Attached files
file | filename |
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EX-32.2 - EXHIBIT 32.2 CERTIFICATION - FORWARD AIR CORP | exhibit32_2.htm |
EX-31.1 - EXHIBIT 31.1 CERTIFICATION - FORWARD AIR CORP | exhibit31_1.htm |
EX-31.2 - EXHIBIT 31.2 CERTIFICATION - FORWARD AIR CORP | exhibit31_2.htm |
EX-32.1 - EXHIBIT 32.1 CERTIFICATION - FORWARD AIR CORP | exhibit32_1.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 March 31, 2010
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 April 27, 2010 was 28,979,027.
Table
of Contents
|
||
Forward
Air Corporation
|
||
Page
|
||
Number
|
||
Part
I.
|
Financial
Information
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
3 | ||
4 | ||
5 | ||
6 | ||
Item
2.
|
13 | |
Item
3.
|
23 | |
Item
4.
|
23 | |
Part
II.
|
Other
Information
|
|
Item
1.
|
23 | |
Item
1A.
|
23 | |
Item
2.
|
23 | |
Item
3.
|
24 | |
Item
4.
|
24 | |
Item
5.
|
24 | |
Item
6.
|
24 | |
25 |
2
Part
I.
|
Financial
Information
|
Item
1.
|
Financial
Statements (Unaudited).
|
Condensed
Consolidated Balance Sheets
|
|||||
(Dollars
in thousands, except per share amounts)
|
|||||
(Unaudited)
|
|||||
March
31,
|
December
31,
|
||||
2010
|
2009
(a)
|
||||
Assets
|
|||||
Current
assets:
|
|||||
Cash
|
$ | 44,612 | $ | 42,035 | |
Accounts
receivable, less allowance of $2,045 in 2010 and $1,919 in
2009
|
58,425 | 55,720 | |||
Other
current assets
|
7,688 | 9,471 | |||
Total
current assets
|
110,725 | 107,226 | |||
Property
and equipment
|
208,654 | 204,716 | |||
Less
accumulated depreciation and amortization
|
78,323 | 75,990 | |||
Total
property and equipment, net
|
130,331 | 128,726 | |||
Goodwill
and other acquired intangibles:
|
|||||
Goodwill
|
43,332 | 43,332 | |||
Other
acquired intangibles, net of accumulated amortization of $13,429 in 2010
and $12,281 in 2009
|
34,701 | 35,849 | |||
Total
goodwill and other acquired intangibles
|
78,033 | 79,181 | |||
Other
assets
|
1,534 | 1,597 | |||
Total
assets
|
$ | 320,623 | $ | 316,730 | |
Liabilities
and Shareholders’ Equity
|
|||||
Current
liabilities:
|
|||||
Accounts
payable
|
$ | 9,837 | $ | 10,333 | |
Accrued
expenses
|
20,745 | 18,531 | |||
Current
portion of debt and capital lease obligations
|
835 | 919 | |||
Total
current liabilities
|
31,417 | 29,783 | |||
Long-term
debt and capital lease obligations, less current portion
|
51,992 | 52,169 | |||
Other
long-term liabilities
|
4,623 | 4,485 | |||
Deferred
income taxes
|
4,889 | 5,786 | |||
Shareholders’
equity:
|
|||||
Preferred
stock
|
-- | -- | |||
Common
stock, $0.01 par value:
|
|||||
Authorized
shares – 50,000,000
|
|||||
Issued
and outstanding shares – 28,952,441 in 2010 and
28,950,391 in 2009
|
290 | 290 | |||
Additional
paid-in capital
|
18,436 | 16,631 | |||
Retained
earnings
|
208,976 | 207,586 | |||
Total
shareholders’ equity
|
227,702 | 224,507 | |||
Total
liabilities and shareholders’ equity
|
$ | 320,623 | $ | 316,730 | |
(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
|
|||||||
March
31,
|
March
31,
|
||||||
2010
|
2009
|
||||||
Operating
revenue:
|
|||||||
Forward
Air
|
|||||||
Airport-to-airport
|
$ | 70,888 | $ | 63,055 | |||
Logistics
|
13,855 | 13,044 | |||||
Other
|
5,875 | 5,867 | |||||
Forward
Air Solutions
|
|||||||
Pool
distribution
|
16,359 | 14,650 | |||||
Total
operating revenue
|
106,977 | 96,616 | |||||
Operating
expenses:
|
|||||||
Purchased
transportation
|
|||||||
Forward
Air
|
|||||||
Airport-to-airport
|
28,799 | 26,153 | |||||
Logistics
|
10,768 | 10,279 | |||||
Other
|
1,492 | 1,064 | |||||
Forward
Air Solutions
|
|||||||
Pool
distribution
|
3,442 | 2,632 | |||||
Total
purchased transportation
|
44,501 | 40,128 | |||||
Salaries,
wages and employee benefits
|
30,670 | 29,056 | |||||
Operating
leases
|
6,629 | 6,989 | |||||
Depreciation
and amortization
|
4,949 | 4,858 | |||||
Insurance
and claims
|
2,331 | 2,716 | |||||
Fuel
