Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended December 31, 2009
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
(Exact
name of registrant as specified in its charter)
|
TEXAS
(State
or other jurisdiction of incorporation or organization)
|
75-1301831
(I.R.S.
Employer Identification No.)
|
|
|
1145
EMPIRE CENTRAL PLACE, DALLAS, TEXAS
(Address
of principal executive offices)
|
75247-4305
(Zip
Code)
|
Registrant's
telephone number, including area code: (214) 630-8090
|
Title
of Each Class
|
Name
of Each Exchange on Which Registered
|
|
|
i) Common Stock
$1.50 par value
ii)
Rights to purchase Common Stock
|
The NASDAQ Stock
Market LLC
(NASDAQ Global Select Market)
|
Securities
registered pursuant to Section 12(g) of the Act: NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act: Yes [ ] No [ X ]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act: Yes [ ] No [ X ]
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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). 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 ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or smaller reporting
company. See the definition of “large accelerated
filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large
accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company
[ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
The
aggregate market value of 15,513,251 shares of the registrant’s $1.50 par value
common stock held by non-affiliates as of June 30, 2009 was approximately
$49,332,000 (based upon $3.18 per share).
As of
February 24, 2010, the number of outstanding shares of the registrant’s common
stock was 17,176,349.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant's Annual Report to Stockholders for the year ended December
31, 2009 and Proxy Statement for use in connection with its Annual Meeting of
Stockholders to be held on May 19, 2010, to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
December 31, 2009, are incorporated by reference in Part III (Items 10, 11, 12,
13 and 14).
i
TABLE
OF CONTENTS
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PAGE
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Business
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1
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Risk
Factors
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8
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Unresolved
Staff Comments
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12
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Properties
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12
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Legal
Proceedings
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12
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Submission
of Matters to a Vote of Security Holders
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13
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Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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13
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Selected
Financial Data
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15
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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15
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Quantitative
and Qualitative Disclosures about Market Risk
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29
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Financial
Statements and Supplementary Data
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30
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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46
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Controls
and Procedures
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46
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Other
Information
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48
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Directors
and Executive Officers and Corporate Governance
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48
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Executive
Compensation
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48
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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49
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Certain
Relationships and Related Transactions, and Director
Independence
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49
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Principal
Accountant Fees and Services
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49
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Exhibits
and Financial Statement Schedules
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49
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50
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51
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ii
FORWARD-LOOKING
STATEMENTS
This Annual Report on Form
10-K contains information and forward-looking statements that are based on
management's current beliefs and expectations and assumptions we made based upon
information currently available. Such statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Any statements not of historical fact may be considered
forward-looking statements. Forward-looking statements include
statements relating to our plans, strategies, objectives, expectations,
intentions and adequacy of resources and may be identified by words such as
“will”, “could”, “should”, “believe”, “expect”, “intend”, “plan”, “schedule”,
“estimate”, “project” or other variations of these or similar words, identify
such statements. These statements are based on our current expectations and are
subject to uncertainty and change.
Although we believe the expectations reflected in such forward-looking
statements are reasonable, actual results could differ materially from the
expectations reflected in such forward-looking statements. Should one or more of
the risks or uncertainties underlying such expectations not materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those we expect.
Factors that are not within our control that could cause actual results to
differ materially from those in such forward-looking statements include demand
for our services and products, and our ability to meet that demand, which may be
affected by, among other things, competition, weather conditions and the general
economy, the availability and cost of labor and owner-operators, our ability to
negotiate favorably with lenders and lessors, the effects of terrorism and war,
the availability and cost of equipment, fuel and supplies, the market for
previously-owned equipment, the impact of changes in the tax and regulatory
environment in which we operate, operational risks and insurance, risks
associated with the technologies and systems we use and the other risks and
uncertainties described in Item 1A, Risk Factors of this report and risks and
uncertainties described elsewhere in our filings with the Securities and
Exchange Commission (“SEC”). We undertake no obligation to correct or
update any forward-looking statements, whether as a result of new information,
future events, or otherwise.
References
in the Annual Report to “we”, “us”, “our”, or the Company or similar terms refer
to Frozen Food Express Industries, Inc. and it’s consolidated subsidiaries
unless the context otherwise requires.
ITEM
1. Business
OVERVIEW
Frozen
Food Express Industries, Inc. is one of the leading providers of
temperature-controlled truckload and less-than-truckload services in the United
States with operations in the transport of temperature-controlled products and
perishable goods including food, health care and confectionary products.
Transportation services are offered in over-the-road and intermodal modes for
temperature-controlled truckload and less-than-truckload, as well as dry
truckload. We also provide brokerage, or logistics services, including
ocean, air, and both domestic and international expedited services, as well as
dedicated fleets to our customers.
We were
incorporated in Texas in 1969, as successor to a company formed in 1946. Our
principal office is located at 1145 Empire Central Place, Dallas,
Texas 75247-4305. Our telephone number is (214) 630-8090 and our
website is www.ffeinc.com.
Our
growth strategy is to expand our business internally by offering shippers a high
level of service with flexible shipping capacity. We market our
temperature-controlled truckload services primarily to large shippers that
require consistent freight capacity within our preferred lanes, desire the high
service level we provide and understand the pricing necessary to support these
service levels. We market our temperature-controlled
less-than-truckload services to shippers who need the flexibility to ship
varying quantities based upon scheduled departure and delivery
times. Our fleet of company and independent contractor tractors
allows us to offer a high quality of service and on-time performance within
tight time windows at stringent temperature standards.
1
Our
services are further described below:
|
·
|
TRUCKLOAD
(“TL”) LINEHAUL SERVICE: This service provides for the shipment of a load,
typically weighing between 20,000 and 40,000 pounds and usually from a
single shipper, which fills the trailer. Normally, a truckload shipment
has a single destination, although we are also able to provide multiple
stop deliveries. We are one of the largest temperature-controlled
truckload carriers in the United
States.
|
|
·
|
DEDICATED
FLEETS: This service provides trucks and drivers to handle certain of our
customers’ transportation needs, including guaranteed year-round capacity
without the capital investment, insurance risks and equipment utilization
issues of private fleets. Providing this service allows our customers to
eliminate all or a portion of their internal dedicated fleet to lower
their customers’ transportation costs and improve the quality of
service.
|
|
·
|
LESS-THAN-TRUCKLOAD
("LTL") LINEHAUL SERVICE: This service provides for the shipment of a
load, typically consisting of up to 30 shipments, which may weigh as
little as 50 pounds or as much as 20,000 pounds, from multiple shippers
destined to multiple locations. Our temperature-controlled LTL operation
is the largest in the United States and the only one offering regularly
scheduled nationwide service. In providing temperature-controlled LTL
service, multi-compartment trailers enable us to haul products requiring
various levels of temperatures in a single
load.
|
|
·
|
BROKERAGE:
Our brokerage operation helps us to balance the level of
demand in our core business. Orders for shipments to be transported
for which we have no readily available transportation assets are assigned
to other unaffiliated motor carriers through our brokerage service. Our
services also include ocean, air, and both domestic and international
expedited services. We establish the price to be paid by the
customer, invoice the customer and pay the service provider. We also
assume the credit risk associated with the
transaction.
|
|
·
|
EQUIPMENT
RENTAL: Revenue from equipment rental includes amounts we charge to
independent contractors for the use of trucks we own and lease to
them. We also lease refrigerated trailers for the storage and
transportation of perishable items as needed by our
customers.
|
The
following table summarizes and compares the components of our revenue for each
of the years in the five-year period ended December 31, 2009:
|
(in
thousands)
|
||||||||||||||||||||
|
Revenue
from:
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
Truckload
linehaul services
|
$
|
187,234
|
$
|
214,348
|
$
|
212,416
|
$
|
237,464
|
$
|
263,218
|
||||||||||
|
Dedicated
fleets
|
19,707
|
24,609
|
17,861
|
21,121
|
31,493
|
|||||||||||||||
|
Less-than-truckload
linehaul services
|
109,054
|
124,091
|
127,438
|
129,764
|
131,151
|
|||||||||||||||
|
Fuel
surcharges
|
44,876
|
109,144
|
73,391
|
75,084
|
63,520
|
|||||||||||||||
|
Brokerage
|
7,266
|
13,142
|
15,586
|
12,506
|
15,607
|
|||||||||||||||
|
Equipment
rental
|
4,914
|
5,202
|
5,522
|
7,782
|
9,028
|
|||||||||||||||
|
Total
revenue
|
$
|
373,051
|
$
|
490,536
|
$
|
452,214
|
$
|
483,721
|
$
|
514,017
|
||||||||||
Additional
information regarding our business is presented in the Notes to Consolidated
Financial Statements included in Item 8 and in Management's Discussion and
Analysis of Financial Condition and Results of Operations in Item 7 of this
Annual Report on Form 10-K.
Temperature-controlled
transportation: The products we haul include meat, ice, poultry, seafood,
processed foods, candy and other confectionaries, dairy products,
pharmaceuticals, medical supplies, fresh and frozen fruits and vegetables,
cosmetics, film and Christmas trees. In the temperature-controlled market, it
may be necessary to keep freight frozen, as with ice; to keep freight cool, as
with candy; or to keep freight from freezing. The common and contract
hauling of temperature-sensitive cargo is highly fragmented and comprised
primarily of carriers generating less than $70 million in annual
revenue. In addition, many major food companies, food distribution
firms and grocery chain companies transport a portion of their freight with
their own fleets.
2
Non-temperature-controlled
transportation: Our non-temperature-controlled (“dry”) trucking services
accounted for approximately 24.6% of our truckload linehaul revenue in
2009. The Company serves the dry truckload market throughout the
United States, Mexico and Canada.
Intermodal
transportation: In providing our truckload linehaul service, we
often engage railroads to transport shipments between major cities. In such an
arrangement, loaded trailers are transported to a rail facility and placed on
flat rail cars for transport to their destination. Upon arrival, we pick up
the trailer and deliver the freight to the consignee. Intermodal service is a
cost effective way of providing service in major truckload markets that do not
have restrictive service requirements that would limit the ability to rely on
Intermodal rail service.
MARKETING
AND OPERATIONS
Our temperature-controlled and
non-temperature-controlled trucking operations serve nearly 4,600 customers in
the United States, Mexico and Canada. Revenue from international
activities was less than 2% of total revenue during each of the past five
years.
Our
latest fiscal year was an extremely challenging year for us, as well as the
industry in general. Due to the global economic downturn, fewer goods
were shipped, capacity increased and many shippers were able to negotiate rate
discounts. Our traditional approach to business is as an
integrated effort of marketing and operations. Our marketing efforts
are heavily focused on communicating our high service standards as opposed to
competing on price with the low cost service providers. We target large
shippers of temperature sensitive products for our truckload services, as well
as smaller shippers of temperature sensitive products for our LTL
services. Additionally, we service and market directly to shippers
for non-temperature-controlled product. With the increased capacity in the
marketplace, our customers were price focused. The large truckload
shippers had ample capacity to draw from, and the small LTL shippers utilized
options that were not previously available, such as truckload carriers willing
to make multiple stops to emulate LTL service. Also, the dry trucking
market had downward pricing pressures due to the over-capacity.
Excluding
fuel surcharges, temperature-controlled shipments account for about 84% of our
total revenue. Our customers are involved in a variety of products
including food products, pharmaceuticals, medical supplies and household goods.
Our customer base is diverse in that our top 5, 10 and 20 largest customers
accounted for 23%, 33% and 43%, respectively, of our revenue during 2009. None
of our markets are dominated by any single competitor nor did any customer
account for more than 10% of total revenue during any of the past five
years. We compete with several hundred other trucking
companies. The principal methods of competition are price, quality of service
and availability of equipment needed to satisfy customer needs.
Our
marketing efforts are conducted by a staff of dedicated sales, customer service
and support personnel under the supervision of our senior management
team. Marketing personnel travel within assigned regions to solicit
new customers and maintain contact with existing customers. We have a
national sales force team of individuals that focus primarily on large truckload
temperature-controlled shippers. Additionally, we market and sell our
brokerage services from our corporate sales and service office in Dallas,
Texas. Our brokerage and logistics services include
temperature-controlled, dry van and other specialized needs of our customers not
typically offered by other carriers, including ocean, air, and expedited
domestic and international services.
Our
operations personnel strive to improve our asset utilization by seeking freight
that allows for efficient and timely use of assets, minimizes empty miles,
carries a value added rate structure and allows our drivers to remain within our
preferred network of lanes. Once we have established a relationship
with a customer, customer service managers work closely with our fleet managers
to match the customer’s needs with our capacity. Load planners or dispatchers
utilize various optimization solutions to assign loads in ways that meet our
customers’ needs and provide the most efficient use of our assets. We
attempt to route most of our trucks over preferred lanes, which we believe
assists us in meeting our customer’s needs, balancing traffic, reducing
empty miles and improving the reliability of our delivery
schedules. Within our LTL services, we provide for regularly
scheduled pick-up and delivery times so our customers can depend upon a
pre-existing schedule.
DRIVERS
AND OTHER PERSONNEL
We select
drivers using specific guidelines for safety records, driving experience and
personal evaluations. We believe that maintaining a safe and
professional driver group is essential to providing excellent customer service,
safer roads for others and achieving profitability. We maintain
stringent screening, training and testing procedures for our drivers to reduce
the risk for accidents and thereby controlling our insurance and claims
cost. We train our drivers at our service centers in all phases of
our policies and operations including safety techniques, fuel-efficient
operation of the equipment, and customer service. We also offer
computer and audio based training through our website. All drivers
must also pass United States Department of Transportation (“DOT”) required tests
prior to commencing employment.
3
The
economic conditions of 2009 impacted the driver pool as drivers, just as the
rest of the population, were seeking work. This increased the
available driver pool to choose from and reduced driver turnover usually created
from the quality of life conditions, such as time away from
family. However, it hurt the independent contractor population as low
yields and decreased freight volumes made it difficult for the independent
contractors to achieve the revenue needed to maintain
profitability. Whenever the economy finally strengthens, we expect
the driver pool will decline, as it has in the past, and available freight
capacity will shrink accordingly.
At
December 31, 2009 we had 1,505 company drivers and 389 independent
contractors. Our turnover for company drivers was approximately
75%. We find that if we can retain a driver beyond the first 12
months, we have a much better opportunity to retain them for a longer period of
time. We pay our company drivers on a fixed rate per mile basis and
the independent contractors either a percentage of the earned revenue or on a
per mile basis.
We
actively seek to expand our fleet with equipment provided by independent
contractors. These independent contractors provide tractors to pull
our loaded trailers. We generally utilize the independent contractors
based upon our existing capacity and the needs of our customers as those needs
increase or decrease. At the end of 2009, we had 192 independent
contractors providing truckload services and 197 providing LTL
services. Each independent contractor pays for their driver wages,
fuel, equipment related expenses and other transportation costs. We
bill the customer and pay the independent contractor upon proof of delivery to
the destination. The Company assumes the credit risk with the
customer and provides all customer support.
At
December 31, 2009, we had 2,187 employees. This consists of 1,505
drivers, 462 field and operations personnel and 220 sales, general and
administrative employees. This compares to December 31, 2008, when we
had 1,732 drivers, 592 field and operations personnel and 263 sales and general
and administrative employees. None of our employees are represented
by a collective bargaining unit and we consider relations with our employees to
be good. Regrettably, we, like many other freight companies, had to
decrease personnel in 2009, as well as reduce pay and benefits as a result of
the tough economic conditions. It is not expected that the economy
will revive enough in 2010 to reverse this trend.
FUEL
We are
dependent on diesel fuel for our transportation services, and we and our
customers are impacted by the volatility of fuel prices. The price
and availability of diesel fuel can vary significantly and are subject to
political, economic and market factors that are beyond our
control. While we do not hedge our exposure to volatile energy
prices, we attempt to minimize our exposure by buying in bulk in Dallas and at
various facilities throughout the country. In addition, we negotiate
nationwide volume purchasing arrangements for our drivers in
transit. During 2009, approximately 89% of our fuel
purchases were made within this national network.
We
further manage the price volatility through fuel surcharge programs with our
customers. Fuel surcharge programs are intended to offset the increased fuel
expenses we incur when prices escalate. However, as the Company
adjusts fuel surcharge factors on a weekly basis, it may not fully recover price
increases in the preceding week. We have historically been able to
pass through most long-term increases in fuel in the form of surcharges to our
customers. As opposed to 2008, fuel prices were more stable; thus
reducing the impact of fuel surcharges on our
customers. Nevertheless, in the current economy, shippers continued
to be resistant to fuel surcharge programs.
Factors
that could prevent us from fully recovering fuel cost increases include the
competitive environment, empty miles, out-of-route miles, tractor engine idling
and fuel to power our trailer refrigeration units. Such fuel consumption often
cannot be attributed to a particular load and therefore, there is no incremental
revenue to which a fuel surcharge may be applied.
In most
years, states increase fuel and road use taxes. Our 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.
4
INSURANCE AND
CLAIMS
We
self-insure for a portion of our claims exposure resulting from workers’
compensation, auto liability, general liability, cargo and property damage
claims and employees’ health insurance. We are also responsible for
our proportionate share of the legal expenses related to such
claims. We reserve currently for anticipated losses and related
expenses and periodically evaluate and adjust our insurance and claims reserves
to reflect our experience. We are responsible for the first $4.0
million on each auto and general liability claim and $300,000 for employees’
health claims. We are also responsible for the first $1.0 million for
workers’ compensation claims generated outside of Texas and for $500,000 on work
injury claims filed in Texas. We carry excess insurance for which we
are responsible for 25% of the losses between $4.0 million and $10.0 million per
occurrence. We are fully insured for liability exposures between
$10.0 million and $50.0 million. We are fully insured between our
retention of $500,000 and $1.0 million for Texas work injury claims and between
our retention of $1.0 million and state statutory limits for workers’
compensation claims outside of Texas. We have a $300,000 stop-loss
retention on employee health claims. As of February 26, 2010 we have
$3.2 million in standby letters of credit to guarantee settlement of claims
under agreements with our insurance carriers and regulatory
authorities.
Insurance
rates have proven to be influenced by events outside of our Company’s control.
As a result, our insurance and claims expense could increase, or we could raise
our self-insured retention when our policies are renewed in mid-
2010. We believe our risk management program is founded on the
continual enhancement of safety in our operations. Our safety
department conducts programs that include driver education and over-the-road
observation and requires that drivers meet or exceed specific safety guidelines,
driving experience, drug testing and physical examinations. Up to
this point, we have not found the current economic climate to negatively impact
our insurance programs as they relate to premiums. However, we have
found that some of our insurance providers have looked for additional
opportunities to increase their revenues, which have created additional
insurance expense.
Our insurance and claims accruals represent our estimate of ultimate claims
outcomes and 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,
including any expenses related to the incident. We use
recommendations from an independent actuary to assist in developing reserve
amounts.
INFORMATION
TECHNOLOGY
The
demanding shipping requirements of today’s world creates a need for continued
investment in information technology to maintain a successful
temperature-controlled trucking operation. In 2009, we handled
approximately 154,000 truckload and 247,000 LTL shipments. These
shipments must be tracked for quality and service reasons. Our
technology continues to advance and is providing improved tracking systems,
driver communication and routing systems and driver safety
systems. Additionally, federal regulations continue to create demand
for new systems such as automated driver log systems.
Our truckload and LTL fleets use computer and satellite technology to enhance
efficiency and customer service. The satellite-based communications system
provides automatic hourly position updates of each 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 is relayed by the drivers to our
computers via the satellite.
The
Company has also invested in the following technology that we believe allows us
to operate more efficiently:
|
·
|
Freight
optimization software that assists us in selecting loads that match our
overall criteria, including profitability, repositioning, identifying
capacity for expedited loads, driver availability and home time, and other
factors;
|
|
·
|
Fuel-routing
software that optimizes the fuel stops for each trip to take advantage of
volume discounts available in our national fuel
network;
|
|
·
|
Electronic
data interchange and internet communication with various customers
concerning freight tendering, invoices, shipment status and other
information;
|
|
·
|
Costing
software that allows us to develop the appropriate pricing to our
customers and to determine the profitability of specific moves;
and
|
|
·
|
Trailer
tracking devices utilizing global positioning system technology, which
provides product traceability.
|
5
REVENUE
EQUIPMENT
We operate premium company-owned tractors in order to help attract and retain
qualified employee-drivers, promote safe operations, minimize repair and
maintenance costs and ensure dependable service to our customers. We believe the
higher initial investment for our equipment is recovered through more efficient
vehicle performance offered by such premium tractors and improved resale value.
Major repair costs are mostly recovered through manufacturers' warranties, but
routine and preventative maintenance is our responsibility.
Changes in the size of our fleet depend upon developments in the nation's
economy, demand for our services and the availability of qualified drivers.
Continued emphasis will be placed on improving the operating efficiency and
increasing the utilization of the fleet through enhanced driver training and
retention and reducing the percentage of empty, non-revenue producing
miles.
As of December 31, 2009, we operated a fleet of 1,943 tractors, including 1,554
company-owned tractors and 389 tractors supplied by independent
contractors. The average age of our tractors was approximately 2.3
years. We typically replace our tractors within 42 months after
purchase. As of December 31, 2009, we maintained 3,786
trailers. Our general policy is to retire our refrigerated and dry
trailers after seven and ten years of service,
respectively. Occasionally, we retain older equipment for use in
local delivery operations. The following represents a breakdown of
the age of our tractors and trailers at the end of 2009 and 2008:
|
Age
in Years
|
||||||||||||||||||||||||||||||||
|
Tractors
|
Less
than 1
|
1
through 3
|
More
than 3
|
Total
|
||||||||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||
|
Company-owned
and leased
|
334
|
402
|
743
|
800
|
477
|
427
|
1,554
|
1,629
|
||||||||||||||||||||||||
|
Owner-operator
provided
|
84
|
101
|
171
|
170
|
134
|
129
|
389
|
400
|
||||||||||||||||||||||||
|
418
|
503
|
914
|
970
|
611
|
556
|
1,943
|
2,029
|
|||||||||||||||||||||||||
|
Age
in Years
|
||||||||||||||||||||||||||||||||
|
Trailers
|
Less
than 1
|
1
through 5
|
More
than 5
|
Total
|
||||||||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||
|
Company-owned
and leased
|
99
|
539
|
2,211
|
2,138
|
1,476
|
1,502
|
3,786
|
4,179
|
||||||||||||||||||||||||
|
Owner-operator
provided
|
-
|
-
|
-
|
-
|
-
|
3
|
-
|
3
|
||||||||||||||||||||||||
|
99
|
539
|
2,211
|
2,138
|
1,476
|
1,505
|
3,786
|
4,182
|
|||||||||||||||||||||||||
Approximately
three-fourths of our trailers are insulated and equipped with refrigeration
units capable of providing the temperature control necessary to properly
maintain perishable freight. Trailers that are used primarily in LTL operations
are equipped with movable partitions permitting the transportation of goods
requiring different temperatures. We also operate a fleet of non-refrigerated
trailers in our non-temperature-controlled truckload operation. Company-operated
trailers are primarily 102 inches wide. Truckload trailers used in dry freight
and temperature-controlled linehaul operations are primarily 53 feet
long.
