Attached files
file | filename |
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EX-32.2 - EXHIBIT 32.2 - FORWARD AIR CORP | exhibit32-2.htm |
EX-31.1 - EXHIBIT 31.1 - FORWARD AIR CORP | exhibit31-1.htm |
EX-32.1 - EXHIBIT 32.1 - FORWARD AIR CORP | exhibit32-1.htm |
EX-31.2 - EXHIBIT 31.2 - FORWARD AIR CORP | exhibit31-2.htm |
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 September 30, 2009
Commission
File No. 000-22490
FORWARD
AIR CORPORATION
(Exact
name of registrant as specified in its charter)
Tennessee
|
62-1120025
|
|
(State
or other jurisdiction of incorporation)
|
(I.R.S.
Employer Identification No.)
|
|
430
Airport Road
Greeneville,
Tennessee
|
37745
|
|
(Address
of principal executive offices)
|
(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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
o
|
Accelerated
filer
x
|
Non-accelerated
filer
o
|
Smaller
reporting company
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
The
number of shares outstanding of the registrant’s common stock, $0.01 par value,
as of October 28, 2009 was 28,970,300.
Table
of Contents
|
||
Forward
Air Corporation
|
||
Page
|
||
Number
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||
Part
I.
|
Financial
Information
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
3
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||
4
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||
5
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||
6
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||
Item
2.
|
17
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Item
3.
|
35
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Item
4.
|
35
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|
Part
II.
|
Other
Information
|
|
Item
1.
|
35
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|
Item
1A.
|
36
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|
Item
2.
|
36
|
|
Item
3.
|
36
|
|
Item
4.
|
36
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|
Item
5.
|
36
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Item
6.
|
37
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38
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2
Part
I.
|
Financial
Information
|
Item
1.
|
Financial
Statements (Unaudited).
|
Condensed
Consolidated Balance Sheets
|
|||||
(Dollars
in thousands, except per share amounts)
|
|||||
(Unaudited)
|
|||||
September
30,
|
December
31,
|
||||
2009
|
2008
(a)
|
||||
Assets
|
|||||
Current
assets:
|
|||||
Cash
|
$ | 27,230 | $ | 22,093 | |
Accounts
receivable, less allowance of $2,030 in 2009 and $2,531 in
2008
|
52,993 | 57,206 | |||
Other
current assets
|
14,145 | 12,290 | |||
Total
current assets
|
94,368 | 91,589 | |||
Property
and equipment
|
203,383 | 186,377 | |||
Less
accumulated depreciation and amortization
|
72,976 | 63,401 | |||
Total
property and equipment, net
|
130,407 | 122,976 | |||
Goodwill
and other acquired intangibles:
|
|||||
Goodwill
|
43,332 | 50,230 | |||
Other
acquired intangibles, net of accumulated amortization of $11,134 in
2009
|
|||||
and
$8,103 in 2008
|
36,997 | 40,708 | |||
Total
goodwill and other acquired intangibles
|
80,329 | 90,938 | |||
Other
assets
|
1,582 | 2,024 | |||
Total
assets
|
$ | 306,686 | $ | 307,527 | |
Liabilities
and Shareholders’ Equity
|
|||||
Current
liabilities:
|
|||||
Accounts
payable
|
$ | 8,509 | $ | 11,633 | |
Accrued
expenses
|
16,057 | 12,927 | |||
Current
portion of debt and capital lease obligations
|
1,072 | 1,602 | |||
Total
current liabilities
|
25,638 | 26,162 | |||
Long-term
debt and capital lease obligations, less current portion
|
52,404 | 53,035 | |||
Other
long-term liabilities
|
3,749 | 3,055 | |||
Deferred
income taxes
|
6,136 | 8,841 | |||
Shareholders’
equity:
|
|||||
Preferred
stock
|
-- | -- | |||
Common
stock, $0.01 par value:
|
|||||
Authorized
shares – 50,000,000
|
|||||
Issued
and outstanding shares – 28,942,882 in 2009 and 28,893,850 in
2008
|
289 | 289 | |||
Additional
paid-in capital
|
15,139 | 10,249 | |||
Retained
earnings
|
203,331 | 205,896 | |||
Total
shareholders’ equity
|
218,759 | 216,434 | |||
Total
liabilities and shareholders’ equity
|
$ | 306,686 | $ | 307,527 | |
(a)
Taken from audited financial statements, which are not presented in their
entirety.
|
The
accompanying notes are an integral part of the financial
statements.
3
Condensed
Consolidated Statements of Operations
|
|||||||||||||||
(In
thousands, except per share data)
|
|||||||||||||||
(Unaudited)
|
|||||||||||||||
Three
months ended
|
Nine
months ended
|
||||||||||||||
September
30,
|
September
30,
|
September
30,
|
September
30,
|
||||||||||||
2009
|
2008
|
2009
|
2008
|
||||||||||||
Operating
revenue:
|
|||||||||||||||
Forward
Air
|
|||||||||||||||
Airport-to-airport
|
$ | 66,667 | $ | 85,901 | $ | 194,908 | $ | 257,147 | |||||||
Logistics
|
13,172 | 15,597 | 38,645 | 42,688 | |||||||||||
Other
|
5,596 | 6,487 | 16,975 | 18,464 | |||||||||||
Forward
Air Solutions
|
|||||||||||||||
Pool
distribution
|
17,644 | 13,499 | 48,864 | 32,685 | |||||||||||
Total
operating revenue
|
103,079 | 121,484 | 299,392 | 350,984 | |||||||||||
Operating
expenses:
|
|||||||||||||||
Purchased
transportation
|
|||||||||||||||
Forward
Air
|
|||||||||||||||
Airport-to-airport
|
28,025 | 33,388 | 82,008 | 98,432 | |||||||||||
Logistics
|
10,329 | 11,227 | 30,127 | 31,224 | |||||||||||
Other
|
1,387 | 1,764 | 3,681 | 4,941 | |||||||||||
Forward
Air Solutions
|
|||||||||||||||
Pool
distribution
|
3,747 | 2,505 | 9,774 | 5,743 | |||||||||||
Total
purchased transportation
|
43,488 | 48,884 | 125,590 | 140,340 | |||||||||||
Salaries,
wages and employee benefits
|
28,591 | 28,504 | 86,834 | 84,355 | |||||||||||
Operating
leases
|
6,631 | 6,183 | 20,440 | 16,918 | |||||||||||
Depreciation
and amortization
|
5,006 | 4,134 | 14,687 | 11,830 | |||||||||||
Insurance
and claims
|
2,045 | 1,816 | 6,984 | 5,690 | |||||||||||
Fuel
expense
|
1,880 | 3,052 | 5,199 | 8,466 | |||||||||||
Other
operating expenses
|
8,767 | 9,583 | 25,983 | 27,146 | |||||||||||
Impairment
of goodwill and other intangible assets
|
-- | -- | 7,157 | -- | |||||||||||
Total
operating expenses
|
96,408 | 102,156 | 292,874 | 294,745 | |||||||||||
Income
from operations
|
6,671 | 19,328 | 6,518 | 56,239 | |||||||||||
Other
income (expense):
|
|||||||||||||||
Interest
expense
|
(177 | ) | (210 | ) | (469 | ) | (839 | ) | |||||||
Other,
net
|
51 | 115 | 50 | 325 | |||||||||||
Total
other expense
|
(126 | ) | (95 | ) | (419 | ) | (514 | ) | |||||||
Income
before income taxes
|
6,545 | 19,233 | 6,099 | 55,725 | |||||||||||
Income
tax expense
|
2,766 | 7,136 | 2,581 | 21,519 | |||||||||||
Net
income
|
$ | 3,779 | $ | 12,097 | $ | 3,518 | $ | 34,206 | |||||||
Net
income per share:
|
|||||||||||||||
Basic
|
$ | 0.13 | $ | 0.42 | $ | 0.12 | $ | 1.19 | |||||||
Diluted
|
$ | 0.13 | $ | 0.42 | $ | 0.12 | $ | 1.18 | |||||||
Weighted
average shares outstanding:
|
|||||||||||||||
Basic
|
28,942 | 28,871 | 28,924 | 28,782 | |||||||||||
Diluted
|
29,026 | 29,139 | 28,978 | 29,067 | |||||||||||
Dividends
per share:
|
$ | 0.07 | $ | 0.07 | $ | 0.21 | $ | 0.21 |
The accompanying notes are an
integral part of the financial statements.
4
Condensed
Consolidated Statements of Cash Flows
|
|||||||
(In
thousands)
|
|||||||
(Unaudited)
|
|||||||
Nine
months ended
|
|||||||
September
30,
|
September
30,
|
||||||
2009
|
2008
|
||||||
Operating
activities:
|
|||||||
Net
income
|
$ | 3,518 | $ | 34,206 | |||
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|||||||
Depreciation
and amortization
|
14,687 | 11,830 | |||||
Impairment
of goodwill and other intangible assets
|
7,157 | -- | |||||
Share-based
compensation
|
5,022 | 4,571 | |||||
(Gain)
loss on sale or disposal of property and equipment
|
(13 | ) | 36 | ||||
Provision
for (recovery) loss on receivables
|
(74 | ) | 245 | ||||
Provision
for revenue adjustments
|
1,916 | 3,273 | |||||
Deferred
income taxes
|
(3,009 | ) | 635 | ||||
Tax
benefit for stock options exercised
|
(1 | ) | (1,148 | ) | |||
Changes
in operating assets and liabilities
|
|||||||
Accounts
receivable
|
2,370 | (16,092 | ) | ||||
Prepaid
expenses and other current assets
|
(1,567 | ) | (1,932 | ) | |||
Accounts
payable and accrued expenses
|
701 | 2,398 | |||||
Net
cash provided by operating activities
|
30,707 | 38,022 | |||||
Investing
activities:
|
|||||||
Proceeds
from disposal of property and equipment
|
231 | 46 | |||||
Purchases
of property and equipment
|
(18,828 | ) | (12,680 | ) | |||
Acquisition
of businesses
|
-- | (29,299 | ) | ||||
Other
|
405 | (167 | ) | ||||
Net
cash used in investing activities
|
(18,192 | ) | (42,100 | ) | |||
Financing
activities:
|
|||||||
Payments
of debt and capital lease obligations
|
(1,163 | ) | (1,172 | ) | |||
Borrowings
on line of credit
|
-- | 45,000 | |||||
Payments
on line of credit
|
-- | (25,000 | ) | ||||
Proceeds
from exercise of stock options
|
8 | 3,085 | |||||
Payments
of cash dividends
|
(6,081 | ) | (6,062 | ) | |||
Common
stock issued under employee stock purchase plan
|
99 | 145 | |||||
Repurchase
of common stock
|
-- | -- | |||||
Cash
settlement of share-based awards for minimum tax
withholdings
|
(242 | ) | (384 | ) | |||
Tax
benefit for stock options exercised
|
1 | 1,148 | |||||
Net
cash (used in) provided by financing activities
|
(7,378 | ) | 16,760 | ||||
Net
increase in cash
|
5,137 | 12,682 | |||||
Cash
at beginning of period
|
22,093 | 4,909 | |||||
Cash
at end of period
|
$ | 27,230 | $ | 17,591 |
The
accompanying notes are an integral part of the financial
statements.
