**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, 2005**
 
 **OR**
 
 **[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE**
 **SECURITIES
EXCHANGE ACT OF 1934**
 
 **FOR
THE TRANSITION PERIOD FROM _____________ TO ______________**
 
 
 **FROZEN
FOOD EXPRESS INDUSTRIES, INC.**
 (Exact
name of registrant as specified in its charter)
 
 **Texas**
      (State
      or Other Jurisdiction of
      Incorporation
      or Organization)
    **1-10006**
      Commission
      File
      Number
    **75-1301831**
      (IRS
      Employer Identification No.)**1145
      Empire Central Place**
      **Dallas,
      Texas 75247-4309**
      **(Address
      of Principal Executive Offices)**
    
    **(214)
      630-8090**
      **(Registrant’s
      Telephone Number,**
      **Including
      Area Code)**
 
 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.
 [x]Yes [
] No
 
 Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
 [x]Yes [
] No
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 [ ]Yes
[x] No
 
 As of
November 1, 2005, 17,848,301 shares of the registrant's common stock, $1.50 par
value, were outstanding.
 
 
 Return to Table of Contents
 
 **INDEX**
 
 **PART I**
    **Financial
      Information****Item 1**
    Financial
      Statements (Unaudited)
    **Page
      No.**Consolidated
      Condensed Balance Sheets
      September
      30, 2005 and December 31, 2004
    1Consolidated
      Condensed Statements of Income
      Three
      and nine months ended September 30, 2005 and 2004
    2Consolidated
      Condensed Statements of Cash Flows
      Nine
      months ended September 30, 2005 and 2004
    3Notes
      to Consolidated Condensed Financial Statements
    4**Item 2**
    Management's
      Discussion and Analysis of
      Financial
      Condition and Results of Operations
    7**Item 3**
    Quantitative
      and Qualitative Disclosures About Market Risk
    20**Item 4**
    Controls
      and Procedures
    20**PART
      II**
    **OTHER
      INFORMATION****Item 2**
    Unregistered
      Sales of Equity Securities and Use of Proceeds
    22**Item 6**
    Exhibits
    22
 
    Return to Table of Contents
   
 **PART
I**
 
 **ITEM 1.**  **Financial
Statements**
 
 **FROZEN
FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES**
 **Consolidated
Condensed Balance Sheets**
 *(In
thousands)*
 (Unaudited)
  **Assets**
    
    **Sep.
      30,**
      **2005**
    
    **Dec.
      31,**
      **2004**Current
      assetsCash
      and cash equivalents
    
    $
    7,807
    
    $
    3,142Accounts
      receivable, net
    
    
    63,243
    
    
    57,954Inventories
    
    
    2,214
    
    
    1,818Tires
      on equipment in use
    
    
    4,779
    
    
    5,157Deferred
      income taxes
    
    
    615
    
    
    3,473Other
      current assets
    
    
    11,428
    
    
    9,103Total
      current assets
    
    
    90,086
    
    
    80,647Property
      and equipment, net
    
    
    82,978
    
    
    78,039Other
      assets
    
    
    10,755
    
    
    12,006$
    183,819
    
    $
    170,692**Liabilities
      and shareholders' equity**Current
      liabilitiesAccounts
      payable
    
    $
    30,198
    
    $
    31,985Accrued
      claims
    
    
    14,380
    
    
    13,068Accrued
      payroll
    
    
    9,986
    
    
    9,070Accrued
      liabilities
    
    
    3,839
    
    
    2,147Total
      current liabilities
    
    
    58,403
    
    
    56,270Long-term
      debt
    
    
    -
    
    
    2,000Deferred
      income taxes
    
    
    6,285
    
    
    8,551Accrued
      claims and liabilities
    
    
    6,941
    
    
    6,82571,629
    
    
    73,646**Shareholders'
      equity**Par
      value of common stock (18,137 and 17,653 shares
    outstanding)
    
    
    27,205
    
    
    26,480Paid-in
      capital
    
    
    5,946
    
    
    2,518Retained
      earnings
    
    
    82,685
    
    
    68,603115,836
    
    
    97,601Less
      - treasury stock (419 and 130 shares)
    
    
    3,646
    
    
    555Total
      shareholders' equity
    
    
    112,190
    
    
    97,046$
    183,819
    
    $
    170,692*See
      accompanying notes to consolidated condensed financial
      statements.*
 
 
 
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 **FROZEN
FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES**
 **Consolidated
Condensed Statements of Income**
 For the
Three and Nine Months Ended September 30,
 *(In
thousands, except per-share amounts)*
 (Unaudited)
 
 **Three
      Months**
    
    **Nine
      Months****2005**
    
    **2004**
    
    **2005**
    
    **2004**RevenueFreight revenue
    
    $
    135,136
    
    $
    120,531
    
    $
    374,258
    
    $
    341,766Non-freight revenue
    
    
    2,403
    
    
    2,590
    
    
    7,990
    
    
    8,424137,539
    
    
    123,121
    
    
    382,248
    
    
    350,190Costs
      and expensesSalaries, wages and related expenses
    
    
    33,892
    
    
    31,257
    
    
    97,146
    
    
    90,937Purchased transportation
    
    
    32,190
    
    
    30,704
    
    
    93,361
    
    
    93,397Fuel
    
    
    22,862
    
    
    15,990
    
    
    58,671
    
    
    43,546Supplies and expenses
    
    
    17,006
    
    
    16,241
    
    
    48,073
    
    
    42,319Revenue equipment rent
    
    
    8,150
    
    
    7,765
    
    
    22,228
    
    
    23,903Depreciation
    
    
    4,888
    
    
    4,827
    
    
    16,203
    
    
    14,317Communications and utilities
    
    
    1,087
    
    
    1,020
    
    
    3,013
    
    
    2,936Claims and insurance
    
    
    4,293
    
    
    5,598
    
    
    10,881
    
    
    11,396Operating taxes and licenses
    
    
    1,218
    
    
    1,197
    
    
    3,420
    
    
    3,488Gains on sale of equipment
    
    
    (923
    )
    
    (415
    )
    
    (3,573
    )
    
    (1,380
    )Miscellaneous operating expenses
    
    
    1,959
    
    
    1,626
    
    
    4,844
    
    
    4,289126,622
    
    
    115,810
    
    
    354,267
    
    
    329,148Non-freight
      costs and operating expenses
    
    
    2,042
    
    
    2,466
    
    
    7,482
    
    
    7,888128,664
    
    
    118,276
    
    
    361,749
    
    
    337,036Income
      from operations
    
    
    8,875
    
    
    4,845
    
    
    20,499
    
    
    13,154Interest
      and other expense (income)
    
    
    517
    
    
    (516
    )
    
    (2,838
    )
    
    (669
    )Income
      before income tax
    
    
    8,358
    
    
    5,361
    
    
    23,337
    
    
    13,823Income
      tax provision
    
    
    3,382
    
    
    1,841
    
    
    9,255
    
    
    4,871Net
      income
    
    $
    4,976
    
    $
    3,520
    
    $
    14,082
    
    $
    8,952Net
      income per share of common stockBasic
    
    $
    0.28
    
    $
    0.20
    
    $
    0.79
    
    $
    0.52Diluted
    
    $
    0.26
    
    $
    0.20
    
    $
    0.75
    
    $
    0.50Weighted
      average shares outstandingBasic
    
    
    17,944
    
    
    17,235
    
    
    17,817
    
    
    17,196Diluted
    
    
    18,873
    
    
    17,971
    
    
    18,791
    
    
    17,926*See
      accompanying notes to consolidated condensed financial
      statements.*
 
 
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2
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 **FROZEN
FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES**
 **Consolidated
Condensed Statements of Cash Flows**
 For the
Nine Months Ended September 30, 2005 and 2004
 *(In
thousands)*
 (Unaudited)
 
 **2005**
    
    **2004****Net
      cash provided by operating activities**
    
    $
    14,689
    
    $
    31,941**Cash
      flows from investing activities**Expenditures
      for property and equipment
    
    
    (28,541
    )
    
    (27,511
    )Proceeds
      from sale of property and equipment
    
    
    13,954
    
    
    7,768Proceeds
      from divestiture
    
    
    191
    
    
    258Life
      insurance
    
    
    5,777
    
    
    986**Net
      cash used investing activities**
    
    
    (8,619
    )
    
    (18,499
    )**Cash
      flows from financing activities**Borrowings
      under revolving credit agreement
    
    
    21,600
    
    
    35,000Payments
      against revolving credit agreement
    
    
    (23,600
    )
    
