UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
[MARK
ONE]
x
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
OR
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR
THE TRANSITION PERIOD FROM _____________ TO ______________
Commission
File Number:
1-10006
FROZEN FOOD EXPRESS
INDUSTRIES, INC.
(Exact
name of registrant as specified in its charter)
Texas
(State
or other jurisdiction of
incorporation
or organization)
|
|
75-1301831
(IRS
Employer Identification No.)
|
1145
Empire Central Place
Dallas,
Texas 75247-4305
(Address
of principal executive offices)
|
|
(214)
630-8090
(Registrant's
telephone number,
including
area code)
|
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (l) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
ý
Yes
o
No
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large
accelerated filer
o
|
Accelerated
Filer
ý
|
Non-accelerated
filer
o
|
Smaller
Reporting Company
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o
Yes
ý
No
Indicate
the number of shares outstanding of each of the issuer’s classes of Common
Stock, as of the latest practicable date.
|
Class
|
|
Number
of Shares Outstanding
|
|
|
Common
stock, $1.50 par value
|
|
16,758,677
at September 30, 2008
|
|
INDEX
|
PART
I Financial Information
|
Page
No.
|
|
|
|
Item
1
|
Financial
Statements
|
|
|
Consolidated
Condensed Balance Sheets
September
30, 2008 (unaudited) and December 31, 2007
|
1
|
|
|
|
|
Consolidated
Condensed Statements of Profit and Loss (unaudited)
Three
and nine months ended September 30, 2008 and 2007
|
2
|
|
|
|
|
Consolidated
Condensed Statements of Cash Flows (unaudited)
Nine
months ended September 30, 2008 and 2007
|
3
|
|
|
|
|
Notes
to Consolidated Condensed Financial Statements (unaudited)
|
4
|
|
|
|
Item
2
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
9
|
|
|
|
Item
3
|
Quantitative
and Qualitative Disclosures about Market Risk
|
22
|
|
|
|
Item
4
|
Controls
and Procedures
|
22
|
|
|
|
|
PART II
Other
Information
|
|
|
|
|
Item
1
|
Legal
Proceedings
|
22
|
|
|
|
Item
1A
|
Risk
Factors
|
23
|
|
|
|
Item
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
23
|
|
|
|
Item
3
|
Defaults
Upon Senior Securities
|
24
|
|
|
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
24
|
|
|
|
Item
5
|
Other
Information
|
24
|
|
|
|
Item
6
|
Exhibits
|
24
|
|
|
|
|
Signatures
|
25
|
|
|
|
|
Exhibit
Index
|
26
|
-i-
PART
I. FINANCIAL INFORMATION
Item 1.
Financial
Statements
FROZEN
FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated
Condensed Balance Sheets
(Unaudited
and in thousands)
|
|
September
30,
2008
|
|
|
December 31,
2007
|
|
Assets
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,243
|
|
|
$
|
2,473
|
|
Accounts
receivable, net
|
|
|
62,942
|
|
|
|
52,682
|
|
Tires
on equipment in use, net
|
|
|
5,210
|
|
|
|
5,120
|
|
Deferred
income taxes
|
|
|
3,643
|
|
|
|
2,978
|
|
Other
current assets
|
|
|
10,371
|
|
|
|
14,607
|
|
Total
current assets
|
|
|
84,409
|
|
|
|
77,860
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
85,308
|
|
|
|
90,309
|
|
Other
assets
|
|
|
5,083
|
|
|
|
5,500
|
|
Total
assets
|
|
$
|
174,800
|
|
|
$
|
173,669
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
24,333
|
|
|
$
|
25,301
|
|
Accrued
claims
|
|
|
11,291
|
|
|
|
12,342
|
|
Accrued
payroll and deferred compensation
|
|
|
6,755
|
|
|
|
5,998
|
|
Income
tax payable
|
|
|
48
|
|
|
|
--
|
|
Accrued
liabilities
|
|
|
1,940
|
|
|
|
1,964
|
|
Total
current liabilities
|
|
|
44,367
|
|
|
|
45,605
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
5,800
|
|
|
|
--
|
|
Deferred
income taxes
|
|
|
12,975
|
|
|
|
11,488
|
|
Accrued
claims
|
|
|
4,492
|
|
|
|
9,317
|
|
Total
liabilities
|
|
|
67,634
|
|
|
|
66,410
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
Par
value of common stock (18,572 shares issued)
|
|
|
27,858
|
|
|
|
27,858
|
|
Paid
in capital
|
|
|
5,424
|
|
|
|
5,682
|
|
Retained
earnings
|
|
|
87,809
|
|
|
|
88,515
|
|
|
|
|
121,091
|
|
|
|
122,055
|
|
Treasury
stock (1,814 and 1,921 shares, respectively), at cost
|
|
|
(13,925
|
)
|
|
|
(14,796
|
)
|
Total
shareholders' equity
|
|
|
107,166
|
|
|
|
107,259
|
|
Total
liabilities and shareholders' equity
|
|
$
|
174,800
|
|
|
$
|
173,669
|
|
See accompanying notes
to consolidated condensed financial
statements.
FROZEN
FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated
Condensed Statements of Profit and Loss
For the
Three and Nine Months Ended September 30,
(Unaudited
and in thousands, except per-share amounts)
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenue
|
|
$
|
132,451
|
|
|
$
|
114,730
|
|
|
$
|
378,206
|
|
|
$
|
334,288
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and related expenses
|
|
|
33,693
|
|
|
|
31,893
|
|
|
|
96,524
|
|
|
|
97,101
|
|
Purchased
transportation
|
|
|
29,517
|
|
|
|
30,813
|
|
|
|
93,141
|
|
|
|
83,216
|
|
Fuel
|
|
|
32,130
|
|
|
|
21,684
|
|
|
|
88,694
|
|
|
|
61,435
|
|
Supplies
and expenses
|
|
|
14,047
|
|
|
|
13,911
|
|
|
|
39,864
|
|
|
|
40,926
|
|
Revenue
equipment rent
|
|
|
9,005
|
|
|
|
7,640
|
|
|
|
25,734
|
|
|
|
22,885
|
|
Depreciation
|
|
|
4,684
|
|
|
|
4,592
|
|
|
|
14,183
|
|
|
|
14,697
|
|
Communications
and utilities
|
|
|
1,410
|
|
|
|
1,169
|
|
|
|
3,636
|
|
|
|
3,213
|
|
Claims
and insurance
|
|
|
2,733
|
|
|
|
3,125
|
|
|
|
9,001
|
|
|
|
12,212
|
|
Operating
taxes and licenses
|
|
|
1,163
|
|
|
|
1,188
|
|
|
|
3,431
|
|
|
|
3,550
|
|
Gains
on sale of operating assets
|
|
|
(491
|
)
|
|
|
(799
|
)
|
|
|
(1,096
|
)
|
|
|
(2,331
|
)
|
Miscellaneous
expenses
|
|
|
1,000
|
|
|
|
772
|
|
|
|
3,234
|
|
|
|
2,501
|
|
Total operating expenses
|
|
|
128,891
|
|
|
|
115,988
|
|
|
|
376,346
|
|
|
|
339,405
|
|
Income
(loss) from operations
|
|
|
3,560
|
|
|
|
(1,258
|
)
|
|
|
1,860
|
|
|
|
(5,117
|
)
|
Non-operating
(income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of limited partnership
|
|
|
(200
|
)
|
|
|
(211
|
)
|
|
|
(511
|
)
|
|
|
(418
|
)
|
Interest
income
|
|
|
(12
|
)
|
|
|
(189
|
)
|
|
|
(66
|
)
|
|
|
(571
|
)
|
Interest
expense
|
|
|
74
|
|
|
|
--
|
|
|
|
110
|
|
|
|
--
|
|
Sale
of non-operating assets and other
|
|
|
200
|
|
|
|
163
|
|
|
|
(108
|
)
|
|
|
523
|
|
Total
non-operating expense (income)
|
|
|
62
|
|
|
|
(237
|
)
|
|
|
(575
|
)
|
|
|
(466
|
)
|
Pre-tax
income (loss)
|
|
|
3,498
|
|
|
|
(1,021
|
)
|
|
|
2,435
|
|
|
|
(4,651
|
)
|
Income
tax expense (benefit)
|
|
|
2,141
|
|
|
|
2,214
|
|
|
|
1,629
|
|
|
|
(522
|
)
|
Net
income (loss)
|
|
$
|
1,357
|
|
|
$
|
(3,235
|
)
|
|
$
|
806
|
|
|
$
|
(4,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.08
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.24
|
)
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.24
|
)
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,737
|
|
|
|
17,293
|
|
|
|
16,699
|
|
|
|
17,335
|
|
Diluted
|
|
|
17,027
|
|
|
|
17,293
|
|
|
|
16,998
|
|
|
|
17,335
|
|
See accompanying notes
to consolidated condensed financial
statements.
FROZEN
FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated
Condensed Statements of Cash Flows
For the
Nine Months Ended September 30,
(Unaudited
and in thousands)
|
|
2008
|
|
|
2007
|
|
Net
cash provided by operating activities
|
|
$
|
3,017
|
|
|
$
|
8,884
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Expenditures
for property and equipment
|
|
|
(19,006
|
)
|
|
|
(11,893
|
)
|
Proceeds
from sale of property and equipment
|
|
|
11,459
|
|
|
|
11,251
|
|
Other
|
|
|
(252
|
)
|
|
|
(14
|
)
|
Net
cash used in investing activities
|
|
|
(7,799
|
)
|
|
|
(656
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings
|
|
|
68,000
|
|
|
|
200
|
|
Payments
against borrowings
|
|
|
(62,200
|
)
|
|
|
(5,100
|
)
|
Dividends
paid
|
|
|
(1,512
|
)
|
|
|
(1,571
|
)
|
Income
tax benefit of stock options and restricted stock
|
|
|
56
|
|
|
|
420
|
|
Proceeds
from capital stock transactions
|
|
|
424
|
|
|
|
1,366
|
|
Purchases
of treasury stock
|
|
|
(216
|
)
|
|
|
(4,482
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
4,552
|
|
|
|
(9,167
|
)
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(230
|
)
|
|
|
(939
|
)
|
Cash
and cash equivalents at January 1
|
|
|
2,473
|
|
|
|
9,589
|
|
Cash
and cash equivalents at September 30
|
|
$
|
2,243
|
|
|
$
|
8,650
|
|
See
accompanying notes to consolidated condensed financial
statements.
FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES
Notes
to Consolidated Condensed Financial Statements
(Unaudited)
1.
Basis of
Presentation
The
accompanying consolidated condensed financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”) and include Frozen Food Express Industries, Inc., a Texas corporation,
and our subsidiary companies, all of which are wholly-owned. In the
opinion of management, all adjustments (which consisted only of normal recurring
entries) necessary to present fairly our financial position, cash flows and
results of operations have been made. All intercompany balances and transactions
have been eliminated in consolidation.
Certain
information and disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) have been condensed or omitted from these statements
because no significant changes have occurred since the end of the most recent
fiscal year. We believe the disclosures contained herein, when read in
conjunction with the audited financial statements and notes included in our
Annual Report on Form 10-K, filed with the SEC on March 14, 2008, are adequate
to make the information presented not misleading. It is suggested, therefore,
that these statements be read in conjunction with the statements and
notes included in the Annual Report on Form 10-K.