5
Notes
to Condensed Consolidated Financial Statements
(In
thousands, except share and per share data)
(Unaudited)
September
30, 2009
1.
|
Basis
of Presentation
|
Forward
Air Corporation's (“the Company”) services can be classified into two
principal reporting segments: Forward Air, Inc. (“Forward Air”) and
Forward Air Solutions, Inc. (“FASI”).
Through
the Forward Air segment, the Company is a leading provider of time-definite
transportation and related logistics services to the North American deferred air
freight market and its activities can be classified into three categories
of service. Forward Air’s airport-to-airport service operates a
comprehensive national network for the time-definite surface transportation of
deferred air freight. The airport-to-airport service offers customers
local pick-up and delivery and scheduled surface transportation of cargo as a
cost effective, reliable alternative to air transportation. Forward
Air’s logistics services provide expedited truckload brokerage and dedicated
fleet services. Forward Air’s other services include shipment
consolidation and deconsolidation, warehousing, customs brokerage, and other
handling. The Forward Air segment primarily provides its
transportation services through a network of terminals located at or near
airports in the United States and Canada.
FASI
provides pool distribution services throughout the Mid-Atlantic, Southeast,
Midwest and Southwest continental United States. Pool
distribution involves managing high-frequency handling and distribution of
time-sensitive product to numerous destinations in specific geographic
regions. FASI’s primary customers for this product are regional and
nationwide distributors and retailers, such as mall, strip mall and outlet based
retail chains.
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 notes 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. The Company’s operating
results are subject to seasonal trends when measured on a quarterly basis,
therefore operating results for the three and nine months ended September 30,
2009 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2009. For further information, refer to the
consolidated financial statements and notes thereto included in the Forward Air
Corporation Annual Report on Form 10-K for the year ended December 31,
2008.
The
balance sheet at December 31, 2008 has been derived from the audited financial
statements at that date, but does not include all of the financial information
and notes required by United States generally accepted accounting principles for
complete financial statements.
The
accompanying consolidated financial statements of the Company include Forward
Air Corporation and its subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
The
Company has evaluated all subsequent events through October 30, 2009, the date
the financial statements were issued.
2.
|
Recent
Accounting Pronouncements
|
During
September 2006, the Financial Accounting Standards Board (“FASB”)
issued guidance regarding fair value measurements, which was effective for
fiscal years beginning after November 15, 2007. This guidance defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. In
February 2008, the FASB delayed the effective date of the fair value guidance
for all non-financial assets and liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a recurring basis,
until January 1, 2009. The Company adopted the new fair value
guidance on January 1, 2008 for all financial assets and liabilities and on
January 1, 2009 for nonfinancial assets. This adoption did not have a
significant impact on the Company's financial position or results of operations
other than considerations used in the fair value calculations of the Company’s
goodwill impairment tests. See further discussion of goodwill
impairment testing in Note 5.
6
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
2.
|
Recent
Accounting Pronouncements
(continued)
|
In
December 2007, the FASB issued a revision to rules governing business
combinations. The revised guidance establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. The revised
business combination guidance also establishes disclosure requirements to enable
the evaluation of the nature and financial effects of the business combination.
This guidance was effective January 1, 2009. The impact of this
revised guidance will depend on the nature of the Company’s business
combinations subsequent to January 1, 2009.
In
December 2007, the FASB amended guidance regarding noncontrolling interests and
the treatment of noncontrolling interests in consolidated financial
statements. The amended guidance establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. The amended guidance also establishes disclosure requirements
that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners. The adoption of the
amended guidance on January 1, 2009, did not have a significant impact on the
Company’s financial position, results of operations and cash flows as the
Company does not currently have any noncontrolling interests in other
entities.
The
Company adopted the FASB’s new rule regarding subsequent events in the second
quarter of 2009. The FASB’s new rule establishes the accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. The new
subsequent event guidance requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date, that is,
whether that date represents the date the financial statements were issued or
were available to be issued. See Note 1 for the related disclosures. The
adoption of the new subsequent event rule did not have a material impact on the
Company’s financial statements.
In June
2009, the FASB amended rules regarding the transfer and servicing of financial
assets and the extinguishment of financial assets. The amended
guidance eliminates the concept of a qualifying special-purpose entity (“QSPE”);
clarifies and amends the derecognition criteria for a transfer to be accounted
for as a sale; amends and clarifies the unit of account eligible for sale
accounting; and requires that a transferor initially be measured at fair value
and recognize all assets obtained (for example beneficial interests) and
liabilities incurred as a result of a transfer of an entire financial asset or
group of financial assets accounted for as a sale. Additionally, on and after
the effective date of the amended guidance, existing QSPEs (as defined under
previous accounting standards) must be evaluated for consolidation by reporting
entities in accordance with the applicable consolidation guidance. The amended
guidance requires enhanced disclosures about, among other things, a transferor’s
continuing involvement with transfers of financial assets accounted for as
sales, the risks inherent in the transferred financial assets that have been
retained, and the nature and financial effect of restrictions on the
transferor’s assets that continue to be reported in the statement of financial
position. The Company will adopt the amended guidance on January 1,
2010, but at this time the Company does not anticipate the adoption will have a
significant impact on the Company’s financial position, results of operations
and cash flows.
In June
2009, the FASB amended its rules regarding the consolidation of variable
interest entities (“VIE”). The FASB also amended the guidance
governing the determination of whether an enterprise is the primary beneficiary
of a VIE, and is, therefore, required to consolidate an entity, by requiring a
qualitative analysis rather than a quantitative analysis. The qualitative
analysis will include, among other things, consideration of who has the power to
direct the activities of the entity that most significantly impact the entity’s
economic performance and who has the obligation to absorb losses or the right to
receive benefits of the VIE that could potentially be significant to the VIE.
This standard also requires continuous reassessments of whether an enterprise is
the primary beneficiary of a VIE. Previously, FASB rules required
reconsideration of whether an enterprise was the primary beneficiary of a VIE
only when specific events had occurred. QSPEs, which were previously exempt from
the application of rules regarding VIE, will be subject to the provisions of
these new rules when they become effective. The amended guidance also
requires enhanced disclosures about an enterprise’s involvement with a VIE. The
Company will adopt the amended rules on January 1, 2010, but at this time the
Company does not anticipate the adoption will have a significant impact on the
Company’s financial position, results of operations and cash flows.
In June
2009, the FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles (“the FASB Codification”) was
implemented. The FASB Codification does not change current U.S. GAAP,
but is intended to simplify user access to all authoritative U.S. GAAP by
providing all the authoritative literature related to a particular topic in one
place for nongovernmental entities. The FASB Codification is
effective for interim and annual periods ending after September 15, 2009, and as
of the effective date, all existing accounting standard documents will be
superseded. The FASB Codification is effective for the Company in the
third quarter of 2009, and accordingly, the Company Quarterly Report on Form
10-Q for the quarter ending September 30, 2009 and all subsequent public filings
will reference the FASB Codification as the sole source of authoritative
literature. The adoption of the FASB Codification did not impact the
Company’s financial position, results of operations, and cash
flows.
7
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
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 September 30, 2009 and 2008 was $3,779 and $12,097,
respectively. Comprehensive income for the nine months ended
September 30, 2009 and 2008 was $3,518 and $34,206, respectively. In
each case, the comprehensive results approximated net income.
4.
|
Acquisition
of Businesses
|
On
September 8, 2008, the Company acquired certain assets and liabilities of
Service Express, Inc. (“Service Express”). Service Express was a
privately-held provider of pool distribution services primarily in the
Mid-Atlantic and Southeastern continental United States. Service
Express generated approximately $39,000 in revenue during the year ended
December 31, 2007. The acquisition of Service Express’ pool
distribution services expanded the geographic footprint of the FASI segment in
the Mid-Atlantic and Southeastern United States. The purchased
assets and liabilities and the results of operations of Service Express have
been included in the consolidated financial statements since September 8,
2008.
The
aggregate purchase price of $10,647 was paid with the Company’s available cash
and borrowings from the Company’s senior credit
facility.
The
Service Express purchase price allocation was as follows:
Current
assets
|
$ | 258 |
Equipment
|
2,819 | |
Customer
relationships
|
6,000 | |
Goodwill
|
5,204 | |
Total
assets acquired
|
14,281 | |
Current
liabilities
|
281 | |
Capital
lease obligations
|
3,353 | |
Total
liabilities assumed
|
3,634 | |
Net
assets acquired
|
$ | 10,647 |
The
acquired customer relationships from the Service Express acquisition are being
amortized on a straight-line basis over a weighted average life of 15
years. The Company began amortizing the assets as of the acquisition
date and recorded $100 and $300 of amortization during the three and nine months
ended September 30, 2009, respectively.