expense
|
2,058 | 1,682 | |||||
Other
operating expenses
|
9,784 | 9,056 | |||||
Impairment
of goodwill and other intangible assets
|
-- | 7,157 | |||||
Total
operating expenses
|
100,922 | 101,642 | |||||
Income
(loss) from operations
|
6,055 | (5,026 | ) | ||||
Other
income (expense):
|
|||||||
Interest
expense
|
(185 | ) | (141 | ) | |||
Other,
net
|
30 | (22 | ) | ||||
Total
other expense
|
(155 | ) | (163 | ) | |||
Income
(loss) before income taxes
|
5,900 | (5,189 | ) | ||||
Income
tax expense (benefit)
|
2,481 | (2,085 | ) | ||||
Net
income (loss)
|
$ | 3,419 | $ | (3,104 | ) | ||
Net
income (loss) per share:
|
|||||||
Basic
|
$ | 0.12 | $ | (0.11 | ) | ||
Diluted
|
$ | 0.12 | $ | (0.11 | ) | ||
Weighted
average shares outstanding:
|
|||||||
Basic
|
28,951 | 28,906 | |||||
Diluted
|
29,074 | 28,906 | |||||
Dividends
per share:
|
$ | 0.07 | $ | 0.07 |
The accompanying notes are an
integral part of the financial statements.
4
Condensed
Consolidated Statements of Cash Flows
|
|||||||
(In
thousands)
|
|||||||
(Unaudited)
|
|||||||
Three
months ended
|
|||||||
March
31,
|
March
31,
|
||||||
2010
|
2009
|
||||||
Operating
activities:
|
|||||||
Net
income (loss)
|
$ | 3,419 | $ | (3,104 | ) | ||
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities
|
|||||||
Depreciation
and amortization
|
4,949 | 4,858 | |||||
Impairment
of goodwill and other intangible assets
|
-- | 7,157 | |||||
Share-based
compensation
|
1,763 | 1,780 | |||||
Loss
on sale or disposal of property and equipment
|
1 | 9 | |||||
Provision
for loss (recovery) on receivables
|
90 | (35 | ) | ||||
Provision
for revenue adjustments
|
423 | 794 | |||||
Deferred
income taxes
|
(873 | ) | (1,960 | ) | |||
Tax
benefit for stock options exercised
|
(4 | ) | -- | ||||
Changes
in operating assets and liabilities
|
|||||||
Accounts
receivable
|
(3,218 | ) | 8,006 | ||||
Prepaid
expenses and other current assets
|
1,786 | 705 | |||||
Accounts
payable and accrued expenses
|
1,856 | (1,751 | ) | ||||
Net
cash provided by operating activities
|
10,192 | 16,459 | |||||
Investing
activities:
|
|||||||
Proceeds
from disposal of property and equipment
|
20 | 127 | |||||
Purchases
of property and equipment
|
(5,426 | ) | (4,737 | ) | |||
Other
|
39 | (112 | ) | ||||
Net
cash used in investing activities
|
(5,367 | ) | (4,722 | ) | |||
Financing
activities:
|
|||||||
Payments
of debt and capital lease obligations
|
(261 | ) | (336 | ) | |||
Proceeds
from exercise of stock options
|
38 | -- | |||||
Payments
of cash dividends
|
(2,029 | ) | (2,025 | ) | |||
Cash
settlement of share-based awards for minimum tax
withholdings
|
-- | (228 | ) | ||||
Tax
benefit for stock options exercised
|
4 | -- | |||||
Net
cash used in financing activities
|
(2,248 | ) | (2,589 | ) | |||
Net
increase in cash
|
2,577 | 9,148 | |||||
Cash
at beginning of period
|
42,035 | 22,093 | |||||
Cash
at end of period
|
$ | 44,612 | $ | 31,241 |
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)
March
31, 2010
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: airport-to-airport; logistics; and other. 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 months ended March 31, 2010 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2010. For further information, refer to the consolidated financial
statements and notes thereto included in the Forward Air Corporation Annual
Report on Form 10-K/A for the year ended December 31, 2009.
The
balance sheet at December 31, 2009 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.
2.
|
Recent
Accounting Pronouncements
|
In
January 2010, the Financial Accounting Standard Board (“the FASB”) expanded the
disclosure requirements for fair value measurements. The expanded disclosures
will require a greater level of disaggregated information and additional
disclosures about valuation techniques and inputs to fair value measurements.