2.
Revenue
and Expense Recognition
Revenue
and associated direct operating expenses are recognized on the date the freight
is picked up from the shipper in accordance with the Financial Accounting
Standards Board's (“FASB”) Emerging Issues Task Force Issue No. 91-9,
Revenue and Expense Recognition for
Freight Services In Process
(“EITF 91-9”).
One of
the preferable methods outlined in EITF 91-9 provides for the allocation of
revenue between reporting periods based on relative transit time in each
reporting period with expense recognized as incurred. Changing to this method
would not have a material impact on our quarterly or annual financial
statements.
We are
the sole obligor with respect to the performance of our freight services, and we
assume all of the related credit risk. Accordingly, our revenue and related
direct expenses are recognized on a gross basis. Payments we make to others for
the use of their trucks in transporting freight are typically calculated based
on the gross revenue generated or the miles traveled by their trucks. Such
payments to others are recorded as purchased transportation
expense.
Revenue
from equipment rental is recognized ratably over the term of the associated
rental agreements.
3.
Other
Current Assets
A
summary of our other current assets as of September 30, 2008 and December 31,
2007 is as follows (in millions):
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
Due
from equipment sales
|
|
$
|
0.5
|
|
|
$
|
0.7
|
|
Income
taxes receivable
|
|
|
--
|
|
|
|
4.1
|
|
Other
prepaid taxes
|
|
|
1.6
|
|
|
|
1.2
|
|
Prepaid
insurance
|
|
|
1.6
|
|
|
|
1.6
|
|
Prepaid
rent
|
|
|
2.0
|
|
|
|
1.8
|
|
Retired
equipment held for sale
|
|
|
--
|
|
|
|
1.5
|
|
Prepaid
licenses and permits
|
|
|
2.4
|
|
|
|
1.6
|
|
Inventories
and other
|
|
|
2.3
|
|
|
|
2.1
|
|
|
|
$
|
10.4
|
|
|
$
|
14.6
|
|
4.
Long-Term
Debt
As of
September 30, 2008, we had a secured line of credit pursuant to a revolving
credit agreement with two commercial banks. The amount we may borrow may not
exceed the lesser of $50 million, as adjusted for letters of credit and other
debt (as defined in the agreement), a borrowing base or a multiple of a measure
of cash flow as described in the agreement. As of September 30, 2008,
we were in compliance with the terms of the agreement, which expires in
2010. Loans and letters of credit will become due upon the expiration
of the agreement.
We may
elect to borrow at a daily interest rate based on the prime rate, or for
specified periods of time at fixed interest rates, which are based on the London
Interbank Offered Rate in effect at the time of a fixed rate
borrowing. Interest is paid monthly. At September 30, 2008, $5.8
million was borrowed against this facility and $5.6 million was being used for
letters of credit. Accordingly, at September 30, 2008, approximately $38.6
million was available to us under the agreement, subject to limitations
specified in the agreement.
Borrowings
are secured by our accounts receivable. We have the option to provide the
banks with liens on a portion of our truck and trailer fleets to secure our
obligations if they exceed the amount that can be borrowed against accounts
receivable. The agreement contains a pricing “grid” in which increased levels of
profitability and cash flows or reduced levels of indebtedness can reduce the
rates of interest expense we incur. The agreement limits our payments of cash
dividends, repurchases of our stock and certain levels of capital expenditures.
During 2007 and early 2008, this was amended in order to adjust the limitation
on our ability to pay cash dividends and repurchase our stock.
Total
interest expense from the credit line during the nine-month period ended
September 30, 2008 was $110 thousand. There was no such interest
expense during the first nine months of 2007. At September 30, 2008,
the weighted average interest accruing on debt then outstanding was
4.25%.
5.
Income
Taxes
Our
income is taxed by the United States and various state
jurisdictions. Our returns for 2005 and after are subject to
examination by the Internal Revenue Service.
For the
nine months ended September 30, 2008, our effective tax rate (income tax expense
or benefit divided by pre-tax income or loss) was 67% compared to 11% for the
same period a year ago. The difference between our effective tax rate and
the federal statutory rate of 35% is primarily attributable to state income
taxes and non-deductible employee-driver expenses.
For interim periods, US GAAP requires that we
project full-year income and permanent differences between book income and
taxable income in order to calculate an effective tax rate for the full
year. That projected effective tax rate is used to calculate our
income tax provision or benefit for the interim periods’ year-to-date financial
results.
We will
determine our actual effective tax rate at December 31, 2008. If at
that time our actual results for 2008 vary significantly from our current
expectations, our effective tax rate for the year will differ from the 67% that
we currently project.
We
had no accrual for interest and penalties on our consolidated condensed balance
sheets at September 30, 2008 or December 31, 2007, and we have recognized
no expense for income-tax related interest and/or penalties in our
consolidated condensed statements of profit and loss for the periods ended
September 30, 2008 or 2007. If incurred, such items would be recorded
as income tax expense or as a reduction of our benefit from income
tax.
6.
Commitments and
Contingencies
We have
accrued for costs related to public liability, cargo, employee health
insurance and work-related injury claims. When a loss occurs, we record a
reserve for the estimated outcome. As additional information becomes available,
adjustments are made. Accrued claims liabilities include all such reserves and
our estimate for incidents that have been incurred but not
reported.
7.
Non-Cash
Financing and Investing Activities
As of
December 31, 2007, 96 thousand shares of restricted stock had not yet
vested. During the first nine months of 2008 and 2007, 23 thousand
and 60 thousand shares, respectively, of restricted stock were issued.
During the first nine months of 2008, 29 thousand shares with a fair
market value of $269 thousand became vested, as compared to 19 thousand shares
with a fair market value of $180 thousand which became vested during the same
period of 2007. The compensation expense associated with the vesting
of restricted stock is recorded as deferred compensation expense ratably over
the three-year vesting period of each grant. Such non-cash expense
associated with restricted stock grants was approximately $343 thousand and $312
thousand during each of the nine-month periods ended September 30, 2008 and
2007, respectively.
As of
September 30, 2008 and 2007, accounts payable included $106 thousand and $5.5
million, respectively, related to property and equipment we acquired during
those periods.
We own a
19.9% share of W&B Service Company, L.P. (“W&B”). We account for our
investment by the equity method. The total amount of that investment, which is
included in other assets on our balance sheet, was $2.0 million and
$2.4 million at September 30, 2008 and December 31, 2007,
respectively.
8.
Related Party
Transactions
We buy
most of the trailers and trailer refrigeration units we use in our operations
from W&B. All of our trailer purchase orders are awarded after a competitive
bidding process to ensure that we are getting the best possible product quality,
price, warranty and other terms. We also rely on W&B to provide routine
maintenance and warranty repair of the trailers and refrigeration
units.
During
the nine-month periods ended September 30, 2008 and 2007, we purchased trailers
and refrigeration units from W&B totaling $2.3 million and $1.8 million,
respectively. During the nine-month periods ended September 30, 2008 and 2007,
we paid W&B $1.4 million and $1.1 million, respectively, for maintenance and
repair services, accessories, and parts. As of September 30, 2008 and
2007, our accounts payable included amounts owed to W&B of $330 thousand and
$2.3 million, respectively.
9.
Net
Income or Loss per Share of Common Stock
Basic net
income or loss per share of common stock was computed by dividing our net income
or loss by the weighted average number of shares of common stock outstanding
during the period. Diluted net income or loss per share amounts were
computed by dividing such income or loss by the average number of diluted shares
outstanding during each year. The tables below set forth information
regarding weighted average basic and diluted shares for each of the three- and
nine-month periods ended September 30, 2008 and 2007 (in
thousands):
|
|
Three
Months
|
|
|
Nine
Months
|
|
Weighted
average number of:
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Basic
shares
|
|
|
16,737
|
|
|
|
17,293
|
|
|
|
16,699
|
|
|
|
17,335
|
|
Common
stock equivalents
|
|
|
290
|
|
|
|
--
|
|
|
|
299
|
|
|
|
--
|
|
Diluted
shares
|
|
|
17,027
|
|
|
|
17,293
|
|
|
|
16,998
|
|
|
|
17,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive
shares excluded due to:
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Exercise
price of stock options
|
|
|
739
|
|
|
|
580
|
|
|
|
553
|
|
|
|
647
|
|
Net
loss
|
|
|
--
|
|
|
|
373
|
|
|
|
--
|
|
|
|
416
|
|
Total
excluded common stock equivalents
|
|
|
739
|
|
|
|
953
|
|
|
|
553
|
|
|
|
1,063
|
|
US GAAP
requires that stock options with an exercise price higher than the stock’s
actual average market value during the period be excluded from common stock
equivalents as their effect is anti-dilutive. US GAAP also requires
all other common stock equivalents to be excluded from the number of diluted
shares whenever a net loss is incurred for the period as their inclusion would
be anti-dilutive.
10.
New
Accounting Pronouncements
Beginning January 2008, we adopted two new accounting
pronouncements:
·
|
Statement
of Financial Accounting Standards No. 157,
Fair Value Measurements
(“SFAS 157”). This statement establishes a framework for
measuring fair value in US GAAP and expands disclosures about fair value
measurements. In February 2008, the FASB issued FASB Staff Position
("FSP") FAS 157-2,
Effective Date of FASB
Statement No. 157
, to provide a one-year deferral of the effective
date of SFAS 157 for nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed in financial statements at
fair value on a recurring basis (that is, at least annually). For
nonfinancial assets and nonfinancial liabilities subject to the deferral,
the effective date of SFAS 157 is postponed to fiscal years beginning
after November 15, 2008. The adoption of this statement did not have
a significant effect on our consolidated financial
statements.
|
·
|
Statement
of Financial Accounting Standards No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities, including an
amendment of FASB Statement No. 115
(“SFAS 159”).
SFAS 159 provides companies with an option to report selected financial
assets and financial liabilities at fair value, which can be elected on an
instrument-by-instrument basis. Unrealized gains and losses on items for
which the fair value option has been elected are reported in earnings at
each subsequent reporting date. The adoption of this statement did not
have a significant effect on our consolidated financial
statements.
|
In
addition, there are new accounting pronouncements that we will be required to
adopt in 2009. Based on our current understanding, we do not expect
that adoption of any of these pronouncements will have an immediate or material
effect on our consolidated financial statements.
·
|
On
October 10, 2008, the FASB issued FSP FAS 157-3,
Determining the Fair Value of
a Financial Asset When the Market for that Asset is not Active
,
which provides guidance on how to value financial assets subject to
inactive markets.
|
·
|
In
December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141 (revised 2007),
Business Combinations
(“SFAS 141R”), which replaces FASB Statement No. 141,
Business Combinations (as
amended)
. SFAS 141R retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. SFAS
141R also establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in
the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements which will enable users of the financial
statements to evaluate the nature and financial effects of the business
combination, measures contingent consideration at the acquisition-date
fair value and requires transaction costs to be recognized as expense in
the period in which they are
incurred.
|
·
|
In
December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160,
Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51
Consolidated Financial Statements (as amended)
(“SFAS 160”).
