses 18,454 17,063 51,856 48,600
------- ------- -------- -------
102,773 98,001 293,026 278,065
(Loss)/income from ------- ------- -------- -------
operations (1,371) (830) 791 4,181
Interest & other expense, net 890 1,021 2,759 1,937
------- ------- -------- -------
(Loss)/income before income
tax (2,261) (1,851) (1,968) 2,244
Provision for income tax (792) (685) (689) 830
------- ------- -------- -------
Net(loss)/income $ (1,469) $ (1,166) $ (1,279) $ 1,414
======= ======= ======= =======
Net(loss)/income per share
of common stock
Basic $ (.09) $ (.07) $ (.08) $ .09
======= ======= ======= =======
Diluted $ (.09) $ (.07) $ (.08 $ .09
======= ======= ======= =======
Weighted average shares
outstanding
Basic 16,317 16,315 16,319 16,362
======= ======= ======= =======
Diluted 16,317 16,315 16,319 16,499
======= ======= ======= =======
See accompanying notes.
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
For the Nine Months Ended
Sept. 30,
--------------------
2000 1999
---- ----
Net cash provided by (used in)
operating activities $ 7,841 $ (7,811)
------ ------
Cash flows from investing activities
Expenditures for property and equipment (5,088) (27,310)
Proceeds from sale of property and
equipment 6,279 9,996
Company owned life insurance and other (1,268) (2,621)
------ ------
Net cash used in investing activities (77) (19,935)
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Cash flows from financing activities
Borrowings under revolving credit agreement 19,000 51,000
Payments against revolving credit agreement (25,500) (20,500)
Dividends paid - (1,474)
Net treasury stock activity (64) (1,578)
Net cash (used in) provided by financing ------ ------
activities (6,564) 27,448
Net increase (decrease) in cash and cash ------ ------
equivalents 1,200 (298)
Cash and cash equivalents at January 1 1,613 6,023
------ ------
Cash and cash equivalents at September 30 $ 2,813 $ 5,725
====== ======
See accompanying notes.
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
September 30, 2000 and 1999
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include Frozen Food
Express Industries, Inc. (FFEX) and its subsidiary companies
(the company), all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The financial statements have been prepared
pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and have not been audited or reviewed
by independent public accountants. In the opinion of
management, all adjustments (which consisted of normal recurring
accruals) necessary to present fairly the financial position and
results of operations have been made. Certain information and
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have
been condensed or omitted from these statements unless
significant changes have taken place since the end of the most
recent fiscal year. FFEX believes that the disclosures
contained herein, when read in conjunction with the financial
statements and notes included, or incorporated by reference, in
FFEX's Form 10-K filed with the SEC on March 29, 2000, are
adequate to make the information presented not misleading. It
is suggested, therefore, that these statements be read in
conjunction with the statements and notes (included, or
incorporated by reference), in the report on Form 10-K.
2. SHAREHOLDERS' EQUITY
As of September 30, 2000 and December 31, 1999, respectively,
there were 16,316,000 and 16,321,000 shares of stock outstanding.
During the quarter ended September 30, 1999, the company declared
a dividend on the common stock of three cents per share.
3. COMMITMENTS AND CONTINGENCIES
The company has accrued for costs related to public liability and
work-related injury claims, some of which involve litigation.
The aggregate amount of these claims is significant. In the
opinion of management, these actions can be successfully defended
or resolved, and any additional costs incurred over amounts
accrued will not have a material adverse effect on the company's
financial position, cash flows or results of operations.
4. EARNINGS PER SHARE
Common stock equivalents included in diluted weighted average
shares, all of which result from dilutive stock options granted
by the company, were as follows:
2000 1999
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For the three months ended September 30 - -
For the nine months ended September 30 - 137,000
For the three and nine months ended September 30, 2000,
respectively, 20,530 and 55,163, common stock equivalent shares
were excluded because inclusion would have been anti-dilutive.
5. PROPERTY AND EQUIPMENT
Property and equipment is at historical cost and consists of the
following (in thousands):
September 30, December
2000 1999
---- ----
Land $ 4,832 $ 4,845
Buildings and improvements 16,410 15,599
Revenue equipment 54,566 64,046
Service equipment 17,143 16,642
Computer, software and
related equipment 19,680 18,292
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112,631 119,424
Less accumulated depreciation (48,605) (45,784)
------- -------
$ 64,026 $ 73,640
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6. OPERATING SEGMENTS
The company's operations consist of two reportable segments. The
freight segment is engaged primarily in the motor carrier freight
transportation business. The smaller segment is primarily
engaged in non-freight business relating to the sale and service
of refrigeration equipment and of trailers used in freight
transportation.