    (42,000
    )Common
      stock issued
    
    
    2,887
    
    
    375Treasury
      stock re-issued
    
    
    153
    
    
    190Treasury
      stock reacquired
    
    
    (3,244
    )
    
    (1,136
    )Other
    
    
    799
    
    
    -**Net
      cash used in financing activities**
    
    
    (1,405
    )
    
    (7,571
    )Net
      increase in cash and cash equivalents
    
    
    4,665
    
    
    5,871Cash
      and cash equivalents at January 1
    
    
    3,142
    
    
    1,396Cash
      and cash equivalents at September 30
    
    $
    7,807
    
    $
    7,267*See
      accompanying notes to consolidated condensed financial
      statements.*
 
 
 
 
 
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3
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 **FROZEN
FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES**
 **Notes
to Consolidated Condensed Financial Statements**
 September
30, 2005 and 2004
 *(Unaudited)*
 
 **1.**  **BASIS
OF PRESENTATION**
 These
consolidated condensed financial statements include Frozen Food Express
Industries, Inc. and its subsidiary companies, all of which are wholly-owned.
All significant intercompany accounts and transactions have been eliminated in
consolidation. The financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). In the opinion of management, all adjustments (which consisted only of
normal recurring accruals) necessary to present fairly our financial position,
cash flows and results of operations have been made. Pursuant to SEC rules and
regulations, certain information and disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted from these
statements unless significant changes have taken place since the end of the most
recent fiscal year. We believe that the disclosures contained herein, when read
in conjunction with the financial statements and notes included, or incorporated
by reference, in our Form 10-K filed with the SEC on March 23, 2005, are
adequate to make the information presented not misleading. It is suggested,
therefore, that these statements be read in conjunction with the statements and
notes (included or incorporated by reference) in our most recent Annual Report
on Form 10-K.
 
 **2.**  **REVENUE
AND EXPENSE RECOGNITION**
 Freight
revenue and associated direct operating expenses are recognized on the date the
freight is picked up from the shipper in accordance with the FASB's Emerging
Issues Task Force's Issue No. 91-9 “ *Revenue
and Expense Recognition for Freight Services In Progress”* (“EITF
No. 91-9”).
 One of
the preferable methods outlined in EITF No. 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 freight revenue and our
related direct expenses are recognized on a gross basis. Payments we make to
independent contractors for the use of their trucks in transporting freight are
typically calculated based on the gross revenue generated by their trucks. Such
payments to independent contractors are recorded as purchased transportation
expense.
 
 **3.**  **STOCK-BASED
COMPENSATION**
 On
December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 123 (revised 2004), “ *Share
Based Payment* ” (“SFAS
No. 123R”), which is a revision of SFAS No. 123, “ *Accounting
for Stock-Based Compensation* ” (“SFAS
No. 123”). SFAS No. 123R supersedes Accounting Principles Board (“APB”) Opinion
No. 25, “ *Accounting
for Stock Issued to Employees* ” and
amends SFAS No. 95, “ *Statement
of Cash Flows* ”. Under
SFAS No. 123R, companies must calculate and record in the income statement the
cost of equity instruments, such as stock options, awarded to employees for
services received. Pro forma disclosure is no longer permitted. The cost of the
equity instruments is to be measured based on the fair value of the instruments
on the date they are granted and is required to be recognized over the period
during which the employees are required to provide services in exchange for the
equity instruments.
  Page
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 We apply
APB Opinion No. 25 and related interpretations to account for our stock options.
Accordingly, no expense has been recognized for stock option grants to
employees. Had we elected to apply SFAS No. 123R to account for our stock
options, our net income and diluted net income per share of common stock for
each of the three and nine month periods ended September 30, 2005 and 2004 would
have been as follows:
 
 **Pro
      forma impact on**
    
    **Three
      Months**
    
    **Nine
      Months****net
      income (in millions)**
    
    **2005**
    
    **2004**
    
    **2005**
    
    **2004**As
      reported
    
    $
    5.0
    
    $
    3.5
    
    $
    14.1
    
    $
    9.0Impact
      of SFAS No. 123
    
    
    (0.2
    )
    
    (0.3
    )
    
    (0.5
    )
    
    (0.6
    )$
    4.8
    
    $
    3.2
    
    $
    13.6
    
    $
    8.4
 
 **Pro
      forma impact on**
    
    **Three
      Months**
    
    **Nine
      Months****basic
      net income per share**
    
    **2005**
    
    **2004**
    
    **2005**
    
    **2004**As
      reported
    
    $
    0.28
    
    $
    0.20
    
    $
    0.79
    
    $
    0.50Impact
      of SFAS No. 123
    
    
    (0.01
    )
    
    (0.02
    )
    
    (0.03
    )
    
    (0.03
    )$
    0.27
    
    $
    0.18
    
    $
    0.76
    
    $
    0.47
 
 **Pro
      forma impact on**
    
    **Three
      Months**
    
    **Nine
      Months****diluted
      net income per share**
    
    **2005**
    
    **2004**
    
    **2005**
    
    **2004**As
      reported
    
    $
    0.26
    
    $
    0.20
    
    $
    0.75
    
    $
    0.50Impact
      of SFAS No. 123
    
    
    (0.01
    )
    
    (0.02
    )
    
    (0.03
    )
    
    (0.03
    )$
    0.25
    
    $
    0.18
    
    $
    0.72
    
    $
    0.47
 
 On April
21, 2005, the SEC announced the adoption of a new rule that amends the
compliance date for SFAS 123R so that each registrant that is not a small
business issuer will be required to prepare financial statements in accordance
with SFAS 123R beginning with the first reporting period of the registrant’s
first fiscal year beginning on or after June 15, 2005.
 SFAS No.
123R provides two alternatives for adoption: (i) a modified prospective method
in which compensation cost is recognized for all awards granted subsequent to
the effective date of this statement as well as for the unvested portion of
awards outstanding as of the effective date or (ii) a modified retrospective
method which permits entities to restate prior periods to record compensation
cost calculated under SFAS No. 123 for the pro forma disclosure. During 2006, we
plan to adopt SFAS No. 123R using the modified prospective method.
 Since we
currently account for stock options granted to employees and shares issued under
our employee stock purchase plans in accordance with the intrinsic value method
permitted under APB Opinion No. 25, no compensation expense is currently
recognized. We plan to curtail the number of stock options we grant to our
employees in favor of other forms of stock-based compensation, but if we
continue to issue stock options to our employees, the adoption of SFAS No. 123R
could have an impact on our results of operations, although it will have no
impact on our overall financial position.
 The
impact of adopting SFAS No. 123R cannot be accurately estimated at this time, as
it will depend on the market value and the amount of share-based awards granted
in future periods. Had we adopted SFAS No. 123R in a prior period, the impact
would approximate that as described in the table above.
 SFAS No.
123R also requires that tax benefits received by companies in excess of
compensation cost be reclassified from operating cash flows to financing cash
flows in statements of cash flows. This change in classification will reduce
cash flows from operating activities and increase cash flows from financing
activities in the periods after adoption. The amount of cash provided by
operating activities from such stock based payments was $753,000 and $270,000,
respectively during the first nine months of 2005 and 2004.
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 **4.**  **LONG-TERM
DEBT**
 As of
September 30, 2005, we had a $50 million secured line of credit pursuant to a
revolving credit agreement with two commercial banks. The agreement expires June
1, 2007.
 Interest
is due monthly. We may elect to borrow at a daily interest rate based on the
bank's 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. At September 30, 2005, nothing was borrowed against this
facility and $4.5 million was being used as collateral for letters of credit.
Accordingly, at September 30, 2005 approximately $45.5 million was available
under the agreement. To the extent that the line of credit is not used for
borrowing or letters of credit, we pay a commitment fee to the
banks.
 Loans may
be secured by liens against our inventory, trade accounts receivable and
over-the-road trucking equipment. The agreement also contains a pricing "grid"
where increased levels of profitability and cash flows or reduced levels of
indebtedness can reduce the rates of interest expense we incur. The agreement
restricts, among other things, payments of cash dividends, repurchases of our
stock and the amount of our capital expenditures. The amount we may borrow under
the facility 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. Loans and
letters of credit will become due on the agreement expiration. As of September
30, 2005, we were in compliance with the terms of the agreement.
 
 **5.**  **COMMITMENTS
AND CONTINGENCIES**
 We have
accrued for costs related to public liability, cargo and work-related injury
claims. When an incident occurs we record a reserve for the incident's estimated
outcome. As additional information becomes available, adjustments are made.
Accrued claims liabilities include all such reserves and our estimate for
incidents which have been incurred but not reported.
 