The amendment will require expanded disclosures on transfers in and out of Level
1 and Level 2 fair values, activity in Level 3 investments and inputs and
valuation techniques. The new disclosure requirements and
clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosure
requirements involving activity in Level 3 fair value measurements. Those
disclosure requirements are effective for fiscal years beginning after December
15, 2010, and for interim periods within those fiscal years. The
adoption of the provisions of this amendment required in the first interim
period after December 15, 2009 did not have a material impact on the Company’s
financial statement disclosures. In addition, the adoption of the
provisions of this amendment required for periods beginning after December 15,
2010 is not expected to have a material impact on the Company’s financial
statement disclosures.
The
Company adopted the FASB’s new guidance regarding subsequent events in the
second quarter of 2009. The FASB’s new guidance 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
adoption of the new subsequent event guidance did not have a material impact on
the Company’s financial statements.
6
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
2.
|
Recent
Accounting Pronouncements
(continued)
|
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 adopted the amended guidance on January 1,
2010, and this adoption did not 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 adopted the amended guidance on January 1, 2010, and this adoption did
not have a significant impact on the Company’s financial position, results of
operations and cash flows.
3.
|
Comprehensive
Income
|
Comprehensive
income or loss includes any changes in the equity of the Company from
transactions and other events and circumstances from non-owner sources.
Comprehensive income (loss) for the three months ended March 31, 2010 and 2009
was $3,419 and $(3,104), respectively. In each case, the
comprehensive results approximated net income (loss).
4.
|
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. 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 for comparable companies as of the valuation
date. The Company's fair value calculations for goodwill are
classified within level 3 of the fair value hierarchy as defined in the FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (“the FASB Codification”).
7
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
4.
|
Goodwill
and Long-Lived Assets (continued)
|
As of
December 31, 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 by the Forward Air segment are expected to continue supporting 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. There were no changes in the carrying amount of goodwill
during the three months ended March 31, 2010.
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. During 2009
an impairment charge of $204 was incurred 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.
5.
|
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 make other employee grants 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 three months ended March 31, 2010 and 2009 was $8.24
and $7.96. The fair values were estimated using the following
weighted-average assumptions:
Three
months ended
|
|||||
March
31,
|
March
31,
|
||||
2010
|
2009
|
||||
Expected
dividend yield
|
1.3 | % | 0.9 | % | |
Expected
stock price volatility
|
45.7 | % | 42.3 | % | |
Weighted
average risk-free interest rate
|
2.5 | % | 2.0 | % | |
Expected
life of options (years)
|
4.5 | 4.5 |
During
the three months ended March 31, 2010 and 2009, share-based compensation expense
for options granted to employees was $1,624 and $1,388,
respectively. The total tax benefit related to the share-based
expense for these options for the three months ended March 31, 2010 and 2009,
was $477 and $376, respectively. Total compensation cost, net of
estimated forfeitures, related to the options not yet recognized in earnings was
$9,545 at March 31, 2010. Total unrecognized compensation cost will be adjusted
for future changes in estimated forfeitures.
8
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
5.
|
Share-Based
Payments (continued)
|
The
following tables summarize the Company’s employee stock option activity and
related information for the three months ended March 31, 2010:
Three
months ended March 31, 2010
|
|||||||||
Weighted-
|
|||||||||
Weighted-
|
Aggregate
|
Average
|
|||||||
Average
|
Intrinsic
|
Remaining
|
|||||||
Options
|
Exercise
|
Value
|
Contractual
|
||||||
(000)
|
Price
|
(000)
|
Term
|
||||||
Outstanding
at December 31, 2009
|
3,086
|
$
|
26
|
||||||
Granted
|
664
|
22
|
|||||||
Exercised
|
2
|
18
|
|||||||
Forfeited
|
9
|
26
|
|||||||
Outstanding
at March 31, 2010
|
3,739
|
$
|
26
|
$
|
--
|
4.9
|
|||
Exercisable
at March 31, 2010
|
2,412
|
$
|
27
|
$
|
--
|
4.3
|
Share-based
compensation expense was $220 during the three months ended March 31, 2009, for
non-vested shares granted to employees during 2006. The total tax benefit
related to this share-based expense was $88 for the three months ended March 31,
2009. As of December 31, 2009, all shares granted to employees had
vested or been forfeited.
Non-employee
Director Activity
Share-based
compensation expense during the three months ended March 31, 2010 and 2009 was
$139 and $172, respectively, for non-vested shares granted to non-employee
directors. The total tax benefit related to this share-based expense
was $56 and $69 for the three months ended March 31, 2010 and 2009,
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 $66 at March 31, 2010. 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 March 31, 2010, 74,375
options were outstanding and will expire between July 2010 and May
2015. At March 31, 2010, the weighted average exercise price and
remaining contractual term were $22 and 2.9 years,
respectively.
6.
|
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 March 31, 2010). The
agreement contains certain covenants and restrictions, none of which are
expected to significantly affect our operations or ability to pay
dividends. No assets are pledged as collateral against the senior
credit facility. As of March 31, 2010, the Company had $50,000
outstanding under the senior credit facility. At March 31, 2010, the Company had
utilized $11,804 of availability for outstanding letters of credit and had
$38,196 of available borrowing capacity outstanding under the senior credit
facility.