On March
17, 2008, the Company acquired certain assets and liabilities of Pinch Holdings,
Inc. and its related company AFTCO Enterprises, Inc. and certain of their
respective wholly owned subsidiaries (“Pinch”). Pinch was a
privately-held provider of pool distribution, airport-to-airport, truckload,
customs, and cartage services primarily in the Southwestern continental United
States. Pinch generated approximately $35,000 in revenue during
the year ended December 31, 2007. The acquisition of Pinch’s pool
distribution services expanded the geographic footprint of the FASI segment in
the Southwestern United States. In addition to providing additional
tonnage density to the Forward Air airport-to-airport network, the acquisition
of Pinch’s cartage and truckload business provides an opportunity for Forward
Air to expand its service options in the Southwestern United
States. The purchased assets and liabilities and the results of
operations of Pinch have been included in the consolidated financial statements
since March 17, 2008.
The
aggregate purchase price of $18,682 was paid with the Company’s available cash
and borrowings from the Company’s senior credit facility (see note
7).
8
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
4.
|
Acquisition
of Businesses (continued)
|
The Pinch
purchase price allocation was as follows:
Forward
Air
|
FASI
|
Total
|
||||||
Current
assets
|
$ | 72 | $ | -- | $ | 72 | ||
Property
and equipment
|
960 | 148 | 1,108 | |||||
Non-compete
agreements
|
80 | -- | 80 | |||||
Customer
relationships
|
4,700 | 4,300 | 9,000 | |||||
Goodwill
|
5,573 | 3,437 | 9,010 | |||||
Total
assets acquired
|
11,385 | 7,885 | 19,270 | |||||
Debt
and capital leases
|
480 | 108 | 588 | |||||
Total
liabilities assumed
|
480 | 108 | 588 | |||||
Net
assets acquired
|
$ | 10,905 | $ | 7,777 | $ | 18,682 |
The
acquired customer relationships and non-compete agreements from the Pinch
acquisition are being amortized on a straight-line basis over a weighted average
life of 12 and 5 years, respectively. The Company began amortizing
the assets as of the acquisition date and recorded $218 and $654 of amortization
during the three and nine months ended September 30, 2009,
respectively. Amortization on these assets was $218 and $436 during
the three and nine months ended September 30, 2008, respectively.
5.
|
Goodwill
and Long-Lived Assets
|
The
Company conducts an annual (or more frequently if circumstances indicate
possible impairment) impairment test of goodwill for each reportable segment at
June 30 of each year. The first step of the goodwill impairment test
is the estimation of the reportable segment’s fair value. If step one
indicates that impairment potentially exists, the second step is performed to
measure the amount of the impairment, if any. Goodwill impairment
exists when the calculated implied fair value of goodwill is less than its
carrying value. Changes in strategy or market conditions could
significantly impact these fair value estimates and require adjustments to
recorded asset balances.
During
the three months ended March 31, 2009, the Company determined there were
indicators of potential impairment of the goodwill assigned to the FASI
segment. This determination was based on the continuing economic
recession, declines in current market valuations and FASI operating losses in
excess of expectations. As a result, the Company performed an interim
impairment test in accordance with the Company accounting policy discussed above
as of March 31, 2009. Based on the results of the interim impairment
test, the Company concluded that an impairment loss was probable and could be
reasonably estimated. Consequently, the Company recorded a non-cash
goodwill impairment charge of $6,953 related to the FASI segment during the
three months ended March 31, 2009. The Company finalized certain
valuations related to the March 31, 2009 goodwill impairment calculations during
the second quarter of 2009, which did not result in any adjustments to the
impairment recorded at March 31, 2009.
The
Company conducted its annual impairment test of goodwill for each
reportable segment as of June 30, 2009 and no additional impairment charges
were required. For both the March 31, 2009 and June 30, 2009 goodwill
impairment calculations, the Company calculated the fair value of the applicable
reportable segments, using a combination of discounted projected cash flows and
market valuations as of the valuation date for comparable
companies. The Company's fair value calculations for goodwill are
classified within level 3 of the fair value hierarchy as defined in the FASB
Codification.
As of
September 30, 2009, the carrying value of goodwill related to the Forward Air
and FASI segments was $37,926 and $5,406, respectively. Earnings estimated to be
generated related to the Forward Air segment are expected to support the
carrying value of its goodwill. The FASI segment is currently facing
the challenges of building and expanding a business during difficult economic
times.If these overall economic conditions worsen or continue for an extended
period of time, the Company may be required to record an additional impairment
charge against the carrying value of goodwill related to the FASI
segment.
9
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
5.
|
Goodwill
and Long-Lived Assets (continued)
|
The
changes in the carrying amount of goodwill during the nine months ended
September 30, 2009, were as follows:
Forward
Air
|
FASI
|
Total
|
||||||||
Beginning
balance, December 31, 2008
|
$ | 37,926 | $ | 12,304 | $ | 50,230 | ||||
Adjustment
to Service Express, Inc. acquisition
|
-- | 55 | 55 | |||||||
Impairment
loss
|
-- | (6,953 | ) | (6,953 | ) | |||||
Ending
balance, September 30, 2009
|
$ | 37,926 | $ | 5,406 | $ | 43,332 |
There
were no changes to goodwill during the three months ended September 30,
2009.
Additionally,
the Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Impairment is recognized on assets classified as held and used when
the sum of undiscounted estimated cash flows expected to result from the use of
the asset is less than the carrying value. If such measurement indicates a
possible impairment, the estimated fair value of the asset is compared to its
net book value to measure the impairment charge, if any. No
impairment write down was required during the three months or nine months ended
September 30, 2009 other than an impairment charge of $204 at March 31, 2009 in
the Forward Air segment to write off the net book value of certain truckload and
cargo handling customer relationships purchased during 2007. These
impairment charges were recorded as the related customer relationships and
services were discontinued during the first quarter of 2009.
6.
|
Share-Based
Payments
|
The
Company’s general practice has been to make a single annual grant of non-vested
shares of common stock (“non-vested shares”) or stock options to key employees
and to generally make other grants to employees only in connection with new
employment or promotions. The Company also typically makes a single
annual grant of non-vested shares to non-employee directors in conjunction with
the annual election of non-employee directors to the Board of
Directors.
During
2006, the Company issued non-vested shares to key employees as the form of
share-based awards. However, beginning in 2007, the Company elected to issue
stock options to key employees, as the Company believes stock options more
closely link long-term compensation with the Company’s long-term goals. Stock
option grants to employees typically expire seven years from the grant date and
vest ratably over a three-year period. Grants of non-vested shares to
non-employee directors vest ratably over the elected term to the Board of
Directors, or one year. Share-based compensation for grants of
non-vested shares and stock options is based on the grant date fair value of the
instrument and is recognized, net of estimated forfeitures, ratably over the
requisite service period, or vesting period. The Company estimates forfeitures
based upon historical experience. All share-based compensation
expense is recognized in salaries, wages and employee benefits.
Employee
Activity
The
Company used the Black-Scholes option-pricing model to estimate the grant-date
fair value of options granted. The weighted-average fair value of
options granted during the nine months ended September 30, 2009 and 2008 was
$7.96 and $11.19, respectively. No options were granted during the
three months ended September 30, 2009 and 2008. The fair values were
estimated using the following weighted-average assumptions:
Nine
months ended
|
|||||
September
30,
|
September
30,
|
||||
2009
|
2008
|
||||
Expected
dividend yield
|
0.9 | % | 0.8 | % | |
Expected
stock price volatility
|
42.3 | % | 35.2 | % | |
Weighted
average risk-free interest rate
|
2.0 | % | 2.8 | % | |
Expected
life of options (years)
|
4.5 | 4.5 |
10
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
6.
|
Share-Based
Payments (continued)
|
During
the three months ended September 30, 2009 and 2008, share-based compensation
expense for options granted to employees was $1,455 and $1,029,
respectively. The total tax benefit related to the share-based
expense for these options for the three months ended September 30, 2009 and
2008, was $420 and $243, respectively. During the nine months ended
September 30, 2009 and 2008, share-based compensation expense for options
granted to employees was $4,281 and $2,916, respectively. The
total tax benefit related to the share-based expense for these options for the
nine months ended September 30, 2009 and 2008, was $1,220 and $739,
respectively. Total compensation cost, net of estimated
forfeitures, related to the options not yet recognized in earnings was $7,009 at
September 30, 2009. Total unrecognized compensation cost will be adjusted for
future changes in estimated forfeitures.
The
following tables summarize the Company’s employee stock option activity and
related information for the three and nine months ended September 30,
2009:
Three
months ended September 30, 2009
|
||||||||||
Weighted-
|
||||||||||
Weighted-
|
Aggregate
|
Average
|
||||||||
Average
|
Intrinsic
|
Remaining
|
||||||||
Options
|
Exercise
|
Value
|
Contractual
|
|||||||
(000)
|
Price
|
(000)
|
Term
|
|||||||
Outstanding
at June 30, 2009
|
3,110
|
$
|
27
|
|||||||
Granted
|
--
|
--
|
||||||||
Exercised
|
(1
|
)
|
18
|
|||||||
Forfeited
|
(18
|
)
|
30
|
|||||||
Outstanding
at September 30, 2009
|
3,091
|
$
|
26
|
$
|
--
|
5.0
|
||||
Exercisable
at September 30, 2009
|
1,822
|
$
|
27
|
$
|
--
|
4.5
|
Nine
months ended September 30, 2009
|
||||||||||
Weighted-
|
||||||||||
Weighted-
|
Aggregate
|
Average
|
||||||||
Average
|
Intrinsic
|
Remaining
|
||||||||
Options
|
Exercise
|
Value
|
Contractual
|
|||||||
(000)
|
Price
|
(000)
|
Term
|
|||||||
Outstanding
at December 31, 2008
|
2,446
|
$
|
28
|
|||||||
Granted
|
675
|
23
|
||||||||
Exercised
|
(1
|
)
|
18
|
|||||||
Forfeited
|
(29
|
)
|
29
|
|||||||
Outstanding
at September 30, 2009
|
3,091
|
$
|
26
|
$
|
--
|
5.0
|
||||
Exercisable
at September 30, 2009
|
1,822
|
$
|
27
|
$
|
--
|
4.5
|
11
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
6.
|
Share-Based
Payments (continued)
|
Share-based
compensation expense was $10 and $264 during the three months ended September
30, 2009 and 2008, respectively, for non-vested shares granted to employees
during 2006. The total tax benefit related to this share-based expense was $4
and $121 for the three months ended September 30, 2009 and 2008,
respectively. Share-based compensation expense was $254 and $1,014
during the nine months ended September 30, 2009 and 2008, respectively, for
non-vested shares granted to employees during 2006. The total tax benefit
related to this share-based expense was $106 and $412 for the nine months ended
September 30, 2009 and 2008, respectively. Total compensation cost,
net of estimated forfeitures, related to the non-vested shares not yet
recognized in earnings was $2 at September 30, 2009. Total unrecognized
compensation cost will be adjusted for future changes in estimated
forfeitures.