Since approximately 2004, the federal government, through the Environmental
Protection Agency (the “EPA”), has mandated the phase in of truck engines that
reduce particulate matter count, nitrous oxides and sulfur emissions. This new
technology serves to reduce emissions from diesel engines but generally also
reduces miles per gallon and increases the new cost of the engines, as well as
maintenance cost. We have been in full compliance of these programs
due to our vehicle replacement programs that replace tractors at a rate that
maintains proper ratios as required by the EPA. While the
EPA-compliant engines are more costly to purchase and maintain, we are committed
to the EPA’s SmartWay Transport Partner Program (“SmartWay”) to minimize the
negative environmental impacts of diesel-powered equipment. Based on
input from the manufacturers, the cost of tractors purchased or leased in 2009
increased approximately $4 million as a result of the additional EPA
requirements.
6
INTERNATIONAL
OPERATIONS
Service
to and from Canada is provided using tractors from our fleets. We partner with
Mexico-based trucking companies to facilitate freight moving both ways across
the southern United States border. Freight moving from Mexico is hauled in our
trailers to the border by the Mexico-based carrier, where the trailers are
exchanged. Southbound shipments work much the same way. This arrangement has
been in place for more than ten years, and we do not expect to change our manner
of dealing with freight to or from Mexico. Changes in United States,
Canadian, or Mexican government regulations could cause us to change our
operations, including border management, taxation, or various transportation and
safety practices. Approximately 2% of our consolidated linehaul
revenue during 2009 involved international shipments, all of which was billed
and collected in United States currency.
REGULATION
Our trucking operations are regulated by the DOT. The DOT generally
governs matters such as safety requirements, registration to engage in motor
carrier operations, certain mergers, insurance, consolidations and acquisitions.
The DOT conducts periodic on-site audits of our compliance with its safety rules
and procedures. Our most recent audit, which was completed in March of 2008,
resulted in a rating of "satisfactory", the highest safety rating
available.
During 2005, the Federal Motor Carrier Safety Administration ("FMCSA") began to
enforce changes to the regulations that govern drivers' hours of service. Hours
of Service ("HOS") rules issued by the FMCSA, in effect since 1939, generally
limit the number of consecutive hours and consecutive days that a driver may
work. The new rules reduced by one hour the number of hours that a driver may
work in a shift, but increased by one hour the number of hours that a driver may
drive during the same shift. Drivers often are working at a time they are not
driving. Duties such as fueling, loading and waiting to load count as part of a
driver's shift that are not considered driving. Under the old rules, a driver
was required to rest for at least eight hours between shifts. The new rules
increased that to ten hours, thereby reducing the amount of time a driver can be
"on duty" by two hours.
We
believe we are well equipped to minimize the economic impact of the current HOS
rules on our business. In many cases, we have negotiated time delay
charges with our customers. Additionally, we work directly with our
customers in an effort to manage our drivers’ non-driving activities such as
loading, unloading or waiting and we continue to actively communicate with our
customers regarding these matters. We also are able to assess
detention and other charges to offset losses in productivity resulting from the
current HOS regulations.
We have experienced higher prices for new tractors over the past few years,
partially as a result of government regulations applicable to newly manufactured
tractors and diesel engines. The entire linehaul sleeper fleet has either the
2004-EGR (“Exhaust-Gas Recirculation”) or the 2007-EGR EPA-mandated
engines. Further restrictions for clean air compliance will be
mandated by the EPA for all engines manufactured after January 1,
2010. While the 2010 engines will further increase the costs of our
equipment, we plan to continue with our normal equipment replacement
cycles. We will not be receiving tractors with 2010 engines until
2011 and based on our recent replacement history for tractors, this will add
approximately $1.2 million the costs of our replacement tractors in
2011.
In 2010,
the state of California will enforce stricter carbon emission standards for
refrigeration units on temperature controlled trailers. Currently,
approximately 90% of our trailers are C.A.R.B. (“California Air Research Board”)
compliant and all of our trailers located in California are C.A.R.B.
compliant. We will begin to replace the non-compliant trailers late
in 2010 or during our 2011 replacement cycle. We do not anticipate a
significant increase in cost for these trailers.
ENVIRONMENTAL
We are
also subject to various environmental laws and regulations by various state
regulatory agencies with respect to certain aspects of our operations including
the operations of fuel storage tanks, air emissions from our trucks and engine
idling. We have been committed to environmental quality for many
years and joined SmartWay at its inception in 2004. SmartWay is an
innovative collaboration between the EPA and the freight sector designed to
improve energy efficiency, reduce greenhouse gas and air pollutant emissions,
and improve energy security. Currently every FFE truck is an EPA 2004
Engine or newer. Constant upgrades are made to replace with
environmentally friendly models that have fuel efficient tires, aerodynamic
styling and skirts. We use environmentally friendly refrigerants in
our refrigeration units and every truck in our fleet is ULSD (“Ultra Low Sulfur
Diesel”). Furthermore, we have reduced our fleet trucks to sixty-two
miles per hour to achieve greater fuel efficiency. We utilize a fuel
optimizer program to reduce miles and maintain idle management devices on our
trucks. We are also diligent in our recycling programs for used oil
and other hazardous material by-products.
7
SEASONALITY
Our temperature-controlled truckload operations are affected by seasonal
changes. The growing seasons for fruits and vegetables in Florida, California
and Texas typically create increased demand for trailers equipped to transport
cargo requiring refrigeration. Our LTL operations are also impacted by the
seasonality of certain commodities. 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. LTL volumes also tend to
increase in the weeks before holidays such as Halloween, Thanksgiving,
Christmas, Valentine’s Day and Easter when significant volumes of food and candy
are transported.
EFFECT
OF CLIMATE CHANGES
Considering
84% of our revenue is from temperature controlled transport of goods, the
climate could affect our customers’ service needs and our service
product. As the climate becomes warmer, more refrigerated capacity
would be needed. In a cold, harsh winter, we could be required to
heat more products and handle freight that would not normally need a temperature
controlled environment. The effect of the temperature and harsh
weather could be felt in other areas of the operation, including:
|
·
|
higher
fuel use caused by increased idling, alternate (longer) routing,
temperature stress and strain on engines and increased traffic congestion,
and
|
|
·
|
continued
changes and increased cost of engines as referenced in the sections
entitled “Revenue Equipment”, “Regulation” and “Environmental”
above.
|
INTERNET
WEB SITE
We maintain a
web site, www.ffeinc.com, on
the Internet where additional information about our company is available. Our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, press releases, earnings releases and other reports filed with and
furnished to the SEC, pursuant to Section 13 or 15(d) of the Exchange Act are
available, free of charge, on our web site as soon as practical after they are
filed.
We
have adopted a Code of Business Conduct and Ethics for our Board of Directors,
our Chief Executive Officer, principal financial and accounting officer and
other persons responsible for financial management and our employees generally.
We also have charters for the Audit Committee, Compensation Committee, and
Nominating and Corporate Governance Committee of our Board of Directors. Copies
of the foregoing documents may be obtained on our web site, and such information
is available in print to any shareholder who requests it. Such
requests should be made to the Vice President and Interim Chief Financial
Officer at 1145 Empire Central Place, Dallas, Texas 75247-4305.
SEC
FILINGS
The annual,
quarterly, special and other reports we file with and furnish to the SEC
are available at the SEC's Public Reference Room, located at 100 F Street, NE,
Room 1580, Washington, D.C. 20549. Information may be obtained on the
operation of the Public Reference Room by calling the SEC at 1-800-732-0330. The
SEC also maintains a web site at www.sec.gov . The SEC
site also contains information we file with and furnish to the
agency.
ITEM 1A. Risk Factors
The
following factors are important and should be considered carefully in connection
with any evaluation of our business, financial condition, results of operations,
prospects, or an investment in our common stock. The risks and
uncertainties described below are those we currently believe may materially
affect our company or our financial results. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations or affect our financial
results.
Our business is subject to general
economic factors and business risks that are largely out of our control, any of
which could have a material adverse effect on our operating results.
Our business is
subject to general economic factors and business factors that may have a
material adverse effect on our results of operations, many of which are beyond
our control. These factors include excess capacity in the trucking
and temperature-controlled industry, strikes, or other work stoppages,
significant increases in interest rates, fuel costs, taxes and license and
registration fees. Recessionary economic cycles, changes in
customers' business activities and excess tractor or trailer capacity in
comparison with shipping demands could materially impact our
operations. Economic conditions that decrease shipping demand, as we
experienced in 2008 and 2009, or an increase in the supply of tractors and
trailers generally available in the transportation sector of the economy can
exert downward pressure on our pricing programs and equipment utilization,
thereby decreasing asset profitability. Economic conditions also may adversely
impact our customers and their ability to pay for our services.
8
Recently, there has been widespread concern over the instability of the credit
markets and the current credit market effects on the economy. If the economy and
credit markets continue to weaken, our business, financial results, and results
of operations could be materially and adversely affected, especially if consumer
confidence continues to decline and domestic spending decreases. Additionally,
the stresses in the credit market have caused uncertainty in the equity markets,
which may result in volatility of the market price for our
securities.
If the credit markets continue to erode, we also may not be able to access our
current sources of credit and our lenders may not have the capital to fund those
sources. We may need to incur indebtedness or issue debt or equity
securities in the future to fund working capital requirements, make investments
in revenue generating equipment, or for general operating purposes. As a result
of contractions in the credit market, as well as other economic trends in the
credit market industry, we may not be able to secure financing for future
activities on satisfactory terms, or at all. If we are not successful in
obtaining sufficient financing because we are unable to access the capital
markets on financially economical or feasible terms, it could impact our ability
to provide services to our customers and may materially and adversely affect our
business, financial results, current operations, results of operations and
potential investments.
We operate in a highly competitive
and fragmented industry and numerous competitive factors could impair our growth
and profitability. Some of these factors
include:
|
·
|
We
compete with many other transportation carriers of varying sizes, some of
which have more equipment and greater capital resources than we do or have
other competitive advantages;
|
|
·
|
Some
of our competitors periodically reduce their freight rates to gain
business, especially during times of reduced growth rates in the economy,
which may limit our ability to maintain or increase freight rates or
maintain our profitability levels;
|
|
·
|
Many
customers reduce the number of carriers they use by selecting so-called
“core carriers” as approved transportation service providers or current
bids from multiple carriers, and in some instances we may not be
selected;
|
|
·
|
Many
customers periodically accept bids from multiple carriers for their
shipping needs, and this process may depress freight rates or result in
the loss of some business to competitors as a core
carrier;
|
|
·
|
Certain
of our customers that operate private fleets to transport their own
freight could decide to expand their operations;
|
|
·
|
Competition
from freight logistics and brokerage companies may negatively impact our
customer relationships and freight rates; and
|
|
·
|
Economies
of scale that may be passed onto smaller carriers by procurement
aggregation providers may improve such carriers’ ability to compete with
us.
|
We derive a significant portion of
our revenue from our major customers, the loss of one or more of which could
have a material adverse effect on our business. A significant portion
of our revenue is generated from our major customers. For 2009, our
top 20 customers accounted for approximately 43% of our revenue; our top ten
customers accounted for 33% of our revenue; and our top five customers accounted
for approximately 23% of our revenue. Generally, we enter into one
year agreements with our major customers, which generally do not contain minimum
shipment volumes with us. We cannot ensure that, upon expiration of
existing contracts, these customers will continue to utilize our services at the
current levels. Many of our customers periodically solicit bids from
multiple carriers for their shipping needs, and this process may depress freight
rates or result in a loss of business to one of our competitors. Some
of our customers also operate their own private fleets and the expansion of
those fleets may result in lowering the demand for our services with such
customers.
Future insurance and claims expense
could reduce our earnings. Our future insurance
and claims expense might exceed historical levels, which could reduce our
earnings. We self-insure significant portions of our claims exposure resulting
from work-related injuries, auto liability, general liability, cargo and
property damage claims, as well as employees' health insurance. We currently
reserve for anticipated losses and expenses. We periodically evaluate and adjust
our claims reserves to reflect our experience. However, ultimate results usually
differ from our estimates, which could result in losses in excess of our
reserved amounts.
We
maintain insurance above the amounts for which we self-insure. Although we
believe the aggregate insurance limits should be sufficient to cover reasonably
expected claims, it is possible that one or more claims could exceed our
aggregate coverage limits. Insurance carriers have raised premiums for many
businesses, including transportation companies. As a result, our insurance and
claims expense could increase, or we could raise our self-insured retention when
our policies are renewed. If these expenses increase, if we experience a
claim in excess of our coverage limits, or if we experience a claim for which
coverage is not provided, results of our operations and financial condition
could be materially and adversely affected.
Fluctuations in the price or
availability of fuel may increase our cost of operations, which could materially
and adversely affect our profitability. We are subject to risk
with respect to purchases of fuel for use in our tractors and refrigerated
trailers. Fuel prices are influenced by many factors that are not within our
control.
Because
our operations are dependent upon diesel fuel, significant increases in diesel
fuel costs could materially and adversely affect our results of operations and
financial condition unless we are able to pass increased costs on to customers
through rate increases or fuel surcharges. Historically, we have sought to
recover increases in fuel prices from customers through fuel surcharges. Fuel
surcharges that can be collected have not always fully offset the increase in
the cost of diesel fuel in the past, and there can be no assurance that fuel
surcharges that can be collected will offset the increase in the cost of diesel
fuel in the future.
9
Seasonality and the impact of
weather can affect our profitability. Our tractor productivity generally
decreases during the winter season because inclement weather impedes operations
and some shippers reduce their shipments. At the same time, operating expenses
generally increase, with fuel efficiency declining because of engine idling and
harsh weather creating higher accident frequency, increased claims and more
equipment repairs. We can also suffer short-term impacts from weather-related
events such as hurricanes, blizzards, ice-storms and floods, which may increase
in severity or frequency due to the physical effects of climate change, that
could harm our results or make our results more volatile.
We will have significant ongoing
capital requirements that could negatively impact our growth and
profitability. The trucking
industry is capital intensive, and replacing older equipment requires
significant investment. If we elect to expand our fleet in future periods, our
capital needs would increase. We expect to pay for our capital expenditures
with cash flows from operations, borrowings under our revolving credit facility
and leasing arrangements. If we are unable to generate sufficient cash from
operations and obtain financing on favorable terms, we may need to limit
our growth, enter into less favorable financing arrangements or operate our
revenue equipment for longer periods, any of which could impact our
profitability.
We
rely on our key management and other employees and depend on recruitment and
retention of qualified personnel. Difficulty in attracting or
retaining qualified employee-drivers and independent contractors who provide
tractors for use in our business could impede our growth and
profitability. A limited number
of key executives manage our business. Their departure could have a
material adverse effect on our operations. In addition, our
performance is primarily dependent upon our ability to attract and retain
qualified drivers. Our independent contractors are responsible for
paying for their own equipment, labor, fuel, and other operating costs.
Significant increases in these costs could cause them to seek higher
compensation from us or other opportunities. Competition for employee-drivers
continues to increase. If a shortage of employee-drivers occurs, or if we were
unable to continue to sufficiently contract with independent contractors, we
could be forced to limit our growth or experience an increase in the number
of our tractors without drivers, which would lower our
profitability.
Service
instability in the railroad industry could increase our operating costs and
reduce our ability to offer intermodal services, which could adversely affect
our revenue, results of operations and customer relationships.
Our intermodal operations are dependent on railroads, and
our dependence on railroads may increase if we expand our intermodal services.
In most markets, rail service is limited to a few railroads or even a single
railroad. Any reduction in service by the railroads may increase the cost of the
rail-based services we provide and reduce the reliability, timeliness and
overall attractiveness of our rail-based services. Railroads are relatively free
to adjust their rates as market conditions change. That could result
in higher costs to our customers and impact our ability to offer intermodal
services. There is no assurance that we will be able to negotiate
replacement of or additional contracts with railroads, which could limit our
ability to provide this service and may negatively impact our
profitability.
Interruptions in the operation of
our computer and communications systems could reduce our income. We depend
on the efficient and uninterrupted operation of our computer and communications
systems and infrastructure. Our operations and those of our technology and
communications service providers are vulnerable to interruption by fire,
earthquake, power loss, telecommunications failure, terrorist attacks, internet
failures, computer viruses and other events beyond our control. In the event of
a system failure, our business could experience significant disruption. We
have established an off-site facility where our data and processing functions
are replicated; however, there can be no assurances that the business recovery
plan will work as intended or may not prevent significant interruptions of our
operations.
Changes in the availability of or
the demand for new and used trucks could reduce our growth and negatively impact
our income. More restrictive federal emissions standards require
new technology diesel engines. As a result, we expect to continue to pay
increased prices for equipment and incur additional expenses and related
financing costs for the foreseeable future. The new engines are also expected to
reduce equipment productivity, increase fuel consumption and be more expensive
to maintain.
We have a conditional commitment from our principal tractor vendor regarding the
amount we will be paid on the disposal of most of our tractors as part of a
trade-in program. We could incur a financial loss upon disposition of our
equipment if the vendor cannot meet its obligations under these
agreements.
If we are
unable to obtain favorable prices for our used equipment, or if the cost of new
equipment continues to increase, we will increase our depreciation expense or
recognize less gain (or a loss) on the disposition of our tractors and trailers.
This may adversely affect our earnings and cash flows.
10
We operate in a highly regulated
industry, and increased costs of compliance with, or liability for violation of,
existing or future regulations could have a material adverse effect on our
business. The DOT and various state and local agencies exercise
broad powers over our business, generally governing such activities as
authorization to engage in motor carrier operations, safety and insurance
requirements. Our company drivers and independent contractors also must comply
with the safety and fitness regulations promulgated by the DOT, including those
relating to drug and alcohol testing and hours-of-service. We also may
become subject to new or more restrictive regulations relating to fuel
emissions, drivers’ hours-of-service, ergonomics, or other matters affecting
safety or operating methods. Other agencies, such as the EPA and the Department
of Homeland Security, also regulate our equipment, operations, and
drivers. Future laws and regulations may be more stringent and require
changes in our operating practices, influence the demand for transportation
services, or require us to incur significant additional costs.
Our operations are subject to
various environmental laws and regulations, the violation of which could result
in substantial fines or penalties. We are subject to various
environmental laws and regulations dealing with the handling of hazardous
materials, fuel storage tanks, air emissions from our vehicles and facilities,
engine idling, and discharge and retention of storm water. We operate in
industrial areas, where truck terminals and other industrial activities are
located and where groundwater or other forms of environmental contamination have
occurred. Our operations involve the risks of fuel spillage or seepage,
environmental damage, and hazardous waste disposal, among others. Although we
have instituted programs to monitor and control environmental risks and promote
compliance with applicable environmental laws and regulations, if we are
involved in a spill or other accident involving hazardous substances or if we
are found to be in violation of applicable laws or regulations, we could be
subject to liabilities, including substantial fines or penalties or civil and
criminal liability, any of which could have a material adverse effect on our
business and operating results.
We may not be able to improve our
operating efficiency rapidly enough to meet market conditions.
Because the markets in which we operate are highly competitive, we must
continue to improve our operating efficiency in order to maintain or improve our
profitability. Although we have been able to improve efficiency and reduce costs
in the past, there is no assurance we will continue to do so in the future. In
addition, the need to reduce ongoing operating costs may result in significant
up-front costs to reduce workforce, close or consolidate facilities, or upgrade
equipment and
technology.
Our operations could be adversely
affected by a work stoppage at locations of our customers. Although none
of our employees are covered by a collective bargaining agreement, a strike or
other work stoppage at a customer location could negatively affect our revenue
and earnings and could cause us to incur unexpected costs to redeploy or
deactivate assets and personnel.
We are subject to anticipated future
increases in the statutory federal tax rate. An increase in
the statutory tax rate would increase our tax expense. In addition,
our net deferred tax liability is stated net of offsetting deferred tax
assets. The assets consist of anticipated future tax deductions for
items such as personal and work-related injuries and bad debt expenses, which
have been reflected on our financial statements but which are not yet tax
deductible. We will need to generate sufficient future taxable income
in order to fully realize our deferred tax assets. Should we not
realize sufficient future taxable income, we may be required to write-off a
portion or all of our deferred tax assets, which could materially impact our
results of operations and financial condition. Due to probable tax
rate increases in the future, we would be required to adjust our deferred tax
liabilities at that time to reflect higher federal tax rates.
Changes in market demand may have an
unfavorable impact on our operating efficiency. We provide
transportation services to a number of customers that ship a variety of products
including but not limited to food, health care, and confectionary
products. Should the demand for our customers’ products decline, our
revenues could be negatively impacted. Should those conditions arise,
there is no assurance that we will be able to adjust our operating costs
sufficiently to offset the decline in revenue.
We are subject to potential
litigation and claims. We are exposed to litigation involving
personal injury, property damage, work-related injuries, cargo losses, Equal
Employment Opportunity Commission (EEOC), unemployment claims and general
liability during the normal course of operating our business, any of which could
adversely affect our results depending on the severity and resolution of the
aforementioned exposures.
The negative economic impact on our
customers’ businesses may adversely affect our credit
risk. Certain customers may not be able to meet their
financial obligations due to deterioration of their own financial condition,
credit ratings or bankruptcy. While we do record an allowance for
doubtful accounts, a considerable amount of judgment is required in assessing
the realization of these receivables which could adversely affect our cash
collections and operating results.
We are dependent on our customers’
product safety and quality control procedures to ensure product
integrity. As most shipments tendered to us are packaged in
such a way to prevent inspection and testing, we are dependent upon our
customers’ quality control to ensure our other customers’ products are not
subject to chemicals, bacteria, or other harmful agents that could contaminate
their product. Such contamination could result in loss of business,
consumer confidence in our Company, and possibly cause public health concerns
resulting in fines, costly litigation, or loss of operating
authority.
