Back to GetFilings.com



 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2005

Commission File No. 000-22490

FORWARD AIR CORPORATION

(Exact name of registrant as specified in its charter)

Tennessee
(State or other jurisdiction of
incorporation or organization)

62-1120025
(I.R.S. Employer Identification No.)

430 Airport Road
Greeneville, Tennessee
(Address of principal executive offices)

37745
(Zip Code)

Registrant’s telephone number, including area code: (423) 636-7000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  |X|              NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES  |X|              NO

The number of shares outstanding of the registrant’s common stock, $.01 par value, as of May 4, 2005 was 32,316,060.

 


 

 



 

 

Table of Contents

Forward Air Corporation

 

 

 

 

Page
Number

Part I.

 

Financial Information

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets – March 31, 2005 and December 31, 2004

3

 

 

 

 

 

 

Condensed Consolidated Statements of Income - Three months ended March 31, 2005 and 2004

4

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2005 and 2004

5

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements – March 31, 2005

6

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

13

 

 

 

 

Item 4.

 

Controls and Procedures

13

 

 

 

 

Part II.

 

Other Information

 

 

 

 

 

Item 1.

 

Legal Proceedings

14

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

14

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

14

 

 

 

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

14

 

 

 

 

Item 5.

 

Other Information

14

 

 

 

 

Item 6.

 

Exhibits

14

 

 

 

 

Signatures

16

 

 

2

 



 

 

Part I.

Financial Information

 

Item 1.

Financial Statements (Unaudited)

Forward Air Corporation

Condensed Consolidated Balance Sheets

 

 

 

March 31, 2005

 

December 31,
2004

 

 

 

(Unaudited)

 

(Note 1)

 

 

 

(In thousands, except share data)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

$

5,012

 

 

 

$

78

 

 

Short-term investments

 

 

 

111,850

 

 

 

 

111,600

 

 

Accounts receivable, less allowance of $901 in 2005 and $1,072 in 2004

 

 

 

35,685

 

 

 

 

38,334

 

 

Other current assets

 

 

 

7,143

 

 

 

 

9,410

 

 

Total current assets

 

 

 

159,690

 

 

 

 

159,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment

 

 

 

81,071

 

 

 

 

81,225

 

 

Less accumulated depreciation and amortization

 

 

 

45,583

 

 

 

 

43,939

 

 

Total property and equipment, net

 

 

 

35,488

 

 

 

 

37,286

 

 

Other assets

 

 

 

17,857

 

 

 

 

17,845

 

 

Total assets

 

 

$

213,035

 

 

 

$

214,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

$

5,338

 

 

 

$

10,026

 

 

Accrued expenses

 

 

 

12,760

 

 

 

 

15,592

 

 

Current portion of capital lease obligations

 

 

 

41

 

 

 

 

39

 

 

Total current liabilities

 

 

 

18,139

 

 

 

 

25,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital lease obligations, less current portion

 

 

 

858

 

 

 

 

867

 

 

Deferred income taxes

 

 

 

6,925

 

 

 

 

7,026

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

Common stock, $.01 par value:

 

 

 

 

 

 

 

 

 

 

 

Authorized shares - 50,000,000

 

 

 

 

 

 

 

 

 

 

 

Issued and outstanding shares – 32,317,617 in 2005 and 32,397,747 in 2004

 

 

 

323

 

 

 

 

324

 

 

Additional paid-in capital

 

 

 

33,700

 

 

 

 

36,279

 

 

Accumulated other comprehensive income

 

 

 

1

 

 

 

 

4

 

 

Retained earnings

 

 

 

153,089

 

 

 

 

144,396

 

 

Total shareholders’ equity

 

 

 

187,113

 

 

 

 

181,003

 

 

Total liabilities and shareholders’ equity

 

 

$

213,035

 

 

 

$

214,553

 

 


The accompanying notes are an integral part of the financial statements.