SFAS 160 requires that accounting and reporting for noncontrolling
(minority) interests will be recharacterized as noncontrolling interests
and classified as a component of equity. SFAS 160 also establishes
reporting requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS 160 applies to all
entities that prepare consolidated financial statements, except
not-for-profit organizations, but will affect only those entities that
have an outstanding noncontrolling interest in one or more subsidiaries or
that deconsolidate a subsidiary. This statement is effective as of
the beginning of an entity’s first fiscal year that begins after
December 15, 2008. All of our subsidiaries are wholly-owned by
us.
|
·
|
In
March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161,
Disclosures
about Derivative Instruments and Hedging Activities – an amendment to FASB
Statement No. 133
(“SFAS No. 161”)
.
SFAS No. 161 is
intended to improve financial standards for derivative instruments and
hedging activities by requiring enhanced disclosures to enable investors
to better understand their effects on an entity's financial position,
financial performance, and cash flows. Entities are required to provide
enhanced disclosures about: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations; and (c)
how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. It is effective
for financial statements issued for fiscal years beginning after November
15, 2008, with early adoption encouraged. We presently have no
derivative instruments or hedging
activities.
|
·
|
In
April 2008, FSB issued FASB Staff Position (“FSP”) FAS 142-3,
Determination of the Useful
Life of Intangible Assets
(“FSP 142-3”). FSP 142-3
amends the factors an entity should consider in developing renewal or
extension assumptions used in determining the useful life of recognized
intangible assets under FASB Statement No. 142,
Goodwill and Other Intangible
Assets
. This new guidance applies prospectively to
intangible assets that are acquired individually or with a group of other
assets in business combinations and asset
acquisitions.
|
·
|
In
May 2008, the FASB issued Statement of Financial Accounting Standards No.
162,
The Hierarchy of
Generally Accepted Accounting Principles
(“SFAS No. 162”).
SFAS No. 162 provides a consistent framework for determining what
accounting principles should be used when preparing US GAAP financial
statements. Previous guidance did not properly rank the accounting
literature. The new standard is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411,
The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles.
|
·
|
In
June 2008, the FASB issued FSP EITF 03-6-1,
Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities
, to clarify that all outstanding unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents, whether paid or unpaid, are participating securities. An
entity must include participating securities in its calculation of basic
and diluted earnings per share (“EPS”) pursuant to the two-class method,
as described in FASB Statement 128,
Earnings per Share.
FSP
EITF 03-6-1 is effective for fiscal years beginning after December 15,
2008. We intend to adopt FSP EITF 03-6-1 effective January 1, 2009 and
apply its provisions retrospectively to all prior-period EPS data
presented in our financial statements. We have periodically issued
share-based payment awards that contain nonforfeitable rights to dividends
and are in the process of evaluating the impact that the adoption of FSP
EITF 03-6-1 will have on our consolidated financial
statements.
|
No other
new accounting pronouncement issued or effective had, or is expected to have, a
material impact on our consolidated financial statements.
Item
2.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
GENERAL
The
following management's discussion and analysis describes the principal factors
affecting our results of operations, liquidity, and capital resources. This
discussion should be read in conjunction with the accompanying unaudited
consolidated condensed financial statements and our Annual Report on Form 10-K
for the year ended December 31, 2007, which include additional information about
our business, our significant accounting policies and other relevant information
that underlies our financial results. Without limiting the foregoing, the
“Overview” and “Critical Accounting Policies and Estimates” sections under Item
7, “Management's Discussion and Analysis of Financial Condition and Results of
Operations” of our last Annual Report on Form 10-K should be read in conjunction
with this Quarterly Report.
During
2006, the capacity of the trucking industry to haul freight expanded at the same
time that customer demand for such services decreased. One result of the
imbalance in supply and demand was industry-wide downward pressure on the rates
companies were able to charge for their transportation services. Most
participants in and observers of the trucking industry had revised their
forecasts of the equalization of supply and demand from 2007 to year-end
2008. Instead, the recent, rapidly escalating costs of fuel have
forced many truckers out of the market, and the equalization process has already
begun. Despite a fraying economy, this has provided us the
opportunity to pursue pricing improvements and some recouping of our costs to
refrigerate the cargo of our customers.
Because
we have a strong balance sheet with very little debt, we have been able to
weather the buffeting caused by the excess capacity and increasing fuel
costs. The attrition in capacity from the exit of weaker companies
has left us well positioned in the marketplace.
Our
internet address is www.ffex.net. All of our filings with the SEC are
available free of charge through our website as soon as reasonably practicable
after we file them.
RESULTS OF
OPERATIONS
Three and
Nine Months Ended September 30, 2008 and 2007
Revenue
:
Our revenue is derived from five types of transactions:
-
|
Truckload
|
-
|
Less-than-Truckload
(“LTL”)
|
-
|
Dedicated
Fleet
|
-
|
Brokerage
and Logistics
|
-
|
Equipment
Rental
|
Truckload
and LTL linehaul revenue are order-based and earned by transporting cargo for
our customers using tractors and trailers that we control by ownership,
long-term leases or by agreements with independent contractors (sometimes
referred to as “owner-operators”). Linehaul revenue also includes freight we
transport on railroad flatcars, also called "intermodal" freight. We
operate fleets that focus on refrigerated or “temperature-controlled” LTL, on
truckload temperature-controlled shipments and on truckload non-refrigerated, or
“dry”, shipments. Over 90% of our LTL linehaul shipments must be
temperature-controlled to prevent damage to the cargo, while about 10% are
typically dry commodities.
Our
dedicated fleet services consist of tractors and trailers that haul freight only
for specific customers. Dedicated fleet revenue is asset-based. Customers
typically are billed weekly for this type of service.
Our
brokerage, or logistics, service helps us to balance the level of demand in
our core trucking business. We assign shipments for which we have no
readily-available transportation assets to other unaffiliated motor carriers
through our brokerage service. We establish the price to be paid by the customer
and we invoice the customer. We also assume the credit risk associated with the
revenue. Our brokerage service also pays the other motor carrier and
earns a margin on the difference.
Revenue
from equipment rental primarily represents amounts we charge independent
contractors for the use of trucks that we own and lease to them.
The rates
we charge for our freight services include fuel surcharges. In periods when the
price we incur for diesel fuel is high, we increase our surcharges in an effort
to recover the increase from our customers. Using fuel surcharges to
offset rising fuel costs is an industry-wide practice.
The
following table summarizes and compares the significant components of revenue
and other information regarding our business for each of the three- and
nine-month periods ended September 30, 2008 and 2007:
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenue
from:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Temperature-controlled
fleet
|
|
$
|
37.7
|
|
|
$
|
34.5
|
|
|
$
|
108.9
|
|
|
$
|
103.2
|
|
Dry-freight
fleet
|
|
|
16.9
|
|
|
|
18.0
|
|
|
|
53.1
|
|
|
|
55.8
|
|
Total
truckload linehaul services
|
|
|
54.6
|
|
|
|
52.5
|
|
|
|
162.0
|
|
|
|
159.0
|
|
Dedicated
fleets
|
|
|
6.8
|
|
|
|
3.7
|
|
|
|
18.5
|
|
|
|
12.1
|
|
Total
truckload revenue
|
|
|
61.4
|
|
|
|
56.2
|
|
|
|
180.5
|
|
|
|
171.1
|
|
LTL
linehaul services
|
|
|
32.9
|
|
|
|
33.9
|
|
|
|
92.9
|
|
|
|
96.2
|
|
Total
linehaul and dedicated revenue
|
|
|
94.3
|
|
|
|
90.1
|
|
|
|
273.4
|
|
|
|
267.3
|
|
Fuel
surcharges
|
|
|
33.8
|
|
|
|
18.7
|
|
|
|
90.1
|
|
|
|
51.5
|
|
Brokerage
|
|
|
3.1
|
|
|
|
4.4
|
|
|
|
10.6
|
|
|
|
11.5
|
|
Equipment
rental
|
|
|
1.3
|
|
|
|
1.5
|
|
|
|
4.1
|
|
|
|
4.0
|
|
Total
revenue
|
|
|
132.5
|
|
|
|
114.7
|
|
|
|
378.2
|
|
|
|
334.3
|
|
Operating
expenses
(a)
|
|
|
128.9
|
|
|
|
116.0
|
|
|
|
376.3
|
|
|
|
339.4
|
|
Income
(loss) from operations
(a)
|
|
$
|
3.6
|
|
|
$
|
(1.3
|
)
|
|
$
|
1.9
|
|
|
$
|
(5.1
|
)
|
Operating
ratio
(b)
|
|
|
97.3
|
%
|
|
|
101.1
|
%
|
|
|
99.5
|
%
|
|
|
101.5
|
%
|
Weekly
average trucks in service
|
|
|
2,011
|
|
|
|
2,097
|
|
|
|
2,029
|
|
|
|
2,136
|
|
Revenue
per truck per week
(c)
|
|
$
|
3,568
|
|
|
$
|
3,269
|
|
|
$
|
3,442
|
|
|
$
|
3,209
|
|
Computational
notes:
|
(a)
|
Revenue
and expense amounts are stated in millions of dollars. The amounts
presented in the table may not agree to the amounts shown in the
accompanying consolidated condensed statements of profit and loss due to
rounding.
|
(b)
|
Operating
expenses divided by total revenue.
|
(c)
|
Average
weekly linehaul and dedicated revenue divided by weekly average trucks in
service.
|
The
following table summarizes and compares selected statistical data relating to
our freight operations for each of the three- and nine-month periods ended
September 30, 2008 and 2007:
|
|
|
Three
Months
|
|
|
|
Nine Months
|
|
Truckload
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2007
|
|
Total
linehaul miles
(a)
|
|
|
40.7
|
|
|
|
40.1
|
|
|
|
123.1
|
|
|
|
122.2
|
|
Loaded
miles
(a)
|
|
|
36.9
|
|
|
|
36.1
|
|
|
|
112.0
|
|
|
|
110.1
|
|
Empty
mile ratio
(b)
|
|
|
9.4
|
%
|
|
|
9.8
|
%
|
|
|
9.0
|
%
|
|
|
9.9
|
%
|
Linehaul
revenue per total mile
(c)
|
|
$
|
1.34
|
|
|
$
|
1.31
|
|
|
$
|
1.32
|
|
|
$
|
1.30
|
|
Linehaul
revenue per loaded mile
(d)
|
|
$
|
1.48
|
|
|
$
|
1.45
|
|
|
$
|
1.45
|
|
|
$
|
1.44
|
|
Linehaul
shipments
(e)
|
|
|
39.0
|
|
|
|
36.6
|
|
|
|
115.1
|
|
|
|
116.0
|
|
Loaded
miles per shipment
(f)
|
|
|
946
|
|
|
|
987
|
|
|
|
973
|
|
|
|
949
|
|
LTL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hundredweight
(e)
|
|
|
2,190
|
|
|
|
2,225
|
|
|
|
6,397
|
|
|
|
6,438
|
|
Shipments
(e)
|
|
|
71.9
|
|
|
|
72.9
|
|
|
|
205.4
|
|
|
|
208.1
|
|
Linehaul
revenue per hundredweight
(g)
|
|
$
|
15.04
|
|
|
$
|
15.24
|
|
|
$
|
14.53
|
|
|
$
|
14.95
|
|
Linehaul
revenue per shipment
(h)
|
|
$
|
458
|
|
|
$
|
466
|
|
|
$
|
453
|
|
|
$
|
462
|
|
Average
weight per shipment
(i)
|
|
|
3,046
|
|
|
|
3,054
|
|
|
|
3,115
|
|
|
|
3,093
|
|
Computational
notes:
|
(a)
|
In
millions.
|
(b)
|
Total
linehaul miles minus loaded miles, divided by total linehaul
miles.
|
(c)
|
Revenue
from linehaul services divided by total linehaul miles.
|
(d)
|
Revenue
from linehaul services divided by loaded miles.
|
(e)
|
In
thousands.
|
(f)
|
Total
loaded miles divided by number of linehaul shipments.
|
(g)
|
LTL
revenue divided by LTL hundredweight.
|
(h)
|
LTL
revenue divided by number of LTL shipments.
|
(i)
|
LTL
hundredweight times one hundred, divided by number of LTL
shipments.
|
For the three- and nine-month periods ended September 30, 2008, total revenue
was $132.5 million and $378.2 million, respectively, as compared to $114.7
million and $334.3 million during the comparable periods of 2007. Of
the $17.7 million (15.4%) increase for the quarter and the $43.9 million (13.1%)
increase for the nine months, increased fuel surcharges accounted for $15.1
million (80.7%) and $38.6 million (75%), respectively.