11
None
At
December 31, 2009, we maintained service center or office facilities of 10,000
square feet or more in or near the cities listed below. We also
occupy a number of smaller rented recruiting and sales offices around the
country. Remaining lease terms range from one month to approximately
fourteen years. We expect our present facilities are sufficient to support our
operations.
The
following table sets forth certain information regarding our properties at
December 31, 2009:
|
Approximate
Square
Footage
|
Approximate
Acreage
|
Owned
or
Leased
|
Lease
Expiration Date
|
|||||
|
Dallas,
TX
|
||||||||
|
Maintenance,
service center and freight handling
|
100,000
|
80
|
Owned
|
NA
|
||||
|
Corporate
office
|
34,000
|
2
|
Owned
|
NA
|
||||
|
Burlington,
NJ
|
84,000
|
10
|
Leased
|
May
2024
|
||||
|
Ft.
Worth, TX
|
34,000
|
7
|
Owned
|
NA
|
||||
|
Chicago,
IL
|
37,000
|
5
|
Owned
|
NA
|
||||
|
Lakeland,
FL
|
26,000
|
15
|
Owned
|
NA
|
||||
|
Newark,
NJ
|
17,000
|
5
|
Owned
|
NA
|
||||
|
Atlanta,
GA
|
50,000
|
13
|
Owned
|
NA
|
||||
|
Los
Angeles, CA
|
40,000
|
6
|
Leased
|
October
2011
|
||||
|
Salt
Lake City, UT
|
12,500
|
*
|
Leased
|
November
2011
|
||||
|
Miami,
FL
|
17,500
|
*
|
Leased
|
November
2010
|
||||
|
Memphis,
TN
|
11,000
|
*
|
Leased
|
May
2010
|
||||
|
Stockton,
CA
|
11,000
|
*
|
Leased
|
January
2015
|
*Facilities
are part of an industrial park in which we share acreage with other
tenants.
In 2007,
we were advised that our facility near Newark, NJ was identified for imminent
domain proceedings due to its proximity to a residential area. We
identified an 84,000 square foot replacement property in Burlington, New Jersey
and signed a 15 year lease. We renovated and moved in to this
facility in June 2009.
We have a
leased facility near Los Angeles, CA, and the city has informed the property
owner and us that it plans to construct a maintenance facility on the
property. We anticipate relocating in Los Angeles in early
2011.
During
the fall of 2009, we made the decision to open a facility in Stockton, CA, to
enhance our service on the west coast. We signed a lease which
expires in January 2015.
ITEM
3. Legal Proceedings
We are
involved in litigation incidental to our operations, primarily involving claims
for personal injury, property damage, work-related injuries and cargo losses
incurred in the ordinary and routine transportation of freight.
On
January 8, 2008, a shareholders’ derivative action was filed in the District
Court of Dallas County, 192nd District, entitled James L. and Eleanor A. Gayner,
Individually and as Trustees of The James L. & Eleanor 81 UAD 02/04/1981
Trust, Derivatively On Behalf of Frozen Food Express Industries, Inc. v. Stoney
M. Stubbs, Jr., et al. This action alleged that certain of our
current and former officers and directors breached their respective fiduciary
duties in connection with our equipment lease arrangements with certain
related-parties, which were terminated in September 2006. The
shareholders sought, on our behalf, an order that the lease arrangements were
null and void from their origination, an unspecified amount of damages, the
imposition of a constructive trust on any benefits received by the defendants as
a result of their alleged wrongful conduct, and recovery of attorneys’ fees and
costs. A special litigation committee (“SLC”) consisting solely of
independent directors was created to investigate the claims in the
derivative action. The
derivative action was stayed while the SLC conducted an
investigation. The parties reached a final settlement, approved
by the court April 7, 2009, without significant financial impact. Under
the proposed settlement, the Company made certain corporate
governance changes beginning in early March 2009, all of which have been
fully implemented and are ongoing.
12
ITEM
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of our shareholders during the fourth quarter
of the year ended December 31, 2009.
ITEM
5. Market for Registrant's Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities
Market
for Registrant's Common Equity and Related Shareholder Matters
Our
common stock is listed on the NASDAQ Global Select Market under the symbol
“FFEX”. The table below shows the range of high and low bid prices
for the quarters indicated on the NASDAQ Global Select Market. Such
quotations reflect inter-dealer prices, without retail markups, markdowns or
commissions and therefore, may not necessarily represent actual
transactions. The following table sets forth the high and low prices
of our stock within each quarter of the previous two years:
|
Price
Range
|
||||||||
|
Year
Ended December 31, 2009
|
High
|
Low
|
||||||
|
Fourth
Quarter
|
$
|
3.71
|
$
|
2.71
|
||||
|
Third
Quarter
|
4.10
|
2.93
|
||||||
|
Second
Quarter
|
4.73
|
2.51
|
||||||
|
First
Quarter
|
5.81
|
2.56
|
||||||
|
Year
Ended December 31, 2008
|
||||||||
|
Fourth
Quarter
|
$
|
6.91
|
$
|
4.01
|
||||
|
Third
Quarter
|
7.68
|
4.98
|
||||||
|
Second
Quarter
|
8.24
|
5.94
|
||||||
|
First
Quarter
|
8.39
|
5.10
|
||||||
On
February 24, 2010, we had approximately 2,550 beneficial shareholders of our
common stock.
During
the first quarter of 2009, we paid a cash dividend of $0.03 per share. Due
to the continued decline of the economic environment in 2009, management and the
Board of Directors determined it imprudent to continue the payment of dividends
until such time that the economy has improved and the Company has reflected this
in improved results.
Repurchase of Equity
Securities
In
November 2007, our Board of Directors renewed our authorization to purchase up
to 1,357,900 shares of our common stock. The authorization does not
specify an expiration date. Shares may be purchased from time to time on the
open market or through private transactions at such times as management deems
appropriate. Purchases may be increased, decreased or discontinued by our Board
of Directors at any time. In the 4th
Quarter of 2009, 1,100 shares were repurchased. At December 31, 2009,
there were a total of 936,000 remaining authorized shares that could be
repurchased.
|
Period
|
Total Number of Shares
Purchased
(a)
|
Average
Price Paid per Share
(b)
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
(c)
|
Maximum
Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be
Purchased Under the Plans or Programs
(d)
|
||||||
|
October
1, 2009 to December 31, 2009
|
1,100
|
3.45
|
-
|
936,000
|
||||||
13
Comparative
Stock Performance
The graph below compares the cumulative total stockholder return on our common
stock with the NASDAQ Transportation Index and the S&P 500 Index for the
last five years. The graph assumes $100 is invested in our common
stock, the NASDAQ Transportation Index and the S&P 500 Index on December 31,
2004, with reinvestment of dividends. The comparisons in the graph
are based on historical data and are not intended to predict future performance
of our stock. The information in the graph shall be deemed
“furnished” and not “filed” for purposes of Section 18 of the Exchange Act or
otherwise subject to the liabilities of that section.
14
ITEM
6. Selected Financial Data
The following unaudited data for each of the years in the five-year period ended
December 31, 2009 should be read in conjunction with our Consolidated Financial
Statements and Notes thereto included under Item 8 of this report and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Item 7.
|
(dollars
in thousands, except per share data)
|
||||||||||||||||||||
|
Summary
of Operations
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
Statement
of Operations Data
|
||||||||||||||||||||
|
Revenue
|
$
|
373,051
|
$
|
490,536
|
$
|
452,214
|
$
|
483,721
|
$
|
514,017
|
||||||||||
|
Net
income (loss)
|
$
|
(16,415
|
)
|
$
|
605
|
$
|
(7,670
|
)
|
$
|
11,226
|
$
|
20,437
|
||||||||
|
Operating
expenses
|
$
|
397,964
|
$
|
488,482
|
$
|
462,743
|
$
|
472,162
|
$
|
484,352
|
||||||||||
|
Operating
ratio (a)
|
106.7
|
%
|
99.6
|
%
|
102.3
|
%
|
97.6
|
%
|
94.2
|
%
|
||||||||||
|
Balance
Sheet Data
|
||||||||||||||||||||
|
Total
assets
|
$
|
145,800
|
$
|
162,186
|
$
|
173,669
|
$
|
191,762
|
$
|
200,955
|
||||||||||
|
Long-term
debt
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
4,900
|
$
|
-
|
||||||||||
|
Shareholders'
equity
|
$
|
89,735
|
$
|
106,451
|
$
|
107,259
|
$
|
122,531
|
$
|
119,130
|
||||||||||
|
Per
Share Data
|
||||||||||||||||||||
|
Net
income (loss) per common share, diluted
|
$
|
(0.96
|
)
|
$
|
0.04
|
$
|
(0.45
|
)
|
$
|
0.61
|
$
|
1.09
|
||||||||
|
Book
value per share (b)
|
$
|
5.22
|
$
|
6.32
|
$
|
6.41
|
$
|
6.99
|
$
|
6.64
|
||||||||||
|
Cash
dividends per share
|
$
|
0.03
|
$
|
0.12
|
$
|
0.12
|
$
|
0.03
|
$
|
-
|
||||||||||
|
Weighted
average diluted shares
|
17,080
|
16,997
|
17,187
|
18,517
|
18,739
|
|||||||||||||||
|
Revenue From
|
||||||||||||||||||||
|
Truckload
linehaul services
|
$
|
187,234
|
$
|
214,348
|
$
|
212,416
|
$
|
237,464
|
$
|
263,218
|
||||||||||
|
Dedicated
fleets
|
19,707
|
24,609
|
17,861
|
21,121
|
31,493
|
|||||||||||||||
|
Less-than-truckload
linehaul services
|
109,054
|
124,091
|
127,438
|
129,764
|
131,151
|
|||||||||||||||
|
Fuel
surcharges
|
44,876
|
109,144
|
73,391
|
75,084
|
63,520
|
|||||||||||||||
|
Brokerage
|
7,266
|
13,142
|
15,586
|
12,506
|
15,607
|
|||||||||||||||
|
Equipment
rental
|
4,914
|
5,202
|
5,522
|
7,782
|
9,028
|
|||||||||||||||
|
Total
revenue
|
$
|
373,051
|
$
|
490,536
|
$
|
452,214
|
$
|
483,721
|
$
|
514,017
|
||||||||||
|
Computational
Notes:
|
|
|
(a)
|
Operating
expenses divided by total revenue.
|
|
(b)
|
Shareholders’
equity divided by the number of total shares issued less the number of
treasury shares (excluding treasury shares held in the Rabbi Trust), all
as of year-end.
|
The following discussion and analysis of our financial condition and results of
operations should be read together with the selected consolidated financial data
and our consolidated financial statements and the related notes appearing
elsewhere in this report. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including but not limited to those under the heading “Risk Factors” beginning on
page eight. We do not assume, and specifically disclaim, any
obligation to update any forward-looking statement contained in this
report.
OVERVIEW
The
trucking business is highly competitive and the economic recession of 2008 and
2009 has heightened the competition in the industry. After several
years of tight capacity prior to 2007, 2008 and 2009 brought about an
over-capacity not seen in decades. This has made a dramatic negative
impact on pricing and asset utilization which are the profit drivers of our
industry. The over-capacity in the industry was so prevalent, the
industry did not have the driver shortage issues of past
years. Because of the financial difficulties in the industry, the
availability of independent owner operators was negatively
impacted.
15
During
2008, the most recent year for which data is available, there were several
thousand companies operating in all sectors of the trucking business in the
United States. Among those, the top five companies offering primarily
temperature-controlled services collectively generated 2008 revenue of $3.1
billion. The next 10 such companies collectively generated revenues of $2.4
billion. In 2008, we ranked fifth in terms of revenue generated among all
temperature-controlled motor carriers.
Trucking
companies of our size face significant challenges to be successful. Costs for
labor, maintenance, fuel and insurance typically increase every year. Fuel
prices can increase or decrease quite rapidly. Due to the high level of
competitiveness, it is often difficult to pass these rising costs on to our
customers. During 2009, many small trucking firms, independents, and
some large firms were only able to survive due to the hesitancy of financial
institutions and other lenders to exercise defaults on the loans. In
the fourth quarter of 2009 and the beginning of 2010, more trucking companies
have begun to fail from the weight of the economy, which is starting to show
stabilization of truck rates, but this is slow in coming and is not
definite.
There are
several companies that provide national temperature-controlled truckload
services. We know of no other company operating a nationwide, LTL,
temperature-controlled network. Other such LTL providers tend to operate on a
regional or lane specific basis. The vast majority of trucking companies
that are nationwide in scope offer only truckload service with no temperature
control. Therefore, the markets served by dry carriers tend to be very
price-competitive and generally lack the level of seasonality present in our
temperature-controlled operations. Because consumer demand for products
requiring temperature control is often less sensitive to economic cycles,
linehaul revenue from our temperature-controlled business tends to be less
volatile during such cycles. In 2009, the drop in consumer spending was so
dramatic that smaller temperature need-shippers either reduced their shipping
needs or went out of business, reducing need for capacity. Larger
shippers were often able to divert normal LTL shipments to traditional truckload
carriers that were willing to take LTL freight to cover fuel costs, or combined
loads with multiple stops to emulate normal LTL service. We maintain
a strong belief in our LTL service product and think it will rebound when
truckload capacity begins to tighten and becomes too expensive to emulate LTL
service. We believe at that point, the pricing will not justify the
service, and shippers will move back to the traditional high service LTL that we
provide.
We
generate our revenue from truckload, less-than-truckload, dedicated and
brokerage services that we provide to our customers. Generally, we
are paid either by the mile, the weight or the number of trucks being utilized
by our dedicated service customers. We also derive revenue from fuel
surcharges, loading and unloading activities, equipment detention and other
ancillary services. The main factors that affect our revenue are the rate
per mile we receive from our customers, the percentage of miles for which we are
compensated and the number of miles we generate with our equipment. These
factors relate, among other things, to the United States economy, inventory
levels, the level of truck capacity in the transportation industry and specific
customer demand. We monitor our revenue production primarily through
average revenue per truck per week, net of fuel surcharges, revenue per
hundredweight for our LTL services, empty mile ratio, revenue per loaded (and
total) miles, the number of linehaul shipments, loaded miles per shipment and
the average weight per shipment. The economic conditions of 2009 had
a negative impact on virtually all metrics that reflect
profitability. We made extensive efforts to trim overhead costs,
improve capacity utilization and support pricing initiatives. While
many were successful and began to stem the negative tide late in the year, some
will not be effective until the economy stabilizes and begins to
grow.
In 2009, our total operating revenue decreased by $117.5 million, or 24%.
Our operating revenue, net of fuel surcharges, decreased $53.2 million, or 14%,
to $328.2 million from $381.4 million in 2008. Excluding fuel
surcharges, our average revenue per tractor per week decreased 8.7%, due to a
4.4% decrease in the average weekly trucks in service, and an increase in our
empty mile ratio to 10.3% from 9.0%. In summary, our truckload
revenue decreased by $32.0 million, or 13.4% due to the over-capacity in the
market created by the economic downturn. This created a challenging
freight environment, resulting in our truckload revenue per mile declining to
$1.40 in 2009 versus $1.45 in 2008, a decrease of 3.5%, and a decline in loaded
truckload miles. Also due to the recessionary pressures, our LTL
revenue per hundredweight decreased to $14.31 from $14.61 in 2008, a 2.1%
decline, while tonnage levels dropped 10.3%. Dedicated revenue
represented 5.3% of our revenue in 2009 versus 5.0% in 2008 while brokerage
revenue decreased to 2.0% of our revenues in 2009 compared to 2.7% in
2008.
Our profitability on the expense side is impacted mainly by variable costs of
transporting freight for our customers and fixed costs predominantly related to
salaried operations personnel, facilities and equipment. The variable
costs include fuel expense, driver-related expenses, such as wages, benefits,
training, and recruitment, and independent contractor costs, which are recorded
under purchased transportation. Expenses that have both fixed and variable
components include maintenance and tire expense and our total cost of insurance
and claims. These expenses generally vary with the miles we drive, but
also have a controllable component based on safety, fleet age, efficiency and
other factors. Our main fixed costs relate to the acquisition and
financing of long-term assets, such as revenue equipment and service
centers. Although certain factors affecting our expenses are beyond our
control, we monitor them closely and attempt to anticipate changes in these
factors in managing our business. For example, fuel prices fluctuated
dramatically and quickly at various times during the last several years. We
manage our exposure to changes in fuel prices primarily through fuel surcharge
programs with our customers, as well as through volume fuel purchasing
arrangements with national fuel centers and bulk purchases of fuel at our
service centers. To help further reduce fuel expense, we purchase tractors
with opti-idle technology, which monitors the temperature of the cab and allows
the engine to operate more efficiently while not on the road.
16
Our
operating expenses as a percentage of operating revenue, or “operating ratio,”
was 106.7% in 2009 compared with 99.6% in 2008. Our loss per diluted share
was $0.96 in 2009 compared to income of $0.04 in 2008.
Our business requires substantial, ongoing capital investments, particularly for
new tractors and trailers. At December 31, 2009, we had no outstanding
borrowings under our credit facility and $89.7 million in stockholders’
equity. In 2009, we added approximately $8.9 million of new revenue
equipment, net of proceeds from dispositions, and recognized a gain of $136,000
on the disposition of used equipment. These capital expenditures were
primarily funded with cash flows from operations. We estimate that
capital expenditures, net of proceeds from dispositions, will range from $8-$11
million in 2010, which would be consistent with our recent levels due to our
tractor replacement schedule. During 2009, we also incurred revenue
equipment rent of $38.7 million as we lease many of our trucks and trailers.
The following table summarizes and compares the significant components of
revenue and presents our operating ratio and revenue per truck per week for each
of the years ended December 31:
|
(in
thousands, except percentage amounts)
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Temperature-controlled
fleet
|
$
|
136,427
|
$
|
145,497
|
$
|
138,700
|
||||||
|
Dry-freight
fleet
|
50,807
|
68,851
|
73,716
|
|||||||||
|
Total
truckload linehaul services
|
187,234
|
214,348
|
212,416
|
|||||||||
|
Dedicated
fleets
|
19,707
|
24,609
|
17,861
|
|||||||||
|
Total
truckload
|
206,941
|
238,957
|
230,277
|
|||||||||
|
Less-than-truckload
linehaul services
|
109,054
|
124,091
|
127,438
|
|||||||||
|
Fuel
surcharges
|
44,876
|
109,144
|
73,391
|
|||||||||
|
Brokerage
|
7,266
|
13,142
|
15,586
|
|||||||||
|
Equipment
rental
|
4,914
|
5,202
|
5,522
|
|||||||||
|
Total
revenue
|
373,051
|
490,536
|
452,214
|
|||||||||
|
Operating
expenses
|
397,964
|
488,482
|
462,743
|
|||||||||
|
Income
(loss) from freight operations
|
$
|
(24,913
|
)
|
$
|
2,054
|
$
|
(10,529
|
)
|
||||
|
Operating
ratio (a)
|
106.7
|
%
|
99.6
|
%
|
102.3
|
%
|
||||||
|
Total
truckload revenue
|
$
|
206,941
|
$
|
238,957
|
$
|
230,277
|
||||||
|
Less-than-truckload
linehaul revenue
|
109,054
|
124,091
|
127,438
|
|||||||||
|
Total
linehaul and dedicated fleet revenue
|
$
|
315,995
|
$
|
363,048
|
$
|
357,715
|
||||||
|
Weekly
average trucks in service
|
1,937
|
2,027
|
2,122
|
|||||||||
|
Revenue
per truck per week (b)
|
$
|
3,129
|
$
|
3,426
|
$
|
3,233
|
||||||
|
Computational
notes:
|
|
|
(a)
|
Operating
expenses divided by total revenue.
|
|
(b)
|
Average
daily revenue times seven divided by weekly average trucks in
service.
|
17
The
following table summarizes and compares selected statistical data relating to
our freight operations for each of the years ended December 31:
|
Truckload
|
2009
|
2008
|
2007
|
|||||||||
|
Total
linehaul miles (a)
|
149,412
|
162,689
|
162,672
|
|||||||||
|
Loaded
miles (a)
|
133,956
|
148,025
|
146,815
|
|||||||||
|
Empty
mile ratio (b)
|
10.3
|
%
|
9.0
|
%
|
9.7
|
%
|
||||||
|
Linehaul
revenue per total mile (c)
|
$
|
1.25
|
$
|
1.32
|
$
|
1.31
|
||||||
|
Linehaul
revenue per loaded mile (d)
|
$
|
1.40
|
$
|
1.45
|
$
|
1.45
|
||||||
|
Linehaul
shipments (a)
|
154.3
|
152.7
|
151.5
|
|||||||||
|
Loaded
miles per shipment (e)
|
868
|
969
|
969
|
|||||||||
|
Less-than-truckload
|
||||||||||||
|
Hundredweight
(a)
|
7,619
|
8,492
|
8,582
|
|||||||||
|
Shipments
(a)
|
247
|
273.0
|
277.2
|
|||||||||
|
Linehaul
revenue per hundredweight (f)
|
$
|
14.31
|
$
|
14.61
|
$
|
14.85
|
||||||
|
Linehaul
revenue per shipment (g)
|
$
|
442
|
$
|
455
|
$
|
460
|
||||||
|
Average
weight per shipment (h)
|
3,086
|
3,111
|
3,096
|
|||||||||
|
Computational
notes:
|
|
|
(a)
|
In
thousands.
|
|
(b)
|
Total
truckload linehaul miles less truckload loaded miles divided by total
truckload linehaul miles.
|
|
(c)
|
Revenue
from truckload linehaul services divided by truckload total linehaul
miles.
|
|
(d)
|
Revenue
from truckload linehaul services divided by truckload loaded
miles.
|
|
(e)
|
Total
truckload loaded miles divided by number of truckload linehaul
shipments.
|
|
(f)
|
LTL
revenue divided by LTL hundredweight.
|
|
(g)
|
LTL
revenue divided by number of LTL shipments.
|
|
(h)
|
LTL
hundredweight times one hundred divided by number of LTL
shipments.