 **6.**  **NET
INCOME PER SHARE OF COMMON STOCK**
 Our basic
net income per share was computed by dividing our net income by the weighted
average number of shares of common stock outstanding during the period. The
table below sets forth information regarding weighted average basic and diluted
shares for each of the three and nine months ended September 30, 2005 and 2004
(in thousands):
 
 **Three
      Months**
    
    **Nine
      Months****2005**
    
    **2004**
    
    **2005**
    
    **2004**Basic
      shares
    
    
    17,944
    
    
    17,235
    
    
    17,817
    
    
    17,196Common
      stock equivalents
    
    
    929
    
    
    736
    
    
    974
    
    
    730Diluted
      shares
    
    
    18,873
    
    
    17,971
    
    
    18,791
    
    
    17,926
 
 For the
three months ended September 30, 2005 and 2004, respectively, we excluded 0.9
million and 1.2 million stock options from our calculation of common stock
equivalents because their exercise prices exceeded the market price of our
stock, which would have caused anti-dilution. For the nine months ended
September 30, 2005 and 2004, respectively, 14,000 and 63,000 such stock options
were excluded.
 
 **7.**  **PRIOR
PERIOD AMOUNTS**
 Our
freight brokerage provides freight transportation services to customers using
third-party trucking companies. Prior to the fourth quarter of 2004, we had
reported freight brokerage’s revenue net of the purchased transportation expense
paid to such third parties. Beginning in the fourth quarter of 2004, we revised
amounts previously reported by reclassifying the related purchased
transportation expense as an operating expense for all prior periods. The
reclassification had no impact on the amount of, or the trends displayed
regarding, our operating income, net income, cash flows, or financial position
for any period. Certain other prior period amounts have also been reclassified
to conform with the current year presentation.
 
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6
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 **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, 2004, 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.
 Our
Internet address is www.ffex.net. All of our filings with the Securities
and Exchange Commission ("SEC") are available free of charge through our
website as soon as reasonably practicable after we file them with the SEC.
 During
April of 2005, we sold certain operating assets of our remaining non-freight
subsidiary, AirPro Holdings, Inc. (“AHI”). The buyer was a newly-formed entity,
AIRPRO Mobile Air, LLC (“AMA”). After the sale, AHI owns 20% of AMA. Because AHI
remains the primary beneficiary of AMA, we are required by Financial Accounting
Standards Board Interpretation No. 46 (revised) to consolidate the financial
statements of AMA.
 
 **RESULTS
OF OPERATIONS**
 ***Three
and Nine Months Ended September 30, 2005 and
2004***
 
 ****** ***Freight
Revenue*** : Our
freight revenue is derived from five types of transactions. Linehaul revenue is
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”).
Within our linehaul freight service portfolio we offer both truckload and
less-than-truckload (“LTL”) services. Over 90% of our LTL linehaul shipments
must be temperature-controlled to prevent damage to the cargo. We operate fleets
that focus on refrigerated or “temperature-controlled” LTL shipments, truckload
temperature-controlled shipments and truckload non-refrigerated or “dry”
shipments. Our freight brokerage provides freight transportation services to
customers using third-party trucking companies.
 Our
dedicated fleet operation consists of fleets of tractors and trailers that haul
only freight for a specific customer. Dedicated fleet revenue is asset based.
Customers typically pay us weekly for trucks assigned to their
service.
 Income
from equipment rental represents amounts we charge to independent contractors
for the use of trucks which we own and lease to the owner-operator.
 The rates
we charge for our freight services include fuel adjustment charges. In periods
when the price we incur for diesel fuel is high, we raise our prices in an
effort to recover this increase from our customers. The opposite is true when
fuel prices decline.
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 The
following table summarizes and compares the significant components of freight
revenue and presents our freight operating ratio and revenue per truck per week
for each of the three and nine month periods ended September 30, 2005 and
2004:
 **Three
      Months**
    
    **Nine
      Months**Freight revenue
      from[a]:
    
    **2005**
    
    **2004**
    
    **2005**
    
    **2004**Temperature-controlled
      truckload fleets
    
    $
    46.0
    
    $
    43.4
    
    $
    134.6
    
    $
    130.9Dry-freight
      truckload fleet
    
    
    21.9
    
    
    21.2
    
    
    66.0
    
    
    63.3Total
      truckload linehaul services
    
    
    67.9
    
    
    64.6
    
    
    200.6
    
    
    194.2Dedicated
      fleets
    
    
    7.7
    
    
    6.1
    
    
    18.7
    
    
    14.4Total
      truckload
    
    
    75.6
    
    
    70.7
    
    
    219.3
    
    
    208.6Less-than-truckload
      ("LTL") services
    
    
    35.5
    
    
    33.4
    
    
    95.6
    
    
    91.1Fuel
      surcharges
    
    
    18.7
    
    
    8.0
    
    
    43.5
    
    
    20.2Freight
      brokerage
    
    
    3.8
    
    
    7.1
    
    
    11.6
    
    
    17.4Equipment
      rental
    
    
    1.5
    
    
    1.3
    
    
    4.3
    
    
    4.5Total
      freight revenue
    
    
    135.1
    
    
    120.5
    
    
    374.3
    
    
    341.8Freight
      operating expenses
    
    
    126.6
    
    
    115.8
    
    
    354.3
    
    
    329.1Income
      from freight operations
    
    $
    8.5
    
    $
    4.7
    
    $
    20.0
    
    $
    12.7Freight
      operating ratio[b]
    
    
    93.7
    %
    
    96.1
    %
    
    94.7
    %
    
    96.3
    %Total
      truckload revenue
    
    $
    75.6
    
    $
    70.7
    
    $
    219.3
    
    $
    208.6LTL
      revenue
    
    
    35.5
    
    
    33.4
    
    
    95.6
    
    
    91.1Total
      linehaul and dedicated fleet revenue
    
    $
    111.1
    
    $
    104.1
    
    $
    314.9
    
    $
    299.7Weekly
      average trucks in service
    
    
    2,281
    
    
    2,269
    
    
    2,282
    
    
    2,289Revenue
      per truck per week[c]
    
    $
    3,706
    
    $
    3,491
    
    $
    3,537
    
    $
    3,345
 
 **Notes:**
 **a)**
    Revenue
      and expense amounts are stated in millions of dollars.  The totals
      presented in the table may not agree to the amounts shown in the
      accompanying statement of income due to
rounding.
 **b)**
    Freight
      operating expenses divided by total freight
revenue.
 **c)**
    Total
      linehaul and dedicated fleet revenue divided by number of weeks in period
      divided by average trucks in service.
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 The
following table summarizes and compares selected statistical data relating to
our freight operations for the three and nine month periods ended September 30,
2005 and 2004:
 
 **Three
      Months**
    
    **Nine
      Months****Statistical
      and revenue data****[a]****:**
    
    **2005**
    
    **2004**
    
    **2005**
    
    **2004**Truckload
      total linehaul miles[b]
    
    
    48.8
    
    
    50.5
    
    
    147.2
    
    
    155.7Truckload
      loaded miles[b]
    
    
    43.7
    
    
    45.7
    
    
    132.3
    
    
    141.3Truckload
      empty mile ratio[c]
    
    
    10.5
    %
    
    9.5
    %
    
    10.1
    %
    
    9.2
    %Truckload
      linehaul revenue per total mile[d]
    
    $
    1.39
    
    $
    1.28
    
    $
    1.36
    
    $
    1.25Truckload
      linehaul revenue per loaded mile[e]
    
    $
    1.55
    
    $
    1.41
    
    $
    1.52
    
    $
    1.37Truckload
      linehaul shipments[f]
    
    
    45.9
    
    
    46.2
    
    
    139.5
    
    
    142.5Truckload
      loaded miles per shipment[g]
    
    
    952
    
    
    989
    
    
    948
    
    
    992LTL
      hundredweight[f]
    
    
    2,352
    
    
    2,284
    
    
    6,502
    
    
    6,326LTL
      shipments[f]
    
    
    75.3
    
    
    78.3
    
    
    209.4
    
    
    217.5LTL
      linehaul revenue per hundredweight[h]
    
    $
    15.09
    
    $
    14.62
    
    $
    14.70
    
    $
    14.40LTL
      linehaul revenue per shipment[i]
    
    
    471
    
    
    427
    
    
    457
    
    
    419Average
      weight per LTL shipment[j]
    