Much of
our focus for profit improvement revolves around yield (pricing) improvement
through a variety of initiatives. Our general rate increase (“GRI”) was
implemented on a broad base during the first week of June, and was phased in
during the third quarter of 2008. We expect to see the full impact of
the GRI in the fourth quarter of 2008 and beyond. In addition to the
GRI, we have an ongoing initiative to reduce the amount of spot pricing (our
so-called instant rates) and are converting to a more stable tariff-based
pricing. With new discipline in pricing we have seen a reduction in spot
pricing from approximately 30% of our LTL shipments to less than
10%. As a result, LTL yield has improved significantly and we believe
there is additional improvement to be realized. We have installed freight
costing software that helps us analyze our freight by lane, customer, terminal,
commodity, size, tariff, and so forth. With this costing model, we
are now gaining visibility to the validity of our existing pricing and have much
more insight into the profitability of new freight before we haul it. The
combination of these initiatives is intended to provide sustainable yield
improvement.
While
fuel surcharges can provide relief for loaded miles traveled, the recent spike
in fuel costs have highlighted the additional fuel costs incurred by
refrigerated carriers – the cost of refrigerating the customer’s
cargo. In June, we also implemented a Temperature Control Charge
(“TCC”). This charge applies to our refrigerated truckload business
and is aimed at offsetting rising fuel costs to keep commodities
temperature-controlled in trailers and in warehouses. Thus far, our
customers have recognized our need for this cost recovery. We have
implemented this charge on roughly 70% of our truckload revenue.
While the
cost of fuel has risen so dramatically that it improved our ability to sell the
need for a TCC, intense scrutiny has been placed on every other type of cost as
customers struggle with their budgets for transportation expenses. In the
process, we are keeping a careful eye on the fuel surcharge levels for each of
our major customers to ensure that we are adequately insulated from volatile
fuel prices.
Service
and capacity are the basic determinants of what our customers seek. Our
extensive service improvement programs have put us in a position to better
enable our customers to rely on our service performance. Our customers are
negotiating with us to gain commitment of our capacity to ensure that they are
not left short during the peak season. In return for that
committed capacity, we look for compensatory pricing and are working with our
customers to achieve mutually beneficial terms, with indications of rate
stability and improved pricing.
When
comparing the three- and nine-month periods ended September 30, 2008 to the same
periods of 2007, truckload revenue increased by $5.2 million (9.3%) and by
$9.4 million (5.5%), respectively. Truckload linehaul revenue per
loaded mile improved slightly from $1.45 to $1.48 when comparing the
quarters and from $1.44 to $1.45 when comparing the nine months. For
the quarter, the average truckload length of haul decreased to 946 miles
(4.2%) and our empty mile ratio improved from 9.8% to 9.4%. Year-to-date, the
truckload length of haul increased to 973 miles (2.6%) and the empty mile ratio
improved from 9.9% to 9.0%. The number of truckload linehaul
shipments we transported during the first three quarters of 2008 decreased 0.8%
to 115.1 thousand, compared to 116 thousand during the year-ago nine
months. For the quarter, the number of truckload linehaul shipments
increased 6.6% to 39 thousand, compared to 36.6 thousand for the same year-ago
quarter.
Truckload
linehaul revenue includes our intermodal operations. We have more than tripled
the number of intermodal loads, from about 4,200 to more than 13,300, comparing
the first three quarters of 2008 to the same period of 2007, and more than
doubled the number of loads when comparing the 3rd quarters. Intermodal service
entails transporting loaded trailers over long distances on railroad flat cars,
generally at a lower cost than using a tractor to transport the
trailer. Using a tractor, however, usually takes fewer days to
transport a load. With intermodal service, we offer our customers a
lower-cost alternative while moving the freight for a large portion of the
journey without the need to provide a driver, a tractor or fuel for the
tractor. Operations do require the deployment of such resources to
transport the trailer between the rail yard and the load’s origin and
destination. We continue to be successful in negotiating directly
with the railroads, avoiding the cost of third-party
brokers. This has improved our cost structure by 7.2% per load when
comparing the first three quarters of 2008 to the same period of
2007. We are currently moving approximately 450 loads per week via
rail. We feel our partnership with the railroads provide the perfect
balance between price and service, without the customer being forced to choose
one over the other.
Since
refrigerated truckload capacity has contracted and the demand versus capacity
equation is more balanced, our reliance on brokers has diminished and our
ability to grow the overall percentage of trucks operating within our preferred
network is providing better revenue opportunities for our truckload
fleets. We are only committing remaining fourth quarter capacity to our
truckload customers with a very careful pricing review to ensure our rates are
commensurate with market demand. The demand vs. capacity curve is not
nearly so robust on the dry van side of the truckload market, and we continue to
have to work harder to solidify rates and price increases in this area of our
service offerings.
LTL
linehaul revenue decreased by $1.0 million (2.9%) and $3.3 million (3.4%) during
the three- and nine-month periods ended September 30, 2008, respectively, as
compared to the same periods of 2007. For the quarter, the number of
LTL shipments we transported decreased by 1.3%, the average weight of
such shipments decreased by 0.3% and the average linehaul revenue per LTL
shipment declined by 1.6%. For the year, the number of LTL
shipments we transported decreased by 1.3%, the average weight of such
shipments increased by 0.7% and the average linehaul revenue per LTL shipment
declined by 2.1%. Softness in the LTL market contributed to a
drop in our revenue per hundredweight from $14.95 in the first three quarters of
2007 to $14.53 (2.8%) for the same period of 2008 and from $15.24 in the third
quarter of 2007 to $15.04 (1.4%) in the same period of
2008.
We have
implemented a variety of revenue-enhancing and cost-reducing initiatives since
the comparable quarter of last year, and we are seeing some positive
results. But, we are also closely measuring our progress on a
sequential, quarter-to-quarter basis. That enables us to monitor not
just where we stand compared to last year, but also allows us to see how we got
to be where we are now. LTL revenue per hundredweight
deteriorated from $14.42 in the first quarter of 2008 to $14.10 in the second
quarter. The third quarter of the year is often the strongest for our
LTL service. With the impact of our pricing initiatives and the
seasonal spike, we have improved that in the third quarter to $15.04, a 6.7 %
improvement over last quarter. During the third quarter of 2007, LTL
revenue per hundred weight was $15.24, so we are improving sequentially, but we
have not yet returned to our year-ago LTL yield. Concurrent with
anticipated growth in customer demand as we move through the year, we plan to
increase our LTL rates. In last year’s fourth quarter, LTL revenue
per hundredweight was $14.55.
LTL
demand is not quite as strong as truckload but is showing signs of stabilizing
as well. We are in the initial stages of implementation of new technology
(Cheetah) that will allow us to analyze and optimize our LTL network
planning. With the improved revenue yields and the improved
operational efficiencies, we expect continuing improvement in the profitability
of our LTL service offering.
Dedicated
fleet revenue, also included in our truckload linehaul revenue, improved by $3.1
million (84%) and $6.4 million (53%) for the three- and nine-month periods ended
September 30, 2008, respectively, as compared to the same periods of 2007.
In an effort to expand our dedicated fleet revenue, we have directed our
resources to specific goals that may generate more acceptable levels of
profitability. While excess capacity in the trucking industry has
restricted rates and yield in the marketplace, new dedicated fleet customers
were added in 2007 and early 2008, and existing customers expanded traffic lanes
for which they required dedicated services. We plan for continued growth
in this service offering.
Revenue
from our logistics service decreased by $1.3 million (29.5%) and by $900
thousand (7.8%) between the three- and nine-month periods ended September 30,
2008 and 2007, respectively. Logistics service enables us to accept
additional loads for which we have no asset-based capacity by engaging
unaffiliated trucking companies to haul the freight. We bill the customer and
pay the trucking company. During the latter half of 2006, we began to
refocus on our logistics service as a potential source of growth, but
logistics efforts continue to be difficult. In softened demand markets,
shippers have multiple options in gaining capacity and don’t rely as heavily on
logistics companies and brokers to find capacity for them. However, as
demand strengthens in refrigerated markets, we believe that opportunities for
logistics will improve. Nonetheless, narrow margins are inherent to this type of
business, and start-up costs are associated with its expansion. We have decided
to continue our previously described delay in additional expansion and continue
to focus on building density in the existing service centers. We have new
management responsible for the profitability of our logistics service
offering. Their focus is on the improvement of gross margins (revenue
less the cost of the third-party carrier) and the reduction of operating
expenses. They have reduced the headcount and the cost of remote
locations. We remain optimistic about this service and will assess
the overall situation by year-end. We may resume expansion strategies
at that time, particularly if there are signs of a rebounding
economy.
Revenue
from fuel surcharges is reported as revenue under US GAAP but is essentially a
means to recover some of the costs of fuel which are above certain base levels
established years ago. Fuel surcharge revenue is volatile because
fuel costs are volatile. Our revenue from fuel surcharges increased
by $15.1 million (81%) and $38.6 million (75%) for the three- and nine-month
periods ended September 30, 2008, respectively, as compared to the same periods
of 2007. This is not considered to be a service offering but is an
area where we strive to maximize our ability to recover our costs of
fuel.