Under the
2005 Employee Stock Purchase Plan (the “ESPP”), which has been approved by
shareholders, the Company is authorized to issue up to a remaining 454,176
shares of common stock to employees of the Company. These shares may be issued
at a price equal to 90% of the lesser of the market value on the first day or
the last day of each six-month purchase period. Common stock purchases are paid
for through periodic payroll deductions and/or up to two large lump sum
contributions. For the nine months ended September 30, 2009, participants under
the plan purchased 5,148 shares at an average price of $19.19 per share. For the
nine months ended September 30, 2008, participants under the plan purchased
5,331 shares at an average price of $27.16 per share. The weighted-average fair
value of each purchase right under the ESPP granted for the nine months ended
September 30, 2009, which is equal to the discount from the market value of the
common stock at the end of each six month purchase period, was $2.13 per
share. The weighted-average fair value of each purchase right under
the ESPP granted for the nine months ended September 30, 2008, was $7.44 per
share. Share-based compensation expense of $11 and $40 was recognized during the
nine months ended September 30, 2009 and 2008, respectively.
Non-employee
Director Activity
Share-based
compensation expense during the three months ended September 30, 2009 and 2008
was $142 and $158, respectively, for non-vested shares granted to non-employee
directors. The total tax benefit related to this share-based expense
was $59 and $69 for the three months ended September 30, 2009 and 2008,
respectively. Share-based compensation expense during the nine months
ended September 30, 2009 and 2008 was $476 and $601, respectively, for
non-vested shares granted to non-employee directors. The total tax
benefit related to this share-based expense was $198 and $229 for the nine
months ended September 30, 2009 and 2008, respectively. Total
compensation cost, net of estimated forfeitures, related to the non-vested
shares granted to non-employee directors not yet recognized in earnings was $346
at September 30, 2009. Total unrecognized compensation cost will be
adjusted for future changes in estimated forfeitures.
In
addition to the above activity, each May from 1995 to 2005 options were granted
to the non-employee directors of the Company. The options have terms
of ten years and are fully exercisable. At September 30, 2009, 74,375
options were outstanding and will expire between July 2010 and May
2015. At September 30, 2009, the weighted average exercise price and
remaining contractual term were $22 and 3.3 years, respectively.
7.
|
Senior
Credit Facility
|
On
October 10, 2007, the Company entered into a $100,000 senior credit facility.
This facility has a term of five years and includes an accordion feature, which
if approved by the Company's lender, allows for an additional $50,000 in
borrowings on such terms and conditions as set forth in the senior credit
facility agreement. The senior credit facility matures on October 10,
2012. The Company entered into this larger credit facility in order to
fund potential acquisitions, the repurchase of its common stock, and for
financing other general business purposes. Interest rates for
advances under the facility are at LIBOR plus 0.6% to 0.9% based upon covenants
related to total indebtedness to earnings (0.8% at September 30, 2009). The
agreement contains certain covenants and restrictions, none of which are
expected to significantly affect the Company’s operations or ability to pay
dividends. No assets are pledged as collateral against the senior
credit facility. As of September 30, 2009, the Company had $50,000
outstanding under the senior credit facility. At September 30, 2009, the Company
had utilized $10,530 of availability for outstanding letters of credit and had
$39,470 of available borrowing capacity outstanding under the senior credit
facility.
12
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
8.
|
Net
Income Per Share
|
The
following table sets forth the computation of basic and diluted net income per
share for the three and nine months ended September 30, 2009 and
2008:
Three
months ended
|
Nine
months ended
|
||||||||||
September
30,
|
September
30,
|
September
30,
|
September
30,
|
||||||||
2009
|
2008
|
2009
|
2008
|
||||||||
Numerator:
|
|||||||||||
Numerator
for basic and diluted income per share - net income
|
$ | 3,779 | $ | 12,097 | $ | 3,518 | $ | 34,206 | |||
Denominator:
|
|||||||||||
Denominator
for basic income per share - weighted-average shares
|
28,942 | 28,871 | 28,924 | 28,782 | |||||||
Effect
of dilutive stock options and non-vested shares
|
84 | 268 | 54 | 285 | |||||||
Denominator
for diluted income per share - adjusted weighted-
|
|||||||||||
average
shares
|
29,026 | 29,139 | 28,978 | 29,067 | |||||||
Basic
income per share
|
$ | 0.13 | $ | 0.42 | $ | 0.12 | $ | 1.19 | |||
Diluted
income per share
|
$ | 0.13 | $ | 0.42 | $ | 0.12 | $ | 1.18 |
The
number of options and non-vested shares that could potentially dilute net
earnings per share in the future, but that were not included in the computation
of income per diluted share because to do so would have been anti-dilutive for
the periods presented, were approximately 2,706,000 and 1,185,000 at September
30, 2009 and 2008, respectively.
9.
|
Income
Taxes
|
The
Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction, various states and Canada. With a few exceptions, the Company is
no longer subject to U.S. federal, state and local, or Canadian examinations by
tax authorities for years before 2003.
There
were no significant changes to the accruals for unrecognized tax benefits and
related interest and penalties during the three and nine months ended September
30, 2009.
For the
three months ended September 30, 2009 and 2008, 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.
10.
|
Financial
Instruments
|
The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Accounts
receivable and accounts payable: The carrying amounts reported in the balance
sheet for accounts receivable and accounts payable approximate their fair value
based on their short-term nature.
The
Company’s senior credit facility bears interest at LIBOR plus 0.6% to 0.9% based
upon covenants related to total indebtedness to earnings. However,
due to current economic conditions, the Company believes its borrowing rate to
be favorable to current market rates. Using borrowing rates currently
available in the market and scheduled cash payments, the Company estimated the
fair value of its senior credit facility, notes payable and capital lease
obligations as follows:
September
30, 2009
|
|||||
Carrying
|
Fair
|
||||
Value
|
Value
|
||||
Senior
credit facility
|
$ | 50,000 | $ | 47,611 | |
Notes
payable
|
40 | 40 | |||
Capital
lease obligations
|
3,436 | 3,473 |
13
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
11.
|
Shareholders'
Equity
|
During
each of the first, second and third quarters of 2009 and 2008, the Company’s
Board of Directors declared a cash dividend of $0.07 per share of common
stock. 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.
On June
22, 2009, The Company’s Board of Directors, in accordance with Article IX of the
Company’s Existing Amended and Restated Bylaws (the “Existing Bylaws”), adopted
Amended and Restated Bylaws (the “Amended and Restated Bylaws”) effective July
1, 2009 to supersede and replace the Company’s Existing Bylaws. The
principle revisions to the Existing Bylaws include the following: (i)
the addition of advanced notice provisions for shareholder proposals and
nominations of directors at meetings of the Company’s shareholders, (ii) the
addition of provisions requiring the Company’s shareholders to take certain
actions in connection with the calling of a special meeting of the Company’s
shareholders, (iii) the addition of electronic notice provisions with respect to
director and shareholder meetings and (iv) certain other technical
amendments.
12.
|
Commitments
and Contingencies
|
From time
to time, the Company is party to ordinary, routine litigation incidental to and
arising in the normal course of business. The Company does not
believe that any of these pending actions, individually or in the aggregate,
will have a material adverse effect on its business, financial condition or
results of operations.
The
primary claims in the Company’s business relate to 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
and actuarial 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.
13.
|
Segment
Reporting
|
The
Company operates in two reportable segments, based on differences in services
provided. Forward Air provides time-definite transportation and
logistics services to the deferred air freight market. FASI provides
pool distribution services primarily to regional and national distributors and
retailers.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies disclosed in Note 1 to the
Consolidated Financial Statements included in our 2008 Annual Report on Form
10-K. Segment data includes intersegment revenues. Assets and costs
of the corporate headquarters are allocated to the segments based on
usage. The Company evaluates the performance of its segments based on
net income (loss). The Company’s business is conducted principally in
the U.S. and Canada.
14
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
13.
|
Segment
Reporting (continued)
|
The
following tables summarize segment information about net income (loss)
and assets used by the chief operating decision maker of the Company in
making decisions regarding allocation of assets and resources as of and for the
three and nine months ended September 30, 2009 and
2008.