    
    3,124
    
    
    2,917
    
    
    3,105
    
    
    2,908
 
 **Notes** **:**
 **a)**
    The
      year-to-date and quarterly data presented in the table for the third
      quarters of 2005 and 2004 reflect changes in the manner in which data
      regarding the numbers of miles, shipments and hundredweight is
      tabulated.  Accordingly, the addition of the quarterly data presented
      in the table to the year-to-date data reported in previous reports will
      not necessarily agree with the year-to-date data reported in this
      table.
 **b)**
    In
      millions.
 **c)**
    One
      minus the quotient of full-truckload loaded miles divided by truckload
      total linehaul miles.
 **d)**
    Revenue
      from truckload linehaul services divided by total linehaul
      miles.
 **e)**
    Revenue
      from truckload linehaul services divided by total loaded miles.
 **f)**
    In
      thousands.
 **g)**
    Total
      loaded miles divided by number of linehaul
shipments.
 **h)**
    LTL
      revenue divided by hundredweight.
 **i)**
    LTL
      revenue divided by number of LTL shipments.
 **j)**
    LTL
      hundredweight times one-hundred divided by number of LTL
      shipments.
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 The
following table summarizes and compares the makeup of our fleets between
truckload and LTL and between company-provided tractors and tractors provided by
owner-operators as of September 30, 2005 and 2004:
 
 **2005**
    
    **2004**T**ruckload
      tractors**Company-provided
    
    
    1,526
    
    
    1,476Owner-operator
    
    
    536
    
    
    553Total
      truckload
    
    
    2,062
    
    
    2,029**LTL
      tractors**Company-provided
    
    
    105
    
    
    103Owner-operator
    
    
    147
    
    
    151Total
      LTL
    
    
    252
    
    
    254Total
      company-provided
    
    
    1,631
    
    
    1,579Total
      owner-operator
    
    
    683
    
    
    704Tractors
      in service
    
    
    2,314
    
    
    2,283Trailers
      in service
    
    
    4,378
    
    
    4,244
 
 Fuel
adjustment charges comprised 73.3% of the $14.6 million increase in freight
revenue during the three months ended September 30, 2005, as compared to the
comparable period of 2004. The following discussions reflect changes in our
total linehaul and dedicated fleet revenue, exclusive of fuel surcharges.
 Revenue
from our linehaul and dedicated fleet activities increased by $7.0 million
(6.7%) and $15.2 million (5.1%), respectively, between the three and nine month
periods ended September 30, 2004 and 2005. Dedicated fleet revenue increased by
$1.6 million (26.2%) and $4.3 million (29.9%), respectively, between the three
and nine month periods ended September 30, 2004 and 2005.
 During
the third quarter of 2005, we redeployed certain tractors and trailers from our
full-truckload linehaul fleets to providing relief services in the aftermaths of
Hurricanes Katrina and Rita. The relief efforts generated revenue during the
2005 quarter of approximately $1.9 million, which is $300,000 more than the 2005
third quarter’s $1.6 million increase in revenue from dedicated fleets. For the
nine months ended September 30, 2005 as compared to the comparable period of
2005, the remaining $2.4 million of the $4.3 million increase reflects our
continuing efforts to expand our commercial dedicated fleet customer
base.
 Freight
brokerage revenue declined by $3.3 million (46.5%) and $5.8 million (33.3%),
respectively, between the three and nine month periods ended September 30, 2004
and 2005. Our freight brokerage provides transportation services to our
customers by using equipment belonging to the third party trucking companies.
Such third-party trucking companies are paid fees, which are negotiated for each
load. Such fees are recorded as purchased transportation expense.
 In our
freight brokerage operation, we employ specialists knowledgeable in our freight
network. During the three months ended June 30, 2005, we determined that certain
of the specialists we had been using would be replaced. We are presently
exploring ways to improve the level and quality of our freight brokerage
revenue.
 Truckload
linehaul revenue increased by $3.3 million (5.1%) and $6.4 million (3.3%),
respectively, between the three and nine months ended September 30, 2005, as
compared to the comparable periods of 2004. For the three months ended September
30, 2005, revenue per loaded mile increased by 9.9%, as compared to the
comparable period of 2004 but our average length of haul declined by 3.7%, to
952 miles. The number of truckload linehaul shipments we transported did not
change appreciably between the quarters ended September 30, 2004 and 2005.
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 Throughout
2004 and 2005, we have sought and obtained rate increases from our customers in
an effort to compensate us for increased operating costs, and to reflect
diminished capacity of the trucking industry to meet expanding customer demand
for trucking services. Those rate increases were the principal contributor to
increased per-mile revenue. Factors mitigating the increased per-mile revenue
during the first nine months of 2005, as compared to the comparable period of
2004 included a shorter average length of haul for such shipments and a moderate
increase in the proportion of our empty, or non-revenue-producing versus loaded,
or revenue-producing, miles.
 Particularly
in response to the rapidly escalating price of diesel fuel, we have begun to
obtain compensation from our customers for empty miles. Our linehaul rates are
typically related to providing service between an origin and a destination.
Often, it is necessary for trucks to run empty, or “dead head” long distances
from the city of their last destination to the city of their next origin.
Historically, the expenses we incurred for dead heads were not passed through to
the customer. Our trucks currently average between five and seven miles per
gallon. Between the third quarter of 2004 and the third quarter of 2005, the
average per-gallon price we incurred for fuel rose by 40%, to $2.42. Due to this
rapid increase, we have determined that we can no longer bear 100% of the costs
of dead heads, and many of our customers have agreed to absorb at least some of
our incremental dead head expense.
 LTL
linehaul revenue improved by $2.1 million (6.3%) and $4.5 million (4.9%),
respectively, during the three and nine months ended September 30, 2005 as
compared to the comparable periods of 2004. The number of LTL shipments
transported declined by 3.8% and 3.7% respectively, between the three and nine
months ended September 30, 2004 and 2005. The average weight of the shipments
transported increased by approximately 7%, and average linehaul revenue per LTL
shipment improved by approximately 10% during both the three and nine month
periods ended September 30, 2005, as compared to the comparable periods of
2004.
 Recent
high operating expenses, particularly for maintenance and fuel has resulted in a
sharp decline in the number of independent contractors providing equipment to
the trucking industry. Our ability to mitigate this industry-wide trend by
expanding our company-operated fleets has been constrained by an industry-wide
lack of drivers qualified to operate the equipment.
 
 ***Freight
Operating Expenses:*** The
following table sets forth, as a percentage of freight revenue, certain major
operating expenses for each of the three and nine month periods ended September
30, 2005 and 2004:
 
 **Three
      Months**
    
    ******Nine
      Months******
    
    ******2005**
    
    ******2004**
    
    ******2005**
    
    ******2004**Salaries,
      wages and related expenses
    
    
    25.1
    %
    
    25.9
    %
    
    26.0
    %
    
    26.6
    %Purchased
      transportation
    
    
    23.8
    
    
    25.5
    
    
    24.9
    
    
    27.3Fuel
    
    
    16.9
    
    
    13.3
    
    
    15.7
    
    
    12.7Supplies
      and expenses
    
    
    12.6
    
    
    13.5
    
    
    12.8
    
    
    12.4Revenue
      equipment rent and depreciation
    
    
    9.6
    
    
    10.4
    
    
    10.3
    
    
    11.2Claims
      and insurance
    
    
    3.2
    
    
    4.6
    
    
    2.9
    
    
    3.3Other
    
    
    2.5
    
    
    2.9
    
    
    2.1
    
    
    2.8Total
      freight operating expenses
    
    
    93.7
    %
    
    96.1
    %
    
    94.7
    %
    
    96.3
    %
 
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 ***Salaries
and Wages:*** Compared
to the comparable periods of 2004, our salaries, wages and related expenses
increased by $2.6 million (8.4%) and $ 6.2 million (6.8%), respectively, during
the three and nine month periods ended September 30, 2005. The following table
summarizes and compares the major components of these expenses between the 2004
and 2005 three and nine month periods (in millions):
 