|
The
following table summarizes and compares the makeup of our fleets between
company-provided tractors and tractors provided by independent contractors as of
December 31:
|
2009
|
2008
|
2007
|
|||||||
|
Total
company tractors available
|
1,554
|
1,629
|
1,501
|
||||||
|
Total
owner-operator tractors available
|
389
|
400
|
574
|
||||||
|
Total
tractors available
|
1,943
|
2,029
|
2,075
|
||||||
|
Total
trailers available
|
3,786
|
4,182
|
4,046
|
||||||
18
Comparison
of Year Ended December 31, 2009 to Year Ended December 31, 2008
The
following table sets forth revenue, operating income, operating ratios and
revenue per truck per week and the dollar and percentage changes of
each:
|
Revenue
from (a)
|
2009
|
2008
|
Dollar
Change
2009
vs. 2008
|
Percentage
Change
2009
vs. 2008
|
|||||||||||
|
Temperature-controlled
services
|
$
|
136,427
|
$
|
145,497
|
$
|
(9,070
|
)
|
(6.2
|
)
|
%
|
|||||
|
Dry-freight
services
|
50,807
|
68,851
|
(18,044
|
)
|
(26.2
|
)
|
|||||||||
|
Total
truckload linehaul services
|
187,234
|
214,348
|
(27,144
|
)
|
(12.6
|
)
|
|||||||||
|
Dedicated
services
|
19,707
|
24,609
|
(4,902
|
)
|
(19.9
|
)
|
|||||||||
|
Total
truckload
|
206,941
|
238,957
|
(32,016
|
)
|
(13.4
|
)
|
|||||||||
|
Less-than-truckload
linehaul services
|
109,054
|
124,091
|
(15,038
|
)
|
(12.1
|
)
|
|||||||||
|
Fuel
surcharges
|
44,876
|
109,144
|
(64,268
|
)
|
(58.9
|
)
|
|||||||||
|
Brokerage
|
7,266
|
13,142
|
(5,876
|
)
|
(44.7
|
)
|
|||||||||
|
Equipment
rental
|
4,914
|
5,202
|
(288
|
)
|
(5.5
|
)
|
|||||||||
|
Total
revenue
|
373,051
|
490,536
|
(117,485
|
)
|
(24.0
|
)
|
|||||||||
|
Operating
expenses
|
397,964
|
488,482
|
(90,518
|
)
|
(18.5
|
)
|
|||||||||
|
Income
(loss) from operations
|
$
|
(24,913
|
)
|
$
|
2,054
|
$
|
(26,967
|
)
|
(1312.9
|
)
|
%
|
||||
|
Operating
ratio (b)
|
106.7
|
%
|
99.6
|
%
|
|||||||||||
|
Total
truckload revenue
|
$
|
206,941
|
$
|
238,957
|
$
|
(32,016
|
)
|
(13.4
|
)
|
%
|
|||||
|
Less-than-truckload
linehaul revenue
|
109,054
|
124,091
|
(15,038
|
)
|
(12.1
|
)
|
|||||||||
|
Total
linehaul and dedicated services revenue
|
$
|
315,995
|
$
|
363,048
|
$
|
47,054
|
(13.0
|
)
|
%
|
||||||
|
Weekly
average trucks in service
|
1,937
|
2,027
|
(90
|
)
|
(4.4
|
)
|
%
|
||||||||
|
Revenue
per truck per week (c)
|
$
|
3,129
|
$
|
3,426
|
$
|
(437
|
)
|
(12.8
|
)
|
%
|
|||||
|
Computational
notes:
|
|
|
(a)
|
Revenue
and expense amounts are stated in thousands of dollars.
|
|
(b)
|
Operating
expenses divided by total revenue.
|
|
(c)
|
Average
daily revenue times seven divided by weekly average trucks in
service.
|
The
economy had a large negative impact on our revenue in 2009. Our total
revenue decreased $117.5 million, or 24%, to $373.1 million in 2009 from $490.5
million in 2008. Excluding fuel surcharges our revenue decreased
$53.2 million, or 14%, to $328.2 million from $381.4 million in
2008.
Truckload revenue, excluding fuel surcharges, decreased $32 million, or 13.4%,
to $207.0 million from $239.0 million in 2008. While the number of
total truckload shipments increased 1% to 154.3 thousand from 152.7 thousand in
2008, total and loaded miles per shipment declined by 9.1% and 10.4%,
respectively, causing total and loaded truckload miles to decrease by 8.2% and
9.5% respectively. During 2009, our weighted average trucks utilized
in our truckload services decreased from 1,684 to 1,530. Due to the
challenging 2009 freight environment, we had no ability to increase truckload
rates. Overall, our revenue per loaded mile decreased from $1.45 to
$1.40.
19
Due to a
decline in shippers, a decline in tonnage and shipper utilization of cheap
truckload rates provided by truckload carriers looking for available shipments,
less-than-truckload revenue decreased $15.0 million, or 12.1%, to $109.1 million
from $124.1 million. Total weight shipped for the year declined
10.3% to 761.9 million pounds from 849.2 million pounds in 2008. The
Company implemented a general rate increase during 2009. However,
pricing pressures driven by the failing economy and over-capacity forced us to
yield to our customers’ pricing demands, resulting in a decrease in revenue per
hundredweight to $14.31 in 2009 from $14.61 in 2008.
Fuel
surcharges represent the cost of fuel that we are able to pass along to our
customers based upon changes in the Department of Energy’s weekly
indices. The cost of fuel in 2009 was not as volatile as 2008,
resulting in a decrease in fuel surcharges of $64.3 million, or 58.9%, over
2008. The additional fuel revenue is offset by fuel costs to the
Company within fuel and purchased transportation expenses.
The
following table sets forth for the years indicated the dollar and percentage
increase or decrease of the items in our consolidated statements of operations,
and those items as a percentage of revenue:
|
(in
thousands)
Dollar
Change
|
Percentage
Change
|
Percentage
of Revenue
|
||||||||
|
2009
vs. 2008
|
2009 vs.
2008
|
2009
|
2008
|
|||||||
|
Revenue
|
$
|
(117,485
|
)
|
(24.0
|
)%
|
100.0
|
%
|
100.0
|
%
|
|
|
Operating
Expenses
|
||||||||||
|
Salaries,
wages and related expenses
|
(6,480
|
)
|
(5.0
|
)
|
32.7
|
26.2
|
||||
|
Purchased
transportation
|
(36,411
|
)
|
(30.9
|
)
|
21.8
|
24.0
|
||||
|
Fuel
|
(44,999
|
)
|
(41.8
|
)
|
16.8
|
21.9
|
||||
|
Supplies
and maintenance
|
(6,184
|
)
|
(11.6
|
)
|
12.7
|
10.9
|
||||
|
Revenue
equipment rent
|
3,265
|
9.2
|
10.4
|
7.2
|
||||||
|
Depreciation
|
(1,301
|
)
|
(6.9
|
)
|
4.7
|
3.8
|
||||
|
Communications
and utilities
|
247
|
5.0
|
1.4
|
1.0
|
||||||
|
Claims
and insurance
|
1,630
|
11.9
|
4.1
|
2.8
|
||||||
|
Operating
taxes and licenses
|
214
|
4.8
|
1.2
|
0.9
|
||||||
|
Gain
on sale of property and equipment
|
1,217
|
(89.9
|
)
|
0.0
|
(0.3
|
)
|
||||
|
Miscellaneous
|
(1,716
|
)
|
(34.7
|
)
|
0.9
|
1.0
|
||||
|
Total
Operating Expenses
|
$
|
(90,518
|
)
|
(18.5
|
)%
|
106.7
|
%
|
99.6
|
%
|
|
Due to
the economic environment in early 2009, we implemented a strict cost cutting
plan that resulted in a large drop in operating expenses versus
2008. Non-driver headcount was cut 20.2%, performance pay increases
were suspended, and 401(k) plan matches and certain other benefits were reduced
or suspended among other steps taken to reduce operating
expenses. Total operating expenses for 2009 decreased $90.5 million,
or 18.5%, to $398.0 million from $488.5 million in 2008. Despite the
overall decline in expenses, due to the dramatic decline in revenue,
profitability decreased greatly from 2008.
Salaries,
wages and related expenses consist of compensation for our employees, including
drivers and non-drivers. It also includes employee-related costs,
including the costs of payroll taxes, work-related injuries, group health
insurance, 401(k) plan contributions and other fringe benefits. The
most variable of these salary, wage and related expenses is driver pay, which is
affected by the mix of drivers and owner-operators in our fleets as well as our
efficiencies in our over-the-road operations. Driver salaries
including per diem costs decreased $4.7 million, or 6.3%, primarily due to the
decrease in miles driven. These costs were offset by an increase in work related
injuries of $2.4 million and an increase in group health insurance costs of $0.7
million. Non-driver headcount ended the year at 682 versus 855 at the
end of 2008.
Purchased
transportation expense consists of payments to independent contractors for the
equipment and services they provide, payments to other motor carriers who handle
our brokerage services and to various railroads for intermodal
services. It also includes fuel surcharges paid to our independent
contractors for which we charge our customers. These expenses are
highly variable with revenue and/or the mix of company drivers versus
independent contractors. Purchased transportation expense decreased
$36.4 million, or 30.9%, in 2009 from 2008. Purchased transportation
expense related to our intermodal service decreased by $7.5 million including
fuel surcharges, or 36%, compared to 2008 as our intermodal offerings decreased
due to competition in the truckload market. The portion of our
purchased transportation connected with our truckload and LTL services decreased
$8.3 million, including fuel surcharges, primarily reflecting a decrease in the
number of independent contractors utilized during 2009. Purchased
transportation associated with our brokerage services decreased $5 million, or
45.5%, compared to 2008, as the result of a similar decrease in brokerage
revenue.
20
Fuel
expense and fuel taxes decreased by $45 million, or 41.8%, to $62.7 million from
$107.7 million in 2008. The decrease was primarily due to a
39.2% decrease in the average cost of fuel per gallon in 2009 compared to
2008, as well as an 8.2% decrease in truckload miles driven. This
decrease was enhanced by a 4.9% improvement in miles per gallon to 6.39 miles
per gallon in 2009 versus 6.09 miles per gallon in 2008. The increase
in miles per gallon was primarily driven by decreasing our speed from 65 to 62
miles per hour during 2008. The majority of our tractors are equipped
with opti-idle technology which monitors the temperature of the cab and allows
the engine to operate more efficiently while not on the road. We have
fuel surcharge provisions in substantially all of our transportation contracts
and attempt to recover a portion of increasing fuel prices through fuel
surcharges and rates to our customers. We anticipate that fuel
expense will increase in the future as the new engine requirements effective in
2010 may reduce fuel efficiency.
Supplies
and maintenance expenses primarily consist of repairs, maintenance and tires
along with load specific expenses including loading/unloading, tolls, pallets,
pickup and delivery and recruiting. Supplies and maintenance costs
decreased $6.2 million, or 11.6%, from 2008, but increased as a percentage of
total revenue to 12.7% from 10.9% due to the drop in total
revenue. This decrease was primarily driven by lower recruiting costs
of approximately $1.8 million as we placed additional focus in improving the
efficiency of dollars spent in this area, lower freight handling costs of
approximately $1.1 million and fleet repairs and maintenance costs of
approximately $1.8 million. Significant repairs to our equipment are
generally covered by manufacturers’ warranties.
Total
revenue equipment rent increased $3.3 million, or 9.2%, to $38.7 million from
$35.5 million in 2008. The increase is primarily due to an increase
in the average number of tractors under lease at the end of 2009 of 1,264
compared to 1,173 at the end of 2008 and the increase in the average cost of new
equipment we lease as we replace older equipment. We expect equipment
rent expense to increase in future periods as a result of higher prices of new
equipment.
Depreciation
relates to owned tractors, trailers, communications units, service centers and
other assets. Gains or losses on dispositions of revenue equipment are set forth
in a separate line item within our statements of operations. Depreciation
expense decreased $1.3 million, or 6.9%, as older equipment was disposed and
replaced with newer leased equipment. Depreciation expense is also
dependent upon the mix of company-owned equipment versus independent
contractors. We expect our annual cost of tractor and trailer
ownership will increase in future periods as a result of higher prices of new
equipment, which is expected to result in greater
depreciation. Future depreciation expense will also be impacted by
our leasing decisions.
Claims
and insurance expenses consist of the costs of premiums for insurance
accruals we make within our self-insured retention amounts, primarily for
personal injury, property damage, physical damage and cargo
claims. These expenses will vary and are dependent on the frequency
and severity of accidents, our self-insured retention amounts and the insurance
market. Claims and insurance costs increased by $1.6 million, or 11.9%, to $15.3
million from $13.7 million in 2008. This was primarily due to an increase in the
severity of claims, with the average up $1,007 per claim, for work related and
property loss and damage, in 2009. The Company is responsible for the
first $4.0 million on personal injury and property damage liability claims and
25% of the claim amount between $4.0 million and $10.0 million. The
Company has excess coverage from $10.0 million to $50.0 million. Our
significant self-insured retention exposes us to the possibility of significant
fluctuations in claims expense between periods depending on the frequency,
severity and timing of claims and to adverse financial results if we incur large
or numerous losses. In the event of an uninsured claim above our
insurance coverage, a claim that approaches the maximum self-insured retention
level, or an increase in the frequency or severity of claims within our
self-insured retention, our financial condition and results of operations could
be materially and adversely affected.
Miscellaneous
expenses consist of facility rents, legal fees, audit fees, customer bad debts
and other administrative costs. Miscellaneous expense decreased $1.7
million, or 34.7%, from 2008 primarily due to a decrease in our bad debt
expense. The Company continues to monitor its overall credit risk
given the current market and general economic conditions.
The
Company’s effective tax benefit rate was 34.1% in 2009 as opposed to an 81.4% effective tax
rate in 2008 primarily due to the Company’s pre-tax losses in 2009 and the
permanent differences between book and taxable income. We pay our
drivers a per-diem allowance for travel related expenses for which we are only
able to deduct 80% for tax purposes. This, along with other
non-deductible items for tax, impacted the change in our tax rate from
2008.
As a
result of factors described above, we had a net loss of $16.4 million in 2009
compared to a net income of $0.6 million in 2008. Net loss per share was $0.96
per diluted share in 2009 compared to net earnings per share of $0.04 per
diluted share in 2008.
21
The
following table sets forth revenue, operating income, operating ratios and
revenue per truck per week and the dollar and percentage changes of
each:
|
Revenue
from (a)
|
2008
|
2007
|
Dollar
Change
2008
vs. 2007
|
Percentage
Change
2008
vs. 2007
|
|||||||||||
|
Temperature-controlled
services
|
$
|
145,497
|
$
|
138,700
|
$
|
6,797
|
4.9
|
%
|
|||||||
|
Dry-freight
services
|
68,851
|
73,716
|
(4,865
|
)
|
(6.6
|
)
|
|||||||||
|
Total
truckload linehaul services
|
214,348
|
212,416
|
1,932
|
0.9
|
|||||||||||
|
Dedicated
services
|
24,609
|
17,861
|
6,748
|
37.8
|
|||||||||||
|
Total
truckload
|
238,957
|
230,277
|
8,680
|
3.8
|
|||||||||||
|
Less-than-truckload
linehaul services
|
124,091
|
127,438
|
(3,347
|
)
|
(2.6
|
)
|
|||||||||
|
Fuel
surcharges
|
109,144
|
73,391
|
35,753
|
48.7
|
|||||||||||
|
Brokerage
|
13,142
|
15,586
|
(2,444
|
)
|
(15.7
|
)
|
|||||||||
|
Equipment
rental
|
5,202
|
5,522
|
(320
|
)
|
(5.8
|
)
|
|||||||||
|
Total
revenue
|
490,536
|
452,214
|
38,322
|
8.5
|
|||||||||||
|
Operating
expenses
|
488,482
|
462,743
|
25,739
|
5.6
|
|||||||||||
|
Income
(loss) from operations
|
$
|
2,054
|
$
|
(10,529
|
)
|
$
|
12,583
|
119.5
|
%
|
||||||
|
Operating
ratio (b)
|
99.6
|
%
|
102.3
|
%
|
|||||||||||
|
Total
truckload revenue
|
$
|
238,957
|
$
|
230,277
|
$
|
8,680
|
3.8
|
%
|
|||||||
|
Less-than-truckload
linehaul revenue
|
124,091
|
127,438
|
(3,347
|
)
|
(2.6
|
)
|
|||||||||
|
Total
linehaul and dedicated services revenue
|
$
|
363,048
|
$
|
357,715
|
$
|
5,333
|
1.5
|
%
|
|||||||
|
Weekly
average trucks in service
|
2,027
|
2,122
|
(95
|
)
|
(4.5
|
)
|
%
|
||||||||
|
Revenue
per truck per week (c)
|
$
|
3,426
|
$
|
3,233
|
$
|
193
|
6.0
|
%
|
|||||||
|
Computational
notes:
|
|
|
(a)
|
Revenue
and expense amounts are stated in thousands of dollars.
|
|
(b)
|
Operating
expenses divided by total revenue.
|
|
(c)
|
Average
daily revenue times seven divided by weekly average trucks in
service.
|
Our total
revenue increased $38.3 million, or 8.5%, to $490.5 million in 2008 from $452.2
million in 2007. Excluding fuel surcharges our revenue increased $2.6
million, or 0.7%, to $381.4 million from $378.8 million in 2007.
Truckload
revenue, excluding fuel surcharges, increased $8.7 million, or 3.8%, to $239.0
million from $230.3 million in 2007. We were able to increase our
truckload revenues primarily by increasing our business with our existing
customers, attracting new customers and increasing our intermodal
business. The number of total truckload shipments increased 0.8% to
152.7 thousand from 151.5 thousand in 2007. While total truckload
miles remained relatively flat, we were able to decrease our empty mile ratio
from 9.7% to 9.0%. During 2008, the Company continued to focus on
providing services within our preferred networks and increasing our intermodal
services, which allowed better utilization of our equipment. Our weighted
average trucks utilized in our truckload services decreased from 1,832 to
1,684. Due to the challenging freight environment, our ability to
increase truckload rates was limited throughout 2008. Overall, our
revenue per loaded mile remained flat at $1.45 for 2008 and 2007.
Our dry
fleet revenue declined 6.6% during 2008 primarily due to a decline in total
tonnage shipped. Excess capacity within the transportation industry
resulted in increased competition for less available freight, which put downward
pressure on pricing. Dedicated fleet revenue increased $6.7 million, or 37.8%,
due to increased business with our existing customers as well as attracting new
customers. At the end of 2008, we operated 98 tractors in our
dedicated fleet business.
22
Less-than-truckload
revenue decreased $3.3 million, or 2.6%, to $124.1 million from $127.4
million. The decline in revenue was primarily driven by increased
competition in the LTL market and a decrease in total weight shipped as we
focused on maintaining our margins. Total weight shipped for the year
declined 1.0% to 849.2 million pounds from 858.2 million pounds in
2007. Although the Company implemented a general rate increase during
2008, other pressures on pricing, in particular in the first half of the year,
with our contracted customers resulted in a decrease in revenue per
hundredweight to $14.61 in 2008 from $14.85 in 2007.
Fuel
surcharges represent the cost of fuel that we are able to pass along to our
customers based upon changes in the Department of Energy’s weekly
indices. The cost of fuel was highly volatile throughout 2008,
resulting in an increase in fuel surcharges of $35.8 million, or 48.7%, over
2007. The additional fuel revenue is offset by increased fuel costs
to the Company within fuel and purchased transportation expenses.
The
following table sets forth for the years indicated the dollar and percentage
increase or decrease of the items in our consolidated statements of operations,
and those items as a percentage of revenue:
|
(in
thousands)
Dollar
Change
|
Percentage
Change
|
Percentage
of Revenue
|
||||||||
|
2008
vs. 2007
|
2008 vs.
2007
|
2008
|
2007
|
|||||||
|
Revenue
|
$
|
38,322
|
8.5
|
%
|
100.0
|
%
|
100.0
|
%
|
||
|
Operating
Expenses
|
||||||||||
|
Salaries,
wages and related expenses
|
(274
|
)
|
(0.2
|
)
|
26.2
|
28.5
|
||||
|
Purchased
transportation
|
3,636
|
3.2
|
24.0
|
25.2
|
||||||
|
Fuel
|
23,335
|
27.7
|
22.0
|
18.6
|
||||||
|
Supplies
and maintenance
|
(985
|
)
|
(1.8
|
)
|
11.0
|
12.1
|
||||
|
Revenue
equipment rent
|
4,373
|
14.1
|
7.2
|
6.9
|
||||||
|
Depreciation
|
(595
|
)
|
(3.1
|
)
|
3.8
|
4.3
|
||||
|
Communications
and utilities
|
692
|
16.5
|
1.0
|
0.9
|
||||||
|
Claims
and insurance
|
(7,126
|
)
|
(34.3
|
)
|
2.8
|
4.6
|
||||
|
Operating
taxes and licenses
|
(306
|
)
|
(6.5
|
)
|
0.9
|
1.1
|
||||
|
Gain
on sale of property and
|
||||||||||
|
Equipment
|
1,791
|
(57.0
|
)
|
(0.3
|
)
|
(0.7
|
)
|
|||
|
Miscellaneous
|
1,198
|
32.0
|
1.0
|
0.8
|
||||||
|
Total
Operating Expenses
|
$
|
25,739
|
5.6
|
%
|
99.6
|
%
|
102.3
|
%
|
||
Total
operating expenses for 2008 increased $25.7 million, or 5.6%, to $488.5 million
from $462.7 million in 2007, resulting in an operating ratio improvement of 270
basis points to 99.6% from 102.3% in 2007.
Salaries,
wages and related expenses consist of compensation for our employees, including
drivers and non-drivers. It also includes employee-related costs,
including the costs of payroll taxes, work-related injuries, group health
insurance, 401(k) plan contributions and other fringe benefits. The
most variable of these salary, wage and related expenses is driver pay, which is
affected by the mix of drivers and owner-operators in our fleets as well as our
efficiencies in our over-the-road operations. Driver salaries
including per diem costs increased $3.1 million, or 4.3%, primarily due to the
increase in loaded miles driven. These costs were offset by a decline in work
related injuries of $1.9 million and a decline in group health insurance costs
of $1.1 million. Non-driver headcount ended the year at 855 vs. 900
at the end of 2007.
Purchased
transportation expense consists of payments to independent contractors for the
equipment and services they provide, payments to other motor carriers who handle
our brokerage services and to various railroads for intermodal
services. It also includes fuel surcharges paid to our independent
contractors for which we charge our customers. These expenses are
highly variable with revenue and/or the mix of company drivers versus
independent contractors. Purchased transportation expense increased
$3.6 million, or 3.2%, in 2008 from 2007. Purchased transportation
expense related to our intermodal service increased by $16.0 million including
fuel surcharges, or 154%, compared to 2007 as our intermodal movements
increased. The portion of our purchased transportation connected with
our TL and LTL services decreased $10.4 million, including fuel surcharges,
primarily reflecting a decrease in the number of independent contractors
utilized during 2008. Purchased transportation associated with our
brokerage services decreased $2.0 million, or 15.4%, compared to 2007, as the
result of a similar decrease in brokerage revenue.