 

 

3

 



 

 

Forward Air Corporation

Condensed Consolidated Statements of Income

(Unaudited)

 

 

 

Three months ended

 

 

 

 

March 31, 2005

 

March 31, 2004

 

 

 

 

(In thousands, except per share data)

 

 

Operating revenue

 

 

$

69,533

 

 

 

$

64,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Purchased transportation

 

 

 

28,479

 

 

 

 

26,994

 

 

Salaries, wages and employee benefits

 

 

 

15,452

 

 

 

 

14,673

 

 

Operating leases

 

 

 

3,336

 

 

 

 

3,262

 

 

Depreciation and amortization

 

 

 

1,853

 

 

 

 

1,699

 

 

Insurance and claims

 

 

 

1,182

 

 

 

 

1,423

 

 

Other operating expenses

 

 

 

5,850

 

 

 

 

5,517

 

 

Total operating expenses

 

 

 

56,152

 

 

 

 

53,568

 

 

Income from operations

 

 

 

13,381

 

 

 

 

10,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

(14

)

 

 

 

(14

)

 

Other, net

 

 

 

532

 

 

 

 

177

 

 

Total other income

 

 

 

518

 

 

 

 

163

 

 

Income before income taxes

 

 

 

13,899

 

 

 

 

10,898

 

 

Income taxes

 

 

 

5,206

 

 

 

 

4,090

 

 

Net income

 

 

$

8,693

 

 

 

$

6,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$

0.27

 

 

 

$

0.21

 

 

Diluted

 

 

$

0.27

 

 

 

$

0.21

 

 

Dividends declared per share

 

 

$

0.06

 

 

 

$

 

 


The accompanying notes are an integral part of the financial statements.

 

 

4

 



 

 

Forward Air Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three months ended

 

 

 

March 31, 2005

 

March 31, 2004

 

 

 

(In thousands)

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$

8,693

 

 

 

$

6,808

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

1,853

 

 

 

 

1,699

 

 

Other non-cash charges

 

 

 

274

 

 

 

 

 

 

Gain on sale of property and equipment

 

 

 

 

 

 

 

(7)

 

 

Provision for loss on receivables

 

 

 

186

 

 

 

 

183

 

 

Provision for revenue adjustments

 

 

 

(15

)

 

 

 

 

 

Deferred income taxes

 

 

 

(264

)

 

 

 

818

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

2,478

 

 

 

 

(1,194

)

 

Inventories

 

 

 

(28

)

 

 

 

9

 

 

Prepaid expenses and other current assets

 

 

 

380

 

 

 

 

520

 

 

Accounts payable and accrued expenses

 

 

 

(7,520

)

 

 

 

640

 

 

Income taxes

 

 

 

2,078

 

 

 

 

20

 

 

Tax benefit of stock options exercised

 

 

 

235

 

 

 

 

59

 

 

Net cash provided by operating activities

 

 

 

8,350

 

 

 

 

9,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from disposal of property and equipment

 

 

 

 

 

 

 

9

 

 

Purchases of property and equipment

 

 

 

(55

)

 

 

 

(2,958

)

 

Proceeds from sales or maturities of available-for-sale securities

 

 

 

9,112

 

 

 

 

72,860

 

 

Purchases of available-for-sale securities

 

 

 

(9,362

)

 

 

 

(83,488

)

 

Other

 

 

 

(15

)

 

 

 

(58

)

 

Net cash used in investing activities

 

 

 

(320

)

 

 

 

(13,635

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

Payments of capital lease obligations

 

 

 

(7

)

 

 

 

(8

)

 

Proceeds from exercise of stock options

 

 

 

1,020

 

 

 

 

633

 

 

Repurchase of common stock

 

 

 

(4,109

)

 

 

 

(363

)

 

Net cash provided by (used in) financing activities

 

 

 

(3,096

)

 

 

 

262

 

 

Net increase (decrease) in cash

 

 

 

4,934

 

 

 

 

(3,818

)

 

Cash at beginning of period

 

 

 

78

 

 

 

 

16,362

 

 

Cash at end of period

 

 

$

5,012

 

 

 

$

12,544

 

 


The accompanying notes are an integral part of the financial statements.

 

 

5

 



 

 

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

March 31, 2005

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in the Forward Air Corporation Annual Report on Form 10-K for the year ended December 31, 2004.

The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date, but does not include all of the financial information and footnotes required by United States generally accepted accounting principles for complete financial statements.

2. Investments

The Company had a total of $111.9 and $111.6 million in available-for-sale securities as of March 31, 2005 and December 31, 2004, respectively. In the 2004 quarterly reporting, the Company had considered its municipal bonds with the option to go to auction every 7-35 days (“auction rate securities”) as cash and cash equivalents. Since the stated maturities on the auction rate securities were in excess of three months from the time of purchase, the auction rate securities meet the Company’s policy for classification as available-for-sale securities. Securities are classified as available for sale when the Company does not intend to hold the securities to maturity nor regularly trade the securities. There was a reclassification of $7.6 million from net increase in cash and cash equivalents to net cash used in investing activities related to the purchases and sales of available-for-sale securities for the three months ended March 31, 2004 in the condensed consolidated statements of cash flows.