 **Amount
      of salaries, wages and**
    
    **Three
      Months**
    
    **Nine
      Months****related
      expenses incurred for:**
    
    **2005**
    
    **2004**
    
    **2005**
    
    **2004**Driver
      salaries
    
    $
    18.9
    
    $
    19.0
    
    $
    55.1
    
    $
    53.7Non-driver
      salaries
    
    
    10.7
    
    
    8.9
    
    
    28.6
    
    
    27.5Payroll
      taxes
    
    
    2.1
    
    
    1.8
    
    
    6.5
    
    
    6.2Work-related
      injuries
    
    
    0.6
    
    
    0.9
    
    
    2.7
    
    
    2.3Health
      insurance and other
    
    
    1.6
    
    
    0.7
    
    
    4.2
    
    
    1.2$
    33.9
    
    $
    31.3
    
    $
    97.1
    
    $
    90.9
 
 Payroll
expenses related to drivers declined by $0.1 million (0.5%) and increased by
$1.4 million (2.6%), respectively, between the three and nine month periods
ended September 30, 2004 and 2005 due to changes in the average number of loaded
miles traveled by our company-operated fleet. Employee-drivers are typically
paid wages calculated on a per-linehaul mile basis. Employee-drivers in our
dedicated fleets are typically paid by the day. The year-to-date 2005 increase
in driver pay is primarily due to the continued expansion of our dedicated fleet
customer base.
 Between
the three and nine month periods ended September 30, 2004 and 2005,
respectively, non-driver salaries and wages increased $1.8 million (20.2%) and
$1.1 million (4.0%). The increases were related to our continuing efforts to
refocus our marketing efforts, merit increases and increased staffing related to
the improved level of our business operations and our efforts to comply with the
Sarbanes-Oxley Act of 2002. Higher accruals for employee incentive compensation
also contributed to the increases between the three-month periods.
 We
sponsor a 401(k) wrap plan which enables employees to defer a portion of their
current salaries to their post-retirement years. Because the wrap plan’s assets
are held by a grantor or “rabbi” trust, we are required to include the wrap
plan’s assets and liabilities in our consolidated financial statements. As of
September 30, 2005, such assets included 141,000 shares of our common stock,
which are classified as treasury stock in our consolidated balance
sheet.
 We are
required to value the assets and liabilities of the wrap plan at market value on
our periodic balance sheets, but we are precluded from reflecting the treasury
stock portion of the wrap plan’s assets at market value. When the market value
of our common stock rises, this results in upward pressure on non-driver
salaries and wage expense. The opposite is true when our common stock price
falls. During the first nine months of 2005, the per-share market price of our
stock declined by $2.41 to $10.49. This resulted in a reduction of approximately
$340,000 in 2005’s first nine months non-driver salary and wage expense, as
compared to the comparable period of 2004. Also, our executive bonus and phantom
stock plan is partially denominated in approximately 171,000 “phantom” shares of
our stock, the liability for which is also determined by the value of our stock.
That resulted in an approximate $410,000 reduction in non-driver salaries and
wage expense during the first nine months of 2005, as compared to the comparable
period of 2004.
 Expenses
associated with payroll taxes did not change appreciably between the three and
nine month periods ended September 30, 2004 and 2005. This was due in part to
favorable experience regarding unemployment and other payroll-related matters.
Favorable experience also helped reduce expenses related to work-related
injuries. Unfavorable claims experience in our employee health insurance plans
was the principal cause of the increase in expenses associated with that
caption.
 
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 ***Purchased
Transportation*** :
Compared to the three-month period ended September 30, 2004, our purchased
transportation expenses increased by $1.5 million (4.8%) and such expenses did
not change appreciably between the nine month periods ended September 30, 2004
and 2005. The following table summarizes and compares the major components of
these expenses between the 2004 and 2005 three and nine month periods (in
millions):
 
 **Amount
      of purchased transportation**
    
    **Three
      Months**
    
    **Nine
      Months****expense
      incurred for:**
    
    **2005**
    
    **2004**
    
    **2005**
    
    **2004**Linehaul
      service
    
    $
    24.9
    
    $
    22.6
    
    $
    73.6
    
    $
    72.6Fuel
      adjustments
    
    
    4.2
    
    
    2.1
    
    
    10.2
    
    
    5.8Freight
      brokerage and other
    
    
    3.1
    
    
    6.0
    
    
    9.6
    
    
    15.0$
    32.2
    
    $
    30.7
    
    $
    93.4
    
    $
    93.4
 
 Independent
contractors are entities that own tractors which are utilized by us to transport
our customers' freight. As consideration for the use of their tractors, we pay
the independent contractors amounts which are generally calculated based upon
the revenue we receive from the freight they haul.
 Other
than amounts related to fuel adjustment charges, the amounts we paid to
independent contractors for purchased transportation, as a percent of revenue,
has not changed appreciably since last year. The increase in purchased
transportation expenses during 2005 is partially related to the higher volume of
freight revenue and to the increased use of intermodal service providers to
transport our freight.
 Independent
contractors are responsible for paying for the fuel that is consumed by the
trucks. We pay independent contractors amounts that are based upon the revenue
we receive from the shipments hauled by their trucks. To the extent that our
revenue from a shipment includes fuel adjustments charges, we pass the fuel
adjustments through to the independent contractors to alleviate some of their
increased cost of fuel. Higher fuel prices during 2005 have accordingly served
to further increase purchased transportation expense.
 
 ***Fuel:***  Fuel
expense increased by $6.9 million (43.0%) and $15.1 million (34.7%),
respectively, during the three and nine month periods ended September 30, 2005
as compared to the same periods of 2004. 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, 2005 and 2004:
 
 **Three
      Months**
    
    **Nine
      Months****2005**
    
    **2004**
    
    **2005**
    
    **2004**Total
      linehaul and dedicated fleet revenue
    
    $
    111.1
    
    $
    104.1
    
    $
    314.9
    
    $
    299.7Fuel
      expense
    
    
    22.9
    
    
    16.0
    
    
    58.7
    
    
    43.5Fuel
      expense as a percent of total linehauland
      dedicated fleet revenue
    
    
    20.6
    %
    
    15.4
    %
    
    18.6
    %
    
    14.5
    %
 
 Fuel
expense depicts the cost of purchasing fuel to transport freight with
company-operated equipment. A significant percentage of our freight is
transported with equipment provided by independent contractors. The cost of
independent contractor’s fuel is not included in our fuel expenses. The amounts
we pay independent contractors are classified as purchased transportation
expense. In times when fuel prices are high, to the extent we are able to obtain
fuel surcharges from our customers, we compensate independent contractors on a
load by load basis for their increased fuel expense. Such additional
compensation is also classified as purchased transportation expense.
Accordingly, our incremental fuel expenses during the three and nine month
periods ended September 30, 2005 as compared to the comparable periods of 2004
exclude the incremental expense incurred for the trucks in our independent
contractor-provided fleets.
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 The
per-gallon price of fuel we incurred during the first nine months of 2005 was
35% more than during the comparable year-ago period. Fuel adjustment charges do
not always fully compensate us and our independent contractors for increased
fuel costs. Accordingly, fuel price volatility can impact our profitability. 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, those rates in most cases automatically fluctuate
as diesel fuel prices rise and fall because of the fuel adjustment
charges.
 Factors
that might prevent us from fully recovering fuel cost increases include the
presence of deadhead (empty) miles, tractor engine idling and fuel to power our
trailer refrigeration units. Such fuel consumption often cannot be attributable
to a particular load and, therefore, there is no revenue to which a fuel
adjustment may be applied. Also, our fuel adjustment charges 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.
 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. Also, owner-operators are
responsible for all costs associated with their equipment, including fuel.
Therefore, the cost of such fuel is not a direct expense of ours, but to the
extent such fuel adjustment charges are passed through by us to owner-operators,
fuel price volatility may impact purchased transportation expenses.
 We use
computer software to optimize our routing and fuel purchasing. The software
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.
 