Operating
Expenses:
The following table summarizes and compares, as a percentage of
revenue, certain major operating expenses for each of the three- and nine-month
periods ended September 30, 2008 and 2007:
|
|
Three
Months
|
|
|
Nine
Months
|
|
Operating
Expenses Incurred for
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Salaries,
wages and related expenses
|
|
|
25.4
|
%
|
|
|
27.8
|
%
|
|
|
25.5
|
%
|
|
|
29.0
|
%
|
Purchased
transportation
|
|
|
22.3
|
|
|
|
26.9
|
|
|
|
24.6
|
|
|
|
24.9
|
|
Fuel
|
|
|
24.3
|
|
|
|
18.9
|
|
|
|
23.5
|
|
|
|
18.4
|
|
Supplies
and expenses
|
|
|
10.6
|
|
|
|
12.1
|
|
|
|
10.5
|
|
|
|
12.2
|
|
Revenue
equipment rent and depreciation
|
|
|
10.3
|
|
|
|
10.7
|
|
|
|
10.6
|
|
|
|
11.2
|
|
Claims
and insurance
|
|
|
2.1
|
|
|
|
2.7
|
|
|
|
2.4
|
|
|
|
3.7
|
|
Other
|
|
|
2.3
|
|
|
|
2.0
|
|
|
|
2.4
|
|
|
|
2.1
|
|
Total
operating expenses
|
|
|
97.3
|
%
|
|
|
101.1
|
%
|
|
|
99.5
|
%
|
|
|
101.5
|
%
|
Salaries, Wages
and Related Expenses:
Salaries, wages and related expenses increased by
$1.8 million (5.6%) and decreased by $577 thousand (0.6%) during the three- and
nine-month periods ended September 30, 2008, respectively, as compared to the
same periods of 2007. The following table summarizes and compares the major
components of these expenses for each of the three- and nine-month periods (in
millions):
|
|
Three
Months
|
|
|
Nine
Months
|
|
Amount
of Salaries, Wages and Related Expenses Incurred for
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Employee-driver
wages and per-diem expenses
|
|
$
|
19.5
|
|
|
$
|
17.7
|
|
|
$
|
55.4
|
|
|
$
|
54.4
|
|
Non-driver
salaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor-carrier
operations
|
|
|
9.6
|
|
|
|
8.3
|
|
|
|
27.3
|
|
|
|
27.2
|
|
Logistics
and brokerage
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
1.7
|
|
|
|
0.8
|
|
Severance
pay
|
|
|
--
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
1.0
|
|
Payroll
taxes
|
|
|
2.1
|
|
|
|
1.9
|
|
|
|
6.3
|
|
|
|
6.3
|
|
Work-related
injuries
|
|
|
0.9
|
|
|
|
1.3
|
|
|
|
2.6
|
|
|
|
3.1
|
|
Health
insurance and other
|
|
|
1.1
|
|
|
|
2.2
|
|
|
|
3.0
|
|
|
|
4.3
|
|
|
|
$
|
33.7
|
|
|
$
|
31.9
|
|
|
$
|
96.5
|
|
|
$
|
97.1
|
|
Employee-driver
wages and per diem expenses rose by $1.8 million (10.2%) and by $1.0
million (1.8%) when comparing the three- and nine-month periods ended September
30, 2008, respectively, to the same periods of 2007. Employee-drivers are
typically paid on a per-mile basis, except in our dedicated fleets where wages
are typically paid by the day.
Employee-driver turnover has deteriorated when
comparing turnover rates of 98% to 93% for the rolling twelve-month periods
ended September 30, 2008 and 2007, respectively. In the trucking industry,
driver turnover has often exceeded 125% over the years, as the industry has
competed with construction and other trades for labor. Since 2006, we have taken
certain steps to address this problem, such as the centralization of our
truckload operations and improvements in communications between drivers and
their fleet managers, with generally favorable results.
During 2007, our employee-driver turnover rate was
approximately 90%, resulting from a number of factors. If we can
retain a driver through the fairly difficult first six- to twelve-month period,
we usually have the opportunity to retain that driver for the long-term.
For example, the average tenure for all of our drivers at the end of 2007 was
3.4 years, but for trainees, the average tenure was 2.5 months. Among
drivers who have been with us for at least one year, the average tenure was 5.6
years.
When comparing the three- and nine-month periods ended
September 30, 2008 and 2007, non-driver salaries increased by $1.3 million
(14.8%) and by $200 thousand (0.7%), respectively. The total
non-driver salaries and related expenses in our motor-carrier operations include
non-cash deferred compensation expenses associated with restricted stock awards
and other stock-based compensation. The expenses of such deferred
compensation are reduced when our stock price drops, and were a credit to
expense of $63 thousand and $524 thousand during the third quarters of 2008 and
2007, respectively, thus representing an increase in expense of $461 thousand
when comparing the two quarters. Such deferred compensation expense was
$141 thousand and $36 thousand for the nine months ended September 30, 2008 and
2007, respectively. Excluding the cost of deferred compensation,
non-driver salaries in our motor-carrier operations increased by $900 thousand
for the quarter and by $100 thousand year-to-date, when comparing the comparable
periods of 2008 and 2007. Non-driver salaries for the third quarter
of 2008 include an accrual for management bonuses that were absent from last
year’s results. Our bonuses are based on our annual profitability and
we did not earn bonuses last year due to our poor results during
2007.
Costs associated with work-related injuries decreased
by $400 thousand (30.8%) and by $500 thousand (16.1%) when comparing the three-
and nine-month periods ended September 30, 2008, respectively, to the same
periods of 2007. Such expenses principally relate to injuries
sustained by employees during the course of their employment. Large fluctuations
can be caused by the occurrence of just one serious injury in a quarter compared
to a quarter with lesser experience in the frequency or the severity of
such injuries or the settlement of claims for an amount other than previously
estimated.
We are self-insured for health care with insurance
stop-loss coverage for catastrophic situations, and we share the cost of health
care coverage with our employees. For the past several years, the
medical and health insurance markets have experienced double-digit percentage
increases. In response to the market, we have repeatedly increased both the
amounts employees pay to participate and the share of medical costs that
participating employees must pay. Aggressive program management and
increased employee cost-sharing have helped to lower our costs by $1.1 million
(50%) and by $1.3 million (30%) for the three- and nine-month periods ended
September 30, 2008, respectively, as compared to the same periods a year
ago.
We also address rising medical costs through programs
targeting particular issues. For example, during 2007, we implemented
an employee wellness program that we expect will have a positive impact on our
health insurance costs in the future. We have offered weekly
nutrition classes, and many employees have participated in weight loss
contests. During 2008, we added incentives to employees to improve
their overall health, with potential emphasis on one, or a combination, of
nutrition, weight loss, tobacco avoidance and an active lifestyle. We
anticipate the rewards to employees participating in such wellness incentive
programs will include improved health for the employees and lower claims
experience and costs for both the company and the participants.
Purchased
Transportation:
Purchased transportation expense for linehaul
service primarily represents payments to owner-operators for our use of their
vehicles to transport linehaul shipments and payments to railroads for the
transportation of our intermodal loads. This expense decreased by
$1.3 million (4.2%) and increased by $9.9 million (11.9%) during the three- and
nine-month periods ended September 30, 2008, respectively, as compared to the
same periods of 2007. The following table summarizes and compares the major
components of our purchased transportation expense for each of those periods by
type of service (in millions):
|
|
Three
Months
|
|
|
Nine
Months
|
|
Amount
of Purchased Transportation Expense Incurred for
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Truckload
linehaul service
|
|
$
|
6.2
|
|
|
$
|
10.6
|
|
|
$
|
22.3
|
|
|
$
|
30.3
|
|
LTL
linehaul service
|
|
|
8.2
|
|
|
|
9.0
|
|
|
|
24.5
|
|
|
|
25.6
|
|
Intermodal
|
|
|
5.8
|
|
|
|
2.9
|
|
|
|
15.7
|
|
|
|
5.3
|
|
Total
linehaul service
|
|
|
20.2
|
|
|
|
22.5
|
|
|
|
62.5
|
|
|
|
61.2
|
|
Fuel
surcharges
|
|
|
6.7
|
|
|
|
4.6
|
|
|
|
21.7
|
|
|
|
12.5
|
|
Brokerage
and other
|
|
|
2.6
|
|
|
|
3.7
|
|
|
|
8.9
|
|
|
|
9.5
|
|
|
|
$
|
29.5
|
|
|
$
|
30.8
|
|
|
$
|
93.1
|
|
|
$
|
83.2
|
|
Outlays
to owner-operators in our truckload and LTL operations declined by $5.2 million
(26.5%) and by $9.1 million (16.3%) during the three- and nine-month periods
ended September 30, 2008, respectively, as compared to the same periods of
2007. Both were in line with the reduction in the size of our
owner-operator fleet between the periods.
Intermodal
purchased transportation expense increased from $5.3 million to $15.7 million
when comparing the year-to-date results of 2008 to the same period of 2007, and
the number of loads transported more than tripled. During the third quarter of
2008, such expenses were $5.8 million, an increase of 100% over the same quarter
of 2007. We will continue to expand our intermodal offerings, which
enable us to move our customers’ freight at a lower cost to them without the
need to use a tractor or driver to provide much of the linehaul
service.
Owner-operators
are responsible for all expenses associated with the operation of their
tractors, including labor, maintenance and fuel. When retail fuel prices rise,
we charge our customers incremental fuel surcharges to offset such higher costs,
pursuant to the contracts and tariffs by which our freight rates are determined.
In most cases, those surcharges automatically fluctuate as diesel fuel prices
rise and fall. To the extent that shipments are transported by owner-operators,
we pass the amount of these fuel surcharges through to the owner-operators in
order to defray their incremental fuel expense.
Purchased
transportation expenses associated with our logistics and other services
decreased by $1.1 million (29.7%) and by $600 thousand (6.3%) for the three- and
nine-month periods ended September 30, 2008, respectively, as compared to the
same periods of 2007. Such purchased transportation expense is highly correlated
to freight brokerage and logistics revenue, which decreased by 29.5% and by 7.8%
when making the same comparisons.
Recent
high operating expenses in the trucking industry, particularly for maintenance
and fuel, have contributed to a long-term trend of declining numbers of
independent contractors providing equipment to the industry. Our ability to
mitigate this industry-wide trend by expanding our company-operated fleets has
been constrained by a lack of employee-drivers qualified to operate the
equipment.
As the
economy weakened during 2008, carriers without strong balance sheets, good cash
flow and financial backing have exited the market. This has made
attracting employee-drivers easier, but owner-operators have left in
disproportionate numbers and have either left the industry or have returned to a
company truck, exchanging their independence for a steady paycheck.
Because of the current global economic malaise, and the consequent impacts on so
many industries, we anticipate that we will be better able to retain
employee-drivers, but when we see an economic recovery and demand strengthens,
the driver shortage will manifest itself again.
We have
made a concerted effort to improve our contractor relations and retention,
including a proactive focus on the speed and accuracy of their payments, as well
as improved communications with them.
Fuel:
Fuel
expense increased by $10.4 million (48.2%) and by $27.3 million (44.4%)
during the three- and nine-month periods ended September 30, 2008, respectively,
as compared to the same periods of 2007, and increased as a percentage of
revenue from 24.1% to 34.0% for the third quarter and from 23.0% to 32.4% for
the year-to-date performance in 2007 and 2008, respectively. The following table
summarizes and compares the relationship between fuel expense and total linehaul
and dedicated fleet revenue during each of the three- and nine-month periods
ended September 30, 2008 and 2007 (in millions):
|
Three
Months
|
|
Nine Months
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Total
linehaul and dedicated fleet revenue
|
|
$
|
94.3
|
|
|
$
|
90.1
|
|
|
$
|
273.4
|
|
|
$
|
267.3
|
|
Fuel
expense
|
|
$
|
32.1
|
|
|
$
|
21.7
|
|
|
$
|
88.7
|
|
|
$
|
61.4
|
|
Fuel
expense as a percent of total linehaul and dedicated fleet
revenue
|
|
|
34.0
|
%
|
|
|
24.1
|
%
|
|
|
32.4
|
%
|
|
|
23.0
|
%
|
Our fuel
expense is impacted by the mix of freight transported using company-provided
versus owner-operator provided tractors. As more of our freight
volume is moved by company equipment, the related cost of fuel moves from
purchased transportation expense to fuel expense.