9
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
7.
|
Net
Income (Loss) Per Share
|
The
following table sets forth the computation of basic and diluted net income
(loss) per share:
Three
months ended
|
||||||
March
31,
|
March
31,
|
|||||
2010
|
2009
|
|||||
Numerator:
|
||||||
Numerator
for basic and diluted income (loss) per share - net income
(loss)
|
$ | 3,419 | $ | (3,104 | ) | |
Denominator:
|
||||||
Denominator
for basic income (loss) per share - weighted-average
shares
|
28,951 | 28,906 | ||||
Effect
of dilutive stock options and non-vested shares
|
123 | -- | ||||
Denominator
for diluted income (loss) per share - adjusted weighted-average
shares
|
29,074 | 28,906 | ||||
Basic
income (loss) per share
|
$ | 0.12 | $ | (0.11 | ) | |
Diluted
income (loss) per share
|
$ | 0.12 | $ | (0.11 | ) |
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 (loss) per diluted share because to do so would have been
anti-dilutive for the periods presented, were approximately 2,948,000 and
2,750,000 at March 31, 2010 and 2009, respectively.
8.
|
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 2004.
During
the three months ended March 31, 2010, the Company increased its reserves for
unrecognized tax benefits and related interest by approximately
$109. The increase was related to recent state audit findings that
indicated the probable settlement of certain issues could be higher than
originally estimated.
For the
three months ended March 31, 2010 and 2009, 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.
9.
|
Financial
Instruments
|
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and trade accounts receivable. The
Company does not generally require collateral from its customers. Concentrations
of credit risk with respect to trade accounts receivable on a consolidated basis
are limited due to the large number of entities comprising the Company’s
customer base and their dispersion across many different
industries. However, while not significant to the Company on a
consolidated basis, three customers accounted for approximately 50.8% of FASI’s
2009 operating revenue.
In
February 2010, the Company notified one of FASI’s largest customers that it
would cease providing services and conclude the business relationship by July 2,
2010. During 2010, revenues from this customer were approximately
16.5% of FASI’s operating revenue and 2.5% of the Company’s consolidated
operating revenue. The revenue associated with this customer was low
yielding and the projected impact on 2010 operating results from curtailing
these services is projected to be minimal. Receivables from this
customer were approximately $588 at March 31, 2010.
Fair
Value of Financial Instruments
The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
10
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
9.
|
Financial
Instruments (continued)
|
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,
based on the adverse economic conditions experienced throughout 2009, the
Company believes its borrowing rate to be favorable to current market
rates. Using interest rate quotes currently available in the market
and discounted cash flows, the Company estimated the fair value of its senior
credit facility and debt and capital lease obligations as follows:
March
31, 2010
|
|||||
Carrying
|
Fair
|
||||
Value
|
Value
|
||||
Senior
credit facility
|
$ | 50,000 | $ | 47,649 | |
Debt
and capital leases
|
2,827 | 3,053 |
The
Company's fair value calculations for the above financial instruments are
classified within level 3 of the fair value hierarchy as defined in the FASB
Codification.
10.
|
Shareholders'
Equity
|
During
the first quarters of 2010 and 2009, 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.
11.
|
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.
12.
|
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 2009 Annual Report on Form
10-K/A. 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.
11
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
12.
|
Segment
Reporting (continued)
|
The
following table summarizes 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 months ended March 31, 2010 and 2009.
Three
months ended March 31, 2010
|
|||||||||||||
Forward
Air
|
FASI
|
Eliminations
|
Consolidated
|
||||||||||
External
revenues
|
$ | 90,618 | $ | 16,359 | $ | -- | $ | 106,977 | |||||
Intersegment
revenues
|
274 | 68 | (342 | ) | -- | ||||||||
Depreciation
and amortization
|
4,039 | 910 | -- | 4,949 | |||||||||
Stock-based
compensation expense
|
1,655 | 108 | -- | 1,763 | |||||||||
Interest
expense
|
168 | 17 | -- | 185 | |||||||||
Interest
income
|
5 | 2 | -- | 7 | |||||||||
Income
tax expense (benefit)
|
2,901 | (420 | ) | -- | 2,481 | ||||||||
Net
income (loss)
|
4,125 | (706 | ) | -- | 3,419 | ||||||||
Total
assets
|
320,120 | 38,956 | (38,453 | ) | 320,623 | ||||||||
Capital
expenditures
|
2,651 | 2,775 | -- | 5,426 |
Three
months ended March 31, 2009
|
||||||||||||||
Forward
Air
|
FASI
|
Eliminations
|
Consolidated
|
|||||||||||
External
revenues
|
$ | 81,966 | $ | 14,650 | $ | -- | $ | 96,616 | ||||||
Intersegment
revenues
|
192 | 108 | (300 | ) | -- | |||||||||
Depreciation
and amortization
|
3,946 | 912 | -- | 4,858 | ||||||||||
Stock-based
compensation expense
|
1,715 | 65 | -- | 1,780 | ||||||||||
Impairment
of goodwill and other intangible assets
|
204 | 6,953 | -- | 7,157 | ||||||||||
Interest
expense
|
112 | 29 | -- | 141 | ||||||||||
Interest
income
|
19 | 2 | -- | 21 | ||||||||||
Income
tax expense (benefit)
|
1,355 | (3,440 | ) | -- | (2,085 | ) | ||||||||
Net
income (loss)
|
2,289 | (5,393 | ) | -- | (3,104 | ) | ||||||||
Total
assets
|
300,260 | 37,073 | (36,345 | ) | 300,988 | |||||||||
Capital
expenditures
|
4,223 | 514 | -- | 4,737 |
12
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 12
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
Results
from Operations
During
the three months ended March 31, 2010, we experienced notable increases in our
consolidated revenues and results from operations as compared to the three
months ended March 31, 2009. We largely attribute the increases in
our Forward Air revenue and income from operations to higher freight volumes as
general economic conditions improved during the first quarter of 2010 compared
to the same period in 2009. FASI revenue continued to increase
year-over-year on new business wins which began at various times throughout
2009. FASI’s loss from operations is largely attributable to
repressed retail volumes as FASI’s retail customers have yet to benefit from any
economic improvement.