 ***Supplies
and Expenses*** :
Compared to the comparable periods in 2004, supplies and expenses increased by
$0.8 million (4.7%) and $5.8 million (13.6%), respectively, during the three and
nine month periods ended September 30, 2005. The following table summarizes and
compares the major components of these expenses between the 2004 and 2005 three
and nine month periods (in millions):
 
 **Three
      Months**
    
    **Nine
      Months****Amount
      of supplies and expenses incurred for:**
    
    **2005**
    
    **2004**
    
    **2005**
    
    **2004**Fleet
      repairs and maintenance
    
    $
    6.0
    
    
    5.2
    
    $
    17.9
    
    $
    13.5Freight
      handling
    
    
    3.3
    
    
    3.1
    
    
    8.7
    
    
    8.5Driver
      travel expenses
    
    
    0.8
    
    
    0.8
    
    
    2.2
    
    
    2.3Tires
    
    
    1.7
    
    
    2.1
    
    
    4.4
    
    
    5.3Terminal
      and warehouse expenses
    
    
    1.7
    
    
    1.7
    
    
    5.3
    
    
    4.5Driver
      recruiting
    
    
    1.3
    
    
    1.0
    
    
    3.2
    
    
    2.5Other
    
    
    2.2
    
    
    2.3
    
    
    6.4
    
    
    5.7$
    17.0
    
    $
    16.2
    
    $
    48.1
    
    $
    42.3
 
 Fleet
repair and maintenance expenses represented approximately 100% and 75%,
respectively, of the total increase in our total supplies and expenses during
three and nine month periods ended September 30, 2005, as compared to comparable
year-ago periods. During the nine months ended September 30, 2005, expenses for
tractor repair and maintenance increased by $3.1 million, and trailer repair
expenses increased by $1.3 million, each as compared to comparable period of
2004.
 With
regard to tractor repairs, during 2002 we agreed with our primary tractor
manufacturer to extend our tractor replacement cycle from 36 months to up to 48
months thereby causing our tractor fleet to consist of older vehicles. Older,
high mileage vehicles typically are more expensive to maintain than newer, low
mileage vehicles. With regard to our newer tractors, during 2005 we have
incurred significantly higher expenses to maintain tractor engines than was the
case in prior years. Such engines use anti-pollution devices that cause the
engine to run at higher temperatures, which creates more stress and results in
higher maintenance expenses. We are working with the manufacturers of the
engines and the tractors to find a solution to these problems.
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 Trailer
maintenance expenses increased during the third quarter of 2005 as compared to
the comparable year-ago quarter due to the addition of 134 trailers to our
fleets between September 30, 2004 and September 30, 2005. Also, during 2004 as
older leased trailers reached the end of their seven-year lease terms, we
negotiated with the lessors to extend the leases for up to one year, at
significantly lower monthly rental amounts. While such extensions resulted in
lower revenue equipment rental expense, those savings were partially offset by
the higher costs associated with maintaining the older trailers.
 
 ***Rentals
and Depreciation*** *:*  The total
of revenue equipment rental and depreciation expense did not change appreciably
between the three and nine month periods ended September 30, 2004 and 2005.
 
 ***Claims
and Insurance:*** Claims
and insurance expenses declined by $1.3 million (23.3%) and $515,000 (4.5%),
respectively, between the three and nine month periods ended September 30, 2004
and 2005. The following table summarizes and compares the major components of
claims and insurance expenses for each of the three and nine month periods ended
September 30, 2005 and 2004 (in millions):
 
 **Amount
      of claims and insurance**
    
    **Three
      Months**
    
    **Nine Months****expense
      incurred for:**
    
    **2005**
    
    **2004**
    
    **2005**
    
    **2004**Liability
    
    $
    3.4
    
    $
    4.6
    
    $
    8.5
    
    $
    8.5Cargo
    
    
    0.4
    
    
    0.5
    
    
    1.1
    
    
    1.3Physical
      damage and other
    
    
    0.5
    
    
    0.5
    
    
    1.3
    
    
    1.6$
    4.3
    
    $
    5.6
    
    $
    10.9
    
    $
    11.4
 
 The
changes in the amounts of liability and cargo claims and insurance expense we
incurred between three and nine month periods ended September 30, 2005 and 2004
resulted primarily from differences in the number and severity of incidents
which occurred during the periods involved.
 We have
accrued for our estimated costs related to our liability claims. When an
incident occurs we record a reserve for the incident's estimated outcome. As
additional information becomes available, adjustments are made.
 Accrued
claims and liabilities in our balance sheet include reserves for over the road
accidents, cargo losses, and employee related claims, such as work-related
injuries and employee health insurance. Expenses for employee-related claims are
included in salaries, wages and related expenses in our statement of income. It
is probable that the estimates we have accrued at any point in time will change
in the future.
 Claims
and insurance expenses can vary significantly from year to year. The amount of
open claims is significant. There can be no assurance that these claims will be
settled without a material adverse effect on our financial position or our
results of operations.
 Under our
current policies for liability incidents, we retain all of the risk for losses
up to $3 million per incident. Between $3 million and $10 million, we retain 25%
of the risk, or $1.75 million. We are fully insured for losses between $10
million and $25 million. Our existing policies for liability insurance will
expire on June 1, 2006.
 
 ***Gains
on Disposition of Equipment*** **:** Gains on
the disposition of equipment were $3.6 million during the first nine months of
2005, as compared to $1.4 million during the comparable period of 2004. 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.
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 ***Miscellaneous
Expenses:*** Miscellaneous
operating expenses increased by $0.6 million (12.9%) during the first nine
months of 2005, as compared to the comparable period of 2004.
 Such
expenses consist primarily of professional fees for legal services, auditing
fees, rentals associated with freight terminals, costs associated with
compliance with the Sarbanes-Oxley Act of 2002 and our provisions for
uncollectible accounts receivable. Professional fees were the category with the
largest increase from the comparable year-ago period.
 
 ***Operating
Income:*** Income
from operations increased by $4.0 million (83.2%) and $7.3 million (55.8%),
respectively, between the three and nine month periods ended September 30, 2004
and 2005. The following table summarizes and compares our operating results from
our freight and non-freight operations for each of the three and nine month
periods ended September 30, 2005 and 2004 (in millions):
 
 **Three
      Months**
    
    **Nine
      Months****2005**
    
    **2004**
    
    **2005**
    
    **2004**Freight
      operations
    
    $
    8.5
    
    $
    4.7
    
    $
    20.0
    
    $
    12.6Non-freight
      operations
    
    
    0.4
    
    
    0.1
    
    
    0.5
    
    
    0.5$
    8.9
    
    $
    4.8
    
    $
    20.5
    
    $
    13.2
 
 During
April of 2005, we sold certain operating assets of our remaining
non-freight subsidiary, AirPro Holdings, Inc. (“AHI”). The buyer was a
newly-formed entity, AIRPRO Mobile Air, LLC (“AMA”). After the sale, AHI owns
20% of AMA. Because AHI remains the primary beneficiary of AMA, we are required
by Financial Accounting Standards Board Interpretation No. 46, (revised) to
consolidate the financial statements of AMA.
 
 ***Interest
and Other:***  The
following table summarizes and compares our interest and other expense (income)
for each of the three and nine month periods ended September 30, 2005 and 2004
(in thousands):
 
 **Amount
      of interest and other expense**
    
    **Three
      Months**
    
    **Nine
      Months****(income)
      from:**
    
    **2005**
    
    **2004**
    
    **2005**
    
    **2004**Life
      insurance
    
    $
    408
    
    $
    (692
    )
    $
    (3,319
    )
    $
    (1,177
    )Interest
      expense
    
    
    -
    
    
    63
    
    
    89
    
    
    269Interest
      income
    
    
    (24
    )
    
    (14
    )
    
    (195
    )
    
    (31
    )Equity
      in income of former subsidiary
    
    
    (293
    )
    
    (84
    )
    
    (439
    )
    
    (238
    )Majority
      interest in income of consolidated entity
    
    
    275
    
    
    -
    
    
    541
    
    
    -Other
    
    
    151
    
    
    211
    
    
    485
    
    
    508$
    517
    
    $
    (516
    )
    $
    (2,838
    )
    $
    (669
    )
 
 During
April of 2005, we sold a fifty percent interest in one of our life insurance
investments. The book value of the asset we sold was approximately $2.3 million.
As consideration for the sale of the policy, we received $6.1 million in cash.
The resulting non-operating gain of $3.8 million is reflected in our statements
of income for nine months ended September 30, 2005, and is the primary reason
for the $2.1 million increase in income from life insurance as compared to the
first nine months of 2004. Other transactions involving our life insurance
investments, including mortality charges and interest-rate sensitive features
typically present in such assets partially offset the gain from the sale of the
policy, and were the principal contributor to the $408,000 in expense from our
life insurance investments during the third quarter of 2005, as compared to
income of $692,000 during the same quarter of 2004.
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 The
decline in interest expense and the increase in interest income between the
three and nine month periods ended September 30, 2004 and 2005 are primarily
related to the receipt and investment of the cash from the sale of the life
insurance investment, which was used to pay down our debt to zero and provided
surplus cash, which was invested as permitted by our credit
agreement.
 The three
and nine month's income from equity in former subsidiaries for 2004 and 2005 was
from our 20% equity interest in W&B Refrigeration Services, LLP. We account
for that investment by the equity method of accounting.
 During
April of 2005, we sold certain operating assets of our remaining
non-freight subsidiary, AirPro Holdings, Inc. (“AHI”). The buyer was a
newly-formed entity, AIRPRO Mobile Air, LLC (“AMA”). After the sale, AHI owns
20% of AMA. Because AHI remains the primary beneficiary of AMA, we are required
by Financial Accounting Standards Board Interpretation No. 46, (revised) to
consolidate the financial statements of AMA. Due to the consolidation, our
income statement prior to the elimination of the majority interest includes 100%
of AMA’s income. The majority interest in earnings of consolidated entity
reflects the portion of the earnings in AMA that is for the account of the
persons who own and control the 80% of AMA that we do not own.
 