The cost
of fuel has changed dramatically over the past year. Our average cost
per gallon of fuel was $4.00 during the third quarter of 2008, as compared to
$2.78 for the same period of 2007, an increase of 44%. The monetary
increases in fuel expense during 2007 and 2008 are primarily due to the
increased per-gallon cost. Fuel surcharges do not fully compensate us
or our independent contractors for increased fuel costs. Accordingly, fuel price
volatility impacts profitability.
During
the third quarter of 2008, our average fuel cost per total mile increased 38% to
$0.76 from $0.55 during the comparable period of 2007. During the
third quarter of 2008, our effective fuel expense per truckload loaded mile (net
of fuel surcharges) declined to $0.23 from $0.24 during the comparable 2007
quarter. When looking at the average for the entire year (2008) to
date, fuel expense per loaded mile declined by 5 cents, compared to the 2007
year-to-date numbers. Several factors contributed to the declines in
our net fuel cost per loaded mile, such as managing idle time, length of haul
and the magnitude of empty miles.
We have
in place a number of strategies that mitigate, but do not eliminate, the impact
of such volatility. Pursuant to the contracts and tariffs by which our freight
rates are determined, most of those rates automatically fluctuate as diesel fuel
prices rise and fall.
With
regard to fuel expenses for company-operated equipment, we attempt to further
mitigate the impact of fluctuating fuel costs by operating more fuel-efficient
tractors and aggressively managing fuel purchasing. We announced in
May that we would reduce the maximum speed of our company-operated truck fleet
from 65 to 62 miles per hour in an effort to reduce fuel consumption and enhance
the safety of our operations. As of the end of the third quarter of
2008, roughly 95% of our company-operated trucks had been set to the new maximum
speed. For each mph reduction in speed, we expect to see 1/10th of a
mile increase in each truck’s average miles per gallon. This change
could save as much as 1,000 gallons per tractor per year. We use
computer software to optimize our routing and our fuel purchasing which enables
us to select the most efficient route for a trip. It also assists us in
deciding, on a real-time basis, how much fuel to buy at a particular fueling
station.
Most of
our company-operated tractors are equipped with opti-idle devices that stop and
start the engine in order to keep the cab between 69 degrees in the winter and
73 degrees in the summer while the driver is off-duty. By not running
the engine continuously while the driver is resting, this further reduces our
fuel expense. We also have Auxiliary Power Units (“APUs”) and
sleeper-comfort systems such as the Blue-Cool Truck System installed in some
tractors. APU’s and Blue-Cool devices are more expensive to buy, but
use less fuel, than opti-idle technology. We will continue our evaluation
process related to maintenance expenses, durability and service networks
across the country. We will also review and test appropriate new
products that emerge in the rapidly changing idle-management systems
market.
Factors
that might prevent us from fully recovering fuel cost increases include the
competitive environment, presence of deadhead (empty) 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
revenue to which a fuel surcharge may be applied. Also, our fuel surcharges are
computed by reference to federal government indices that are released weekly for
the prior week. When prices are rising, the price we incur in a given week is
more than the price the government reports for the preceding week. Accordingly,
we are unable to recover the excess of the current week's actual price to the
preceding week's indexed price. On the other hand, when prices are
falling, as they began to do at the end of the third quarter, the lagging index
becomes the medium by which we are able to recoup at least some of the
unrecovered costs created when prices were rising.
Supplies and
Expenses
: Supplies and expenses increased by $136 thousand
(1.0%) and decreased by $1.1 million (2.6%) during the three- and nine-month
periods ended September 30, 2008, respectively, as compared to the same
periods of 2007. The following table summarizes and compares the major
components of supplies and expenses for each of the three- and nine
month-periods (in millions):
|
|
Three
Months
|
|
|
Nine
Months
|
|
Amount
of Supplies and Expenses Incurred for
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Fleet
repairs and maintenance
|
|
$
|
4.2
|
|
|
$
|
3.9
|
|
|
$
|
12.3
|
|
|
$
|
11.8
|
|
Freight
handling
|
|
|
2.7
|
|
|
|
3.3
|
|
|
|
8.3
|
|
|
|
9.0
|
|
Driver
travel expenses
|
|
|
0.9
|
|
|
|
0.8
|
|
|
|
2.5
|
|
|
|
2.1
|
|
Tires
|
|
|
1.4
|
|
|
|
0.9
|
|
|
|
4.0
|
|
|
|
3.7
|
|
Terminal
and warehouse expenses
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
4.6
|
|
|
|
4.6
|
|
Driver
recruiting
|
|
|
1.0
|
|
|
|
1.4
|
|
|
|
2.7
|
|
|
|
4.2
|
|
Other
|
|
|
2.3
|
|
|
|
2.0
|
|
|
|
5.5
|
|
|
|
5.5
|
|
|
|
$
|
14.1
|
|
|
$
|
13.9
|
|
|
$
|
39.9
|
|
|
$
|
40.9
|
|
Fleet
repairs and maintenance were up $300 thousand for the quarter and by $500
thousand year-to-date, comparing 2008 to 2007. Most of the increase
was due to the increased size of our trailer fleet to accommodate our intermodal
operations. In addition, approximately half of the fleet is nearing
the end of its useful life and will be replaced within the next thirteen
months. Older equipment requires additional maintenance.
Driver
recruiting expenses were down $400 thousand for the quarter and by $1.5 million
year-to-date, comparing 2008 to 2007. The lack of availability of qualified
truck drivers has been a challenge for our industry for many years, and trucking
companies usually recruit drivers from other trucking companies. The trucking
industry also competes with other trades, such as construction, agriculture and
manufacturing, for skilled labor. Inexperienced employee-driver candidates must
be properly trained before qualifying to be “solo” drivers, and when we recruit
such candidates, we often provide training through an unaffiliated truck-driving
school.
As
qualified drivers have become harder to find, we have continued to advertise and
solicit for employee-drivers and independent contractors. Improved retention of
our drivers and contractors is required in order to minimize costs associated
with driver and contractor turnover.
During
2007, we made significant progress in the retention of our independent
contractors through the development and implementation of a mileage-based
agreement, because we can pay more quickly and accurately than with our previous
revenue-sharing agreement. However, we continue to experience
attrition in our owner-operator fleets because owner-operators frequently do not
have the financial wherewithal to endure soft markets and steeply rising fuel
costs. From the third quarter of 2007 to the second quarter of 2008,
our average fuel price rose from $2.78 per gallon to $4.19 per
gallon. It dropped only slightly to an average of $4.00 in the third
quarter of 2008. Despite the recent drops, it is too little, too
late, for the financially weak – and that includes many independent
contractors. We will continue to explore and implement other
strategies in an effort to retain as many of our key business partners as is
feasible.
Claims and
Insurance:
Claims and insurance expense decreased by $392 thousand
(12.5%) and $3.2 million (26.3%) for the three- and nine-month periods ended
September 30, 2008, respectively, as compared to the same periods of 2007. The
following table summarizes and compares the major components of claims and
insurance expense for each of the three- and nine-month periods (in
millions):
|
|
Three
Months
|
|
|
Nine
Months
|
|
Claims
and Insurance Expense Incurred for
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Liability
|
|
$
|
2.1
|
|
|
$
|
1.3
|
|
|
$
|
6.7
|
|
|
$
|
7.5
|
|
Cargo
|
|
|
0.5
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
2.3
|
|
Physical
damage, property and other
|
|
|
0.1
|
|
|
|
0.9
|
|
|
|
1.4
|
|
|
|
2.4
|
|
|
|
$
|
2.7
|
|
|
$
|
3.1
|
|
|
$
|
9.0
|
|
|
$
|
12.2
|
|
The
changes in the amounts of liability and physical damage expense we incurred
between 2008 and 2007 resulted from differences in the number and severity of
incidents that occurred between the periods involved, and from changes to the
costs we estimated for incidents incurred in prior periods.
Claims
and insurance expense can vary significantly from year to year and from quarter
to quarter. When an incident occurs, we reserve for the estimated outcome based
on all information known at the time. We have accrued our estimated costs
related to all open claims, including claims incurred but not reported. There
can be no assurance they will be settled without a material adverse effect on
our financial position or our results of operations. As additional information
becomes available, adjustments may be necessary.
Under our current policies for liability incidents, we retain all
of the risk for losses up to $4 million for each occurrence. Losses between $4
million and $10 million are shared 25% by us and 75% by the
insurers. We are fully insured for losses for each occurrence between
$10 million and $50 million. Our existing policies for liability insurance
extend through June 1, 2009. We are monitoring closely the potential
impacts on insurance premiums and coverages created by the current national
economic situation.
During
2007, we improved our manner of accounting for cargo claims by establishing
procedures to ensure that losses are identified timely and communicated to
management. Based on that and historical trends, we are better able to estimate
the outcomes of known losses and also estimate our losses for events that have
been incurred but not reported. In 2008, we are continuing to
evaluate and improve our procedures for accounting for cargo claims, and have
revised our estimate of the aggregate amount of open claims which will
ultimately be paid.
Accrued
claims on our balance sheets include reserves for over-the-road accidents,
work-related injuries, self-insured employee medical expenses and cargo losses.
As of September 30, 2008, the aggregate amount of reserves for such claims was
$15.8 million, compared to $21.7 million at December 31, 2007. The
primary reason for the decrease was due to the payment of a few large, older
claims. Employee-related insurance costs such as medical expenses and
work-related injuries are included in salaries, wages and related expenses in
our consolidated condensed statements of profit and loss, while expenses for
cargo losses and auto liability are included in claims and insurance
expense.
Gains
on Sale of Operating Assets:
Such gains were $1.1 million
during the first nine months of 2008, as compared to $2.3 million during
the same period of 2007. The periodic amount of such gains depends
primarily upon conditions in the market for previously-owned equipment and on
the quantity of retired equipment sold.
Operating Income
or Loss:
For the three-month period ended September 30, 2008,
our income from operations was $3.6 million compared to an operating loss of
$1.3 million during the comparable period of 2007. For the nine-month
period ended September 30, 2008, our operating income was $1.9 million as
compared to an operating loss of $5.1 million during the same year-to-date
period of 2007.
Non-Operating
Income and Expense:
Equity in earnings of limited partnerships
for 2008 and 2007 was earned from an investment for which we account using the
equity method.
We began
2007 with $9.6 million in cash compared to $2.5 million at the beginning of
2008. As of September 30, 2007 and 2008, our cash was $8.7 million and $2.2
million, respectively. Because we invest our cash balances, and we had
less cash to invest during 2008 compared to 2007, our interest income for the
nine months ended September 30, 2008 was $505 thousand less than the comparable
period of last year.
When we
sell assets such as tractors and trailers that we owned and used in our
operations, any gain or loss from the sale is a component of our income or loss
from operations. When we sell assets such as real estate that were
not used in our operations, any gain or loss is a component of non-operating
income or expense. During June 2008, we sold real estate that we had
been leasing to a business we sold during 2001. That sale generated a
gain of nearly $600 thousand and is the primary contributor to our 2008
year-to-date non-operating income.
Pre-Tax and Net
Income or Loss
:
For the nine-month period ended September 30, 2008, our pre-tax
income was $2.4 million compared to a pre-tax loss of $4.7 million during the
comparable period of 2007. For the three-month period ended September 30,
2008, our pre-tax income was $3.5 million as compared to a pre-tax loss of $1.0
million during the same period of 2007.