Financial information for each reportable segment for the nine
month periods ended September 30, 2000 and 1999 is as follows (in
millions):
2000 1999
---- ----
Freight Operations
Total Revenue $240.1 $232.0
Operating Income (1.0) 2.6
Total Assets 153.2 171.9
Non-Freight Operations
Total Revenue $ 58.2 $ 60.7
Operating Income 1.8 1.6
Total Assets 36.0 30.3
Intercompany Eliminations
Revenue $ (4.5) $(10.5)
Operating Income - -
Assets (28.4) (21.3)
Consolidated
Revenue $293.8 $282.2
Operating Income 0.8 4.2
Assets 160.8 180.9
Intercompany elimination of revenue relates to transfers, at
cost, of inventory such as trailers and refrigeration units from
the non-freight segment for use by the freight segment.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The table sets forth, as a percentage of freight revenue, certain
major operating expenses for the three- and nine-month periods
ended September 30, 2000 and 1999.
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
Salaries, wages and
related expenses 27.8% 28.6% 27.4% 28.0%
Purchased transportation 24.3 23.0 24.2 22.4
Supplies and expenses 30.6 28.5 28.9 27.5
Revenue equipment rent 7.7 8.3 7.9 8.4
Depreciation 3.5 3.8 3.6 3.7
Claims and insurance 6.1 5.3 5.1 5.0
Other 2.6 4.5 3.3 3.9
Total freight operating ----- ----- ----- -----
expenses 102.6% 102.0% 100.4% 98.9%
===== ===== ===== =====
Third Quarter of 2000 vs. 1999
During the third quarter of 2000, revenue increased by 4.3% to
$101,402,000 with freight revenue up $2.8 million or 3.6%. Non-
freight revenue aggregated 18.9% and 18.3% of total revenue
during the third quarter of 2000 and 1999, respectively. Less-
than-truckload (LTL) revenue was 1.4% higher and full-truckload
revenue increased by 5.0% as compared to the same period of 1999.
The increase in freight revenue resulted from significantly
increased fuel adjustment revenue during the third quarter of
2000. During the third quarter of 2000, the company transported
5.5% more full-truckload shipments and 1.9% fewer LTL shipments
than during the comparable 1999 quarter. Full-truckload average
miles per shipment declined by 9.4% during the 2000 third
quarter. Total LTL hundredweight fell by 1.0% as compared to the
third quarter of 1999 while revenue (including fuel adjustment
charges) per LTL hundredweight improved by 2.4%.
The impact of the 9.4% decline in average loaded miles per full-
truckload shipment was mitigated by a 9.8% improvement in revenue
per full truckload loaded mile. Of the 13 cent increase in
revenue per loaded mile, 38% resulted from incremental fuel
adjustment charges as compared to 1999's third quarter.
The 2000 increase in non-freight revenue was due to improvement
in the market for refrigeration equipment and to the continued
penetration of the company's non-freight subsidiary of new
geographical and product markets.
Full-truckload activities, which contributed 67.0% and 66.1%,
respectively, of freight revenue during the third quarter of 2000
and 1999, are conducted primarily with company-operated
equipment, while LTL activities are conducted primarily with
equipment provided by owner-operators. Changes in the mix of LTL
versus full-truckload revenue as well as fluctuations in the
amount of total freight handled on company-operated versus owner-
operator provided equipment, impacted the percent of freight
revenue absorbed by the various categories of operating expenses
between the two quarters.
The number of tractors in the fleet of company-operated, full-
truckload equipment increased from approximately 1,150 at the
beginning of 2000 to about 1,170 by the end of the third quarter.
However, the average number of such tractors declined by 6.2%
from 1999's third quarter. The number of full-truckload tractors
provided by owner-operators increased by 40 to 515 during the
first nine months of 2000, and the average number of these
tractors rose by 12.9% as compared to the third quarter of 1999.