23
Fuel
expense and fuel taxes increased by $23.3 million, or 27.7%, to $107.7 million
from $84.3 million in 2007. The increase was primarily due to a
32.1% increase in the average cost of fuel per gallon in 2008 compared to
2007. This increase was partially offset by a 3.2% improvement in
miles per gallon to 6.09 in 2008 from 5.90 in 2007. The increase in
miles per gallon was primarily driven by decreasing our speed from 65 to 62
miles per hour during 2008 and a 7.2% improvement in our idling
time. The majority of our tractors are equipped with opti-idle
technology, which monitors the temperature of the cab and allows the engine to
operate more efficiently while not on the road. We have fuel
surcharge provisions in substantially all of our transportation contracts and
attempt to recover a portion of increasing fuel prices through fuel surcharges
and rates to our customers. We anticipate that fuel expense will
increase in the future as the government mandated emissions that took effect in
2007 may result in further declines in engine efficiency.
Supplies
and maintenance expenses primarily consist of repairs, maintenance and tires
along with load specific expenses including loading/unloading, tolls, pallets,
pickup and delivery and recruiting. Supplies and maintenance costs
decreased $985,000, or 1.8%, from 2007 and also declined as a percentage of
total revenue to 11.0% from 12.1%. This decrease was primarily driven
by lower recruiting costs of approximately $1.8 million as we placed additional
focus in improving the efficiency of dollars spent in this
area. Significant repairs to our equipment are generally covered by
manufacturers’ warranties.
Total
revenue equipment rent increased $4.4 million, or 14.1%, to $35.5 million from
$31.1 million in 2007. The increase is primarily due to an increase
in the average number of tractors under lease at the end of 2008 of 1,251
compared to 1,065 at the end of 2007 and the increase in the average cost of
equipment as we replace older equipment with new equipment and as our leased
versus owned ratio increases. We expect equipment rent expense to
increase in future periods as a result of higher prices of new
equipment.
Depreciation
relates to owned tractors, trailers, communications units, service centers and
other assets. Gains or losses on dispositions of revenue equipment are set forth
in a separate line item within our statements of operations. Depreciation
expense decreased $595,000, or 3.1%, as older equipment was disposed and
replaced with newer leased equipment. Depreciation expense is also
dependent upon the mix of company-owned equipment versus independent
contractors. We expect our annual cost of tractor and trailer
ownership will increase in future periods as a result of higher prices of new
equipment, which is expected to result in greater
depreciation. Future depreciation expense will be impacted by our
leasing decisions.
Claims
and insurance expenses consist of the costs of premiums for insurance
accruals we make within our self-insured retention amounts, primarily for
personal injury, property damage, physical damage and cargo
claims. These expenses will vary and are dependent on the frequency
and severity of accidents, our self-insured retention amounts and the insurance
market. Claims and insurance costs decreased by $7.1 million, or 34.3%, to $13.7
million from $20.8 million in 2007. The decrease was primarily due to
a decline in both the frequency and severity of personal injury, property damage
and physical damage claims. The decrease was also attributable to a
claim reaching our retention level in 2007. The Company is
responsible for the first $4.0 million on personal injury and property damage
liability claims and 25% of the claim amount between $4.0 million and $10.0
million. The Company has excess coverage from $10.0 million to $50.0
million. Our significant self-insured retention exposes us to the
possibility of significant fluctuations in claims expense between periods
depending on the frequency, severity and timing of claims and to adverse
financial results if we incur large or numerous losses. In the event
of an uninsured claim above our insurance coverage, a claim that approaches the
maximum self-insured retention level, or an increase in the frequency or
severity of claims within our self-insured retention, our financial condition
and results of operations could be materially and adversely
affected.
Miscellaneous
expenses consist of facility rents, legal fees, audit fees, customer bad debts
and other administrative costs. Miscellaneous expense increased $1.2
million, or 32%, over 2007 primarily due to an increase in our bad debt
expense. The Company continues to monitor its overall credit risk
given the current market and general economic conditions.
The
Company’s effective tax rate increased to 81.4 % in 2008 from a 22.8% benefit in
2007 primarily due to the movement to a pre-tax profit in 2008 from a pre-tax
loss in 2007. We pay our drivers a per-diem allowance for travel
related expenses for which we are only able to deduct 80% for tax
purposes. This, along with other non-deductible items for tax,
increased our effective tax rate in 2008.
As a
result of factors described above, net income improved to $605,000 compared to a
net loss of $7.7 million in 2007. Net earnings per share improved to
$0.04 per diluted share from a loss of $0.45 per diluted share in
2007.
24
Our
business requires substantial, ongoing capital investments, particularly for new
tractors and trailers. Our primary sources of liquidity are funds provided by
operations, our secured revolving credit facility and our ability to enter into
equipment leases with various financing institutions. A portion of
our tractor fleet is provided by independent contractors who own and operate
their own equipment. We have no capital expenditure requirements relating to
those drivers who own their tractors or obtain financing through third parties.
However, to the extent we purchase tractors and extend financing to the
independent contractors through our tractor purchase program, we have an
associated capital expenditure requirement.
In November 2007, our Board of Directors approved a share repurchase program to
repurchase up to 1.4 million shares of our common stock. This program is
intended to be implemented through purchases made in either the open market or
through private transactions. The timing and extent to which we will
repurchase shares depends on market conditions and other corporate
considerations. We made no purchases in 2009 and have available
approximately 936,000 shares that can be repurchased from that and previous
authorizations. The repurchase program does not have an expiration
date.
The
table below reflects our net cash flows provided by operating activities, net
cash flows used in investing activities, net cash flows used in financing
activities and total outstanding debt, including current maturities, for the
years indicated.
|
(in
thousands)
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
cash flows provided by operating activities
|
$
|
11,980
|
$
|
10,685
|
$
|
12,495
|
||||||
|
Net
cash flows used in investing activities
|
(9,007
|
)
|
(9,955
|
)
|
(6,341
|
)
|
||||||
|
Net
cash flows used in financing activities
|
(614
|
)
|
(1,895
|
)
|
(13,270
|
)
|
||||||
|
Debt
at December 31
|
-
|
-
|
-
|
|||||||||
In 2009,
we generated $11.98 million of cash flow from operating activities primarily
driven by a decrease in our accounts receivable balance and declines in our
accounts payable and accrued claims. These improvements were somewhat
offset by increases in accrued payroll liabilities and an increase in deferred
taxes. Our net cash flows increased in 2009 after declines in 2008
and 2007. Our net capital expenditures were primarily funded with
cash flows from operations and borrowings under our revolving credit facility,
which were repaid with the positive cash flows generated from operations.
We believe our sources of liquidity are adequate to meet our current and
anticipated needs for at least the next twelve months. However, should our
losses continue at the rate they did in 2009 due to a depressed economy, we will
be required to reassess our sources of liquidity and adjust our expenditures
accordingly. We estimate that capital expenditures, net of proceeds from
dispositions, will range from $8—11 million in 2010, which will be in line with
our expenditures the last two years.
We
establish credit terms with our customers based upon their financial strength
and their historical payment pattern. The top 5, 10 and 20 customers
represent approximately 23%, 33% and 43% of our revenues in
2009. Many of our largest customers under contract are Fortune 500
companies. Given the current economic conditions, we have placed
additional emphasis on our review of significant outstanding receivable
balances. Accounts receivable are recorded at the invoiced amounts,
net of an allowance for doubtful accounts. A considerable amount of
judgment is required in assessing the realization of these receivables including
the current creditworthiness of each customer and related aging of the past-due
balances, including any billing disputes. In order to assess the
collectability of these receivables, we perform ongoing credit evaluations of
our customers’ financial condition. Through these evaluations, we may
become aware of a situation in which a customer may not be able to meet its
financial obligations due to deterioration of its financial condition, credit
ratings or bankruptcy. Our allowance for doubtful accounts is based on the
best information available to us and is reevaluated and adjusted as additional
information is received. We evaluate the allowance based on historical
write-off experience, the size of the individual customer balances, past-due
amounts and the overall national economy. Invoice balances over 30 days
after the contractual due date are considered past due per our policy and are
reviewed individually for collectability. During 2009, we decreased our
reserve for doubtful accounts by $247,000 based upon anticipated write off
levels. Initial payments by new customers are monitored for compliance with
contractual terms. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential recovery is
considered remote.
25
On September 2, 2009, the Company entered into the Second Amended and Restated
Credit Agreement (the "Credit Facility") that provides for a two-year secured
committed credit facility maturing in September 2011 with an aggregate
availability of $35.0 million. We may borrow an amount not to exceed
the lesser of $35.0 million, adjusted for letters of credit and other debt (as
defined in the agreement), a borrowing base or a multiple of a measurement of
cash flow. On November 4, 2009, the Company entered into an
amendment to the Credit Facility to reduce the amount of available credit from
$35.0 million to $25.0 million to better align the size of the facility to the
underlying borrowing base, increase the allowable funded debt to EBITDAR (as
defined below), decrease the required EBITDAR to fixed charges and to decrease
the minimum tangible net worth based upon the schedules provided below. At
December 31, 2009, there were no amounts borrowed under the Credit Facility;
however, we had $5.0 million of standby letters of credit primarily for our
self-insurance programs, which reduced the availability to $20.0
million. The Credit Facility bears interest at a spread over the
London Interbank Offered Rate (“LIBOR”).
The
Amended Credit Facility contains several covenants, which include the
following:
|
·
|
The
ratio of our annual earnings before interest, taxes, depreciation,
amortization and lease and rental (as defined in the Credit Facility,
“EBITDAR”) to the amount of our annual fixed charges may not be less than
1.05:1.0. Fixed charges generally include interest payments, rental
expense, taxes paid, dividends paid and payments due on outstanding
debt.
|
|
·
|
The
ratio of our funded debt to EBITDAR may not exceed 2.75:1.0. Funded debt
generally includes the amount borrowed under the credit facility or
similar arrangements, letters of credit and the aggregate minimum amount
of operating lease payments we are obligated to pay in the
future.
|
|
·
|
Our
tangible net worth must remain an amount greater than $75.0 million.
Tangible net worth is generally defined as our net shareholders' equity
minus intangible and certain other assets plus 100% of any cash we receive
from the issuance of equity
securities.
|
|
·
|
The
annual amount of our net expenditures for property and equipment during
any twelve month period may not be more than $12.5
million.
|
|
·
|
The
amount available for acquisitions may not exceed $3.5 million in any
fiscal year.
|
|
·
|
The
amendment changes the interest rate spread over LIBOR based upon achieving
various EBITDAR to fixed charge
ratios.
|
|
·
|
Payments
of dividends are generally limited by the ratio of our EBITDAR to fixed
charges and the profitability of the previous
quarter.
|
|
Periods
Ending
|
EBITDAR
to Fixed Charges
|
Funded
Debt to EBITDAR
|
(in
thousands)
Minimum
Tangible Net Worth
|
||||
|
October
2009 – November 2009
|
1.05:1.0
|
2.75:1.0
|
$
|
85,000
|
|||
|
December
2009 – February 2010
|
1.05:1.0
|
2.75:1.0
|
80,000
|
||||
|
March
2010 – May 2010
|
1.10:1.0
|
2.75:1.0
|
80,000
|
||||
|
June
2010 – August 2010
|
1.20:1.0
|
2.75:1.0
|
75,000
|
||||
|
Subsequent
to August 2010
|
1.25:1.0
|
2.50:1.0
|
75,000
|
||||
At the
end of 2009, our EBITDAR was $36.5 million. Our fixed charges were
$30.1 million, resulting in a fixed charge coverage ratio of
1.21. Our funded debt as defined in the agreement was $94.6 million,
resulting in a funded debt to EBITDAR ratio of 2.59. Maintaining a
credit facility is imperative for us to continue our operations by allowing us
to manage our working capital and acquire revenue equipment that is essential to
our operations. Should we not be able to meet these
covenants, amounts outstanding may become payable immediately and our
ability to make future draws on the credit facility may be
limited. We are in compliance with all of the covenants under the
Credit Facility as of December 31, 2009 and anticipate our compliance will
continue during 2010.
26
The
following is a summary of our contractual obligations as of December 31,
2009:
|
(in
thousands)
|
||||||||||||||||||||
|
Total
|
2010
|
2011-2012
|
2013-2014
|
After
2014
|
||||||||||||||||
|
Letters
of credit
|
$
|
5,000
|
$
|
5,000
|
$
|
---
|
$
|
---
|
$
|
---
|
||||||||||
|
Purchase
obligations
|
43,175
|
43,175
|
---
|
---
|
---
|
|||||||||||||||
|
Operating
lease obligations
|
||||||||||||||||||||
|
Rentals
|
89,656
|
31,173
|
38,687
|
11,192
|
8,604
|
|||||||||||||||
|
Residual
guarantees
|
10,525
|
1,473
|
7,142
|
1,910
|
-
|
|||||||||||||||
|
$
|
148,356
|
$
|
80,821
|
$
|
45,829
|
$
|
13,102
|
$
|
8,604
|
|||||||||||
Off-Balance
Sheet Arrangements
As of
December 31, 2009, we leased 1,166 tractors and 2,076 trailers under operating
leases with varying termination dates ranging from January 2010 through October
2015 with total obligations of $89.7 million. Rent expense related to
operating leases involving vehicles during 2009, 2008 and 2007 was $38.7
million, $35.5 million and $31.1 million, respectively. As of
December 31, 2009, we maintained standby letters of credit related to
self-insured programs in the amount of $5.0 million. In February of
2010, we were able to reduce our standby letters of credit to $3.2
million. These standby letters of credit allow the Company to
self-insure a portion of its insurance exposure.
Inflation
and Fuel Costs
Most of our operating expenses are inflation-sensitive, with inflation generally
producing increased costs of operations. During the past three years, the most
significant effects of inflation have been on revenue equipment prices, accident
claims, health insurance, employee compensation and fuel. We attempt
to limit the effects of inflation through increases in freight rates and cost
control efforts.
In addition to inflation, fluctuations in fuel prices can affect our
profitability. We require substantial amounts of fuel to operate our tractors
and power the temperature-control units on our trailers. Substantially all of
our contracts with customers contain fuel surcharge provisions. Although we
historically have been able to pass through most long-term increases in fuel
prices and related taxes to our customers in the form of surcharges and higher
rates, such increases usually are not fully recovered. We do not
hedge our exposure to fuel prices through financial derivatives.
Seasonality
Our
temperature-controlled truckload operations are affected by seasonal changes.
The growing seasons for fruits and vegetables in Florida, California and Texas
typically create increased demand for trailers equipped to transport cargo
requiring refrigeration. Our LTL operations are also impacted by the seasonality
of certain commodities. LTL shipment volume during the winter months is normally
lower than other months. Shipping volumes of LTL freight are usually highest
from July through October. LTL volumes also tend to increase in the
weeks before holidays such as Halloween, Thanksgiving, Christmas, Valentine’s
Day and Easter when significant volumes of food and candy are
transported.
Our
tractor productivity generally decreases during the winter season as inclement
weather impedes operations and some shippers typically reduce their shipments as
there is less need for temperature control during colder months than warmer
months. At the same time, operating expenses generally increase, with harsh
weather creating higher accident frequency, increased claims and more equipment
repairs. To the extent that extreme weather patterns increase in
severity or frequency due to climate changes, we would expect to see an increase
in the effect of inclement or extreme weather patterns. We do not
have the ability to forecast these potential changes or the impact of these
changes.
Effects
of Climate Change and Climate Change Regulation
Greenhouse gas emissions have
increasingly become the subject of a large amount of international, national,
regional, state and local attention. Cap and trade initiatives to limit
greenhouse gas emissions have been introduced in the EU. Similarly, numerous
bills related to climate change have been introduced in the U.S. Congress, which
could adversely impact all industries. In addition, future regulation of
greenhouse gas could occur pursuant to future U.S. treaty obligations, statutory
or regulatory changes under the Clean Air Act or new climate change
legislation. It is uncertain whether any of these initiatives will be
implemented, although, based on published media reports, we believe it is not
reasonably likely that the current proposed initiatives will be implemented
without substantial modification. If such initiatives are implemented,
restrictions, caps, taxes, or other controls on emissions of greenhouse gases,
including diesel exhaust, could significantly increase our operating costs.
Restrictions on emissions could also affect our customers that use significant
amounts of energy or burn fossil fuels in producing or delivering the products
we carry including, but not limited to, food producers and distributors.
Although significant cost increases, government regulation, and changes of
consumer needs or preferences for goods or services relating to alternative
sources of energy or emissions reductions or changes in our customers' shipping
needs could materially affect the
markets for the products we carry, which in turn could have a material adverse
effect on our results of operations, financial condition, and liquidity, or, in
the alternative, could result in increased demand for our transportation
services, we are currently unable to predict the manner or extent of such
effect.
27
CRITICAL
ACCOUNTING POLICIES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”) requires
management to make estimates and assumptions about future events, and apply
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses in our consolidated financial statements and related notes. We
base our estimates, assumptions and judgments on historical experience, current
trends and other factors believed to be relevant at the time our consolidated
financial statements are prepared. However, because future events and
their effects cannot be determined with certainty, actual results could differ
from our estimates and assumptions, and such differences could be
material. We believe the following critical accounting policies affect our
more significant estimates, assumptions and judgments used in the preparation of
our consolidated financial statements.
Revenue
Recognition. The Company recognizes revenue and the related
direct costs on the date the freight is picked up from the shipper. One of
the preferable methods under US GAAP provides the recognition of revenue and
direct costs when the shipment is completed. Changing to this method
would not have a material impact on the quarterly or annual financial results or
operations of the Company.
Property and
Equipment. The transportation industry is capital intensive.
Our net property and equipment was $74.8 million as of December 31, 2009 and
$83.4 million as of December 31, 2008. Our depreciation expense was $17.6
million for 2009, $18.9 million for 2008 and $19.4 million for 2007.
Depreciation is computed based on the cost of the asset, reduced by its
estimated residual value, using the straight-line method for financial reporting
purposes. Accelerated methods are used for income tax reporting
purposes. Additions and improvements to property and equipment are
capitalized at cost. Maintenance and repair expenditures are charged to
operations as incurred. Gains and losses on disposals of revenue equipment
are included in operations as they are a normal, recurring component of our
operations. We have minimal risk to the used equipment market as the
majority of our tractors have a pre-arranged buy-back price at the end of 42
months, which is utilized as the residual value in computing depreciation
expense.
Impairment of Assets.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net undiscounted cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less the costs
to sell.
Insurance and claims.
We are self-insured for a portion of losses relating to workers’ compensation,
auto liability, general liability, cargo and property damage claims, along with
employees’ health insurance with varying risk retention levels. We
maintain insurance coverage for per-incident and in excess of these risk
retention levels in amounts we consider adequate based upon historical
experience and our ongoing review. We reserve currently for the estimated
cost of the uninsured portion of pending claims. These reserves are periodically
evaluated and adjusted based on our evaluation of the nature and severity of
outstanding individual claims and an estimate of future claims development based
on historical claims development factors. The Company accrues for the
anticipated legal and other costs to settle the claims currently. The
Company is responsible for the first $4.0 million on each personal injury and
property damage claims and 25% of the claim amount between $4.0 million and
$10.0 million. The Company has excess coverage from $10.0 million to
$50.0 million. The Company utilizes an independent actuary to assist
in establishing its accruals. Our significant self-insured retention
exposes us to the possibility of significant fluctuations in claims expense
between periods depending on the frequency, severity and timing of claims and to
adverse financial results if we incur large or numerous losses. In
the event of an uninsured claim above our insurance coverage, a claim that
approaches the maximum self-insured
retention level, or an increase in the frequency or severity of claims within
our self-insured retention, our financial condition and results of operations
could be materially and adversely affected.
28
Income Taxes. As part
of the process of preparing our consolidated financial statements, we are
required to estimate our income taxes in each of the jurisdictions in which we
operate. This process involves estimating our current tax exposure
together with assessing temporary differences resulting from differing treatment
of items for tax and financial reporting purposes. These temporary
differences result in deferred tax assets and liabilities, which are included in
our accompanying consolidated balance sheets. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which the temporary differences are expected to be
recovered or settled. To the extent it is determined that it is not likely
that our deferred tax assets will be recovered, a valuation allowance must be
established for the amount of the deferred tax assets determined not to be
realizable. We believe the deferred tax assets will be principally
realized through future reversals of existing temporary differences (deferred
tax liabilities) and future taxable income. However, if the facts or our
financial results were to change, thereby impacting the likelihood of realizing
the deferred tax assets, judgment would have to be applied to determine the
amount of any increase to the valuation allowance that would be required in any
given period.
RECENT
ACCOUNTING PRONOUNCEMENTS
Codification and the Hierarchy of
Generally Accepted Accounting Principles. Effective July 1,
2009, the Company adopted the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (“ASC 105”), (formerly SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles). This standard establishes only two levels of US GAAP,
authoritative and non-authoritative. The FASB Accounting Standards Codification
(the “Codification”) became the source of authoritative, nongovernmental US
GAAP, except for rules and interpretive releases of the SEC, which are sources
of authoritative US GAAP for SEC registrants. All other non-grandfathered,
non-SEC accounting literature not included in the Codification became
non-authoritative. The Company began using the new guidelines and numbering
system prescribed by the Codification when referring to US GAAP in the third
quarter of fiscal 2009. As the Codification was not intended to change or alter
existing US GAAP, it did not have any impact on the Company’s consolidated
financial statements.
ITEM
7A. Quantitative and Qualitative Disclosures about Market
Risk
We
experience various market risks, primarily from commodity prices and interest
rates. These risks have not materially changed between fiscal year 2008 and
fiscal year 2009.
Commodity
Price Risk
Our
operations are heavily dependent upon fuel prices. The price and
availability can vary and are subject to political, economic and market factors
that are beyond our control. Significant increases in diesel fuel
costs could materially and adversely affect our results of operations and
financial condition; however, historically, we’ve been able to recover a portion
of diesel fuel price increases from customers in the form of fuel
surcharges. Fuel prices have fluctuated greatly in recent years. In
some periods, our operating performance was adversely affected because we were
not able to fully offset the impact of higher diesel fuel prices through
increased freight rates and fuel surcharges. We cannot predict the extent to
which high fuel price levels will continue in the future or the extent to which
fuel surcharges could be collected to offset such increases. We do not have any
long-term fuel purchase contracts, and we have not entered into any derivative
hedging arrangements that protect us against fuel price increases. A
5% increase in the average fuel cost per gallon would result in increased fuel
costs of approximately $3.1 million, the majority of which should be offset by
fuel surcharges.