3. Comprehensive Income

Comprehensive income includes any changes in the equity of the Company from transactions and other events and circumstances from non-owner sources. Comprehensive income for the three months ended March 31, 2005 and 2004 was $8.7 million and $6.8 million, respectively, which includes $3,000 and $-0- in unrealized losses, respectively, on available-for-sale securities.

4. Employee Stock Options

The Company grants options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the grant date. The Company accounts for employee stock option grants using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no compensation expense for the stock option grants. The Company follows the disclosure option of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, which requires that the information be disclosed as if the Company accounted for its stock options granted subsequent to December 31, 1994 under the fair value method.

 

6

 



 

 

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

 

4. Employee Stock Options (continued)

For purposes of pro forma disclosures, the estimated fair value of the stock options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows (in thousands, except per share data):

 

 

 

 

Three months ended

 

 

 

 

March 31, 2005

 

March 31, 2004

 

Net income, as reported

 

 

 

$

8,693

 

 

$

6,808

 

 

Pro forma compensation expense, net of tax

 

 

 

 

807

 

 

 

657

 

 

Pro forma net income

 

 

 

$

7,886

 

 

$

6,151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

$

0.27

 

 

$

0.21

 

 

Diluted

 

 

 

$

0.27

 

 

$

0.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

$

0.24

 

 

$

0.19

 

 

Diluted

 

 

 

$

0.24

 

 

$

0.19

 

 

5. Net Income Per Share

On February 15, 2005, the Company’s Board of Directors declared a three-for-two stock split of common stock to be effected in the form of a stock dividend to shareholders of record as of March 18, 2005. Common stock issued and additional paid-in capital have been restated to reflect the split for all periods presented. All common share and per share data included in the condensed consolidated financial statements and notes thereto have been restated to give effect to the stock split.

On February 15, 2005, the Company’s Board of Directors declared a cash dividend of $0.06 per share on the 32.3 million shares of common stock then outstanding to shareholders of record on April 4, 2005. The Company expects to continue to pay regular quarterly cash dividends, though each subsequent quarterly dividend is subject to review and approval by the Board of Directors.

 

7

 



 

 

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

 

5. Net Income Per Share (continued)

The following table sets forth the computation of basic and diluted income per share (in thousands, except per share data):

 

 

 

Three months ended

 

 

 

 

March 31, 2005

 

March 31, 2004

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator for basic and diluted income per share - net income

 

 

$

8,693

 

 

 

 

 

 

$

6,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic income per share - weighted-average shares

 

 

 

32,293

 

 

 

 

 

 

 

32,265

 

 

Effect of dilutive stock options

 

 

 

436

 

 

 

 

 

 

 

557

 

 

Denominator for diluted income per share - adjusted weighted-average shares

 

 

 

32,729

 

 

 

 

 

 

 

32,822

 

 

Basic income per share

 

 

$

0.27

 

 

 

 

 

 

$

0.21

 

 

Diluted income per share

 

 

$

0.27

 

 

 

 

 

 

$

0.21

 

 

6. Income Taxes

For the three months ended March 31, 2005 and March 31, 2004, the effective income tax rates varied from the statutory federal income tax rate of 35.0% primarily as a result of the effect of state income taxes, net of the federal benefit, and permanent differences between book and tax net income.

7. Commitments and Contingencies

The primary claims in the Company’s business are workers’ compensation, property damage, vehicle liability and medical benefits. Most of the Company’s insurance coverage provides for self-insurance levels with primary and excess coverage which management believes is sufficient to adequately protect the Company from catastrophic claims. In the opinion of management, adequate provision has been made for all incurred claims up to the self-insured limits, including provision for estimated claims incurred but not reported.

The Company estimates its self-insurance loss exposure by evaluating the merits and circumstances surrounding individual known claims, and by performing hindsight analysis to determine an estimate of probable losses on claims incurred but not reported. Such losses could be realized immediately as the events underlying the claims have already occurred as of the balance sheet dates.

Because of the uncertainty of the ultimate resolution of outstanding claims, as well as uncertainty regarding claims incurred but not reported, it is possible that management’s provision for these losses could change materially in the near term. However, no estimate can currently be made of the range of additional loss that is at least reasonably possible.