 ***Pre-Tax
and Net Income*** *:* Pre-tax
income increased by $3.0 million (55.9%) and $9.5 million (68.8%), respectively,
between the three and nine month periods ended September 30, 2004 and 2005. Net
income increased by $1.5 million (41.4%) and $5.1 million (57.3%), respectively,
between the three and nine month periods ended September 30, 2004 and
2005.
 Non-deductible
per diem expenses from employee-drivers are expected to increase our effective
tax rate (income tax provision divided by pre-tax income) for fiscal 2005 by 8%.
The gain on the sale of the life insurance investment described above is not
taxable, which reduced our effective tax rate for fiscal 2005 by approximately
6%. As a result of the non-deductible expenses, state income taxes, and the
non-taxable gain on the sale of the life insurance investment, our effective tax
rate for the nine month period ended September 30, 2005 was 39.7%, which
includes 2% for state income tax, net of federal benefit.
 
 **LIQUIDITY
AND CAPITAL RESOURCES**
 ***Debt
and Working Capital*** *:* Cash from
our freight revenue is typically collected between 30 and 50 days after the
service has been provided. We continually seek to accelerate our collection of
accounts receivable to enhance our liquidity and reduce 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 seven to fifteen days after we use them, so our payment
cycle is a significantly shorter interval than is our collection cycle. This
disparity between cash payments to our suppliers and cash receipts from our
customers can create significant needs for borrowed funds to finance our working
capital, especially during the busiest time of our fiscal 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 and, with regard to non-freight operations, inventories
are present.
 We had no
long-term debt as of September 30, 2005, and the unused portion of the company's
$50 million revolving credit facility was approximately $45.5 million. We
believe that 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 operation during the next twelve months.
 
 ***Cash
Flows*** : During
the nine month period ended September 30, 2005, cash provided by operating
activities was $14.7 million as compared to $31.9 million during the comparable
2004 nine month period. A primary cause of 2005's lower year-to-date cash
provided by operating activities were fluctuations in our accounts receivable,
accrued payroll and accounts payable. By way of comparison, cash provided by
operating activities for the nine months ended September 30, 2003 was $8.6
million.
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 As of
December 31, 2004, our working capital (current assets minus current
liabilities) was $24.4 million, as compared to $31.7 million as of September 30,
2005. This change, which was mostly related to higher accounts receivable at
September 30, 2005, is the principal reason for 2005’s lower year-to-date cash
flows provided by operating activities. Accounts receivable increased by $6.4
million (11.2%) between September 30, 2004 and 2005, due to an 11.7% increase in
revenue between the quarters ended on those dates.
 Cash used
in investing activities decreased from $18.53 million during the first nine
months of 2004 to $8.6 million during the comparable period of 2005. Higher of
proceeds from the sale of a life insurance investment and used property and
equipment were the principal causes of this change.
 Cash used
in financing activities was $1.4 million during the first nine months of 2005,
as compared to $7.6 million during the first nine months of 2004. We began 2004
and 2005, respectively, with $14 million and $2 million in long-term debt. Most
of the cash used in financing activities during the first nine months of 2004
was directed to paying down our long-term debt. During the first nine months of
2005, $2 million of our cash used in financing activities was for the purpose of
reducing our long-term debt position to zero. Increased proceeds from the
issuance of common stock or re-issuance of treasury stock (both in connection
with the exercise of stock options) also served to increase net cash provided by
financing activities during the first nine months of 2005. During the nine
months ended September 30, 2005, we expended $3.2 million for repurchases of our
common stock, as compared to $1.1 million during the comparable year-ago nine
month period.
 
 ***Obligations
and Commitments*** : As of
September 30, 2005, we had no debt and letters of credit issued by us for
insurance purposes and to equipment leasing companies were $4.5 million in
total.
 As of
September 30, 2005, we had contracts for building construction and to purchase
tractors and trailers later in 2005 totaling approximately $17.1 million. We
expect to lease most of the tractors and purchase most of the trailers when they
are placed into service.
 We lease
equipment and real estate. Rentals are due under non-cancelable operating leases
for facilities, tractors and trailers. Facility and trailer leases do not
contain guaranteed residual values in favor of the lessors. Most of the tractors
we leased prior to 2003 and many of the tractors we leased since 2002 are leased
pursuant to agreements under which we have partially guaranteed the assets
end-of-lease term residual value. Tractor leases entered into before 2003
typically have 36-month terms, and tractor leases entered into after 2002 have
either 42 or 48-month terms. The portions of the residuals we have guaranteed
vary from lessor to lessor. Gross residuals are between 40% and 55% of the
leased asset's historical cost, of which we have guaranteed the first 27% to 40%
of the leased asset's historical cost. The lessors remain at risk for between
13% and 15% 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 term of the leases. 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**
    
    **2005**(1)
    
    **2006**
    
    **2007**
    
    **2008**
    
    **2009**
    
    **After**
      **2009**Debt
      and letters of credit
    
    $
    4.5
    
    $
    -
    
    $
    -
    
    $
    4.5
    
    $
    -
    
    $
    -
    
    $
    -Obligations
      for the purchase of property and equipment(2)
    
    
    17.1
    
    
    15.1
    
    
    2.0
    
    
    -
    
    
    -
    
    
    -
    
    
    -Operating
      leases forRentals
    
    
    81.6
    
    
    7.2
    
    
    24.8
    
    
    18.0
    
    
    13.9
    
    
    8.4
    
    
    9.3Residual
      guarantees
    
    
    11.6
    
    
    3.0
    
    
    5.5
    
    
    1.1
    
    
    0.9
    
    
    1.1
    
    
    -Accounts
      payable
    
    
    30.2
    
    
    30.2
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Accrued
      payroll
    
    
    6.7
    
    
    6.7
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -151.7
    
    $
    62.2
    
    $
    32.3
    
    $
    23.6
    
    $
    14.8
    
    $
    9.5
    
    $
    9.3Deferred
      compensationPhantom
      stock(3)
    
    
    1.8Rabbi
      trust(4)
    
    
    1.5Total
    
    $
    155.0
 
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 (1)
    Represents
      amounts due from October 1, 2005 through December 31,
  2005.(2)
    Represents
      non-cancelable commitments for building construction and the acquisition
      of property and equipment, principally tractors and trailers. Such
      transactions will be financed either by operating cash flows, borrowings
      under our credit agreement or by our leasing
  arrangements.(3)
    Represents
      the current value of 171,000 restricted phantom stock units awarded
      pursuant to the company’s Executive Bonus and Phantom Stock Plan and a
      Supplemental Executive Retirement Plan. An officer may elect to cash out
      any number of the phantom stock units between December 1 and December 15
      of any year selected by the officer with the payout amount with respect to
      each phantom stock unit being generally equal to the greater of (i) the
      actual price of the company’s common stock on December 31 of the year of
      an officer’s election to cash out the unit, or (ii) the average of the 12
      month-end values of such stock during the year in which an officer elects
      to cash out. Accordingly, we are unable to anticipate the year this
      currently unfunded obligation will be paid in cash or the amount of cash
      ultimately payable.(4)
    Represents
      the obligations of a "grantor" (or "rabbi") trust established in
      connection with our 401(k) Wrap Plan to hold company assets to satisfy
      obligations under the Wrap Plan. The trust obligations include
      approximately 141,000 shares of the company’s common stock and will be
      cashed out either upon the eligibility of the obligations to be
      transferred to our 401(k) Savings Plan or upon the retirement of
      individual wrap plan participants. Accordingly, we are unable to
      anticipate the year this currently funded amount will be paid in cash or
      the amount of cash ultimately payable.
 