Three
months ended September 30, 2009
|
|||||||||||||
Forward
Air
|
FASI
|
Eliminations
|
Consolidated
|
||||||||||
External
revenues
|
$ | 85,435 | $ | 17,644 | $ | -- | $ | 103,079 | |||||
Intersegment
revenues
|
241 | 119 | (360 | ) | -- | ||||||||
Depreciation
and amortization
|
4,109 | 897 | -- | 5,006 | |||||||||
Share-based
compensation expense
|
1,529 | 78 | -- | 1,607 | |||||||||
Interest
expense
|
154 | 23 | -- | 177 | |||||||||
Interest
income
|
24 | 2 | -- | 26 | |||||||||
Income
tax expense (benefit)
|
3,003 | (237 | ) | -- | 2,766 | ||||||||
Net
income (loss)
|
4,096 | (317 | ) | -- | 3,779 | ||||||||
Total
assets
|
305,836 | 39,081 | (38,231 | ) | 306,686 | ||||||||
Capital
expenditures
|
3,265 | 538 | -- | 3,803 |
Three
months ended September 30, 2008
|
||||||||||||
Forward
Air
|
FASI
|
Eliminations
|
Consolidated
|
|||||||||
External
revenues
|
$ | 107,985 | $ | 13,499 | $ | -- | $ | 121,484 | ||||
Intersegment
revenues
|
623 | 50 | (673 | ) | -- | |||||||
Depreciation
and amortization
|
3,612 | 522 | -- | 4,134 | ||||||||
Share-based
compensation expense
|
1,419 | 32 | -- | 1,451 | ||||||||
Interest
expense
|
185 | 25 | -- | 210 | ||||||||
Interest
income
|
112 | 3 | -- | 115 | ||||||||
Income
tax expense
|
7,114 | 22 | -- | 7,136 | ||||||||
Net
income
|
12,097 | -- | -- | 12,097 | ||||||||
Total
assets
|
295,153 | 41,429 | (31,660 | ) | 304,922 | |||||||
Capital
expenditures
|
5,445 | 1,880 | -- | 7,325 |
15
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
13.
|
Segment
Reporting (continued)
|
Nine
months ended September 30, 2009
|
|||||||||||||
Forward
Air
|
FASI
|
Eliminations
|
Consolidated
|
||||||||||
External
revenues
|
$ | 250,527 | $ | 48,865 | $ | -- | $ | 299,392 | |||||
Intersegment
revenues
|
613 | 347 | (960 | ) | -- | ||||||||
Depreciation
and amortization
|
11,947 | 2,740 | -- | 14,687 | |||||||||
Share-based
compensation expense
|
4,808 | 214 | -- | 5,022 | |||||||||
Impairment
of goodwill and other intangible assets
|
204 | 6,953 | -- | 7,157 | |||||||||
Interest
expense
|
390 | 79 | -- | 469 | |||||||||
Interest
income
|
62 | 5 | -- | 67 | |||||||||
Income
tax expense (benefit)
|
6,892 | (4,311 | ) | -- | 2,581 | ||||||||
Net
income (loss)
|
9,558 | (6,040 | ) | -- | 3,518 | ||||||||
Total
assets
|
305,836 | 39,081 | (38,231 | ) | 306,686 | ||||||||
Capital
expenditures
|
17,140 | 1,688 | -- | 18,828 |
Nine
months ended September 30, 2008
|
|||||||||||||
Forward
Air
|
FASI
|
Eliminations
|
Consolidated
|
||||||||||
External
revenues
|
$ | 318,299 | $ | 32,685 | $ | -- | $ | 350,984 | |||||
Intersegment
revenues
|
1,517 | 63 | (1,580 | ) | -- | ||||||||
Depreciation
and amortization
|
10,616 | 1,214 | -- | 11,830 | |||||||||
Share-based
compensation expense
|
4,480 | 91 | -- | 4,571 | |||||||||
Interest
expense
|
788 | 51 | -- | 839 | |||||||||
Interest
income
|
311 | 8 | -- | 319 | |||||||||
Income
tax expense (benefit)
|
21,856 | (337 | ) | -- | 21,519 | ||||||||
Net
income (loss)
|
34,831 | (625 | ) | -- | 34,206 | ||||||||
Total
assets
|
295,153 | 41,429 | (31,660 | ) | 304,922 | ||||||||
Capital
expenditures
|
10,490 | 2,190 | -- | 12,680 |
16
Overview
and Executive Summary
Our
operations can be broadly classified into two principal
segments: Forward Air, Inc. (“Forward Air”) and Forward Air
Solutions, Inc. (“FASI”).
Through
our Forward Air segment, we are a leading provider of time-definite surface
transportation and related logistics services to the North American deferred air
freight market. We offer our customers local pick-up and delivery (Forward Air
Complete™) and scheduled surface transportation of cargo as a cost-effective,
reliable alternative to air transportation. We transport cargo that must be
delivered at a specific time, but is less time-sensitive than traditional air
freight. This type of cargo is frequently referred to in the transportation
industry as deferred air freight. We operate our Forward Air segment through a
network of terminals located on or near airports in 84 cities in the United
States and Canada, including a central sorting facility in Columbus, Ohio and 11
regional hubs serving key markets. We also offer our customers an array of
logistics and other services including: expedited truckload brokerage
("TLX"); dedicated fleets; warehousing; customs brokerage; and shipment
consolidation, deconsolidation and handling.
FASI
provides pool distribution services throughout the Mid-Atlantic, Southeast,
Midwest and Southwest continental United States. Pool
distribution involves managing high-frequency handling and distribution of
time-sensitive product to numerous destinations in specific geographic
regions. Our primary customers for this product are regional and
nationwide distributors and retailers, such as mall, strip mall and outlet based
retail chains. We service these customers through a network of terminals and
service centers located in 19 cities.
Our
operations, particularly our network of hubs and terminals, represent
substantial fixed costs. Consequently, our ability to increase our earnings
depends in significant part on our ability to increase the amount of freight and
the revenue per pound for the freight shipped through our networks and to grow
other lines of businesses, such as TLX, which will allow us to maintain revenue
growth in challenging shipping environments.
Trends
and Developments
Acquisitions
On
September 8, 2008, we acquired certain assets and liabilities of Service
Express, Inc. (“Service Express”). Service Express was a
privately-held provider of pool distribution services primarily in the
Mid-Atlantic and Southeastern continental United States. Service
Express generated approximately $39.0 million in revenue during the year ended
December 31, 2007. The acquisition of Service Express’ pool
distribution services added to the geographic footprint of the FASI segment in
the Mid-Atlantic and Southeastern United States.
On March
17, 2008, we acquired certain assets and liabilities of Pinch Holdings, Inc. and
its related company AFTCO Enterprises, Inc. and certain of their respective
wholly owned subsidiaries (“Pinch”). Pinch was a privately-held
provider of pool distribution, airport-to-airport, truckload, customs, and
cartage services primarily to the Southwestern continental United
States. Pinch generated approximately $35.0 million in revenue during
the year ended December 31, 2007. The acquisition of Pinch’s pool
distribution services expanded the geographic footprint of the FASI segment in
the Southwestern United States. In addition, it provided additional
tonnage density to the Forward Air airport-to-airport network, and the
acquisition of Pinch’s cartage and truckload business provided an opportunity
for Forward Air to expand its service options in the Southwestern United
States.
Results
from Operations
During
the three and nine months ended September 30, 2009, compared to the same periods
in 2008, we continued to experience significant year over year decreases in our
consolidated revenues and results from operations. We largely
attribute the decline in Forward Air revenue and income from operations to the
economic recession experienced throughout 2009 and its effects on our overall
business volumes and the rates we are able to charge for our core
services. FASI revenue continued to increase substantially year over
year primarily as a result of our 2008 acquisitions of Pinch and Service Express
and new business wins. However, revenues have not reached expected
levels and losses have been higher than expected largely due to the economic
recession reducing business volumes. Additionally, despite
significant new business wins, FASI revenue growth will slow in the fourth
quarter of 2009 as we have now reached the anniversary dates of our 2008
acquisitions.
Declining
fuel prices have continued to adversely affect our revenues and results of
operations in 2009 as compared with 2008. Our net fuel surcharge
revenue is the result of our fuel surcharge rates, which are set weekly using
the national average for diesel price per gallon, and the tonnage transiting our
network. The decline in tonnage levels combined with the continuing
decline in diesel fuel prices have resulted in a significant reduction in our
net fuel surcharge revenue and results from operations during 2009 as compared
to 2008. Total net fuel surcharge revenue decreased 63.6% and 65.2%
during the three and nine months ended September 30, 2009, respectively, as
compared to the same periods in 2008. Fuel prices and our related fuel surcharge
rates should reach comparable year over year levels during the fourth quarter of
2009.
17
Goodwill
During
the first quarter of 2009, we determined there were indicators of potential
impairment of the goodwill assigned to the FASI segment. This
determination was based on the continuing economic recession, declines in
current market valuations and FASI operating losses in excess of
expectations. As a result, we performed an interim impairment test in
accordance with our accounting policy as of March 31, 2009. We
calculated the fair value of the FASI segment, using a combination of discounted
cash flows and current market valuations for comparable
companies. Based on the results of the interim impairment test, we
concluded that an impairment loss was probable and could be reasonably
estimated. Consequently, we recorded a non-cash goodwill impairment
charge of $7.0 million related to the FASI segment during the first quarter of
2009.
In
accordance with our accounting policy, we conducted our annual impairment
test of goodwill for each reportable segment as of June 30, 2009 and no
additional impairment charges were required.
As of
September 30, 2009, the carrying value of goodwill related to our Forward Air
and FASI segments was $37.9 million and $5.4 million, respectively. Earnings
estimated to be generated related to our Forward Air segment are expected to
support the carrying value of its goodwill. Our FASI segment is currently facing
the challenges of building and expanding a business during difficult economic
times. If these overall economic conditions worsen or continue for an extended
period of time, we may be required to record an additional impairment charge
against the carrying value of goodwill related to our FASI segment.
Segments
Our
operations can be broadly classified into two principal
segments: Forward Air and FASI.
Our
Forward Air segment includes our airport-to-airport network, Forward Air
Complete, and TLX services as well as our other accessorial related services
such as warehousing; customs brokerage; and value-added handling
services.
Our FASI
segment includes our pool distribution business.