During the third quarter of 2000, the percent of freight revenue
absorbed by salaries, wages and related expense was 27.8%, as
compared to 28.6% during the year-ago quarter. Due primarily to
a driver pay increase introduced during the second quarter of
2000, average driver wages rose by 5.5% between the quarters. Of
the $173,000 increase in salaries, wages and related expenses,
76% was driver related.
Purchased transportation expense as a percent of freight revenue
also increased from 23% to 24.3% between the third quarters of
1999 and 2000. This was due in part to the proportional increase
in the quantity of shipments transported by owner-operator-
provided tractors. Increased use of equipment provided by owner-
operators also impacts other categories of operating expenses.
An owner-operator is responsible for providing a truck together
with all resources necessary for the operation of the truck.
Accordingly, costs associated with labor, equipment rental or
depreciation, fuel, maintenance and other such activities
associated with owner-operators are not present in the various
categories of operating expenses, but are reflected in purchased
transportation expense.
Costs associated with operating supplies and expenses rose by
11.2% between the two quarters. For the third quarters of 2000
and 1999, respectively, 44% and 38% of such costs were associated
with fuel consumed by the company-operated fleet of trucks. Per-
gallon fuel costs paid by the company rose by 30% during the
third quarter of 2000 as compared to 1999. Sudden and dramatic
fuel price volatility can impact the company's cost structure and
profitability. A number of factors tend to diminish the impact
of such volatility. Owner-operators are responsible for all
costs associated with their equipment, including fuel. Therefore,
the cost of such fuel is not a direct expense of the company.
With regard to fuel expenses for company-operated equipment, the
company attempts to mitigate the effect of fluctuating fuel costs
by purchasing more fuel-efficient tractors and aggressively
managing fuel purchasing. Also, certain rates charged by the
company for its service are adjustable by reference to market
fuel prices. Relatively high or low per-gallon market fuel
prices can result in upward or downward adjustment of freight
rates, further mitigating the impact of such volatility on the
company's profits. Such fluctuations result from many external
market factors that cannot be influenced or predicted by the
company. In addition, each year several states increase fuel
taxes. Recovery of future increases or realization of future
decreases in fuel prices and fuel taxes, if any, will continue to
depend upon competitive freight-market conditions.
The sum of revenue equipment rent and depreciation fell by 4.6%
during 2000's third quarter to $9.2 million. This decrease is
associated with the disposition of company-operated tractors and
trailers.
Claims and insurance expense rose from 5.3% of freight revenue
during the third quarter of 1999 to 6.1% for 2000. The increase
resulted from a variety of factors, including but not limited to
the relative severity and frequency of incidents that involve
liability for personal injury.
As a result of the above factors, during the third quarter of
2000, the Company incurred a loss from operations of $1.4 million
compared to a loss from operations of $830,000 during the
comparable 1999 period.
Interest and other expense, net fell from $1,021,000 to $890,000
between the two quarters. Reduced interest costs associated with
the reduced use of borrowed funds was the principal factor
affecting this net decrease.
First Nine Months of 2000 vs. 1999
For the nine months ended September 30, 2000, revenue increased
by 4.1%. Of the $11,571,000 increase in total revenue, revenue
generated by the company-operated, full-truckload fleet fell by
$900,000, and full-truckload revenue generated by owner-operators
provided equipment rose by $5,854,000. LTL revenue rose by
$3,146,000, and non-freight revenue increased by $3,471,000.
For several years, customers have indicated moderate levels of
dissatisfaction with the company's (and the industry's) ability
to provide reliable and timely service. One of the most critical
resources required to provide superior service is labor to
operate the truck. During 1999 and early 2000, customers began
to signal acceptance of freight-rate (prices) increases in order
to receive improved service. Accordingly, near the end of 2000's
second quarter, the company initiated a revised payroll offering
for its employee drivers. The impact of the revision was to
increase the take-home pay of all employee drivers in order to
improve recruiting and retention of such employees. The company
began seeking to pass this increased cost on to customers during
the second quarter of 2000.
Another resource that is critical to the operation of a truck is
fuel. Beginning in the second quarter of 1999, fuel prices began
to increase at an alarming rate. At the end of 1999, one United
States Department of Transportation's national average diesel
fuel per gallon price was 32% more than at the beginning of 1999.
By August 2000, that government average stood at a level 95%
above the early 1999 benchmark.