 

8

 



 

 

Forward Air Corporation

 

Notes to Condensed Consolidated Financial Statements

8. Impact of Recently Issued Accounting Standards

On December 16, 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. 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. Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an option.

Originally, SFAS No. 123R was to be adopted no later than July 1, 2005, although early adoption was allowable. However, on April 14, 2005, the Securities and Exchange Commission (“SEC”) announced that the effective date of SFAS No. 123R will be suspended until January 1, 2006, for calendar year companies. At this time, the Company plans to adopt SFAS No. 123R using the modified-retrospective method.

As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123R’s fair value method will have significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS No. 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS No. 123R in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share in Note 4 to our condensed consolidated financial statements. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in the periods after adoption. While the Company cannot estimate what those amounts will be in the future, the amount of operating cash flows recognized in prior periods for such tax deductions is disclosed in Note 4 to our condensed consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. This interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, sets forth criteria under which a company must consolidate certain variable interest entities. Interpretation No. 46 places increased emphasis on controlling financial interests when determining if a company should consolidate a variable interest entity. The Company adopted the provisions of Interpretation No. 46 during the first quarter of fiscal 2004 as a result of the FASB deferring the effective date of FASB Interpretation No. 46 for variable interests held by public companies. The adoption of Interpretation No. 46 had no impact on the Company’s financial position or results of operations.

9. Reclassificiations

Certain reclassifications have been made to prior year financial statements to conform to the 2005 presentation. These reclassifications had no effect on net income as previously reported.

 

9

 



 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

We provide scheduled ground transportation of cargo on a time-definite basis. As a result of our established transportation schedule and network of terminals, our operating cost structure includes significant fixed costs. Our ability to improve our operating margins will depend on, among other things, our ability to increase the volume of freight moving through our network. Additional information regarding our business is described in our 2004 Annual Report on Form 10-K.

Critical Accounting Policies

A summary of significant accounting policies is disclosed in Note 1 to the Consolidated Financial Statements included in our 2004 Annual Report on Form 10-K. Our critical accounting policies are further described under the caption “Discussion of Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2004 Annual Report on Form 10-K. There have been no changes in the nature of our critical accounting policies or the application of those policies since December 31, 2004.

Risk Factors

A summary of factors which could affect results and cause results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf, are further described under the caption “Risk Factors” in the Business portion of our 2004 Annual Report on Form 10-K. There have been no changes in the nature of these factors since December 31, 2004.

Results of Operations

The following table shows the percentage relationship of expense items to operating revenue for the periods indicated. In the accompanying discussion, all percentage figures are as a percent of operating revenue with the exception of revenue growth rates.

 

 

 

Three months ended

 

 

 

March 31, 2005

 

 

March 31, 2004

 

Operating revenue

 

 

100.0

%

 

 

100.0

%

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Purchased transportation

 

 

41.0

 

 

 

42.0

 

 

Salaries, wages and employee benefits

 

 

22.2

 

 

 

22.8

 

 

Operating leases

 

 

4.8

 

 

 

5.1

 

 

Depreciation and amortization

 

 

2.7

 

 

 

2.6

 

 

Insurance and claims

 

 

1.7

 

 

 

2.2

 

 

Other operating expenses

 

 

8.4

 

 

 

8.6

 

 

Total operating expenses

 

 

80.8

 

 

 

83.3

 

 

Income from operations

 

 

19.2

 

 

 

16.7

 

 

Total other income

 

 

0.8

 

 

 

0.2

 

 

Income before income taxes

 

 

20.0

 

 

 

16.9

 

 

Income taxes

 

 

7.5

 

 

 

6.3

 

 

Net income

 

 

12.5

%

 

 

10.6

%

 


 

10

 



 

 

Three Months Ended March 31, 2005 compared to Three Months Ended March 31, 2004

 

Operating revenue increased by $5.2 million, or 8.1%, to $69.5 million in the first quarter of 2005 from $64.3 million in the same period of 2004. This increase resulted from an increase in traditional linehaul revenue of $4.4 million to $58.8 million, an increase in logistics revenue of $0.8 million to $5.9 million and an increase in other accessorial revenue of less than $0.1 million to $4.8 million. Traditional linehaul revenue was impacted by an increase in average weekly tonnage of 2.5% and a 5.3% increase in average revenue per pound, including the impact of fuel surcharge, versus the first quarter of 2004.