Our
effective tax rate (income tax expense or benefit divided by pre-tax income or
loss) for the third quarter of 2008 was 67%, 32 percentage points higher
than the 35% statutory federal rate, as a result of non-deductible expenses and
state income taxes.
For
interim periods, US GAAP requires that we estimate our expected tax rate for the
year and use that rate throughout all quarters. The amount of our income
tax benefit or expense and the effective tax rate may vary considerably based on
the level of non-deductible expenses relative to our pre-tax income or
loss. It is possible our actual results for the year will differ from our
current projections. If so, our effective tax rate for the year at
that time will be different than currently expected.
For the
three- and nine-month periods ended September 30, 2008, our net income was $1.4
million and $806 thousand, respectively, as compared to net losses of $3.2
million and $4.1 million for the comparable periods of 2007.
LIQUIDITY AND CAPITAL
RESOURCES
Debt and Working
Capital
: Cash from our revenue is typically collected between
20 and 50 days after the service has been provided. We continually seek to
accelerate our collection of accounts receivable to enhance our liquidity and
minimize our debt. Our freight business is highly dependent on the use of fuel,
labor, operating supplies and equipment provided by owner-operators. We are
typically obligated to pay for these resources within five to fifteen days after
we use them, so our payment cycle is a significantly shorter interval
compared to our collection cycle. This disparity between cash payments to
our suppliers and cash receipts from our customers can create the need for
borrowed funds to finance our working capital, especially during the peak time
of our fiscal year.
Due to
record high fuel prices, the amount we spent on fuel during the first nine
months of 2008 was considerably more than before. We are required to
pay fuel vendors quickly, usually between five and ten days of the
purchase. Because our customers do not pay us the related fuel
surcharge revenue until a few weeks later, the amount of working capital needed
to fund our accounts receivable has risen.
As of
September 30, 2008, our working capital (current assets minus current
liabilities) was $40.0 million, as compared to $32.3 million as of December 31,
2007. Accounts receivable increased by $10.3 million (19.5%) at September
30, 2008 as compared to December 31, 2007. Conversely, working
capital associated with federal and state income taxes decreased by $3.5
million, largely reflecting a refund received from the IRS earlier in the
year.
Our
primary needs for capital resources are to finance working capital, expenditures
for property and equipment and, from time to time, acquisitions. Working capital
investment typically increases during periods of sales expansion when higher
levels of receivables occur.
We had
$5.8 million in long-term debt as of September 30, 2008. After
commitments for various letters of credit primarily related to our insurance
programs, the available portion of our $50 million revolving credit facility
was approximately $39 million. The credit agreement expires in 2010. As of
September 30, 2008, we were in compliance with all of our restrictive covenants
and we project that our compliance will remain intact through 2008. Our credit
agreement restricts our ability to pay cash dividends in excess of each
quarters’ net income. Since 2006, we have been paying quarterly cash
dividends of three cents per share, currently about $500 thousand per
quarter. We reported net losses in 2007 and early 2008 and were
required to obtain consents from our banks for dividend payments, but the net
income we earned during the third quarter of 2008 was sufficient for a
three-cent dividend without requesting additional bank approval. Because
of our improving results, we project that our net income will remain at a level
sufficient to continue paying a three-cent quarterly
dividend.
We
believe the funds available to us from our working capital, future operating
cash flows and our credit and leasing facilities will be sufficient to finance
our operations during the next twelve months.
Cash
Flows
: During the nine-month period ended September 30, 2008, cash
provided by operating activities was $3.0 million as compared to $8.9
million cash provided by operating activities during the same period of
2007. Operating cash flows were negatively impacted during the first nine
months of 2008 as compared to the same period of 2007 by, among other things,
changes in other current assets, accounts payable, accounts receivable and
accrued liabilities. In particular, accounts receivable were up $10.3
million during 2008, largely as the result of increased fuel surcharges billed
to our customers. Because the fuel is paid to our vendors well within
a week and the corresponding fuel surcharge is not collected from our customers
for thirty to forty five days, the increased fuel costs temporarily consume a
great deal of cash.
During
2007, we received a $5.8 million income tax refund for the overpayment of
estimated taxes during the first half of 2006. This compares to $3.7
million in state and federal income tax refunds for 2007 received in the
first nine months of 2008.
The total
of depreciation and amortization expenses during the nine-month periods ended
September 30, 2008 and 2007 were $17.6 million and $18.2 million,
respectively.
Cash
flows from investing activities changed from $656 thousand in cash used in the
first nine months of 2007 to $7.8 million in cash used during the comparable
period of 2008. Increased expenditures for property and equipment net of
proceeds from the sale of retired assets accounted for the majority of the
change.
In 2007,
we collected nearly $3.0 million in cash for equipment sold in 2006,
compared to $600 thousand collected in the first nine months of 2008 for
equipment sold in 2007.
During
the first nine months of 2008, financing activities provided $4.6 million. For
the same period of last year, we used cash of $9.2 million for financing
activities. In the first nine months of 2008, we purchased 34 thousand
shares of our common stock. During the same nine-month period of
2007, we purchased 840 thousand shares of our common stock. Other
significant changes in cash flows involving financing activities included net
borrowings of $5.8 million during the first nine months of 2008 compared to
net payments of $4.9 million during the same period of 2007.
CONTRACTUAL
OBLIGATIONS
As of
September 30, 2008, we had $5.8 million in outstanding debt and we had issued
letters of credit for insurance purposes in the amount of $5.6 million. The
table below sets forth information as to the amounts of our obligations and
commitments as well as the year in which they will become due (in
millions):
Payments
Due by Year
|
|
Total
|
|
|
2008
|
(1)
|
|
|
2009-2010
|
|
|
|
2011-2012
|
|
|
After
2012
|
|
Long-term
debt and letters of credit
|
|
$
|
11.4
|
|
|
$
|
--
|
|
|
$
|
11.4
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Purchase
obligations
|
|
|
26.2
|
|
|
|
26.2
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Operating
leases for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentals
|
|
|
85.3
|
|
|
|
8.7
|
|
|
|
49.8
|
|
|
|
19.0
|
|
|
|
7.8
|
|
Residual
guarantees
|
|
|
5.2
|
|
|
|
0.5
|
|
|
|
2.6
|
|
|
|
2.1
|
|
|
|
--
|
|
Total
|
|
$
|
128.1
|
|
|
$
|
35.4
|
|
|
$
|
63.8
|
|
|
$
|
21.1
|
|
|
$
|
7.8
|
|
(1)
|
Represents
amounts due between October 1, 2008 and December 31,
2008.
|
As of September 30, 2008, we had
non-cancellable contracts to purchase tractors and trailers totaling $26.2
million during 2008. We expect to lease many of these assets when
they are placed into service.
We lease
equipment and real estate. Facility and trailer leases do not contain guaranteed
residual values in favor of the lessors. A minority of the tractors are leased
pursuant to agreements under which we have partially guaranteed the assets’
end-of-lease-term residual value. The portions of the residuals we have
guaranteed vary from lessor to lessor. Gross residuals are about 40% of the
leased asset's historical cost, of which we have guaranteed the first 25% to
30%. The lessors remain at risk for up to 13% of the remainder of such leased
asset's historical cost. Because our lease payments and residual guarantees do
not exceed 90% of the tractor's cost, the leases are accounted for as operating
leases and rentals are recorded as rent expense over the terms of the
leases.
To offset
our lease residual guarantees, when our tractors were originally leased, the
tractor manufacturer conditionally agreed to repurchase the tractors at the end
of the terms of the leases. Factors which may limit our ability to recover the
amount of the residual guarantee from the manufacturer include specifications as
to the physical condition of each tractor, their mechanical performance, each
vehicle's accumulated mileage, and whether or not we order replacement and
additional vehicles from the same manufacturer. The price to be paid by the
manufacturer is generally equal to the full amount of the lessor's residual. In
addition to residual values, our tractor leases contain fair value purchase
options. Our agreement with the tractor manufacturer enables, but does not
require, us to sell the tractors back to the manufacturer at a future date,
should we own them at such time, at a predetermined price. In order to avoid the
administrative efforts necessary to return leased tractors to the lessor, we
typically purchase such tractors from the lessor by paying the residual value
and then sell the tractors to the manufacturer. There is no material gain or
loss on these transactions because the residual value we pay to the lessor is
generally equal to the manufacturer's purchase price.
At
September 30, 2008, the amount of our obligations to lessors for residual
guarantees did not exceed the amount we expect to recover from the
manufacturer.
NEW ACCOUNTING
PRONOUNCEMENTS
Beginning
January 2008, we adopted two new accounting
pronouncements:
·
|
Statement
of Financial Accounting Standards No. 157,
Fair Value Measurements
(“SFAS 157”). This statement establishes a framework for
measuring fair value in US GAAP and expands disclosures about fair value
measurements. In February 2008, the FASB issued FASB Staff Position
("FSP") FAS 157-2,
Effective Date of FASB
Statement No. 157
, to provide a one-year deferral of the effective
date of SFAS 157 for nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed in financial statements at
fair value on a recurring basis (that is, at least annually). For
nonfinancial assets and nonfinancial liabilities subject to the deferral,
the effective date of SFAS 157 is postponed to fiscal years beginning
after November 15, 2008. The adoption of this statement did not have
a significant effect on our consolidated financial
statements.
|
·
|
Statement
of Financial Accounting Standards No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities, including an
amendment of FASB Statement No. 115
(“SFAS 159”).
SFAS 159 provides companies with an option to report selected financial
assets and financial liabilities at fair value, which can be elected on an
instrument-by-instrument basis. Unrealized gains and losses on items for
which the fair value option has been elected are reported in earnings at
each subsequent reporting date. The adoption of this statement did not
have a significant effect on our consolidated financial
statements.
|
In
addition, there are new accounting pronouncements that we will be required to
adopt in 2009. Based on our current understanding, we do not expect
that adoption of any of these pronouncements will have an immediate or material
effect on our consolidated financial statements.
·
|
On
October 10, 2008, the FASB issued FSP FAS 157-3,
Determining the Fair Value of
a Financial Asset When the Market for that Asset is not Active
,
which provides guidance on how to value financial assets subject to
inactive markets.
|
·
|
In
December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141 (revised 2007),
Business Combinations
(“SFAS 141R”), which replaces FASB Statement No. 141,
Business Combinations (as
amended)
. SFAS 141R retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. SFAS
141R also establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in
the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements which will enable users of the financial
statements to evaluate the nature and financial effects of the business
combination, measures contingent consideration at the acquisition-date
fair value and requires transaction costs to be recognized as expense in
the period in which they are
incurred.
|
·
|
In
December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160,
Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51
Consolidated Financial Statements (as amended)
(“SFAS 160”).
SFAS 160 requires that accounting and reporting for noncontrolling
(minority) interests will be recharacterized as noncontrolling interests
and classified as a component of equity. SFAS 160 also establishes
reporting requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS 160 applies to all
entities that prepare consolidated financial statements, except
not-for-profit organizations, but will affect only those entities that
have an outstanding noncontrolling interest in one or more subsidiaries or
that deconsolidate a subsidiary. This statement is effective as of
the beginning of an entity’s first fiscal year that begins after
December 15, 2008. All of our subsidiaries are wholly-owned by
us.
|
·
|
In
March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161,
Disclosures
about Derivative Instruments and Hedging Activities – an amendment to FASB
Statement No. 133
(“SFAS No. 161”)
.