Throughout
2009 declining fuel prices adversely affected our revenues and results of
operations as compared to prior periods. However, in 2010 fuel prices
have increased significantly over the same period in 2009. 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 increase in tonnage levels combined with
the increasing diesel fuel prices have resulted in an increase in our net fuel
surcharge revenue. Total net fuel surcharge revenue increased 57.9%
during the three months ended March 31, 2010 as compared to the same period in
2009.
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 economic recession experienced in 2009 and the
resulting declines in market valuations and FASI operating losses in excess of
expectations. As a result, we performed an interim impairment
test. 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
March 31, 2010, 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
continue supporting the carrying value of its goodwill. Our FASI segment
continues to face 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.
13
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 March 31, 2010 and 2009 (in millions):
Three
months ended
|
|||||||||||||||
March
31,
|
March
31,
|
Percent
|
|||||||||||||
2010
|
2009
|
Change
|
Change
|
||||||||||||
Operating
revenue
|
$ | 107.0 | $ | 96.6 | $ | 10.4 | 10.8 | % | |||||||
Operating
expenses:
|
|||||||||||||||
Purchased
transportation
|
44.5 | 40.1 | 4.4 | 11.0 | |||||||||||
Salaries,
wages, and employee benefits
|
30.7 | 29.1 | 1.6 | 5.5 | |||||||||||
Operating
leases
|
6.6 | 7.0 | (0.4 | ) | (5.7 | ) | |||||||||
Depreciation
and amortization
|
4.9 | 4.8 | 0.1 | 2.1 | |||||||||||
Insurance
and claims
|
2.3 | 2.7 | (0.4 | ) | (14.8 | ) | |||||||||
Fuel
expense
|
2.1 | 1.7 | 0.4 | 23.5 | |||||||||||
Other
operating expenses
|
9.8 | 9.0 | 0.8 | 8.9 | |||||||||||
Impairment
of goodwill and other intangible assets
|
-- | 7.2 | (7.2 | ) | (100.0 | ) | |||||||||
Total
operating expenses
|
100.9 | 101.6 | (0.7 | ) | (0.7 | ) | |||||||||
Income
(loss) from operations
|
6.1 | (5.0 | ) | 11.1 | 222.0 | ||||||||||
Other
income (expense):
|
|||||||||||||||
Interest
expense
|
(0.2 | ) | (0.2 | ) | -- | -- | |||||||||
Other,
net
|
-- | -- | -- | -- | |||||||||||
Total
other (expense) income
|
(0.2 | ) | (0.2 | ) | -- | -- | |||||||||
Income
(loss) before income taxes
|
5.9 | (5.2 | ) | 11.1 | (213.5 | ) | |||||||||
Income
taxes
|
2.5 | (2.1 | ) | 4.6 | (219.0 | ) | |||||||||
Net
income (loss)
|
$ | 3.4 | $ | (3.1 | ) | $ | 6.5 | (209.7 | ) | % |
14
The
following table sets forth our historical financial data by segment for the
three months ended March 31, 2010 and 2009 (in millions):
Three
months ended
|
||||||||||||||||||||||
March
31,
|
Percent
of
|
March
31,
|
Percent
of
|
Percent
|
||||||||||||||||||
2010
|
Revenue
|
2009
|
Revenue
|
Change
|
Change
|
|||||||||||||||||
Operating
revenue
|
||||||||||||||||||||||
Forward
Air
|
$
|
90.9
|
85.0
|
%
|
$
|
82.1
|
85.0
|
%
|
$
|
8.8
|
10.7
|
%
|
||||||||||
FASI
|
16.4
|
15.3
|
14.8
|
15.3
|
1.6
|
10.8
|
||||||||||||||||
Intercompany
Eliminations
|
(0.3
|
)
|
(0.3
|
)
|
(0.3
|
)
|
(0.3
|
)
|
--
|
--
|
||||||||||||
Total
|
107.0
|
100.0
|
96.6
|
100.0
|
10.4
|
10.8
|
||||||||||||||||
Purchased
transportation
|
||||||||||||||||||||||
Forward
Air
|
41.1
|
45.2
|
37.6
|
45.8
|
3.5
|
9.3
|
||||||||||||||||
FASI
|
3.7
|
22.6
|
2.8
|
19.0
|
0.9
|
32.1
|
||||||||||||||||
Intercompany
Eliminations
|
(0.3
|
)
|
100.0
|
(0.3
|
)
|
100.0
|
--
|
--
|
||||||||||||||
Total
|
44.5