 **OUTLOOK**
 
 This
report contains information and forward-looking statements that are based on our
current beliefs and expectations and assumptions we made based upon information
currently available. Forward-looking statements include statements relating to
our plans, strategies, objectives, expectations, intentions, and adequacy of
resources, and may be identified by words such as "will", "could", "should",
"believe", "expect", intend", "plan", "schedule", "estimate", "project" and
similar expressions. These statements are based on current expectations and are
subject to uncertainty and change.
 Although
we believe that the expectations reflected in such forward-looking statements
are reasonable, actual results could differ materially from the expectations
reflected in such forward-looking statements. Should one or more of the risks or
uncertainties underlying such expectations not materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those we
expect.
 Factors
that are not within our control which could contribute to such differences and
may have a bearing on operating results include demand for our services and
products, and our ability to meet that demand, which may be affected by, among
other things, competition, weather conditions and the general economy, the
availability and cost of labor, our ability to negotiate favorably with lenders
and lessors, the effects of terrorism and war, the availability and cost of
equipment, fuel and supplies, the market for previously-owned equipment, the
impact of changes in the tax and regulatory environment in which we operate,
operational risks and insurance, risks associated with the technologies and
systems used and the other risks and uncertainties described elsewhere in our
filings with the Securities and Exchange Commission. We do not assume any
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
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  **OFF-BALANCE
SHEET ARRANGEMENTS**
 
 We
utilize non-cancelable operating leases to finance a portion of our revenue
equipment acquisitions. As of September 30, 2005, we leased 1,092 tractors and
2,282 trailers under operating leases with varying termination dates ranging
from 2005 to 2012. 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 expense”. Our rental expense
related to operating leases involving vehicles during the nine months ended
September 30, 2005 and 2004 was $22.2 million and $23.9 million,
respectively.
  **ITEM 3.**  **Quantitative
and Qualitative Disclosures about Market Risk**
 
 As of
September 30, 2005, we held no market risk sensitive instruments for trading
purposes. For purposes other than trading, we held the following market risk
sensitive instruments as of September 30, 2005:
 
 **Description**
    **Discussion**Rabbi
      Trust investment in 141,000 shares of our stock, $1.5 million, and
      liabilities for stock-based deferred compensation arrangements, $1.8
      million.
    Our
      consolidated 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.Cash
      surrender value of life insurance policies,$4.0
      million.
    The
      cash surrender value of our life insurance policies is a function of the
      amounts we pay to the insurance companies, the insurance charges taken by
      the insurance companies and the investment returns earned by or losses
      incurred by the insurance company. Changes in any of these factors will
      impact the cash surrender value of our life insurance policies. Insurance
      charges and investment performance have a proximate effect on the value of
      our life insurance assets and on our net
income.
 
 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**
 
 **(a)
Disclosure Controls and Procedures:** As of
September 30, 2005, we evaluated, under the supervision and with the
participation of our management, including the Chief Executive Officer and the
Chief Financial Officer, the effectiveness of the design and the operation of
our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and
15d-15 of the Securities Exchange Act of 1934. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective as of September 30, 2005,
because of the material weaknesses discussed below.
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 **(b)
Management’s Report on Internal Control over Financial
Reporting:** Our
management is responsible for establishing and maintaining an adequate system of
internal control over financial reporting, as defined in Rules 13a-15(f) or
15d-15(f) of the Securities Exchange Act of 1934.  Management assessed the
effectiveness of our internal control over financial reporting as of December
31, 2004.  In making this assessment, our management used criteria set
forth by the Committee of Sponsoring Organizations (COSO) of the Treadway
Commission in *Internal
Control - Integrated Framework* .
 Through
this assessment, management identified three internal control deficiencies that
constitute material weaknesses as defined by the Public Company Accounting
Oversight Board’s Accounting Standard No. 2. The Company has concluded that it
lacked sufficient controls to (i) ensure the reconciliation of certain accrued
liability accounts; (ii) ensure the proper calculation of deferred tax assets
and liabilities attributable to differences in the book and tax basis of each
component of the Company’s consolidated balance sheet; and (iii) ensure the
Commitments and Contingencies Note to the consolidated financial statements as
of December 31, 2004 accurately reflects the Company’s lease obligations. The
first two material weaknesses described above affect our quarterly reports on
Form 10-Q as well as our annual reports on Form 10-K. The third material
weakness described above affects only our annual reports on Form 10-K, but as
of September 30, 2005, the third such material weakness has been
remediated. Because of the material weaknesses described above, our management
has concluded that as of December 31, 2004 our internal controls over
financial reporting were not effective.  Such material weaknesses in
internal control continue to exist as of September 30, 2005.
 The
remediation of the third such material weakness constituted enhancing the
structure of the computer spreadsheet that we used to tabulate our lease
commitments and strengthening the internal review of the disclosure to ensure
that it appropriately reflects the company’s obligations.
 With
regard to the material weakness regarding the reconciliation of certain
liability accounts, our efforts to remediate were on-going, but incomplete
as of September 30, 2005. In the interim, we have increased our activities to
review the transactions that are posted into the involved accounts, and monitor
such activity with increased frequency, to ensure that any questionable entries
are promptly identified and corrected. Our efforts to reconcile the involved
accounts to ensure that period-end balances are properly supported by an open
transaction detail are continuing.
 With
regard to the material weakness involving income taxes, we have engaged the
services of a national independent accounting firm to assist us in identifying
and quantifying all book tax differences that comprise the balances in our
deferred tax accounts. Significant progress has been made, but we have not yet
been able to conclude that this weakness has been effectively remediated.
 **(c)
Changes in Internal Controls Over Financial Reporting:** As part
of our ongoing analysis of internal controls over financial reporting and the
issues identified above, management has made and is making changes to our
internal controls. In addition to the remediation efforts described in (b)
above, these changes include recruiting to increase staffing in certain areas of
the financial organization, redeploying key personnel, strengthening of controls
over the accounting for certain accounting estimates, formalizing accounting
procedures, establishing additional monitoring controls, and the retaining of an
independent accounting firm to assist with the income tax preparation and
controls. Other than the changes discussed in the preceding two sentences, there
have been no changes to the Company’s internal control over financial reporting
that occurred since the beginning of the Company’s first quarter of 2005
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.
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 **PART
II**
 
 **OTHER
INFORMATION**
 
 Items 1,
3, 4 and 5 of Part II are omitted due to a lack of updated information to
disclose pursuant to said items.
 
 **ITEM 2.**  **Unregistered
Sales of Equity Securities and Use of Proceeds**
 
 Issuer
Purchases of Equity Securities for Quarter Ended September 30,
2005
 
 **Period**
    
    **Total
      Number of Shares Purchased**
    
    **Average
      Price Paid per Share**
    
    **Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs**
    
    **Maximum
      Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased
      Under the Plans or Programs(1)**July
      1 to July 31, 2005
    
    
    --
    
    
    --
    
    
    --
    
    
    593,200August1
      to August 31, 2005
    
    
    40,100
    
    $
    10.35
    
    
    40,100
    
    
    553,100September
      1 to September 30, 2005
    
    
    277,700
    
    
    10.19
    
    
    277,700
    
    
    275,400**Total**
    
    
    317,800
    
    $
    10.21
    
    
    317,800
    
    
    275,400
 
 (1)
    On August
      11, 2004, the Board of Directors authorized the purchase of up to
      750,000 shares of the Company’s common stock from time to time on the open
      market or through private transactions at such times as management deems
      appropriate.  The authorization did not specify an expiration
      date.  Purchases may be increased, decreased or discontinued by the
      Board of Directors at any time without prior
notice.
 
 **ITEM 6.**  **Exhibits**
 
 **Exhibits**
 
 3.1
    Articles
      of Incorporation of the Registrant and all amendments to date (filed as
      Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal
      year ended December 31, 1993 and incorporated herein by
      reference).
 
 3.2
    Bylaws
      of the Registrant, as amended (filed as Exhibit 3.2 to the Registrant's
      Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and
      incorporated herein by reference).
 
 31.1
    Certification
      of Chief Executive Officer Required by Rule 13a-14(a)(17 CFR
      240.13a-14(a)).
 
 31.2
    Certification
      of Chief Financial Officer Required by Rule 13a-14(a)(17 CFR
      240.13a-14(a)).
 
 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.
 
 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.
  
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 **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, hereunto
duly authorized.
  
 **FROZEN
      FOOD EXPRESS INDUSTRIES, INC.**(Registrant)Dated:
      November 4, 2005
    By
    /s/
      F. Dixon McElwee, Jr.F.
      Dixon McElwee, Jr.
      Senior
      Vice President
      Principal
      Financial and
      Accounting
      Officer
 
 **EXHIBIT
INDEX**
 
 
 3.1
    Articles
      of Incorporation of the Registrant and all amendments to date (filed as
      Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal
      year ended December 31, 1993 and incorporated herein by
      reference).
 
 3.2
    Bylaws
      of the Registrant, as amended (filed as Exhibit 3.2 to the Registrant's
      Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and
      incorporated herein by reference).
 
 31.1
    Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.
 
 31.2
    Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.
 
 32.1
    Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.
 
 32.2
    Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.
 
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