Results
of Operations
The
following table sets forth our consolidated historical financial data for the
three months ended September 30, 2009 and 2008 (in millions):
Three
months ended
|
|
||||||||||||||
September
30,
|
September
30,
|
Percent
|
|||||||||||||
2009
|
2008
|
Change
|
Change
|
||||||||||||
Operating
revenue
|
$ | 103.1 | $ | 121.5 | $ | (18.4 | ) | (15.1 | ) | % | |||||
Operating
expenses:
|
|||||||||||||||
Purchased
transportation
|
43.5 | 48.9 | (5.4 | ) | (11.0 | ) | |||||||||
Salaries,
wages, and employee benefits
|
28.6 | 28.5 | 0.1 | 0.4 | |||||||||||
Operating
leases
|
6.6 | 6.2 | 0.4 | 6.5 | |||||||||||
Depreciation
and amortization
|
5.0 | 4.1 | 0.9 | 22.0 | |||||||||||
Insurance
and claims
|
2.0 | 1.8 | 0.2 | 11.1 | |||||||||||
Fuel
expense
|
1.9 | 3.1 | (1.2 | ) | (38.7 | ) | |||||||||
Other
operating expenses
|
8.8 | 9.6 | (0.8 | ) | (8.3 | ) | |||||||||
Total
operating expenses
|
96.4 | 102.2 | (5.8 | ) | (5.7 | ) | |||||||||
Income
from operations
|
6.7 | 19.3 | (12.6 | ) | (65.3 | ) | |||||||||
Other
income (expense):
|
|||||||||||||||
Interest
expense
|
(0.2 | ) | (0.2 | ) | -- | -- | |||||||||
Other,
net
|
0.1 | 0.1 | -- | -- | |||||||||||
Total
other (expense) income
|
(0.1 | ) | (0.1 | ) | -- | -- | |||||||||
Income
before income taxes
|
6.6 | 19.2 | (12.6 | ) | (65.6 | ) | |||||||||
Income
taxes
|
2.8 | 7.1 | (4.3 | ) | (60.6 | ) | |||||||||
Net
income
|
$ | 3.8 | $ | 12.1 | $ | (8.3 | ) | (68.6 | ) | % |
18
The
following table sets forth our historical financial data by segment for the
three months ended September 30, 2009 and 2008 (in millions):
Three
months ended
|
|
||||||||||||||||||||
September
30,
|
Percent
of
|
September
30,
|
Percent
of
|
Percent
|
|||||||||||||||||
2009
|
Revenue
|
2008
|
Revenue
|
Change
|
Change
|
||||||||||||||||
Operating
revenue
|
|||||||||||||||||||||
Forward
Air
|
$
|
85.7
|
83.1
|
%
|
$
|
108.6
|
89.4
|
%
|
$
|
(22.9
|
)
|
(21.1
|
)
|
%
|
|||||||
FASI
|
17.8
|
17.3
|
13.6
|
11.2
|
4.2
|
30.9
|
|||||||||||||||
Intercompany
Eliminations
|
(0.4
|
)
|
(0.4
|
)
|
(0.7
|
)
|
(0.6
|
)
|
0.3
|
(42.9
|
)
|
||||||||||
Total
|
103.1
|
100.0
|
121.5
|
100.0
|
(18.4
|
)
|
(15.1
|
)
|
|||||||||||||
Purchased
transportation
|
|||||||||||||||||||||
Forward
Air
|
39.8
|
46.4
|
46.5
|
42.8
|
(6.7
|
)
|
(14.4
|
)
|
|||||||||||||
FASI
|
4.0
|
22.5
|
3.1
|
22.8
|
0.9
|
29.0
|
|||||||||||||||
Intercompany
Eliminations
|
(0.3
|
)
|
75.0
|
(0.7
|
)
|
100.0
|
0.4
|
(57.1
|
)
|
||||||||||||
Total
|
43.5
|
42.2
|
48.9
|
40.2
|
(5.4
|
)
|
(11.0
|
)
|
|||||||||||||
Salaries,
wages and employee benefits
|
|||||||||||||||||||||
Forward
Air
|
20.6
|
24.0
|
23.0
|
21.2
|
(2.4
|
)
|
(10.4
|
)
|
|||||||||||||
FASI
|
8.0
|
44.9
|
5.5
|
40.5
|
2.5
|
45.5
|
|||||||||||||||
Total
|
28.6
|
27.7
|
28.5
|
23.5
|
0.1
|
0.4
|
|||||||||||||||
Operating
leases
|
|||||||||||||||||||||
Forward
Air
|
4.6
|
5.4
|
4.7
|
4.3
|
(0.1
|
)
|
(2.1
|
)
|
|||||||||||||
FASI
|
2.0
|
11.2
|
1.5
|
11.0
|
0.5
|
33.3
|
|||||||||||||||
Total
|
6.6
|
6.4
|
6.2
|
5.1
|
0.4
|
6.5
|
|||||||||||||||
Depreciation
and amortization
|
|||||||||||||||||||||
Forward
Air
|
4.1
|
4.8
|
3.6
|
3.3
|
0.5
|
13.9
|
|||||||||||||||
FASI
|
0.9
|
5.1
|
0.5
|
3.7
|
0.4
|
80.0
|
|||||||||||||||
Total
|
5.0
|
4.9
|
4.1
|
3.4
|
0.9
|
22.0
|
|||||||||||||||
Insurance
and claims
|
|||||||||||||||||||||
Forward
Air
|
1.6
|
1.9
|
1.7
|
1.6
|
(0.1
|
)
|
(5.9
|
)
|
|||||||||||||
FASI
|
0.4
|
2.2
|
0.1
|
0.7
|
0.3
|
300.0
|
|||||||||||||||
Total
|
2.0
|
1.9
|
1.8
|
1.5
|
0.2
|
11.1
|
|||||||||||||||
Fuel
expense
|
|||||||||||||||||||||
Forward
Air
|
0.8
|
0.9
|
1.6
|
1.5
|
(0.8
|
)
|
(50.0
|
)
|
|||||||||||||
FASI
|
1.1
|
6.2
|
1.5
|
11.0
|
(0.4
|
)
|
(26.7
|
)
|
|||||||||||||
Total
|
1.9
|
1.8
|
3.1
|
2.5
|
(1.2
|
)
|
(38.7
|
)
|
|||||||||||||
Other
operating expenses
|
|||||||||||||||||||||
Forward
Air
|
7.0
|
8.2
|
8.2
|
7.5
|
(1.2
|
)
|
(14.6
|
)
|
|||||||||||||
FASI
|
1.9
|
10.7
|
1.4
|
10.3
|
0.5
|
35.7
|
|||||||||||||||
Intercompany
Eliminations
|
(0.1
|
)
|
25.0
|
--
|
--
|
(0.1
|
)
|
(100.0
|
)
|
||||||||||||
Total
|
8.8
|
8.6
|
9.6
|
7.9
|
(0.8
|
)
|
(8.3
|
)
|
|||||||||||||
Income
(loss) from operations
|
|||||||||||||||||||||
Forward
Air
|
7.2
|
8.4
|
19.3
|
17.8
|
(12.1
|
)
|
(62.7
|
)
|
|||||||||||||
FASI
|
(0.5
|
)
|
(2.8
|
)
|
--
|
--
|
(0.5
|
)
|
100.0
|
||||||||||||
Total
|
$
|
6.7
|
6.5
|
%
|
$
|
19.3
|
15.9
|
%
|
$
|
(12.6
|
)
|
(65.3
|
)
|
%
|
19
The
following table presents the components of the Forward Air segment’s operating
revenue and purchased transportation for the three months ended September 30,
2009 and 2008 (in millions):
Three
months ended
|
|||||||||||||||||||
September
30,
|
Percent
of
|
September
30,
|
Percent
of
|
Percent
|
|||||||||||||||
2009
|
Revenue
|
2008
|
Revenue
|
Change
|
Change
|
||||||||||||||
Forward
Air revenue
|
|||||||||||||||||||
Airport-to-airport
|
$
|
66.8
|
78.0
|
%
|
$
|
87.0
|
80.1
|
%
|
$
|
(20.2
|
)
|
(23.2
|
)
|
%
|
|||||
Logistics
|
13.3
|
15.5
|
15.1
|
13.9
|
(1.8
|
)
|
(11.9
|
)
|
|||||||||||
Other
|
5.6
|
6.5
|
6.5
|
6.0
|
(0.9
|
)
|
(13.8
|
)
|
|||||||||||
Total
|
$
|
85.7
|
100.0
|
%
|
$
|
108.6
|
100.0
|
%
|
$
|
(22.9
|
)
|
(21.1
|
)
|
%
|
|||||
Forward
Air purchased transportation
|
|||||||||||||||||||
Airport-to-airport
|
$
|
28.1
|
42.1
|
%
|
$
|
33.4
|
38.4
|
%
|
$
|
(5.3
|
)
|
(15.9
|
)
|
%
|
|||||
Logistics
|
10.3
|
77.4
|
11.3
|
74.8
|
(1.0
|
)
|
(8.8
|
)
|
|||||||||||
Other
|
1.4
|
25.0
|
1.8
|
27.7
|
(0.4
|
)
|
(22.2
|
)
|
|||||||||||
Total
|
$
|
39.8
|
46.4
|
%
|
$
|
46.5
|
42.8
|
%
|
$
|
(6.7
|
)
|
(14.4
|
)
|
%
|
Three
Months Ended September 30, 2009 compared to Three Months Ended September 30,
2008
Operating
revenue decreased by $18.4 million, or 15.1%, to $103.1 million for the three
months ended September 30, 2009 from $121.5 million in the same period of
2008.