|
41.6
|
40.1
|
41.5
|
4.4
|
11.0
|
||||||||||||||||
Salaries,
wages and employee benefits
|
||||||||||||||||||||||
Forward
Air
|
23.4
|
25.7
|
21.5
|
26.2
|
1.9
|
8.8
|
||||||||||||||||
FASI
|
7.3
|
44.5
|
7.6
|
51.3
|
(0.3
|
)
|
(3.9
|
)
|
||||||||||||||
Total
|
30.7
|
28.7
|
29.1
|
30.1
|
1.6
|
5.5
|
||||||||||||||||
Operating
leases
|
||||||||||||||||||||||
Forward
Air
|
4.5
|
5.0
|
4.8
|
5.8
|
(0.3
|
)
|
(6.3
|
)
|
||||||||||||||
FASI
|
2.1
|
12.8
|
2.2
|
14.8
|
(0.1
|
)
|
(4.5
|
)
|
||||||||||||||
Total
|
6.6
|
6.2
|
7.0
|
7.2
|
(0.4
|
)
|
(5.7
|
)
|
||||||||||||||
Depreciation
and amortization
|
||||||||||||||||||||||
Forward
Air
|
4.0
|
4.4
|
3.9
|
4.8
|
0.1
|
2.6
|
||||||||||||||||
FASI
|
0.9
|
5.5
|
0.9
|
6.1
|
--
|
--
|
||||||||||||||||
Total
|
4.9
|
4.6
|
4.8
|
5.0
|
0.1
|
2.1
|
||||||||||||||||
Insurance
and claims
|
||||||||||||||||||||||
Forward
Air
|
1.8
|
2.0
|
2.2
|
2.7
|
(0.4
|
)
|
(18.2
|
)
|
||||||||||||||
FASI
|
0.5
|
3.0
|
0.5
|
3.4
|
--
|
--
|
||||||||||||||||
Total
|
2.3
|
2.1
|
2.7
|
2.8
|
(0.4
|
)
|
(14.8
|
)
|
||||||||||||||
Fuel
expense
|
||||||||||||||||||||||
Forward
Air
|
0.9
|
1.0
|
0.7
|
0.9
|
0.2
|
28.6
|
||||||||||||||||
FASI
|
1.2
|
7.3
|
1.0
|
6.8
|
0.2
|
20.0
|
||||||||||||||||
Total
|
2.1
|
2.0
|
1.7
|
1.8
|
0.4
|
23.5
|
||||||||||||||||
Other
operating expenses
|
||||||||||||||||||||||
Forward
Air
|
8.0
|
8.8
|
7.4
|
9.0
|
0.6
|
8.1
|
||||||||||||||||
FASI
|
1.8
|
11.0
|
1.6
|
10.8
|
0.2
|
12.5
|
||||||||||||||||
Total
|
9.8
|
9.1
|
9.0
|
9.3
|
0.8
|
8.9
|
||||||||||||||||
Impairment
of goodwill and other intangible assets
|
||||||||||||||||||||||
|
||||||||||||||||||||||
Forward
Air
|
--
|
--
|
0.2
|
0.2
|
(0.2
|
)
|
(100.0
|
)
|
||||||||||||||
FASI
|
--
|
--
|
7.0
|
47.3
|
(7.0
|
)
|
(100.0
|
)
|
||||||||||||||
Total
|
--
|
--
|
7.2
|
7.5
|
(7.2
|
)
|
(100.0
|
)
|
||||||||||||||
Income
(loss) from operations
|
||||||||||||||||||||||
Forward
Air
|
7.2
|
7.9
|
3.8
|
4.6
|
3.4
|
89.5
|
||||||||||||||||
FASI
|
(1.1
|
)
|
(6.7
|
)
|
(8.8
|
)
|
(59.5
|
)
|
7.7
|
(87.5
|
)
|
|||||||||||
Total
|
$
|
6.1
|
5.7
|
%
|
$
|
(5.0
|
)
|
(5.2
|
)
|
%
|
$
|
11.1
|
(222.0
|
)
|
%
|
15
The
following table presents the components of the Forward Air segment’s operating
revenue and purchased transportation for the three months ended March 31, 2010
and 2009 (in millions):
Three
months ended
|
|||||||||||||||||
March
31,
|
Percent
of
|
March
31
|
Percent
of
|
Percent
|
|||||||||||||
2010
|
Revenue
|
2009
|
Revenue
|
Change
|
Change
|
||||||||||||
Forward
Air revenue
|
|||||||||||||||||
Airport-to-airport
|
$
|
71.0
|
78.1
|
%
|
$
|
63.2
|
77.0
|
%
|
$
|
7.8
|
12.3
|
%
|
|||||
Logistics
|
14.0
|
15.4
|
13.1
|
15.9
|
0.9
|
6.9
|
|||||||||||
Other
|
5.9
|
6.5
|
5.8
|
7.1
|
0.1
|
1.7
|
|||||||||||
Total
|
$
|
90.9
|
100.0
|
%
|
$
|
82.1
|
100.0
|
%
|
$
|
8.8
|
10.7
|
%
|
|||||
Forward
Air purchased transportation
|
|||||||||||||||||
Airport-to-airport
|
$
|
28.8
|
40.6
|
%
|
$
|
26.2
|
41.5
|
%
|
$
|
2.6
|
9.9
|
%
|
|||||
Logistics
|
10.8
|
77.1
|
10.3
|
78.6
|
0.5
|
4.9
|
|||||||||||
Other
|
1.5
|
25.4
|
1.1
|
19.0
|
0.4
|
36.4
|
|||||||||||
Total
|
$
|
41.1
|
45.2
|
%
|
$
|
37.6
|
45.8
|
%
|
$
|
3.5
|
9.3
|
%
|
Three
Months Ended March 31, 2010 compared to Three Months Ended March 31,
2009
Revenues
Operating
revenue increased by $10.4 million, or 10.8%, to $107.0 million for the three
months ended March 31, 2010 from $96.6 million in the same period of
2009.
Forward
Air
Forward
Air operating revenue increased $8.8 million, or 10.7%, to $90.9 million from