Interest
Rate Risk
Our
market risk is also affected by changes in interest rates. We have
historically maintained a combination of fixed rate and variable rate
obligations to manage our interest rate exposure. Fixed rates are
generally maintained within our lease obligations while variable rates are
contained within our amended and restated credit agreement.
We are
exposed to interest rate risk primarily from our amended and restated credit
agreement. Our credit agreement, as amended, provides for borrowings
that bear interest based on the London Interbank Offered Rate (commonly referred
to as “LIBOR”) plus a certain percentage. At December 31, 2009, there
were no borrowings outstanding under our credit facility.
As of
December 31, 2009, we held no market-risk-sensitive instruments for trading
purposes. For purposes other than trading, we held approximately 84,500
shares of our common stock at a value of $279,000 in a Rabbi Trust investment.
Our consolidated financial statements include the assets and liabilities of the
Rabbi Trust established to hold the investments of participants in our 401(k)
Wrap Plan. To the
extent the trust assets are invested in our stock, our future compensation
expense and income will be impacted by fluctuations in the market price of our
stock.
29
The
following documents are filed as part of this Annual Report on Form
10-K:
|
Financial
Statements
|
Page
|
|
Report
of Grant Thornton LLP, Independent Registered Public Accounting
Firm
|
31
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
32
|
|
Consolidated
Statements of Operations for the three years ended December 31,
2009
|
33
|
|
Consolidated
Statements of Cash Flows for the three years ended December 31,
2009
|
34
|
|
Consolidated
Statement of Shareholders' Equity for the three years ended December 31,
2009
|
35
|
|
Notes
to Consolidated Financial Statements
|
36
|
Financial statement schedules are omitted because the required information is
not applicable or not present in amounts sufficient to require submission of the
schedule or because the required information is included in the consolidated
financial statements or the notes thereto.
30
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Shareholders
Frozen
Food Express Industries, Inc.
We have
audited the accompanying consolidated balance sheets of Frozen Food Express
Industries, Inc. (a Texas corporation) and subsidiaries (the “Company”) as of
December 31, 2009 and 2008, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 2009. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 consolidated 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, 2009 and 2008, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Frozen Food Express Industries, Inc. and
subsidiaries’ internal control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated February 26, 2010 expressed an
unqualified opinion thereon.
/s/ Grant
Thornton LLP
Dallas,
Texas
February
26, 2010
31
|
Consolidated
Balance Sheets
December
31,
(in
thousands)
|
||||||||
|
Assets
|
2009
|
2008
|
||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$
|
3,667
|
$
|
1,308
|
||||
|
Accounts
receivable, net
|
41,318
|
52,749
|
||||||
|
Tires
on equipment in use, net
|
5,592
|
5,425
|
||||||
|
Deferred
income taxes
|
1,532
|
2,666
|
||||||
|
Property
held for sale
|
1,019
|
-
|
||||||
|
Other
current assets
|
12,706
|
10,822
|
||||||
|
Total
current assets
|
65,834
|
72,970
|
||||||
|
Property
and equipment, net
|
74,845
|
83,394
|
||||||
|
Other
assets
|
5,121
|
5,822
|
||||||
|
Total
assets
|
$
|
145,800
|
$
|
162,186
|
||||
|
Liabilities
and Shareholders’ Equity
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable
|
$
|
23,773
|
$
|
21,148
|
||||
|
Insurance
and claims accruals
|
10,119
|
7,736
|
||||||
|
Accrued
payroll and deferred compensation
|
3,837
|
4,396
|
||||||
|
Accrued
liabilities
|
1,953
|
1,760
|
||||||
|
Total
current liabilities
|
39,682
|
35,040
|
||||||
|
Deferred
income taxes
|
9,009
|
14,235
|
||||||
|
Insurance
and claims accruals
|
7,374
|
6,460
|
||||||
|
Total
liabilities
|
56,065
|
55,735
|
||||||
|
Shareholders’
equity
|
||||||||
|
Common
stock, $1.50 par value per share; 75,000 shares
authorized;
|
||||||||
|
18,572
shares issued and outstanding
|
27,858
|
27,858
|
||||||
|
Additional
paid-in capital
|
2,923
|
5,412
|
||||||
|
Retained
earnings
|
70,172
|
87,103
|
||||||
|
100,953
|
120,373
|
|||||||
|
Treasury
stock (1,477 and 1,813 shares), at cost
|
(11,218
|
)
|
(13,922
|
)
|
||||
|
Total
shareholders’ equity
|
89,735
|
106,451
|
||||||
|
Total
liabilities and shareholders’ equity
|
$
|
145,800
|
$
|
162,186
|
||||
See
accompanying notes to consolidated financial statements.
32
|
Consolidated
Statements of Operations
Years
ended December 31,
(in
thousands, except per share amounts)
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Revenue
|
$
|
373,051
|
$
|
490,536
|
$
|
452,214
|
||||||
|
Operating
expenses
|
||||||||||||
|
Salaries,
wages and related expenses
|
122,141
|
128,621
|
128,895
|
|||||||||
|
Purchased
transportation
|
81,363
|
117,774
|
114,138
|
|||||||||
|
Fuel
|
62,655
|
107,654
|
84,319
|
|||||||||
|
Supplies
and maintenance
|
47,347
|
53,531
|
54,516
|
|||||||||
|
Revenue
equipment rent
|
38,721
|
35,456
|
31,083
|
|||||||||
|
Depreciation
|
17,550
|
18,851
|
19,446
|
|||||||||
|
Communications
and utilities
|
5,145
|
4,898
|
4,206
|
|||||||||
|
Claims
and insurance
|
15,305
|
13,675
|
20,801
|
|||||||||
|
Operating
taxes and licenses
|
4,648
|
4,434
|
4,740
|
|||||||||
|
Gain
on sale of property and equipment
|
(136
|
)
|
(1,353
|
)
|
(3,144
|
)
|
||||||
|
Miscellaneous
|
3,225
|
4,941
|
3,743
|
|||||||||
|
Total
operating expenses
|
397,964
|
488,482
|
462,743
|
|||||||||
|
Income
(loss) from operations
|
(24,913
|
)
|
2,054
|
(10,529
|
)
|
|||||||
|
Interest
and other (income) expense
|
||||||||||||
|
Interest
income
|
(6
|
)
|
(72
|
)
|
(640
|
)
|
||||||
|
Interest
expense
|
30
|
140
|
50
|
|||||||||
|
Equity
in earnings of limited partnership
|
(739
|
)
|
(877
|
)
|
(781
|
)
|
||||||
|
Life
insurance and other
|
697
|
(384
|
)
|
776
|
||||||||
|
Total interest and other income
|
(18
|
)
|
(1,193
|
)
|
(595
|
)
|
||||||
|
Pre-tax
income (loss)
|
(24,895
|
)
|
3,247
|
(9,934
|
)
|
|||||||
|
Income
tax (benefit) expense
|
(8,480
|
)
|
2,642
|
(2,264
|
)
|
|||||||
|
Net
income (loss)
|
$
|
(16,415
|
)
|
$
|
605
|
$
|
(7,670
|
)
|
||||
|
Net
income (loss) per share of common stock
|
||||||||||||
|
Basic
|
$
|
(0.96
|
)
|
$
|
0.04
|
$
|
(0.45
|
)
|
||||
|
Diluted
|
$
|
(0.96
|
)
|
$
|
0.04
|
$
|
(0.45
|
)
|
||||
|
Weighted
average shares outstanding
|
||||||||||||
|
Basic
|
17,080
|
16,715
|
17,187
|
|||||||||
|
Diluted
|
17,080
|
16,997
|
17,187
|
|||||||||
|
Dividends
declared per common share
|
$
|
0.03
|
$
|
0.12
|
$
|
0.12
|
||||||
See
accompanying notes to consolidated financial statements.
33
|
Consolidated
Statements of Cash Flows
Years
ended December 31,
(in
thousands)
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Cash
flows from operating activities
|
||||||||||||
|
Net
income (loss)
|
$
|
(16,415
|
)
|
$
|
605
|
$
|
(7,670
|
)
|
||||
|
Non-cash
items included in net income (loss)
|
||||||||||||
|
Gain
on sale of property and equipment
|
(136
|
)
|
(2,012
|
)
|
(3,276
|
)
|
||||||
|
Depreciation
and amortization
|
22,105
|
22,839
|
24,307
|
|||||||||
|
Provision
for losses on accounts receivable
|
247
|
1,763
|
443
|
|||||||||
|
Deferred
income taxes
|
(4,092
|
)
|
3,059
|
580
|
||||||||
|
Deferred
compensation
|
413
|
426
|
405
|
|||||||||
|
Investment
income, net
|
130
|
173
|
326
|
|||||||||
|
Change
in assets and liabilities
|
||||||||||||
|
Accounts
receivable
|
11,184
|
(1,830
|
)
|
(3,230
|
)
|
|||||||
|
Tires
on equipment in use
|
(3,969
|
)
|
(4,259
|
)
|
(3,817
|
)
|
||||||
|
Other
current assets
|
(1,549
|
)
|
3,234
|
5,092
|
||||||||
|
Other
assets
|
(88
|
)
|
(224
|
)
|
(1,307
|
)
|
||||||
|
Accounts
payable
|
1,319
|
(3,876
|
)
|
2,041
|
||||||||
|
Insurance
and claims accruals
|
3,297
|
(7,463
|
)
|
728
|
||||||||
|
Accrued
liabilities, payroll and other
|
(466
|
)
|
(1,750
|
)
|
(2,127
|
)
|
||||||
|
Net
cash provided by operating activities
|
11,980
|
10,685
|
12,495
|
|||||||||
|
Cash
flows from investing activities
|
||||||||||||
|
Expenditures
for property and equipment
|
(19,733
|
)
|
(22,220
|
)
|
(22,007
|
)
|
||||||
|
Proceeds
from sale of property and equipment
|
10,820
|
12,540
|
13,545
|
|||||||||
|
Collection
on note receivable
|
-
|
-
|
2,135
|
|||||||||
|
Net
life insurance expenditures
|
(94
|
)
|
(275
|
)
|
(14
|
)
|
||||||
|
Net
cash used in investing activities
|
(9,007
|
)
|
(9,955
|
)
|
(6,341
|
)
|
||||||
|
Cash
flows from financing activities
|
||||||||||||
|
Proceeds
from borrowings
|
37,796
|
85,300
|
23,000
|
|||||||||
|
Repayment
of borrowings
|
(37,796
|
)
|
(85,300
|
)
|
(27,900
|
)
|
||||||
|
Dividends
paid
|
(516
|
)
|
(2,017
|
)
|
(2,072
|
)
|
||||||
|
Income
tax benefit (expense) of stock options and restricted
stock
|
(33
|
)
|
(107
|
)
|
333
|
|||||||
|
Net
proceeds from (payments for) capital stock transactions
|
(65
|
)
|
229
|
1,373
|
||||||||
|
Purchases
of treasury stock
|
-
|
-
|
(8,004
|
)
|
||||||||
|
Net
cash used in financing activities
|
(614
|
)
|
(1,895
|
)
|
(13,270
|
)
|
||||||
|
Net
increase (decrease) in cash and cash equivalents
|
2,359
|
(1,165
|
)
|
(7,116
|
)
|
|||||||
|
Cash
and cash equivalents at beginning of year
|
1,308
|
2,473
|
9,589
|
|||||||||
|
Cash
and cash equivalents at end of year
|
$
|
3,667
|
$
|
1,308
|
$
|
2,473
|
||||||
See
accompanying notes to consolidated financial statements.
34
|
Frozen
Food Express Industries, Inc. and Subsidiaries
Consolidated
Statement of Shareholders' Equity
Three
years ended December 31, 2009
(in
thousands)
|
||||||||||||||||||||||||||||
|
Common
Stock
|
Additional
|
|||||||||||||||||||||||||||
|
Shares
|
Par
|
Paid
in
|
Retained
|
Treasury
Stock
|
||||||||||||||||||||||||
|
Issued
|
Value
|
Capital
|
Earnings
|
Shares
|
Cost
|
Total
|
||||||||||||||||||||||
|
January
1, 2007
|
18,572
|
27,858
|
6,045
|
98,257
|
1,170
|
(9,629
|
)
|
122,531
|
||||||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
(7,670
|
)
|
-
|
-
|
(7,670
|
)
|
|||||||||||||||||||
|
Treasury
stock reacquired
|
-
|
-
|
-
|
-
|
1,095
|
(8,004
|
)
|
(8,004
|
)
|
|||||||||||||||||||
|
Retirement
plans
|
-
|
-
|
37
|
-
|
(42
|
)
|
349
|
386
|
||||||||||||||||||||
|
Exercise
of stock options
|
-
|
-
|
(777
|
)
|
-
|
(261
|
)
|
2,150
|
1,373
|
|||||||||||||||||||
|
Restricted
stock
|
-
|
-
|
44
|
-
|
(41
|
)
|
338
|
382
|
||||||||||||||||||||
|
Dividends
|
-
|
-
|
-
|
(2,072
|
)
|
-
|
-
|
(2,072
|
)
|
|||||||||||||||||||
|
Tax
benefit of stock options
|
-
|
-
|
333
|
-
|
-
|
-
|
333
|
|||||||||||||||||||||
|
December
31, 2007
|
18,572
|
27,858
|
5,682
|
88,515
|
1,921
|
(14,796
|
)
|
107,259
|
||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
605
|
-
|
-
|
605
|
|||||||||||||||||||||
|
Treasury
stock reacquired
|
-
|
-
|
-
|
-
|
34
|
(222
|
)
|
(222
|
)
|
|||||||||||||||||||
|
Retirement
plans
|
-
|
-
|
3
|
-
|
(4
|
)
|
34
|
37
|
||||||||||||||||||||
|
Exercise
of stock options
|
-
|
-
|
(443
|
)
|
-
|
(116
|
)
|
894
|
451
|
|||||||||||||||||||
|
Restricted
stock
|
-
|
-
|
277
|
-
|
(22
|
)
|
168
|
445
|
||||||||||||||||||||
|
Dividends
|
-
|
-
|
-
|
(2,017
|
)
|
-
|
-
|
(2,017
|
)
|
|||||||||||||||||||
|
Tax
benefit of stock options
|
-
|
-
|
(107
|
)
|
-
|
-
|
-
|
(107
|
)
|
|||||||||||||||||||
|
December
31, 2008
|
18,572
|
27,858
|
5,412
|
87,103
|
1,813
|
(13,922
|
)
|
106,451
|
||||||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
(16,415
|
)
|
-
|
-
|
(16,415
|
)
|
|||||||||||||||||||
|
Treasury
stock reacquired
|
-
|
-
|
-
|
-
|
39
|
(161
|
)
|
(161
|
)
|
|||||||||||||||||||
|
Retirement
plans
|
-
|
-
|
(15
|
)
|
-
|
4
|
(25
|
)
|
(40
|
)
|
||||||||||||||||||
|
Exercise
of stock options
|
-
|
-
|
(171
|
)
|
-
|
(35
|
)
|
267
|
96
|
|||||||||||||||||||
|
Restricted
stock
|
-
|
-
|
(2,270
|
)
|
-
|
(344
|
)
|
2,623
|
353
|
|||||||||||||||||||
|
Dividends
|
-
|
-
|
-
|
(516
|
)
|
-
|
-
|
(516
|
)
|
|||||||||||||||||||
|
Tax
benefit of stock options
|
-
|
-
|
(33
|
)
|
-
|
-
|
-
|
(33
|
)
|
|||||||||||||||||||
|
December
31, 2009
|
18,572
|
$
|
27,858
|
$
|
2,923
|
$
|
70,172
|
1,477
|
$
|
(11,218
|
)
|
$
|
89,735
|
|||||||||||||||
See
accompanying notes to consolidated financial statements.
35
Notes
to Consolidated Financial Statements
1. Summary
of Significant Accounting Policies
Nature of
business:
Frozen Food Express Industries, Inc. is one of the leading
temperature-controlled truckload and less-than-truckload carriers in the United
States with core operations in the transport of temperature-controlled products
and perishable goods, which include food, health care and confectionary
products. Frozen Food Express Industries, Inc. operates in one
business segment, motor carrier operations. Service is offered in
over-the-road and intermodal modes for temperature-controlled truckload and
less-than-truckload, as well as dry truckload. Frozen Food Express
Industries, Inc. also provides brokerage, or logistics, services as well as
dedicated fleets to serve our customers.
Principles of
consolidation: The accompanying consolidated financial
statements include Frozen Food Express Industries, Inc., a Texas corporation,
and our subsidiary companies, all of which are wholly-owned (collectively, the
“Company”). Intercompany balances and transactions have been
eliminated in consolidation.
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. The carrying amount reported on the consolidated
balance sheets approximate fair value. The Company’s cash and cash
equivalents at commercial banking institutions normally exceed federally insured
limits.
Accounts
receivable: Accounts receivable are recorded at the invoiced
amounts, net of an allowance for doubtful accounts. A considerable amount
of judgment is required in assessing the realization of these receivables,
including the current credit worthiness of each customer and related aging of
the past-due balances, including any billing disputes. In order to assess
the collectibility of these receivables, we perform ongoing credit evaluations
of our customers’ financial condition. Through these evaluations, we may
become aware of a situation in which a customer may not be able to meet its
financial obligations due to deterioration of its financial viability, credit
ratings or bankruptcy. The allowance for doubtful accounts is based on the
best information available to us and is reevaluated and adjusted as additional
information is received. We evaluate the allowance based on historical
write-off experience, the size of the individual customer balances, past-due
amounts and the overall national economy. We perform ongoing reviews of
the adequacy of our allowance for doubtful accounts. Invoice balances over
30 days after the contractual due date are considered past due per our policy
and are reviewed individually for collectibility. Initial payments by new
customers are monitored for compliance with contractual terms. Account
balances are charged off against the allowance after all means of collection
have been exhausted and the potential recovery is considered
remote. No individual customer exceeds 10% of our revenue in all
years presented.
Tires on
equipment in use, net: The Company
capitalizes the original cost of tires purchased with vehicles and replacement
tires as a current asset. Amortization is calculated on a per-mile
basis, less an estimated residual value. Amortization of tires is
included in the consolidated statements of cash flows as depreciation and
amortization and is computed on a per-mile basis based upon the expected life of
the tires, which was $3.8 million, $4.0 million and $4.2 million in 2009, 2008
and 2007, respectively. The number of miles over which a tire is
amortized depends on a variety of factors, including but not limited to the type
of tire involved (recap or original tread) and the position of the tire
(steering, tractor drive, axle or trailer). Steering tires tend to be
shorter-lived (75,000 to 100,000 miles) than do original tread drive-axle
(100,000 to 150,000 miles) or original tread trailer tires (125,000 to 150,000
miles). Recaps generally have a service life of about two-thirds as
many miles as the similarly-positioned original tread tires. For
safety reasons, we do not utilize recaps as steering tires.
Property and
equipment, net: Additions and improvements to property and
equipment are capitalized at cost. Maintenance and repair expenditures are
charged to operations as incurred. Gains and losses on disposals of
revenue equipment are included in operations as they are a normal, recurring
component of our operations.
Depreciation
is computed based on the cost of the asset, reduced by its estimated residual
value, using the straight-line method for financial reporting purposes.
Accelerated methods are used for income tax reporting purposes. Following
is a summary of estimated useful lives utilized for the majority of our property
and equipment for financial reporting purposes:
|
Years
|
|||||
|
Revenue
equipment
|
2-10
|
||||
|
Buildings
and improvements
|
5-30
|
||||
|
Service
equipment
|
2-15
|
||||
|
Computers,
software and related equipment
|
3-12
|
36
Frozen
Food Express Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
Our
replacement cycles are 42 months for tractors and 84 months for trailers, with
an estimated residual value. The residual values for the majority of the
tractors are based upon an estimated trade-in value of the
equipment with the original vendor. We periodically evaluate
whether the remaining useful lives of our long-lived assets may require revision
or whether the remaining unamortized balance is recoverable. When factors
indicate an asset should be evaluated for possible impairment, we use an
estimate of the asset's projected undiscounted cash flow in evaluating whether
an impairment exists. If an impairment exists, the asset is written down to net
realizable value.
Insurance and
claims accruals: We are self-insured for a portion of losses
relating to workers’ compensation, auto liability, general liability, cargo and
property damage claims, along with employees’ health insurance with varying risk
retention levels. We maintain insurance coverage for per-incident and in
excess of these risk retention levels in amounts we consider adequate based upon
historical experience and our ongoing review. We reserve currently for the
estimated cost of the uninsured portion of pending claims. These reserves are
periodically evaluated and adjusted based on our evaluation of the nature and
severity of outstanding individual claims and an estimate of how those claims
will ultimately develop based upon historical claims development
factors. The reserves also include an estimate for claims incurred
but not reported. We accrue for the anticipated legal and other costs
to settle the claims currently. Under agreements with our insurance
carriers and regulatory authorities, we had $5.0 million at December 31, 2009
and currently have $3.2 million as of February 26, 2010 in standby letters of
credit to guarantee settlement of claims.
Income
taxes: Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. We
have reflected the necessary deferred tax assets and liabilities in the
accompanying consolidated balance sheets.
Revenue
recognition: Revenue and associated direct operating expenses are
recognized on the date freight is picked up from the shipper. One of
the preferable methods outlined in accounting principles generally accepted in
the United States of America (“US GAAP”) provides for the recognition of revenue
and direct costs when the shipment is completed. Changing to this
method would not have a material impact on the quarterly or annual financial
statements.
We are
the sole obligor with respect to the performance of our freight services
provided by independent contractors or through our brokerage business, and we
assume all related credit risk. Accordingly, our revenue and the related direct
expenses are recognized on a gross basis on the date the freight is picked up
from the shipper. Revenue from equipment rental is recognized
ratably over the term of the associated rental agreements.
Net income (loss)
per common share: Net income (loss) per
common share is computed by dividing net income or loss by the weighted average
number of common shares outstanding during the quarter or year. Diluted
earnings per common share is computed by dividing net income by the sum of the
weighted average number of common shares outstanding plus all additional common
shares that would have been outstanding if potentially dilutive common shares
related to stock options and other dilutive securities had been issued using the
treasury stock method. The dilutive common shares are excluded in
loss years due to their anti-dilutive effect.