 

Purchased transportation represented 41.0% of operating revenue in the first quarter of 2005 compared to 42.0% in the same period of 2004. The decrease in purchased transportation as a percent of operating revenue was primarily the result of an increase in operating revenue. This proportionate increase in revenue was due to a rate increase, along with better load factors. Additionally, a shift toward less costly owner-operators from brokers this quarter reduced cost per mile. For the first quarter of 2005, traditional linehaul and logistics purchased transportation costs represented 39.7% and 68.7%, respectively, of operating revenue versus 41.3% and 67.4%, respectively, during the same period in 2004.

 

Salaries, wages and employee benefits were 22.2% of operating revenue in the first quarter of 2005 compared to 22.8% for the same period of 2004. The decrease in salaries, wages and employee benefits as a percentage of operating revenue was attributed to a 0.5% decrease in salaries and wages, including incentives and a 0.2% decrease in health care costs. These decreases were offset, in part, by a 0.1% increase in workers’ compensation expenses.

 

Operating leases, the largest component of which is facility rent, were 4.8% of operating revenue in the first quarter of 2005 compared to 5.1% in the same period of 2004. The decrease in operating leases as a percentage of operating revenue between periods was primarily attributable to an increase in operating revenue as the actual dollar amount for operating leases increased during the period.

 

Depreciation and amortization expense as a percentage of operating revenue was 2.7% in the first quarter of 2005, compared to 2.6% in the same period of 2004. The increase in depreciation and amortization expense as a percentage of operating revenue was primarily attributable to an increase in depreciation expense associated with new equipment we purchased during 2004.

 

Insurance and claims were 1.7% of operating revenue in the first quarter of 2005, compared to 2.2% in the same period of 2004. The decrease in insurance and claims as a percentage of operating revenue resulted from an increase in operating revenue. Amounts paid for insurance decreased by 0.4% of operating revenue while claims expense decreased by 0.1%.

 

Other operating expenses were 8.4% of operating revenue in the first quarter of 2005 compared to 8.6% in the same period of 2004. The decrease in other operating expenses as a percentage of operating revenue was attributable to an increase in operating revenue. Miscellaneous corporate expenses decreased as a percent of operating revenue by 0.5% as the Company had better bad debt experience in the first quarter of 2005 and did not have professional fees associated with a board member search completed in the first quarter of 2004. Additionally, communications and utilities expenses decreased by 0.1%. Taxes and license fees and miscellaneous operating expenses, however, increased by 0.2% and 0.2% of operating revenue, respectively.

 

Income from operations increased by $2.7 million, or 25.2%, to $13.4 million for the first quarter of 2005 compared with $10.7 million for the same period in 2004. The increase in income from operations was primarily a result of the increase in operating revenue which was offset by an increase in operating costs associated with operating the network.

 

Interest expense was $14,000, or less than 0.1% of operating revenue, in the first quarter of 2005, compared with $14,000, or less than 0.1% of operating revenue, for the same period in 2004.

 

Other income, net was $532,000, or 0.8% of operating revenue, in the first quarter of 2005, compared to $177,000, or 0.3%, for the same period in 2004. The increase in other income, net resulted from higher yields on higher balances in both cash and cash equivalents and available-for-sale securities during the first quarter of 2005.

 

11

 



 

 

The combined federal and state effective tax rate for the first quarter of 2005 was 37.5% compared to a rate of 37.5% for the same period in 2004.

 

As a result of the foregoing factors, net income increased by $1.9 million, or 27.9%, to $8.7 million for the first quarter of 2005, compared to $6.8 million for the same period in 2004.

Liquidity and Capital Resources

We have historically financed our working capital needs, including capital purchases, with cash flows from operations and borrowings under our bank lines of credit. Net cash provided by operating activities totaled approximately $8.4 million for the three months ended March 31, 2005, compared with approximately $9.6 million in the same period of 2004.

Net cash used in investing activities was approximately $0.3 million for the three months ended March 31, 2005 compared with approximately $13.6 million used in investing activities in the same period of 2004. Investing activities consisted primarily of the purchase and sale or maturities of available-for-sale securities and the purchase of operating equipment and management information systems during the three months ended March 31, 2005.

Net cash used in financing activities totaled approximately $3.1 million for the three months ended March 31, 2005 compared with approximately $0.3 million provided by financing activities for the same period of 2004. Financing activities included the repurchase of our common stock, the repayment of capital leases, proceeds received from the exercise of stock options and common stock issued under the employee stock purchase plan. In 2005, we used approximately $4.1 million to repurchase our common stock while we received approximately $1.0 million from the exercise of stock options.