This rapid and dramatic increase in fuel prices triggered the
introduction of fuel adjustments to the prices the company
charges for its services. Such adjustments are common in the
industry, and customers typically have limited objections to
their introduction. Fuel adjustment charges are designed to
track the cost of fuel as reported by government agencies. As
fuel prices escalate, fuel adjustment charges follow suit,
creating upward pressure on the prices the company charges for
its services. In the environment of rapidly escalating pricing,
the company's customers began to resist further price increases
required to mitigate the impact of the increased driver payroll.
As a result, the company has been unable to fully offset
increases in both payroll and fuel costs.
During 2000's first three quarters, purchased transportation
expense rose by 11.8%, as compared to the first nine months of
1999, while the average quantity of tractors provided by owner-
operators rose by 8.7%. The more rapid escalation of such
expense relative to expansion of the owner-operator fleet is
primarily due to fuel adjustment charges. Owner-operators are
responsible for all expenses associated with the operation of
their trucks, including fuel. Accordingly, to the extent that
the company receives fuel adjustment charges in connection with
shipments transported by owner-operator equipment, approximately
100% of such charges are passed on to the owner-operators who
paid for the fuel. This 100% incremental pass-through was a
factor in purchased transportation expense having escalated at a
rate faster than did the fleet of owner-operator trucks.
LIQUIDITY AND CAPITAL RESOURCES
The company's primary needs for capital resources are to finance
working capital, capital expenditures and, from time to time,
acquisitions. Working capital investment typically increases
during periods of sales expansion when higher levels of
receivables, with regard to non-freight operations inventory are
present. The company had long-term debt of $20 million as of
September 30, 2000. Net of outstanding letters of credit in
favor of insurance companies of $3.5 million, the unused portion
of the company's $50,000,000 revolving credit facility was
approximately $26.5 million.
Net cash provided by operating activities was $7.8 million and
cash used in operating activities was $7.8 million for the nine
months ending September 30, 2000 and 1999, respectively. This
change was primarily attributable to fluctuations in the
components of working capital.
Net capital expenditures were $17.3 million for the nine months
ended September 30, 1999. For the first nine months of 2000,
proceeds from the disposition of property equipment exceeded
other capital expenditures by $1.2 million.
The company believes that its current cash position, funds from
operations, and the availability of funds under its credit
agreements will be sufficient to meet anticipated liquidity
requirements for the next twelve months. At September 30, 2000,
working capital was $39.9 million as compared to $12.1 million at
December 31, 1999. This change principally reflects the
temporary classification of the company's debt as a short-term
liability at December 31, 1999.
OUTLOOK
Certain statements contained in this Report on Form 10-Q, except
for the historical information, are forward-looking statements
regarding the anticipated development of and changes in 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 are dependent upon a number
of risks and uncertainties that could cause actual results to
differ materially from those conveyed in such forward looking
statements. These risks and uncertainties include competition,
weather conditions and the general economy, the availability and
cost of labor, equipment, fuel and supplies, the ability of the
company to negotiate favorably with lenders and equipment
lessors, the impact of changes in the tax and regulatory
environment in which the company operates, operational risks and
insurance, risks associated with the technologies and systems
used by the company and the other risks and uncertainties
described in the company's Annual Report on Form 10-K and other
reports which was filed with the Securities and Exchange
Commission.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of September 30, 2000, debt stood at $20 million, which
approximated fair market value. Also, as of September 30, 2000,
the company held no material market risk sensitive instruments
(for trading as well as non-trading purposes) which would involve
significant foreign currency exchange rate risk, commodity price
risk or other relevant market risks, such as equity price risk.
Accordingly, the potential loss to the company in future
earnings, fair values or cash flows of market risk sensitive
investments resulting from changes in interest rates, foreign
currency exchange rates, commodity prices and other relevant
market rates or prices is not significant.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of l934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, hereunto duly authorized.
FROZEN FOOD EXPRESS INDUSTRIES, INC.
------------------------------------
(Registrant)
November 10, 2000 By: /s/Stoney M. Stubbs, Jr.
--------------------------
Stoney M. Stubbs, Jr.
Chairman of the Board
November 10, 2000 By: /s/F. Dixon McElwee, Jr.
--------------------------
F. Dixon McElwee, Jr.
Senior Vice President
Principal Financial and
Accounting Officer