37
Frozen
Food Express Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
Use of
estimates: The preparation of financial statements in
conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses
and the disclosure of contingent assets and liabilities in the consolidated
financial statements. A significant degree of judgment is required in
the estimates related to the collectability of accounts receivable, impairment
of assets and reserves for risk-related items such as workers’ injury claims,
auto liability, general liability, cargo and property damage claims and
employees’ health insurance. Ultimate results could differ from those
estimates.
2. Accounts
receivable, net
Accounts
receivable are shown net of an allowance for doubtful accounts that we
anticipate will not be paid by our customers. A summary of the activity for the
years ended December 31 is as follows:
|
(in
thousands)
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Balance
at beginning of year
|
$
|
2,646
|
$
|
1,263
|
$
|
2,028
|
||||||
|
Provision
for losses
|
247
|
1,763
|
443
|
|||||||||
|
Write-offs,
net of recoveries
|
(950
|
)
|
(380
|
)
|
(1,208
|
)
|
||||||
|
Balance
at end of year
|
$
|
1,943
|
$
|
2,646
|
$
|
1,263
|
||||||
3. Other
current assets
Other
current assets consist primarily of prepayments of items such as taxes and
licenses, insurance and prepaid rent. It also includes inventories and
other amounts owed to the Company. As of December 31, other current
assets consist of the following:
|
(in
thousands)
|
||||||||
|
2009
|
2008
|
|||||||
|
Due
from equipment sales
|
$
|
445
|
$
|
110
|
||||
|
Income
tax receivable
|
4,910
|
932
|
||||||
|
Other
prepaid taxes
|
1,662
|
1,443
|
||||||
|
Prepaid
insurance
|
1,108
|
1,167
|
||||||
|
Prepaid
rent
|
1,684
|
2,233
|
||||||
|
Equipment
held for sale
|
-
|
1,246
|
||||||
|
Prepaid
licenses and permits
|
1,526
|
1,492
|
||||||
|
Inventory
and other
|
1,371
|
2,199
|
||||||
|
$
|
12,706
|
$
|
10,822
|
|||||
38
Frozen
Food Express Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
4. Property
and equipment, net
Property
and equipment, net are shown at historical cost and as of December 31, consist
of the following:
|
(in
thousands)
|
||||||||
|
2009
|
2008
|
|||||||
|
Land
|
$
|
3,015
|
$
|
3,610
|
||||
|
Buildings
and improvements
|
19,288
|
17,739
|
||||||
|
Revenue
equipment
|
89,834
|
103,062
|
||||||
|
Service
equipment
|
21,498
|
20,145
|
||||||
|
Computers,
software and related equipment
|
27,666
|
27,715
|
||||||
|
Work
in progress
|
261
|
-
|
||||||
|
161,562
|
172,271
|
|||||||
|
Less
accumulated depreciation
|
(86,717)
|
(88,877)
|
||||||
|
$
|
74,845
|
$
|
83,394
|
|||||
5. Long-term
debt
The
Credit Facility contains restrictive covenants which, among other matters,
require the Company to maintain certain financial ratios, including debt to
earnings before interest, taxes, depreciation and rents not to exceed 2.75:1.0,
a minimum fixed charge ratio of 1.05 and minimum tangible net worth of $75.0
million adjusted for earnings and other equity activity. The Credit
Facility also places certain restrictions on the payment of dividends and the
purchase and sale of assets.
On
February 27, 2009, the Company amended its credit facility to allow the payment
of cash dividends on common stock in an aggregate amount not to exceed $540,000
during the quarter ended March 31, 2009.
Interest
paid on the Credit Facility during 2009, 2008 and 2007 was $30,000, $163,000 and
$91,000, respectively.
6. Income
Taxes
The
components of the income tax (benefit) expense for the years ended December 31,
consist of the following:
|
(in
thousands)
|
||||||||||||
|
Current:
|
2009
|
2008
|
2007
|
|||||||||
|
Federal
|
$
|
(4,494
|
)
|
$
|
(694
|
)
|
$
|
(2,808
|
)
|
|||
|
State
|
106
|
277
|
(38
|
)
|
||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(3,130
|
)
|
2,793
|
1,460
|
||||||||
|
State
|
(962
|
)
|
266
|
(878
|
)
|
|||||||
|
Total
(benefit) expense
|
$
|
(8,480
|
)
|
$
|
2,642
|
$
|
(2,264
|
)
|
||||
State
income tax is presented net of the related federal tax benefit or
provision.
39
Frozen
Food Express Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
A
reconciliation between the statutory tax rate and the effective tax rate for the
years ended December 31, is as follows:
|
(in
thousands)
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Income
tax (benefit) expense at statutory federal rate
|
$
|
(8,713
|
)
|
$
|
1,137
|
$
|
(3,477
|
)
|
||||
|
Federal
income tax effects of:
|
||||||||||||
|
Non-deductible
driver per-diem payments
|
916
|
982
|
1,382
|
|||||||||
|
Non-taxable
life insurance transactions
|
195
|
(81
|
)
|
204
|
||||||||
|
State
income taxes and other
|
(878
|
)
|
604
|
(373
|
)
|
|||||||
|
Total
(benefit) expense
|
$
|
(8,480
|
)
|
$
|
2,642
|
$
|
(2,264
|
)
|
||||
|
Effective
tax rate (benefit)
|
(34.1
|
)%
|
81.4
|
%
|
(22.8
|
)%
|
||||||
For 2009,
our effective tax benefit was 34.1%, as compared to an expense of 81.4% in 2008,
and benefit of 22.8% in 2007. Our effective tax rate differs from
federal and state statutory rates because of taxable and non-taxable components
of our pre-tax income. Non-deductible items consist primarily of
certain expenses incurred by our employee-drivers in the course of their
duties.
As of
December 31, 2009 and 2008, our deferred tax assets and liabilities consisted of
the following:
|
(in
thousands)
|
||||||||
|
Deferred
tax assets:
|
2009
|
2008
|
||||||
|
Insurance
claims accruals
|
$
|
5,885
|
$
|
4,803
|
||||
|
Allowance
for bad debts
|
858
|
1,108
|
||||||
|
Deferred
compensation
|
921
|
509
|
||||||
|
Federal
and state net operating loss carryforwards
|
2,663
|
1,901
|
||||||
|
Other
|
1,749
|
1,365
|
||||||
|
Capital
loss carryforward
|
290
|
290
|
||||||
|
Gross
deferred tax assets
|
12,366
|
9,976
|
||||||
|
Valuation
allowance
|
(290
|
)
|
(290
|
)
|
||||
|
Total
deferred tax assets
|
12,076
|
9,686
|
||||||
|
Deferred
tax liabilities:
|
||||||||
|
Depreciation
|
(16,464
|
)
|
(18,227
|
)
|
||||
|
Prepaid
expenses
|
(3,089
|
)
|
(3,028
|
)
|
||||
|
Total
deferred tax liabilities
|
(19,553
|
)
|
(21,255
|
)
|
||||
|
Net
deferred tax liabilities
|
$
|
(7,477
|
)
|
$
|
(11,569
|
)
|
||
We
believe the deferred tax assets will be realized principally through future
reversals of existing temporary differences (deferred tax liabilities) and
future taxable income. Tax refunds were $0.1million, $3.8 million and
$6.2 million for 2009, 2008 and 2007, respectively. Taxes paid were
$296,000, $374,000, and $96,000 in 2009, 2008 and 2007,
respectively. Federal net operating loss carryforwards of $2.9
million expire in 2028.
During
2009, our current federal tax benefit was $4.5 million due to the generation of
a net operating loss. We generated significant taxable income and
paid significant federal income taxes during 2007 and 2005. The U.S.
Worker, Homeownership, and Business Assistance Act of 2009 allows us to
“carryback” our 2009 net operating loss to offset the taxes we incurred and paid
for these years. We filed a refund claim during January of 2010 and
we anticipate a tax refund of $4.7 million to be received in the first quarter
of 2010.
The
Company recognizes tax benefits associated with the exercise of stock options
directly to stockholders’ equity only when realized. Accordingly, deferred tax
assets are not recognized for net operating loss carry-forwards resulting from
windfall tax benefits. A windfall tax benefit occurs when the actual tax benefit
realized upon an employee’s disposition of a share-based award exceeds the
cumulative book compensation charge associated with the award. At December 31,
2009, windfall tax benefits included in NOL carry-forward but not reflected in
deferred tax assets are $84,000.
40
Frozen
Food Express Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
Under US
GAAP for accounting for uncertainty in income taxes, the Company has analyzed
filing positions in its federal tax returns for all open years. The
open periods subject to examination for its federal returns are 2007, 2008 and
2009. The Company also files tax returns in numerous state jurisdictions with
varying statutes of limitations. The Company’s policy is to recognize
interest related to unrecognized tax benefits as interest expense and penalties
as operating expenses. The Company believes its income tax filing
positions and deductions will be sustained on audit and does not anticipate any
adjustments that will result in a material change to its consolidated financial
position, results of operations and cash flows. Therefore, no
reserves for uncertain income tax positions have been recorded as of December
31, 2009.
7. Income
or loss per common share
Basic and
diluted income (loss) per common share were computed as follows:
|
(in
thousands, except per share amounts)
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Numerator:
|
||||||||||||
|
Net
income (loss)
|
$
|
(16,415
|
)
|
$
|
605
|
$
|
(7,670
|
)
|
||||
|
Denominator:
|
||||||||||||
|
Basic
– weighted-average shares
|
17,080
|
16,715
|
17,187
|
|||||||||
|
Effect
of dilutive stock options
|
-
|
282
|
-
|
|||||||||
|
Diluted
– weighted-average shares
|
17,080
|
16,997
|
17,187
|
|||||||||
|
Basic
income (loss) per common share
|
$
|
(0.96
|
)
|
$
|
0.04
|
$
|
(0.45
|
)
|
||||
|
Diluted
income (loss) per common share
|
$
|
(0.96
|
)
|
$
|
0.04
|
$
|
(0.45
|
)
|
||||
Options
totaling 581,000, 707,000 and 626,000 shares were outstanding but were not
included in the calculation of diluted earnings per share for 2009, 2008 and
2007, respectively, as their exercise prices were greater than the average
market price of the common shares. The Company excluded all common stock
equivalents in 2009 and 2007 as their effect was anti-dilutive due to the net
loss.
8. Amended
and Restated Certificate of Incorporation
In
May 2007, our stockholders approved an amendment to our Amended and
Restated Certificate of Incorporation increasing the authorized number of shares
of common stock, $1.50 par value, from 40.0 million shares to 75.0 million
shares.
9. Employee
benefits
Stock Incentive
Plans: Under our 2005 Stock Incentive Plan (the “2005 Plan”),
our employees may be awarded stock options, restricted stock, stock units and
performance share awards and stock appreciation rights. Stock options
issued to employees expire within 10 years after the date of grant, and the
exercise price must be at least the par value of the Company’s stock or the fair
market value of the stock on the date of grant. The Company has not
issued any stock options since 2005. Restricted stock awards are
grants of the Company’s stock to eligible individuals for which the vesting
period varies. During 2009, 2008 and 2007, the Company issued common shares of
approximately 369,000, 8,000, and 47,000 with a value of $1,330,000, $54,000 and
$380,000, respectively, which will be recognized as compensation expense over
the vesting period. Stock units and performance share awards are the
grant of a right to receive shares of the Company’s stock in the future, which
is contingent on the achievement of performance or other
objectives. No stock units or performance share awards are
outstanding at the end of 2009. Stock appreciation rights allow the
individual to receive the difference between the fair market value of the
Company’s stock at time of exercise and the fair market value of the Company’s
stock on the date of grant. There are no outstanding stock
appreciation rights at the end of 2009.
41
Frozen
Food Express Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
The Company
also has a non-employee director restricted stock plan that authorizes the award
of up to 50,000 shares of the Company’s common stock to our independent members
of our Board of Directors. Shares are awarded upon the non-employee
director’s initial appointment or election to the Board. Upon the
reelection of any non-employee director to the Board, such individual shall be
eligible to receive an award of restricted stock under this plan. The
awarded shares under the non-employee director restricted stock plan vest evenly
over a three year period on each anniversary date of the
grant. During 2009, 2008 and 2007, the Company issued 18,000, 15,000
and 13,000 shares with a market value of $79,000, $118,000 and $125,000,
respectively. The value of these awards is recognized in the
consolidated statements of operations as the awards vest.
The
following table summarizes information regarding stock options for the years
ended December 31:
|
(in
thousands, except price and periodic amounts)
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Options
outstanding at beginning of year
|
1,310
|
1,630
|
2,098
|
|||||||||
|
Exercised
|
(35
|
)
|
(116
|
)
|
(261
|
)
|
||||||
|
Forfeited
|
(103
|
)
|
(204
|
)
|
(207
|
)
|
||||||
|
Options
outstanding at end of year
|
1,172
|
1,310
|
1,630
|
|||||||||
|
Year-end
weighted average remaining life of options (years)
|
3.5
|
4.3
|
4.8
|
|||||||||
|
Options
available for future grants
|
375
|
670
|
618
|
|||||||||
|
Weighted
average price of options:
|
||||||||||||
|
Exercised
during year
|
$
|
2.75
|
$
|
3.88
|
$
|
5.27
|
||||||
|
Forfeited
during year
|
$
|
8.39
|
$
|
8.41
|
$
|
9.36
|
||||||
|
Outstanding
at end of year
|
$
|
5.71
|
$
|
5.84
|
$
|
6.02
|
||||||
|
Exercisable
at end of year
|
$
|
5.72
|
$
|
5.85
|
$
|
6.04
|
||||||
|
Intrinsic
value - options outstanding at end of year
|
$
|
547
|
$
|
2,138
|
$
|
2,622
|
||||||
|
Intrinsic
value - options exercisable at end of year
|
$
|
544
|
$
|
2,124
|
$
|
2,570
|
||||||
As
of December 31, 2009, substantially all of our options were
exercisable. The range of prices and certain other information about
our stock options as of December 31, 2009 is presented in the following
table:
|
Options
Priced Between
|
||||||||||||
|
$
|
1.50- $5.00
|
$
|
5.01- $8.00
|
$
|
8.01- $12.00
|
Total
|
||||||
|
Number
of options outstanding (in thousands)
|
625
|
158
|
389
|
1,172
|
||||||||
|
Weighted
average remaining contractual life (years)
|
1.8
|
4.3
|
5.9
|
3.5
|
||||||||
|
Weighted
average exercise price
|
$
|
2.43
|
$
|
6.65
|
$
|
10.59
|
$
|
5.72
|
||||
During
2009, employees exercised 34,794 options in exchange for stock, which we
purchased from them.
42
Frozen
Food Express Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
The
following table summarizes information regarding restricted stock shares for the
years ended December 31:
|
(in
thousands, except shares and value per share)
|
||||||||||||
|
Restricted
Stock
|
2009
|
2008
|
2007
|
|||||||||
|
Outstanding
shares at beginning of year
|
72,918
|
96,497
|
90,189
|
|||||||||
|
Issued
|
386,532
|
23,456
|
59,855
|
|||||||||
|
Forfeited
|
(42,371
|
)
|
(1,667
|
)
|
(19,000
|
)
|
||||||
|
Vested
|
(42,731
|
)
|
(45,368
|
)
|
(34,547
|
)
|
||||||
|
Outstanding
shares at end of year
|
374,348
|
72,918
|
96,497
|
|||||||||
|
Fair
market value of restricted stock
|
||||||||||||
|
Outstanding
at beginning of year
|
$
|
603
|
$
|
890
|
$
|
942
|
||||||
|
Issued
|
1,409
|
172
|
505
|
|||||||||
|
Forfeited
|
(191
|
)
|
(14
|
)
|
(175
|
)
|
||||||
|
Vested
|
(353
|
)
|
(445
|
)
|
(382
|
)
|
||||||
|
Outstanding
at end of year
|
$
|
1,468
|
$
|
603
|
$
|
890
|
||||||
|
Weighted
average value per share
|
||||||||||||
|
Outstanding
at beginning of year
|
$
|
8.28
|
$
|
9.23
|
$
|
10.17
|
||||||
|
Issued
|
$
|
3.65
|
$
|
7.31
|
$
|
8.44
|
||||||
|
Forfeited
|
$
|
4.51
|
$
|
8.19
|
$
|
9.19
|
||||||
|
Vested
|
$
|
8.26
|
$
|
9.81
|
$
|
10.32
|
||||||
|
Outstanding
at end of year
|
$
|
3.93
|
$
|
8.28
|
$
|
9.23
|
||||||
The
compensation expense associated with the vesting of restricted stock is
accounted for as deferred compensation and expensed ratably over the three-year
vesting period of each grant. Total share-based compensation expense was
$538,000, $459,000, and $441,000 in 2009, 2008 and 2007,
respectively.
Supplemental
Employee Retirement Plan (“SERP”) – The Company also has a SERP for the
benefit of certain "highly compensated" personnel (as determined in accordance
with the Employee Retirement Income Security Act of 1974). The SERP's investment
income, assets and liabilities, which are contained in a Rabbi Trust, are
included in the accompanying consolidated financial statements. As of December
31, 2009, the SERP liability was $703,000 and there were approximately 85,000
shares in the trust. Consistent with US GAAP for accounting for deferred
compensation arrangements where amounts earned are held in a Rabbi Trust and
invested, the shares of the common stock held in a Rabbi Trust are accounted for
as treasury stock until SERP participants elect to liquidate the stock. During
2009, SERP participants purchased 154,000 shares and liquidated 151,000 shares
from the Rabbi Trust.
Savings Plan
– Participants are able to contribute up to the limit set by law, which
in 2009 was $16,500 for participants less than age 50 and $21,500 for
participants age 50 and above. The Company may contribute 25% of each
participant’s contribution up to a total of 4% of their
contribution. Our contribution vests over six years. The
Company has not made any contributions to the plan beginning April 6, 2009, and
has not made any stock contributions in 2009, 2008 or 2007.
Rights Agreement
– We have in place a rights agreement that authorizes a distribution to
our shareholders of one common stock purchase right for each outstanding share
of our common stock. Rights become exercisable if certain events, generally
relating to a change of control, occur. Rights initially have an exercise price
of $11.00. If such events occur, the rights will be exercisable for a number of
shares having a market value equal to two times the exercise price of the
rights. We may redeem the rights for $.001 each. The rights will expire in 2010,
but the rights agreement is subject to review every three years by an
independent committee of our Board of Directors.
43
Frozen
Food Express Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
10. Commitments
and contingencies
The
Company has revenue equipment leases expiring at various dates through October
2015 and various properties under non-cancelable agreements expiring through May
2024. The aggregate future minimum rentals under non-cancelable
operating leases at December 31, 2009 were as follows:
|
(in
thousands)
|
||||||
|
Year
Due
|
Amount
Due
|
|||||
|
2010
|
31,173
|
|||||
|
2011
|
24,101
|
|||||
|
2012
|
14,586
|
|||||
|
2013
|
7,246
|
|||||
|
2014
|
3,946
|
|||||
|
Thereafter
|
8,604
|
|||||
| Total Due | $ | 89,656 | ||||
Rent
expense for revenue equipment and various properties for 2009, 2008 and 2007 was
$40.4 million, $36.9 million and $32.4 million,
respectively. At December 31, 2009, the Company had plans to replace
approximately 410 tractors, at a value of $41.3 million, and install satellite
controlled tracking devices on 2,500 trailers, at a value of $1.9 million,
during 2010. As of December 31, 2009, we had partially guaranteed the
residual value of certain leased tractors totaling $10.5 million pursuant to
leases with remaining lease terms that range from two months to 41 months. Our
estimates of the fair market values and our pre-arranged trade-in values based
upon future purchases of such tractors exceed the guaranteed values.
Consequently, no provision has been made for any losses related to such
guarantees.
We are
involved in legal actions that arise in the ordinary course of business.
Although the outcomes of any such legal actions cannot be predicted, in the
opinion of management, the resolution of any currently pending or threatened
actions will not have a material adverse effect upon our financial position or
results of operations.
11. Related
Party Transactions
During
each of the years ended December 31, 2009, 2008 and 2007, the Company purchased
the majority of its trailers and trailer refrigeration units we used in our
operations from W&B, an entity in which we own a 19.9% equity interest. The
Company accounts for that investment under the equity method of
accounting. As of December 31, 2009 and 2008, our equity investment
in W&B was $2.1 million and $2.2 million, respectively, which is included in
"Other Assets" in the accompanying consolidated balance sheets. During
2009, 2008 and 2007, our equity in the earnings of W&B was $739,000,
$877,000, and $781,000, respectively. Cash distributions to us from W&B’s
earnings were $860,000, $1.0 million and $456,000 in 2009, 2008 and 2007,
respectively.
During
2008, the Company sold property, formerly leased to W&B, with a net book
value of $1.3 million, resulting in a gain of $0.7 million, to an entity in
which the majority shareholder of W&B has an interest. This gain
is included on our consolidated statements of operations in the line entitled
“Life insurance and other”.
During 2009,
2008 and 2007, the Company’s purchases from W&B for trailers and
refrigeration units were $1.2 million, $2.5 million and $4.4 million,
respectively. The Company also utilizes W&B to provide routine
maintenance and warranty repair of trailers and refrigeration
units. During 2009, 2008 and 2007, W&B invoiced the Company $1.5
million, $1.9 million and $1.4 million, respectively, for maintenance and repair
services, accessories and parts.
44
Frozen
Food Express Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
12.
New Accounting Pronouncements
Codification and the Hierarchy of
Generally Accepted Accounting Principles. Effective July 1,
2009, the Company adopted the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (“ASC 105”), (formerly SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles). This standard establishes only two levels of US GAAP,
authoritative and non-authoritative. The FASB Accounting Standards Codification
(the “Codification”) became the source of authoritative, nongovernmental US
GAAP, except for rules and interpretive releases of the SEC, which are sources
of authoritative US GAAP for SEC registrants. All other non-grandfathered,
non-SEC accounting literature not included in the Codification became
non-authoritative. The Company began using the new guidelines and numbering
system prescribed by the Codification when referring to US GAAP in the third
quarter of fiscal year 2009. As the Codification was not intended to change or
alter existing US GAAP, it did not have any impact on the Company’s consolidated
financial statements.