Forward
Air
Forward
Air operating revenue decreased $22.9 million, or 21.1%, to $85.7 million from
$108.6 million, accounting for 83.1% of consolidated operating revenue for the
three months ended September 30, 2009 compared to 89.4% for the same period in
2008. Airport-to-airport revenue, which is the largest component of
our consolidated operating revenue, decreased $20.2 million, or 23.2%, to $66.8
million from $87.0 million, accounting for 78.0% of the segment’s operating
revenue during the three months ended September 30, 2009 compared to 80.1% for
the three months ended September 30, 2008. A significant decrease in
tonnage and a decrease in our base revenue per pound, excluding net fuel
surcharge revenue and Forward Air Complete (“Complete”) revenue, accounted for
$15.4 million of the decline in airport-to-airport revenue. Our
airport-to-airport business is priced on a per pound basis and the average
revenue per pound, excluding the impact of fuel surcharges and Complete,
decreased 2.4% for the three months ended September 30, 2009 versus the three
months ended September 30, 2008. Tonnage that transited our network decreased by
18.9% in the three months ended September 30, 2009 compared with the three
months ended September 30, 2008. The decrease in tonnage was
primarily driven by the impact of the economic recession and the resulting
reduction in shipping activity. Average base revenue per pound
decreased due to the continued shift in revenue mix to shorter distance and
lower price per pound routes as well as increased pricing competition brought on
by the current economic environment. The remaining decrease in
airport-to-airport revenue is the result of reduced net fuel surcharge revenue
offset by increased revenue from our Complete pick-up and delivery
service. Net fuel surcharge revenue decreased $6.2 million during the
three months ended September 30, 2009 as compared to the three months ended
September 30, 2008 as a result of decreasing fuel prices as well as decreased
overall business volumes. Partially offsetting these decreases was a
$1.4 million increase in Complete revenue during the three months ended
September 30, 2009 compared to the same period of 2008. The increase
in Complete revenue is attributable to an increased frequency of
airport-to-airport shippers opting to utilize our Complete service.
Logistics
revenue, which is primarily truckload brokerage (“TLX”) and priced on a per mile
basis, decreased $1.8 million, or 11.9%, to $13.3 million in the third quarter
of 2009 from $15.1 million in the same period of 2008. TLX revenue
decreased $1.6 million and 11.7% as miles driven to support our TLX revenue
decreased by approximately 0.3% during the three months ended September 30, 2009
compared to the same period in 2008. Also, TLX average revenue per
mile decreased approximately 11.4%. The decrease in average revenue per mile is
mainly attributable to decreased fuel surcharges as a result of decreased fuel
prices and reduced yields as a result of increased truckload price
competition. The remaining decrease in logistics revenue was
primarily driven by a $0.2 million decrease in other non-mileage based logistic
revenues which decreased in conjunction with the overall decline in TLX business
volumes.
Other
revenue, which includes warehousing services and terminal handling, accounts for
the final component of Forward Air operating revenue. Other revenue decreased
$0.9 million, or 13.8%, to $5.6 million in the third quarter of 2009 from $6.5
million in the same period of 2008. The decline in revenue was
primarily due to volume decreases in conjunction with the decline in our
airport-to-airport business. These declines were partially offset by
increases in dedicated pick-up and delivery services initiated during the fourth
quarter of 2008.
20
FASI
FASI
operating revenue increased $4.2 million and 30.9% to $17.8 million for the
three months ended September 30, 2009 from $13.6 million for the same period in
2008. The increase in revenue is the result of additional activity
from the Service Express acquisition on September 8, 2008 and new business
awards which began throughout 2009. These increases were slightly
offset by reduced fuel surcharge revenues as a result of declining fuel prices
and reduced shipping volumes at pre-acquisition terminals resulting from the
economic recession experienced throughout 2009.
Intercompany
Eliminations
Intercompany
eliminations decreased $0.3 million, or 42.9% to $0.4 million in the third
quarter of 2009 from $0.7 million in the same period of
2008. The intercompany eliminations are the result of truckload
and airport-to-airport services Forward Air provided to FASI during the three
months ended September 30, 2009. FASI also provided cartage and
station agent services to Forward Air. The decrease in intercompany
eliminations was the result of reduced Forward Air truckload services provided
to FASI.
Purchased
Transportation
Purchased
transportation decreased by $5.4 million, or 11.0%, to $43.5 million in the
third quarter of 2009 from $48.9 million in the same period of
2008. As a percentage of total operating revenue, purchased
transportation was 42.2% during the three months ended September 30, 2009
compared to 40.2% for the same period in 2008.
Forward
Air
Forward
Air’s purchased transportation decreased by $6.7 million, or 14.4%, to $39.8
million for the three months ended September 30, 2009 from $46.5 million for the
three months ended September 30, 2008. The decrease in purchased transportation
is primarily attributable to a 16.0% decrease in miles driven offset by a 2.1%
increase in the total cost per mile for the third quarter of 2009 versus the
same period in 2008. As a percentage of segment operating revenue, Forward Air
purchased transportation was 46.4% during the three months ended September 30,
2009 compared to 42.8% for the same period in 2008.
Purchased
transportation costs for our airport-to-airport network decreased $5.3 million,
or 15.9%, to $28.1 million for the three months ended September 30, 2009 from
$33.4 million for the three months ended September 30, 2008. For the
three months ended September 30, 2009, purchased transportation for our
airport-to-airport network increased to 42.1% of airport-to-airport revenue from
38.4% for the same period in 2008. The $5.3 million decrease is
mostly attributable to a 20.7% decrease in miles driven by our network of
owner-operators or third party transportation providers and slightly offset
by a 0.8% increase in the cost per mile paid to our network of owner-operators
or third party transportation providers. The reduction in miles
decreased purchased transportation by $6.1 million while the increase in cost
per mile increased purchased transportation by $0.2 million. Miles driven
by our network of owner-operators or third party transportation providers
decreased in conjunction with the tonnage decline discussed
above. Offsetting these decreases in airport-to-airport purchased
transportation was a $0.6 million increase in expenses for third party
transportation costs associated with the increased customer utilization of
Complete.
Purchased
transportation costs related to our logistics revenue decreased $1.0
million, or 8.8%, to $10.3 million for the three months ended September 30, 2009
from $11.3 million for the three months ended September 30, 2008. For the three
months ended September 30, 2009, logistics purchased transportation costs
represented 77.4% of logistics revenue versus 74.8% for the three months ended
September 30, 2008. The decrease in logistics purchased transportation
was attributable to the $0.7 million, or 6.7%, decrease in TLX purchased
transportation. We reduced miles driven to support our TLX
revenue by approximately 0.3% and reduced the cost per mile by
approximately 6.4% during the three months ended September 30, 2009 compared to
the same period in 2008. The reduction in cost per mile was
mostly attributable to the increased utilization of our less costly network of
owner-operators and improved purchasing power given the increased availability
of third party transportation providers. The remaining decrease in
logistics purchased transportation was driven by a $0.3 million decrease in
transportation costs associated with other non-mileage based logistic
revenues. Logistics purchased transportation increased as a
percentage of revenue primarily due to the decline in yield per mile resulting
from lower fuel surcharges and increased truckload pricing
competition. These decreases have reduced our TLX yield per mile at a
faster rate than we can reduce the related cost per mile.
Purchased
transportation costs related to our other revenue decreased $0.4 million, or
22.2%, to $1.4 million for the three months ended September 30, 2009 from $1.8
million for the three months ended September 30, 2008. Other purchased
transportation costs as a percentage of other revenue decreased to 25.0% of
other revenue for the three months ended September 30, 2009 from 27.7% for the
same period in 2008. The improvement in other purchased
transportation costs as a percentage of other revenue is attributable to the use
of Company-employed drivers to provide the transportation services associated
with certain dedicated pick-up and delivery services initiated during the fourth
quarter of 2008. Further, due to the economic recession we have
ceased providing other ancillary services in circumstances in which the overall
yield was insufficient.
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FASI
FASI
purchased transportation increased $0.9 million, or 29.0% to $4.0 million in the
third quarter of 2009 from $3.1 million in the same period of
2008. FASI purchased transportation as a percentage of revenue was
22.5% for the three months ended September 30, 2009 compared to 22.8% for the
three months ended September 30, 2008. The improvement in purchased
transportation as a percentage of revenue is attributable to operational
efficiencies gained as we integrate our 2008 acquisitions.
Intercompany
Eliminations
Intercompany
eliminations decreased $0.4 million, or 57.1% to $0.3 million in the third
quarter of 2009 from $0.7 million in the same period of 2008. The
intercompany eliminations are the result of truckload and airport-to-airport
services Forward Air provided to FASI during the three months ended September
30, 2009. FASI also provided cartage and agent station services to
Forward Air. The decrease in intercompany eliminations was the result
of reduced Forward Air truckload services provided to FASI.
Salaries,
Wages, and Benefits
Salaries,
wages and employee benefits increased by $0.1 million, or 0.4%, to $28.6 million
in the third quarter of 2009 from $28.5 million in the same period of
2008. As a percentage of total operating revenue, salaries, wages and
employee benefits was 27.7% during the three months ended September 30, 2009
compared to 23.5% for the same period in 2008.
Forward
Air
Salaries,
wages and employee benefits of Forward Air decreased by $2.4 million, or 10.4%,
to $20.6 million in the third quarter of 2009 from $23.0 million in the same
period of 2008. Salaries, wages and employee benefits were 24.0% of
Forward Air’s operating revenue in the third quarter of 2009 compared to 21.2%
for the same period of 2008. The $2.4 million
decrease in salaries, wages, and benefits was driven by a reduction in employee
incentives and our efforts to reduce personnel costs in conjunction with the
overall decline in Forward Air revenue. Expenses for employee
incentives decreased $0.5 million, or 0.4% as a percentage of revenue, as a
result of failures to meet internal performance goals during the third quarter
of 2009. Our efforts to reduce personnel costs to date have primarily focused on
controlling airport-to-airport variable wages, such as dock
personnel. Through these reductions we have reduced terminal related
pay by approximately $1.7 million, or 16.9%. The remaining $0.2
million decrease was driven by reductions in sales force and various back-office
functions. However, we have not reduced the fixed components of our
salaries and benefits, such as management pay, share-based compensation, and
health insurance costs at the same rate at which our revenue has declined, and
as a result salaries, wages, and benefits increased as a percentage of
revenue.