SFAS No. 161 is
intended to improve financial standards for derivative instruments and
hedging activities by requiring enhanced disclosures to enable investors
to better understand their effects on an entity's financial position,
financial performance, and cash flows. Entities are required to provide
enhanced disclosures about: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations; and (c)
how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. It is effective
for financial statements issued for fiscal years beginning after November
15, 2008, with early adoption encouraged. We presently have no
derivative instruments or hedging
activities.
|
·
|
In
April 2008, FSB issued FASB Staff Position (“FSP”) FAS 142-3,
Determination of the Useful
Life of Intangible Assets
(“FSP 142-3”). FSP 142-3
amends the factors an entity should consider in developing renewal or
extension assumptions used in determining the useful life of recognized
intangible assets under FASB Statement No. 142,
Goodwill and Other Intangible
Assets
. This new guidance applies prospectively to
intangible assets that are acquired individually or with a group of other
assets in business combinations and asset
acquisitions.
|
·
|
In
May 2008, the FASB issued Statement of Financial Accounting Standards No.
162,
The Hierarchy of
Generally Accepted Accounting Principles
(“SFAS No. 162”).
SFAS No. 162 provides a consistent framework for determining what
accounting principles should be used when preparing US GAAP financial
statements. Previous guidance did not properly rank the accounting
literature. The new standard is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411,
The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles.
|
·
|
In
June 2008, the FASB issued FSP EITF 03-6-1,
Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities
, to clarify that all outstanding unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents, whether paid or unpaid, are participating securities. An
entity must include participating securities in its calculation of basic
and diluted earnings per share (“EPS”) pursuant to the two-class method,
as described in FASB Statement 128,
Earnings per Share.
FSP
EITF 03-6-1 is effective for fiscal years beginning after December 15,
2008. We intend to adopt FSP EITF 03-6-1 effective January 1, 2009 and
apply its provisions retrospectively to all prior-period EPS data
presented in our financial statements. We have periodically issued
share-based payment awards that contain nonforfeitable rights to dividends
and are in the process of evaluating the impact that the adoption of FSP
EITF 03-6-1 will have on our consolidated financial
statements.
|
No other
new accounting pronouncement issued or effective had, or is expected to have, a
material impact on our consolidated financial statements.
OUTLOOK
This
report contains information and forward-looking statements that are based on
management’s current beliefs and expectations and assumptions which are based
upon information currently available. Forward-looking statements
include statements relating to 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”, and similar expressions. These statements are
based on current expectations and are subject to uncertainty and
change.
Although
management believes that the expectations reflected in such forward-looking
statements are reasonable, there can be no assurance that such expectations will
be realized. 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
expected.
Among the
key factors that are not within management’s control and that may cause actual
results to differ materially from those projected in such forward-looking
statements are national and global economic conditions, demand for the company’s
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, our ability to negotiate favorably
with lenders and lessors, the level of credit generally available in the capital
markets, 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 the company
operates, operational risks and insurance, risks associated with the
technologies and systems we use and the other risks and uncertainties described
in our filings with the Securities and Exchange Commission.
OFF-BALANCE
SHEET ARRANGEMENTS
We
utilize non-cancelable operating leases to finance a portion of our revenue
equipment acquisitions. As of September 30, 2008, we leased 1,203 tractors and
2,342 trailers under operating leases with varying termination dates ranging
from 2008 to 2015. Vehicles held under operating leases are not carried on our
balance sheet, and lease payments for such vehicles are reflected in our income
statements in the line item “Revenue equipment rent”. Our rental expense
related to vehicle operating leases during the three- and nine-months ended
September 30, 2008 was $9.0 million and $25.7 million, respectively, as compared
to $7.6 million and $22.9 million for the same periods in 2007.
Item
3.
Quantitative and Qualitative
Disclosures about Market Risk
We held
no market-risk-sensitive instruments for trading purposes as of September 30,
2008. For purposes other than trading, we held the following
market-risk-sensitive instruments as of September 30, 2008:
Description
|
|
Discussion
|
Rabbi
Trust investment ($386 thousand) in 73 thousand shares of our
stock.
|
|
Our
consolidated condensed financial statements include the assets and
liabilities of a Rabbi Trust established to hold the investments of
participants in our 401(k) Wrap Plan and for deferred compensation
liabilities under our Executive Bonus and Phantom Stock Plan. Such
liabilities are adjusted from time to time to reflect changes in the
market price of our common stock. Accordingly, our future compensation
expense and income will be impacted by fluctuations in the market price of
our common stock.
|
We had no
other material market-risk-sensitive instruments (for trading or non-trading
purposes) that would involve significant relevant market risks, such as
equity-price risk. Accordingly, the potential loss in our future earnings
resulting from changes in such market rates or prices is not
significant.
Item 4.
Controls and
Procedures
As required by Rules 13a-15 and 15d-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Company has carried
out an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period covered
by this Quarterly Report on Form 10-Q. This evaluation was carried
out under the supervision and with the participation of the Company's
management, including our Chief Executive Officer and our Chief Financial
Officer. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of the end of the period covered by this Quarterly Report on
Form 10-Q. There were no changes in the Company's internal control
over financial reporting that occurred during the third quarter of fiscal 2008
that have materially affected, or that are reasonably likely to materially
affect, the Company's internal control over financial
reporting.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in the Company's reports filed
or submitted under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the rules and forms of the
SEC. Disclosure controls and procedures include controls and
procedures designed to ensure that information required to be disclosed in
Company reports filed under the Exchange Act is accumulated and communicated to
management, including the Company's Chief Executive Officer and Chief Financial
Officer as appropriate, to allow timely decisions regarding
disclosures.
The
Company has confidence in its disclosure controls and
procedures. Nevertheless, the Company's management, including the
Chief Executive Officer and Chief Financial Officer, does not expect that our
disclosure controls and procedures will prevent all errors or intentional
fraud. An internal control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of such internal controls are met. Further, the design of
an internal control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all internal control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected.
PART II. OTHER
INFORMATION
PART II. OTHER
INFORMATION
Item
1.
Legal
Proceedings
We are
party to routine litigation incidental to our business, primarily involving
claims for personal injury, property damage, work-related injuries of employees
and cargo losses incurred in the ordinary and routine highway transportation of
freight. We also primarily self-insure for employee health care claims. As
of September 30, 2008, the aggregate amount of reserves for such claims on our
consolidated condensed balance sheet was $15.8 million. We maintain excess
insurance programs and accrue for expected losses in amounts designed to cover
liability resulting from such claims.
On
January 4, 2006, Owner Operator Independent Drivers Association, Inc., Warrior
Transportation, Roy Clark, and Gregory Colvin d/b/a Wolverine Trucking, Inc.
filed a lawsuit in the U.S. District Court for the Northern District of Texas,
Dallas Division, on behalf of themselves and all others similarly situated
against our principal operating subsidiary FFE Transportation Services, Inc.
(“FFE”).
On June 15, 2007, the Court denied Plaintiffs’
motion for class certification, leaving only the Plaintiffs’ individual claims
for adjudication. Those claims were settled, and the entire lawsuit was
dismissed with prejudice on October 1, 2008.
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 alleges 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 seek, putatively 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 has been created to investigate the
claims in the derivative action. As permitted by Texas law, we
requested the derivative action be stayed while the SLC conducts its
investigation, which was opposed by the plaintiffs. On March 25,
2008, the Court granted our request for the stay, through May 22,
2008. The stay was subsequently extended through September 15,
2008. The SLC is continuing its consideration of the
matter.
Item 1A.
Risk
Factors
There
have been no material changes to the factors disclosed in Part I, Item 1A “Risk
Factors” in our Annual Report on Form 10-K for the year ended December 31,
2007. However, there has recently been widespread concern over the
economy in general, and the credit markets in particular. If the
economy and credit markets continue to weaken, our business could be
affected. Many of our customers are small businesses; if our
customers are forced to slow their payment cycles, our cash flows could be
negatively affected as well as our access to capital and increased costs of
capital.
We rely
on the insurance industry for protection against significant losses, principally
with regard to claims for over-the-road accidents and work-related
injuries. Various providers of insurance to the trucking industry have
recently shown signs of financial stress, and the United States government has
injected capital into one of our major insurance providers. A failure of a
major insurance company could have significant detrimental effects on the
insurance industry as a whole. Such an occurrence could require us to seek
alternative sources for insurance, which may only be available at a
significantly higher cost, if at all. Many jurisdictions require that
truckers have adequate insurance in force in order to operate on their highways.
Item 2.
Unregistered Sales of Equity
Securities and Use of Proceeds
The
following table includes information about our common stock repurchases during
the three-month period ended September 30, 2008.
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 That May
Yet Be Purchased Under the
Plans
or
Programs
(1)
(d)
|
|
July
1 to July 31, 2008
|
--
|
|
$
|
--
|
|
--
|
|
|
1,111,500
|
(4)
|
August
1 to August 31, 2008
|
--
|
|
|
--
|
|
--
|
|
|
1,111,500
|
|
September
1 to September 30, 2008
(2)
(3)
|
33,514
|
|
|
6.44
|
|
--
|
|
|
1,111,500
|
|
Total
|
33,514
|
|
$
|
6.44
|
|
--
|
|
|
|
|
(1)
|
On
November 9, 2007, our Board of Directors renewed our authorization to
purchase up to 1,357,900 shares of our common stock. The authorization
allows purchases from time to time on the open market or through private
transactions at such times as management deems appropriate. The
authorization does not specify an expiration date. Purchases may be
increased, decreased or discontinued by our Board of Directors at any time
without prior notice.
|
(2)
|
During
the third quarter of 2008, an executive officer exchanged 11,764 shares he
owned for more than one year as consideration for the exercise of stock
options, as permitted by our share option plans. Such
transactions are not deemed as having been purchased as part of our
publicly announced plans or programs.
|
(3)
|
During
the third quarter of 2008, two executive officers and other employees
simultaneously exercised 21,750 options and sold the resulting 21,750
shares to the company. Such transactions are not deemed as
having been purchased as part of our publicly announced plans or
programs.
|
(4)
|
The
starting point for this table does not match the ending point reported in
our Quarterly Report on Form 10Q for the second quarter of 2008 due to a
clerical error in that report.
|
Item 3.
Defaults
Upon Senior Securities
Item
4.
Submission of Matters to a
Vote of Security Holders
None.
Item
5.
Other
Information
None.
Item
6.
Exhibits
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
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed
herewith)
|
|
|
32.2
|
Certification
of 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)
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of l934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
FROZEN
FOOD EXPRESS INDUSTRIES, INC.
|
|
(Registrant)
|
|
|
|
Dated:
November 7, 2008
|
By
|
/s/
Stoney M. Stubbs, Jr.
|
|
|
Stoney
M. Stubbs, Jr.
Chairman
of the Board of Directors and President
(Principal
Executive Officer)
|
|
|
|
|
Dated:
November 7, 2008
|
By
|
/s/
Thomas G. Yetter
|
|
|
Thomas
G. Yetter
Senior
Vice President and Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
EXHIBIT
INDEX
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
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed
herewith)
|
|
|
32.2
|
Certification
of 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)
|
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