13. Quarterly
Financial Data (unaudited)
The
following is a summary of the quarterly results of operations for 2009 and
2008:
|
(in
thousands except per-share amounts)
|
||||||||||||||||||||
|
2009
|
Year
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||||
|
Revenue
|
$
|
373,051
|
$
|
92,207
|
$
|
94,895
|
$
|
94,500
|
$
|
91,449
|
||||||||||
|
Loss
from operations
|
(24,913
|
)
|
(8,521
|
)
|
(6,498
|
)
|
(4,833
|
)
|
(5,061
|
)
|
||||||||||
|
Net
loss
|
(16,415
|
)
|
(6,121
|
)
|
(5,168
|
)
|
(2,560
|
)
|
(2,566
|
)
|
||||||||||
|
Net
loss per share of common stock
|
||||||||||||||||||||
|
Basic
|
$
|
(0.96
|
)
|
$
|
(0.36
|
)
|
$
|
(0.30
|
)
|
$
|
(0.15
|
)
|
$
|
(0.15
|
)
|
|||||
|
Diluted
|
$
|
(0.96
|
)
|
$
|
(0.36
|
)
|
$
|
(0.30
|
)
|
$
|
(0.15
|
)
|
$
|
(0.15
|
)
|
|||||
|
2008
|
Year
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||||
|
Revenue
|
$
|
490,536
|
$
|
116,730
|
$
|
129,025
|
$
|
132,451
|
$
|
112,330
|
||||||||||
|
Income
(loss) from operations
|
2,054
|
(1,716
|
)
|
16
|
3,560
|
194
|
||||||||||||||
|
Net
income (loss)
|
605
|
(825
|
)
|
274
|
1,357
|
(201
|
)
|
|||||||||||||
|
Net
income (loss) per share of common stock
|
||||||||||||||||||||
|
Basic
|
$
|
0.04
|
$
|
(0.05
|
)
|
$
|
0.02
|
$
|
0.08
|
$
|
(0.01
|
)
|
||||||||
|
Diluted
|
$
|
0.04
|
$
|
(0.05
|
)
|
$
|
0.02
|
$
|
0.08
|
$
|
(0.01
|
)
|
||||||||
Net
income (loss) per share of common stock is computed independently for each
quarter presented and is based on the average number of common and equivalent
shares for the quarter. The sum of the quarterly net income (loss) per share of
common stock for a year may not equal the total for the year due to rounding
differences.
14. Subsequent
Events
The Company has evaluated subsequent events after the balance sheet date of
December 31, 2009. Other than as described below, the Company is not
aware of any subsequent events that would require recognition or disclosure in
the consolidated financial statements.
On February 24, 2010, the Company
adopted an amendment to its Rights Agreement dated as of June 14, 2000 between
Frozen Food Express Industries, Inc. and Fleet National Bank, Rights Agent for
the purpose of extending the Final Expiration Date of such agreement to June 13,
2013 from June 13, 2010. A copy of the Amendment is included with
this filing as Exhibit 4.1(a).
45
Frozen
Food Express Industries, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
ITEM
9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None
ITEM
9A. Controls and Procedures
As of the
end of the period covered by this report, an evaluation was performed under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer of the effectiveness of the design
and operation of our disclosure controls and procedures. Based on
that evaluation, our management, including our Chief Executive Officer and our
Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of December 31, 2009. There were no significant
changes in our internal control over financial reporting that occurred during
the period covered by this report that have materially affected, or that are
reasonably likely to materially affect, our internal control over financial
reporting.
Management’s
Annual Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining an adequate system of internal
control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended, for Frozen
Food Express Industries, Inc. and subsidiaries (the “Company”). This
system is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting
principles.
The
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the
Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements and even when determined to be effective, can
only provide reasonable assurance with respect to financial statement
preparation and presentation. Also, projection of any evaluation of the
effectiveness of internal control over financial reporting to future periods is
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Management,
with the participation of the Company’s Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2009. In making this
evaluation, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated
Framework. Based on this assessment, management concluded that the
Company’s internal control over financial reporting was effective as of December
31, 2009. Further, the Company’s independent registered public accounting
firm, Grant Thornton LLP, has audited and issued a report on the Company’s
internal control over financial reporting as set forth in this annual
report.
February
26, 2010
46
Report
of Independent Registered Public Accounting Firm
Board of
Directors and Shareholders
Frozen
Food Express Industries, Inc.
We have
audited Frozen Food Express Industries, Inc. (a Texas Corporation) and
subsidiaries’ (the “Company”) internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Frozen Food Express Industries, Inc. and subsidiaries maintained, in
all material respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control—Integrated
Framework issued by COSO.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Frozen Food
Express Industries, Inc. and subsidiaries as of December 31, 2009 and 2008 and
the related consolidated statements of operations, shareholders’ equity, and
cash flows for each of the three years in the period ended December 31,
2009 and our report dated February 26, 2010 expressed an unqualified
opinion.
/ s/
Grant Thornton LLP
Dallas,
Texas
February
26, 2010
47
ITEM
9B. Other Information
PART
III
ITEM
10. Directors and Executive Officers and Corporate
Governance
A.
Directors of the
Registrant .
The
information in the “Outstanding Capital Stock; Principal Shareholders” and
“Election of Directors” sections of our proxy statement for the annual meeting
of stockholders to be held on May 19, 2010 is incorporated herein by
reference.
B.
Executive Officers of
the Registrant .
The
information in the “Election of Directors” section of our proxy statement for
the annual meeting of stockholders to be held on May 19, 2010 is incorporated
herein by reference.
C.
Compliance with
Section 16(a) of the Exchange Act .
The
information in the “Section 16(a) Beneficial Ownership Reporting
Compliance” section of our proxy statement for the annual meeting of
stockholders to be held on May 19, 2010 is incorporated herein by
reference.
D.
Procedure for Director
Nominations by Security Holders .
There
have been no material changes to the procedures by which security holders may
recommend nominees to our board of directors.
E.
Audit Committee
Financial Expert .
The
information in the “Corporate Governance-Audit Committee” section of our
proxy statement for the annual meeting of stockholders to be held on May 19,
2010 is incorporated herein by reference.
F.
Identification of the
Audit Committee .
The
information in the “Corporate Governance-Audit Committee” section of our proxy
statement for the annual meeting of stockholders to be held on May 19, 2010 is
incorporated herein by reference.
G.
Code of Business
Conduct and Ethics for Senior Financial Management .
Our Code
of Business Conduct and Ethics for Senior Financial Management applies to all of
our executive officers, including our principal executive officer, principal
financial officer and controller, and meets the requirements of the Securities
and Exchange Commission. We have posted our Code of Business Conduct and
Ethics for Senior Financial Management on our website at www.ffeinc.com. We
intend to disclose any amendments to and any waivers from a provision of our
Code of Business Conduct and Ethics for Senior Financial Management on our
website within five business days following such amendment or
waiver.
ITEM
11. Executive Compensation
The
information in the “Report of Compensation Committee of the Board of Directors”
and “Executive Compensation” sections of our proxy statement for the annual
meeting of stockholders to be held on May 19, 2010 is incorporated herein by
reference.
48
ITEM
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The
information in the “Outstanding Capital Stock” and “Executive
Compensation” sections of our proxy statement for the annual meeting of
stockholders to be held on May 19, 2010 is incorporated herein by
reference.
ITEM
13. Certain Relationships and Related Transactions, and
Director Independence
The information in the
“Corporate Governance” and “Transactions with Management and
Directors” sections of our proxy statement for the annual meeting of
stockholders to be held on May 19, 2010 is incorporated herein by
reference.
ITEM
14. Principal Accountant Fees and Services
ITEM
15. Exhibits and Financial Statement Schedules
(a) 1. Financial
Statements, Financial Statement Schedules and Exhibits:
|
Page
|
||
|
Report
of Independent Registered Public Accounting Firm
|
31
|
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
32
|
|
|
Consolidated
Statements of Operations for the three years ended December 31,
2009
|
33
|
|
|
Consolidated
Statements of Cash Flows for the three years ended December 31,
2009
|
34
|
|
|
Consolidated
Statement of Shareholders' Equity for the three years ended December 31,
2009
|
35
|
|
|
Notes
to Consolidated Financial Statements
|
36
|
|
|
Management’s
Annual Report on Internal Control Over Financial Reporting
|
46
|
2. Financial
Statement Schedules
Financial
statement schedules have been omitted since the required information is not
applicable or not present in amounts sufficient to require submission of the
schedule or because the required information is included in our
consolidated financial statements or the notes thereto.
3. Exhibits
The
Exhibits filed with this report are listed in the Exhibit Index, which is a
separate section of this report, and incorporated in this Item 15(a) by
reference.
49
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, Frozen Food Express Industries, Inc., the registrant, has duly caused this
report to be signed on our behalf by the undersigned, thereunto duly
authorized.
|
FROZEN FOOD EXPRESS
INDUSTRIES, INC.
|
||
|
Date: February
26, 2010
|
/s/
|
Stoney
M. Stubbs, Jr.
|
|
Stoney
M. Stubbs, Jr.
Chairman
of the Board and
Chief
Executive Officer
|
||
|
Date: February
26, 2010
|
/s/
|
John
McManama
|
|
John
McManama
Interim
Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
||
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.
|
FROZEN
FOOD EXPRESS INDUSTRIES, INC.
|
||
|
Date:
February 26, 2010
|
/s/
|
Stoney
M. Stubbs, Jr.
|
|
Stoney
M. Stubbs, Jr.
Chairman
of the Board and Chief Executive Officer
(Principal
Executive Officer)
|
||
|
Date: February
26, 2010
|
/s/
|
John
McManama
|
|
John
McManama
Interim
Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
||
|
Date:
February 26, 2010
|
/s/
|
S.
Russell Stubbs
|
|
S.
Russell Stubbs
President
and Director
|
||
|
Date:
February 26, 2010
|
/s/
|
John
Hickerson
|
|
John
Hickerson
Executive
Vice President, Chief Operating Officer and
Director
|
||
|
Date:
February 26, 2010
|
/s/
|
Jerry
T. Armstrong
|
|
Jerry
T. Armstrong, Director
|
||
|
Date:
February 26, 2010
|
/s/
|
W.
Mike Baggett
|
|
W.
Mike Baggett, Director
|
||
|
Date:
February 26, 2010
|
/s/
|
Brian
R. Blackmarr
|
|
Brian
R. Blackmarr, Director
|
||
|
Date:
February 26, 2010
|
/s/
|
Barrett
D. Clark
|
|
Barrett
D. Clark, Director
|
||
|
Date:
February 26, 2010
|
/s/
|
Kevin
Kilpatrick
|
|
Kevin
Kilpatrick, Director
|
||
|
Date:
February 26, 2010
|
/s/
|
T.
Michael O’Connor
|
|
T.
Michael O’Connor, Director
|
||
50
INDEX
OF EXHIBITS
|
3.1
|
Restated
Articles of Incorporation of Frozen Food Express Industries, Inc. (filed
as Exhibit 3(i) to Registrant Current Report on Form 8-K filed on May 29,
2007 and incorporated herein by reference).
|
|
3.2
|
Amended
and Restated Bylaws of the Registrant, as amended (filed as Exhibit 3.1 to
Registrant's Current Report on Form 8-K filed on March 3, 2009 and
incorporated herein by reference).
|
|
4.1
|
Rights
Agreement dated as of June 14, 2000, between the Registrant and Fleet
National Bank, which includes as exhibits, the form of the Rights
Certificate and the Summary of Rights (filed as Exhibit 4.1 to
Registrant's Form 8-A Registration Statement filed on June 19, 2000 and
incorporated herein by reference).
|
|
4.1(a)
|
First
Amendment to the Rights Agreement dated as of June 14, 2000, between the
Registrant and Fleet National Bank, (filed as Exhibit 4.1(a)
herewith).
|
|
10.1
|
Frozen
Food Express Industries, Inc. 1995 Non-Employee Director Stock Plan (filed
as Exhibit 4.3 to Registrant's Registration Statement #033-59465 as filed
with the Commission and incorporated herein by
reference).
|
|
10.1
(a)
|
First
Amendment to Frozen Food Express Industries, Inc. 1995 Non-Employee
Director Stock Plan (filed as Exhibit 10.1 (a) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 2004 and incorporated
herein by reference).
|
|
10.1
(b)
|
Second
Amendment to Frozen Food Express Industries, Inc. 1995 Non-Employee
Director Stock Plan (filed as Exhibit 10.1 (b) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 2004 and incorporated
herein by reference).
|
|
10.1
(c)
|
Form
of Stock Option Agreement for use in connection with the Frozen Food
Express Industries, Inc. Non-Employee Director Stock Plan (filed as
Exhibit 10.1 (d) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 2004 and incorporated herein by
reference).
|
|
10.2
|
Second
Amended and Restated Credit Agreement among Comerica Bank-Texas as
Administrative Agent, Collective Agent and Issuing Bank and FFE
Transportation Services, Inc., as borrower, and certain of its affiliates
as of September 2, 2009 (filed as Exhibit 10.1 to Registrant’s Current
Report on Form 8-K filed on September 8, 2009 and incorporated herein by
reference).
|
|
10.2
(a)
|
First
Amendment to the Second Amended and Restated Credit Agreement among
Comerica Bank-Texas as Administrative Agent, Collective Agent and Issuing
Bank and FFE Transportation Services, Inc., as borrower, and certain of
its affiliates as of November 4, 2009 (filed as Exhibit 10.2 to
Registrant’s Quarterly Report on Form 10-Q for the period ended September
30, 2009 and incorporated herein by reference).
|
|
10.3*
|
Frozen
Food Express Industries, Inc., 1992 Incentive and Non-statutory Stock
Option Plan (filed as Exhibit 4.3 to Registrant's Registration Statement
#33-48494 as filed with the Commission and incorporated herein by
reference).
|
|
10.3
(a)*
|
Amendment
No. 1 to Frozen Food Express Industries, Inc. 1992 Incentive and
Non-statutory Stock Option Plan (filed as Exhibit 4.4 to Registrant's
Registration Statement #333-38133 and incorporated herein by
reference).
|
|
10.3
(b)*
|
Amendment
No. 2 to Frozen Food Express Industries, Inc. 1992 Incentive and Stock
Option Plan (filed as Exhibit 4.5 to Registrant's Registration Statement
#333-38133 and incorporated herein by reference).
|
|
10.3
(c)*
|
Amendment
No. 3 to Frozen Food Express Industries, Inc. 1992 Incentive and
Non-statutory Stock Option Plan (filed as Exhibit 4.6 to Registrant's
Registration Statement #333-87913 and incorporated herein by
reference).
|
|
10.3
(d)*
|
Form
of Stock Option Agreement for use in connection with the Frozen Food
Express Industries, Inc. 1992 Incentive and Stock Option Plan (filed as
Exhibit 10.3 (d) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 2004 and incorporated herein by
reference).
|
|
10.4*
|
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 and incorporated herein by
reference).
|
|
10.5*
|
FFE
Transportation Services, Inc. 1999 Executive Bonus and Phantom Stock Plan
(filed as Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 and incorporated herein by
reference).
|
|
10.6*
|
Frozen
Food Express Industries, Inc. 401(k) Savings Plan (filed as Exhibit 10.1
to Registrant’s Current Report on Form 8-K filed on May 17, 2007 and
incorporated herein by reference).
|
|
10.6
(a)*
|
First
Amendment to Frozen Food Express Industries, Inc. 401(k) Savings Plan
(filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on
September 18, 2007 and incorporated herein by
reference).
|
|
10.6
(b)*
|
Second
Amendment to Frozen Food Express Industries, Inc. 401(k) Savings Plan
(filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on
March 4, 2008 and incorporated herein by reference).
|
|
10.6
(c)*
|
Third
Amendment to Frozen Food Express Industries, Inc. 401(k) Savings Plan
(filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on
March 3, 2009 and incorporated herein by reference).
|
|
10.6
(d)*
|
Fourth
Amendment to Frozen Food Express Industries, Inc. 401(k) Savings Plan
(filed as Exhibit 10.6 herewith).
|
|
10.7*
|
Frozen
Food Express Industries, Inc. Employee Stock Option Plan (filed as Exhibit
4.1 to Registrant's Registration Statement #333-21831 as filed with the
Commission and incorporated herein by reference).
|
|
10.7(a)*
|
Amendment
to the Frozen Food Express Industries, Inc. Employee Stock Option Plan
(filed as Exhibit 4.4 to Registrant’s Registration Statement #333-52701
and incorporated by reference).
|
|
FFE
Transportation Services, Inc Restated Wrap Plan (Effective January 1,
2008) (filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K
filed with the Commission on December 24, 2008 and incorporated herein by
reference).
|
|
|
10.9*
|
Form
of Amended and Restated Change in Control Agreement (filed as Exhibit 10.1
to Registrant's Current Report on Form 8-K filed with the Commission
on August 11, 2006 and incorporated herein by
reference).
|
51
|
10.10*
|
Frozen
Food Express Industries, Inc. 2002 Incentive and Non-statutory Stock
Option Plan (filed as Exhibit 10.15 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 2002 and incorporated herein
by reference).
|
|
10.10
(a)*
|
First
Amendment to Frozen Food Express Industries, Inc. 2002 Incentive and
Non-Statutory Stock Option Plan (filed as exhibit 4.2 to Registrant's
Registration statement #333-106696 and incorporated herein by
reference).
|
|
10.10
(b)*
|
Form
of Stock Option Agreement used in connection with the Frozen Food Express
Industries, Inc. 2002 Incentive and Non-Statutory Stock Option Plan (filed
as Exhibit 10.10 (b) to Registrant's Annual Report on Form 10-K for the
year ended December 31, 2004 and incorporated herein by
reference).
|
|
10.11*
|
Split
Dollar Agreement between Registrant and Stoney Russell Stubbs, as Trustee
of the Stubbs Irrevocable 1995 Trust (filed as Exhibit 10.11 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
2004 and incorporated herein by reference).
|
|
10.11
(a)*
|
First
Amendment to Split Dollar Agreement between Registrant and Stoney Russell
Stubbs, as Trustee of the Stubbs Irrevocable 1995 Trust (filed as Exhibit
10.11 (a) to Registrant's Annual Report on Form 10-K for the year ended
December 31, 2004 and incorporated herein by
reference).
|
|
10.12*
|
Amended
and Restated Frozen Food Express Industries, Inc. 2005 Non-Employee
Director Restricted Stock Plan (filed as Exhibit 10.1 to Registrant's
Current Report on Form 8-K on November 20, 2008, and incorporated herein
by reference).
|
|
10.12
(a)*
|
Form
of Restricted Stock Agreement for use with Frozen Food Express Industries,
Inc. Non-Employee Director Restricted Stock Plan (filed as Exhibit 10.2
(a) to Registrant's Quarterly Report on Form 10-Q for the period ended
June 30, 2005 and incorporated herein by reference).
|
|
10.13*
|
FFE
Transportation Services, Inc. Amended 2005 Executive Bonus and Restricted
Stock Plan (filed as Exhibit 10.3 to Registrant's Current Report on Form
8-K filed March 3, 2009 and incorporated herein by
reference).
|
|
10.14*
|
Amended
and Restated Frozen Food Express Industries, Inc. 2005 Stock Incentive
Plan (filed as Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q
filed on August 7, 2009 and incorporated herein by
reference).
|
|
10.14
(a)*
|
Form
of Incentive Stock Option Agreement for use with the Frozen Food Express
Industries, Inc. 2005 Stock Incentive Plan (filed as Exhibit 10.5 to
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
2005 and incorporated herein by reference).
|
|
10.15*
|
Form
of Key Employee Supplemental Medical Plan (filed as Exhibit 10.16 to
Registrant’s Annual Report on Form 10-K for the period ended December 31,
2005 and incorporated herein by reference).
|
|
10.16*
|
FFE
Transportation Services, Inc. Management Phantom Stock Plan (filed as
Exhibit 10.1 to Registrant's Current Report on Form 8-K filed February 22,
2006 and incorporated herein by reference).
|
|
10.17*
|
Summary
of compensation arrangements with Stoney M. Stubbs, Jr. (filed as Exhibit
10.17 herewith).
|
|
10.18*
|
Summary
of compensation arrangements with S. Russell Stubbs, effective
January 1, 2009 (filed as Item 5.02 to Registrant's Current Report on Form
8-K filed on January 15, 2010 and incorporated herein by
reference).
|
|
10.19*
|
Summary
of compensation arrangements with John R. McManama, effective
November 9, 2009 (filed as Item 5.02 to Registrant's Current Report on
Form 8-K filed on November 9, 2009 and incorporated herein by
reference).
|
|
10.20*
|
Summary
of compensation arrangements with Timothy L. Stubbs effective January 25,
2010 (filed as Exhibit 10.20 herewith).
|
|
10.21*
|
Summary
compensation arrangements of certain officers pursuant to Registrant’s
Amended 2005 Executive Bonus and Restricted Stock Plan (filed as Exhibit
10.21 herewith).
|
|
10.22*
|
Summary
of compensation arrangements with Ronald J. Knutson (incorporated by
reference to Item 5.02 of Registrant’s Current Report on Form 8-K filed on
January 20, 2009).
|
|
10.24*
|
Summary
of compensation arrangements with John T. Hickerson, effective January 1,
2009 (filed as Item 5.02 to Registrant's Current Report on Form 8-K filed
on January 15, 2010 and incorporated herein by
reference).
|
|
11.1
|
Computation
of basic and diluted net income or loss per share of common stock
(incorporated by reference to Footnote 7 to the financial statements
appearing as Item 8 of this Form 10-K).
|
|
14.1
|
Frozen
Food Express Industries, Inc. Code of Business Conduct and Ethics (filed
as Exhibit 14.1 to Registrant's Current Report on Form 8-K filed on
November 20, 2009 and incorporated herein by
reference).
|
|
14.2
|
Frozen
Food Express Industries, Inc. Nominating and Corporate Governance
Committee Charter (filed as Exhibit 14.2 to Registrant’s Current Report on
Form 8-K filed on March 3, 2009 and incorporated herein by
reference).
|
|
14.3
|
Frozen
Food Express Industries, Inc. Policy Regarding Related Party Transactions
(filed as Exhibit 14.2 to Registrant's Current Report on Form 8-K
filed on November 20, 2009 and incorporated herein by
reference).
|
|
21.1
|
Subsidiaries
of Frozen Food Express Industries, Inc. (filed
herewith).
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm (filed
herewith).
|
|
31.1
|
Certification
of Chief Executive Officer Required by Rule 13a-14(a)(17 CFR
240.13a-14(a)) (filed herewith).
|
|
31.2
|
Certification
of Chief Financial Officer Required by Rule 13a-14(a)(17 CFR
240.13a-14(a)) (filed herewith).
|
|
32.1
|
Certifications
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed
herewith).
|
*Executive Compensation
plans and arrangements required to be filed as an Exhibit to this Form
10-K
52