FASI
FASI
salaries, wages and employee benefits increased to $8.0 million for the three
months ended September 30, 2009 compared to $5.5 million for the three months
ended September 30, 2008. As a percentage of FASI operating revenue,
salaries, wages and benefits increased to 44.9% for the three months ended
September 30, 2009 compared to 40.5% for the same period in
2008. FASI salaries, wages and employee benefits are higher as a
percentage of operating revenue than our Forward Air segment, as a larger
percentage of the transportation services are performed by Company-employed
drivers. The increase in salaries, wages and employee benefits as a
percentage of revenue is attributable to increases in dock wages as a result of
the Service Express acquisition and increases in health and worker’s
compensation claims. The terminals we acquired with the Service
Express acquisition utilize a higher percentage of contract labor for its dock
personnel than preexisting FASI terminals. We are in the process of
converting dock personnel in several of our stations from contract labor to
Company-employees. This process did result in excess staffing during the three
months ended September 30, 2009. Dock related wages also increased as
a percentage of revenue due to changes in business mix. Certain lower
yielding business requires more dock handling services and as a result
additional staffing is necessary. Consequently, dock related wages
increased $1.5 million, or 2.4% as a percentage of revenue for the three months
ended September 30, 2009 as compared to the same period in 2008. In
addition, health insurance costs and worker’s compensation claims increased $0.6
million, or 2.7% as a percentage of revenue. These costs have
increased mainly on the timing difference between when the additional employees
were added from our recent acquisitions and when they begin to incur health and
worker’s compensation claims. These increases were offset by
headcount reductions made in our FASI management and administrative functions to
reduce FASI’s fixed salaries and benefits.
Operating
Leases
Operating
leases increased by $0.4 million, or 6.5%, to $6.6 million in the third quarter
of 2009 from $6.2 million in the same period of 2008. Operating
leases, the largest component of which is facility rent, were 6.4% of
consolidated operating revenue for the three months ended September 30, 2009
compared with 5.1% in the same period of 2008.
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Forward
Air
Operating
leases decreased $0.1 million, or 2.1%, to $4.6 million in the third quarter of
2009 from $4.7 million in the same period of 2008. Operating leases
were 5.4% of Forward Air operating revenue for the three months ended September
30, 2009 compared with 4.3% in the same period of 2008. Operating
leases decreased $0.1 million on reduced costs for trailer and tractor
leases. Throughout the second and third quarters of 2009 we have been
able to turn in leased trailers and tractors assumed in conjunction with our
recent acquisitions.
Our new
regional hub in Dallas/Fort Worth was completed at the beginning of the third
quarter. In conjunction with the opening of this new facility we were
able to move out of the previously leased facilities. However, the
rent savings were not fully realized during the third quarter of 2009 as the
related operating lease expense decrease was offset by increases related to the
expansion of other facilities.
FASI
FASI
operating lease expense increased $0.5 million to $2.0 million for the three
months ended September 30, 2009 from $1.5 million for the same period in
2008. This increase was attributable to higher facility rent expense
due to the increased number of terminals resulting from the Service Express
acquisition.
Depreciation
and Amortization
Depreciation
and amortization increased $0.9 million, or 22.0%, to $5.0 million in the third
quarter of 2009 from $4.1 million in the same period of
2008. Depreciation and amortization was 4.9% of consolidated
operating revenue for the three months ended September 30, 2009 compared with
3.4% in the same period of 2008.
Forward
Air
Depreciation
and amortization increased $0.5 million, or 13.9%, to $4.1 million in the third
quarter of 2009 from $3.6 million in the same period of
2008. Depreciation and amortization expense as a percentage of
Forward Air operating revenue was 4.8% in the third quarter of 2009 compared to
3.3% in the same period of 2008. Trailer depreciation increased $0.1
million due to new trailers placed in service during the fourth quarter of
2008. Other depreciation increased $0.4 million as a result of the
opening of our new regional hub in Dallas/Fort Worth and capital expenditures
for improvements and expansion of existing facilities. Depreciation
on the new Dallas/Fort Worth facility was $0.2 million during the third quarter
of 2009. In addition to these increases, the increase in depreciation
and amortization expense as a percentage of revenue is primarily due to the
significant reduction in Forward Air revenue discussed above.
FASI
FASI
depreciation and amortization increased $0.4 million to $0.9 million for the
three months ended September 30, 2009 from $0.5 million for the same period in
2008. Depreciation and amortization expense as a percentage of FASI
operating revenue was 5.1% in the third quarter of 2009 compared to 3.7% in the
same period of 2008. Depreciation on tractors and
trailers obtained in conjunction with our acquisitions of Service Express
accounted for $0.2 million of the increase. Amortization of
intangible assets also increased $0.1 million associated with the intangible
assets acquired through the Service Express acquisition. The
remaining $0.1 million increase was attributable to depreciation on terminal
improvements for conveyors, security systems and office
space.
Insurance
and Claims
Insurance
and claims expense increased $0.2 million, or 11.1%, to $2.0 million for the
three months ended September 30, 2009 from $1.8 million for the three months
ended September 30, 2008. Insurance and claims were 1.9% of
consolidated operating revenue for the three months ended September 30, 2009
compared with 1.5% for the same period in 2008.
Forward
Air
Insurance
and claims was 1.9% of Forward Air operating revenue in the third quarter of
2009, compared with 1.6% for the same period in 2008. The $0.1
million, or 5.9%, decrease in insurance and claims for the third quarter of 2009
compared to the third quarter of 2008 is the result of reduced premiums on
renewed insurance plans.
FASI
FASI
insurance and claims increased $0.3 million to $0.4 million for the three months
ended September 30, 2009 from $0.1 million for the same period in
2008. Insurance and claims increased to 2.2% of revenues for the
three months ended September 30, 2009 from 0.7% for the same period in
2008. The $0.3 million increase is attributable to a $0.2 million
increase in cargo claims and a $0.1 million increase in current vehicle claims
and the associated expenses. The increase in both is primarily
associated with the increased activity associated with our recent
acquisitions.
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Fuel
Expense
Fuel
expense decreased $1.2 million, to $1.9 million in the third quarter of 2009
from $3.1 million in the same period of 2008. Fuel expense was 1.8%
of consolidated operating revenue for the three months ended September 30, 2009
compared with 2.5% in the same period of 2008.
Forward
Air
Fuel
expense was 0.9% of Forward Air operating revenue in the third quarter of 2009
compared to 1.5% in the same period of 2008. The $0.8 million, or 50.0%,
decrease was primarily due to the significant reduction in average fuel prices
and the overall reduction in business volumes discussed above during the three
months ended September 30, 2009 as compared to the same period in
2008.
FASI
FASI fuel
expense decreased $0.4 million, or 26.7%, to $1.1 million in the third quarter
of 2009 from $1.5 million in the same period of 2008. Fuel expenses
were 6.2% of FASI operating revenue in the third quarter of 2009 compared to
11.0% in the third quarter of 2008. FASI fuel expense is
significantly higher as a percentage of operating revenue than Forward Air’s
fuel expense, as FASI utilizes a higher ratio of Company-employed drivers and
Company-owned or leased vehicles in its operations than Forward
Air. The decrease in fuel expense was primarily due to the
significant reduction in average fuel prices during the three months ended
September 30, 2009 as compared to the same period in 2008 offset by increased
activity as a result of the Service Express
acquisition.
Other
Operating Expenses
Other
operating expenses decreased $0.8 million, or 8.3%, to $8.8 million in the third
quarter of 2009 from $9.6 million in the same period of 2008. Other
operating expenses were 8.6% of consolidated operating revenue for the three
months ended September 30, 2009 compared with 7.9% in the same period of
2008.
Forward
Air
Other
operating expenses decreased $1.2 million, or 14.6%, to $7.0 million during the
three months ended September 30, 2009 from $8.2 million in the same period of
2008. Other operating expenses were 8.2% of Forward Air operating
revenue in the third quarter of 2009 compared to 7.5% in the same period of
2008. The increase as a percentage of revenue is the result of expenses not
decreasing at the same rate as revenue. Volume related expenses such
as tires, dock supplies, maintenance and agent station fees decreased $1.6
million and 25.6% due to the decreased business volumes discussed
previously. However, these decreases were partially offset by a $0.2
million increase in reserves for property and other taxes largely associated
with our Company-owned terminals. In addition, during the three
months ended September 30, 2008 other operating expenses were reduced by $0.2
million related to the reversal of previous accruals for fines and penalties
associated with the settlement of a dispute with a state taxing
authority. The dispute was settled with the state taxing authority
during the third quarter of 2008 for less than the amount previously
reserved.
FASI
FASI
other operating expenses increased $0.5 million, or 35.7%, to $1.9 million for
the three months ended September 30, 2009 compared to $1.4 million for the same
period in 2008. FASI other operating expenses for the third quarter
of 2009 were 10.7% of the segment’s operating revenue compared to 10.3% for the
same period in 2008. The $0.5 million increase is attributable to the
increased revenue activity associated with the acquisition of Service
Express.
Intercompany
Eliminations
Intercompany
eliminations were $0.1 million during the three months ended September 30,
2009. The intercompany
eliminations are for agent station services FASI provided to Forward Air during
the three months ended September 30, 2009.
Results
from Operations
Income
from operations decreased by $12.6 million to $6.7 million for the third quarter
of 2009 compared to $19.3 million in the same period of 2008. Income from
operations was 6.5% of consolidated operating revenue for the three months ended
September 30, 2009 compared with 15.9% for the same period in 2008.
Forward
Air
Income
from operations decreased by $12.1 million, or 62.7%, to $7.2 million for the
third quarter of 2009 compared with $19.3 million for the same period in
2008. Income from operations as a percentage of Forward Air operating
revenue was 8.4% for the three months ended September 30, 2009 compared with
17.8% in 2008. The decrease in income from operations was primarily
the result of the decreased revenues discussed above and our inability at this
time to reduce expenses at the same pace as the decline in revenue.
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