Our credit facility consists of a working capital line of credit. As long as we comply with the financial covenants and ratios, the credit facility permits us to borrow up to $20.0 million less the amount of any outstanding letters of credit. Interest rates for advances under the facility vary based on how our performance measures against covenants related to total indebtedness, cash flows, results of operations and other ratios. The facility bears interest at LIBOR plus 1.0% to 1.9%, and is unsecured. The facility’s expiration was extended until April 2006 by letter agreement entered into in 2005. At March 31, 2005, we had $-0- outstanding under the line of credit facility and had utilized approximately $4.9 million of availability for outstanding letters of credit. We were in compliance with the financial covenants and ratios under the credit facility at March 31, 2005.

On July 25, 2002, we announced that our Board of Directors approved a stock repurchase program for up to 3,000,000 shares of our common stock. We expect to fund the repurchases of our common stock from cash, available-for-sale securities and cash generated from operating activities. We repurchased 142,650 of our shares during the first quarter of 2005. Since inception, the Company has repurchased 1,536,750 shares of our common stock for $27.6 million for an average purchase price of $17.94 per share.

On February 15, 2005, our Board of Directors declared a three-for-two stock split of our common stock to be effected in the form of a stock dividend to shareholders of record as of March 18, 2005. common stock issued and additional paid-in capital have been restated to reflect the split for all periods presented. All common share and per share data included in the condensed consolidated financial statements and notes thereto have been restated to give effect to the stock split.

Prior to February 15, 2005, we had never declared a cash dividend, our policy being to reinvest earnings into our business while retaining adequate cash reserves to fund potential acquisitions. On February 15, 2005, our Board of Directors declared a cash dividend of $0.06 per share of our common stock on a three-for-two stock split-adjusted basis. We expect to continue to pay regular quarterly cash dividends, though each subsequent quarterly dividend is subject to review and approval by our Board of Directors.

Management believes that our available cash, investments, expected cash generated from future operations and borrowings under available credit facilities will be sufficient to satisfy our anticipated cash needs for at least the next twelve months.

 

12

 



 

 

Forward-Looking Statements

This report contains “forward-looking statements,” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are statements other than historical information or statements of current condition and relate to future events or our future financial performance. Some forward-looking statements may be identified by use of such terms as “believes,” “anticipates,” “intends,” “plans,” “estimates,” “projects” or “expects.”  Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The following is a list of factors, among others, that could cause actual results to differ materially from those contemplated by the forward-looking statements: economic factors such as recessions, inflation, higher interest rates and downturns in customer business cycles, our inability to maintain our historical growth rate because of a decreased volume of freight moving through our network or decreased average revenue per pound of freight moving through our network, increasing competition and pricing pressure, surplus inventories, loss of a major customer, the creditworthiness of our customers and their ability to pay for services rendered, our ability to secure terminal facilities in desirable locations at reasonable rates, the inability of our information systems to handle an increased volume of freight moving through our network, changes in fuel prices, claims for property damage, personal injuries or workers’ compensation, employment matters including rising health care costs, enforcement of and changes in governmental regulations, environmental and tax matters, the handling of hazardous materials, the availability and compensation of qualified independent owner-operators and freight handlers needed to serve our transportation needs and our inability to successfully integrate acquisitions. As a result of the foregoing, no assurance can be given as to future financial condition, cash flows or results of operations. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk related to our remaining outstanding debt and available-for-sale securities is not significant and has not changed materially since December 31, 2004.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

 

We maintain controls and procedures designed to ensure that we are able to collect the information required to be disclosed in the reports we file with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer believe that these controls and procedures are effective to ensure that we are able to collect, process and disclose the information we are required to disclose in the reports we file with the SEC within the required time periods.

 

Changes in Internal Controls

 

There were no changes in our internal control over financial reporting during the first quarter of 2005 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

13

 



 

 

Part II.

Other Information

Item 1.