$82.1 million, accounting for 85.0% of consolidated operating revenue for the
three months ended March 31, 2010. Airport-to-airport revenue, which is the
largest component of our consolidated operating revenue, increased $7.8 million,
or 12.3%, to $71.0 million from $63.2 million, accounting for 78.1% of the
segment’s operating revenue during the three months ended March 31, 2010
compared to 77.0% for the three months ended March 31,
2009. Increased tonnage net of a decrease in our base revenue per
pound, excluding net fuel surcharge revenue and Forward Air Complete
(“Complete”) revenue, accounted for $4.1 million of the increase 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 4.1% for the three months ended March 31,
2010 versus the three months ended March 31, 2009. Tonnage that transited our
network increased by 11.8% in the three months ended March 31, 2010 compared
with the three months ended March 31, 2009. The increase in tonnage
was primarily driven by the improved economic conditions during 2010 and the
resulting increase in shipping activity. Average base revenue per
pound decreased primarily in response to the increased pricing competition
driven by the economic recession experienced throughout
2009. However, we expect such rates to improve in 2010 as we have
announced a general rate increase effective May 1, 2010. The
remaining increase in airport-to-airport revenue is the result of increased net
fuel surcharge revenue and revenue from our Complete pick-up and delivery
service. Net fuel surcharge revenue increased $1.6 million during the
three months ended March 31, 2010 as compared to three months ended March 31,
2009 in response to increased fuel prices and overall business
volumes. In addition, Complete revenue increased $2.1 million during
the three months ended March 31, 2010 compared to the same period of
2009. The increase in Complete revenue is attributable to an
increased attachment rate of the Complete service to our standard
airport-to-airport service and the overall improvement in tonnage volumes during
the first quarter of 2010 compared to the same period in 2009.
Logistics
revenue, which is primarily TLX, increased $0.9 million, or 6.9%, to $14.0
million in the first quarter of 2010 from $13.1 million in the same period of
2009. TLX revenue increased $0.7 million and 6.1% for the three
months ended March 31, 2010 as compared to the same period in
2009. TLX revenue increase was the result of a 5.6% increase in miles
driven to support our TLX revenue from the first quarter of 2010 as compared to
the same period in 2009. TLX average revenue per mile also increased
approximately 0.5% during the three months ended March 31, 2010 compared to the
three months ended March 31, 2009. Similar to our airport-to-airport
service, TLX miles increased in conjunction with the improving economy and the
resulting increase in shipping activity. The increase in average
revenue per mile is mainly attributable to increased fuel surcharges as a result
of increased fuel prices during the three months ended March 31, 2010 compared
to the same period in 2009. The remaining $0.2 million increase in
logistics revenue was attributable to increases in other non-mileage based
logistic revenues. The increase in non-mileage based services was in
conjunction with the improvement 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 increased
$0.1 million, or 1.7%, to $5.9 million in the first quarter of 2010 from $5.8
million in the same period of 2009.
