Frozen Food Express Industries, Dallas TX, has announced a retroactive change in accounting for an insurance policy that it acquired in 1993. The policy has a death benefit of at least $17.25 million. The intent of the policy was to allow FFE to purchase a large number of shares held by a non-employee if the company determined that sales of those shares on the open market would depress the stock price. The initial purchase treated the policy as a capital expense. The retroactive change treats the purchase as an expense. The result of the change is restated operating income for 1999 through 2001. Previous reports show a net loss of $600,000 for 1999, $1.2 million for 2000, and $12.1 million for 2001. The restated financials show a loss of $200,000 for 1999, $1.3 million for 2000, and $12.6 million for 2001. During 2001, FFE began accruing for the difference between the value of the policy on the books and the amount that it could receive from the policy. As a result, FFE recorded $340,000 in incremental expense during 2001 but the net loss incurred, after the reserve was reversed, was reduced by $481,000. Although this change resulted in a slight improvement to 2001's net loss, FFE expects this change to result in lower future earnings than would have been the case using the former method of accounting.