Legal Proceedings

 

From time to time, we are a party to ordinary, routine litigation incidental to and arising in the normal course of our business, most of which involve claims for personal injury, property damage related to the transportation and handling of freight, or workers’ compensation. We do not believe that any of these pending actions, individually or in the aggregate, will have a material adverse effect on our business, financial condition or results of operations.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to purchases we made of shares of our common stock during each month in the quarter ended March 31, 2005:

 

Period

 

Total
Number of
Shares
Purchased

 

Average
Price Paid
 per Share

 

Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program

 

Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Program (1)

 

January 1-31, 2005

 

 

142,650

 

 

 

$

28.79

 

 

 

1,536,750

 

 

 

1,463,250

 

February 1-28, 2005

 

 

 

 

 

$

 

 

 

 

 

 

 

March 1-31, 2005

 

 

 

 

 

$

 

 

 

 

 

 

 

Total

 

 

142,650

 

 

 

$

28.79

 

 

 

1,536,750

 

 

 

1,463,250

 

(1)

On July 25, 2002, we announced that our Board of Directors approved a stock repurchase program for up to 3,000,000 shares of our common stock.

 

Item 3.

Defaults Upon Senior Securities

 

Not Applicable

Item 4.

Submission of Matters to a Vote of Security Holders

Not Applicable

Item 5.

Other Information

Not Applicable

Item 6.

Exhibits

In accordance with SEC Release No. 33-8212, Exhibits 32.1 and 32.2 are to be treated as “accompanying” this report rather than “filed” as part of the report.

3.1

Restated Charter of the registrant (incorporated herein by reference to Exhibit 3 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 1999)

3.2

Amended and Restated Bylaws of the registrant (incorporated herein by reference to Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004, filed with the Securities and Exchange Commission on November 2, 2004)

4.1

Form of Landair Services, Inc. Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on September 27, 1993)

4.2

Form of Forward Air Corporation Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, filed with the Securities and Exchange Commission on November 16, 1998)

 

 

14

 



 

 

 

4.3

Rights Agreement, dated May 18, 1999, between the registrant and SunTrust Bank, Atlanta, N.A., including the Form of Rights Certificate (Exhibit A) and the Form of Summary of Rights (Exhibit B) (incorporated herein by reference to Exhibit 4 to the registrant’s Current Report on Form 8-K filed with the Commission on May 28, 1999)

31.1

Certification Pursuant to 15 U.S.C. Section 10A, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Bruce A. Campbell, President and Chief Executive Officer of Forward Air Corporation

31.2

Certification Pursuant to 15 U.S.C. Section 10A, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Andrew C. Clarke, Chief Financial Officer, Senior Vice President and Treasurer of Forward Air Corporation

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Bruce A. Campbell, President and Chief Executive Officer of Forward Air Corporation

32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Andrew C. Clarke, Chief Financial Officer, Senior Vice President and Treasurer of Forward Air Corporation

 

 

15

 



 

 

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Forward Air Corporation


Date: May 6, 2005

 

By: 

/s/ Andrew C. Clarke

 

 

 

Andrew C. Clarke
Chief Financial Officer, Senior Vice President and Treasurer

 

 

16

 



 

 

EXHIBIT INDEX

 

No.

 

Exhibit

 

 

 

3.1

 

Restated Charter of the registrant (incorporated herein by reference to Exhibit 3 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 1999)

 

 

 

3.2

 

Amended and Restated Bylaws of the registrant (incorporated herein by reference to Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004, filed with the Securities and Exchange Commission on November 2, 2004)

 

 

 

4.1

 

Form of Landair Services, Inc. Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on September 27, 1993)

 

 

 

4.2

 

Form of Forward Air Corporation Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, filed with the Securities and Exchange Commission on November 16, 1998)

 

 

 

4.3

 

Rights Agreement, dated May 18, 1999, between the registrant and SunTrust Bank, Atlanta, N.A., including the Form of Rights Certificate (Exhibit A) and the Form of Summary of Rights (Exhibit B) (incorporated herein by reference to Exhibit 4 to the registrant’s Current Report on Form 8-K filed with the Commission on May 28, 1999)

 

 

 

31.1

 

Certification Pursuant to 15 U.S.C. Section 10A, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Bruce A. Campbell, President and Chief Executive Officer of Forward Air Corporation

 

 

 

31.2

 

Certification Pursuant to 15 U.S.C. Section 10A, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Andrew C. Clarke, Chief Financial Officer, Senior Vice President and Treasurer of Forward Air Corporation

 

 

 

32.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Bruce A. Campbell, President and Chief Executive Officer of Forward Air Corporation

 

 

 

32.2

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Andrew C. Clarke, Chief Financial Officer, Senior Vice President and Treasurer of Forward Air Corporation