16
FASI
FASI
operating revenue increased $1.6 million, or 10.8%, to $16.4 million for the
three months ended March 31, 2010 from $14.8 million for the same period in
2009. The increase in revenue is the result of various 2009 business
wins for which service began at various times throughout 2009.
Intercompany
Eliminations
Intercompany
eliminations were $0.3 million for the three months ended March 31, 2010 and
2009. The intercompany eliminations are the result of truckload and
airport-to-airport services Forward Air provided to FASI during the three months
ended March 31, 2010. FASI also provided cartage services to Forward
Air.
Purchased
Transportation
Purchased
transportation increased by $4.4 million, or 11.0%, to $44.5 million in the
first quarter of 2010 from $40.1 million in the same period of
2009. As a percentage of total operating revenue, purchased
transportation was 41.6% during the three months ended March 31, 2010 compared
to 41.5% for the same period in 2009.
Forward
Air
Forward
Air’s purchased transportation increased by $3.5 million, or 9.3%, to $41.1
million for the three months ended March 31, 2010 from $37.6 million for the
three months ended March 31, 2009. The increase in purchased transportation is
primarily attributable to a 6.8% increase in miles and a 2.4% increase in the
total cost per mile for the first quarter of 2010 versus the same period in
2009. As a percentage of segment operating revenue, Forward Air purchased
transportation was 45.2% during the three months ended March 31, 2010 compared
to 45.8% for the same period in 2009.
Purchased
transportation costs for our airport-to-airport network increased $2.6 million,
or 9.9%, to $28.8 million for the three months ended March 31, 2010 from $26.2
million for the three months ended March 31, 2009. For the three
months ended March 31, 2010, purchased transportation for our airport-to-airport
network decreased to 40.6% of airport-to-airport revenue from 41.5% for the same
period in 2009. The increase in airport-to-airport purchased
transportation was attributable to a 7.2% increase in miles driven by our
network of owner-operators or third party transportation providers net of a 1.1%
decrease in the cost per mile paid to our network of owner-operators or third
party transportation providers. The increase in miles increased
purchased transportation by $1.7 million while the reduction in cost per mile
decreased purchased transportation by less than $0.3 million. Miles driven
by our network of owner-operators or third party transportation providers
increased in conjunction with the tonnage increase discussed
above. The 1.1% decrease in airport-to-airport cost per mile was the
result of improved utilization of our network of owner-operators. In
addition to these changes, airport-to-airport purchased transportation increased
$1.2 million for third party transportation cost associated with the increased
customer utilization of Complete.
Purchased
transportation costs for our logistics revenue increased $0.5 million, or
4.9%, to $10.8 million for the three months ended March 31, 2010 from $10.3
million for the three months ended March 31, 2009. For the three months ended
March 31, 2010, logistics’ purchased transportation costs represented 77.1% of
logistics revenue versus 78.6% for the three months ended March 31,
2009. The increase in logistics’ purchased transportation
was attributable to a $0.5 million, or 5.4% increase in TLX purchased
transportation. Miles driven to support our TLX revenue increased
5.6% while our cost per mile decreased approximately 0.2% during the three
months ended March 31, 2010 compared to the same period in
2009. The reduction in cost per mile was mostly attributable to
the increased utilization of our less costly network of owner-operators as
opposed to third party transportation providers. Other non-mileage
based logistics' purchased transportation costs remained consistent for the
three months ended March 31, 2010 and 2009.
Purchased
transportation costs related to our other revenue increased $0.4 million, or
36.4%, to $1.5 million for the three months ended March 31, 2010 from $1.1
million for the three months ended March 31, 2009. Other purchased
transportation costs as a percentage of other revenue increased to 25.4% of
other revenue for the three months ended March 31, 2010 from 19.0% for the same
period in 2009. The increase in other purchased transportation
costs as a percentage of other revenue is attributable to the increased use of
more costly third party transportation providers, as opposed to Company-employed
drivers or our network of owner-operators, to provide the transportation
services associated with our other revenues, such as freight and container
transfers and other miscellaneous pick-up and delivery services.
17
FASI
FASI
purchased transportation costs increased $0.9 million, or 32.1%, to $3.7 million
for the three months ended March 31, 2010 from $2.8 million for the three months
ended March 31, 2009. FASI purchased transportation as a percentage
of revenue was 22.6% for the three months ended March 31, 2010 compared to 19.0%
for the three months ended March 31, 2009. The increase in FASI
purchased transportation as a percentage of revenue is attributable to our
efforts to shift FASI to a more variable cost model by increasing the use of
owner-operators as opposed to Company-employed drivers.
Intercompany
Eliminations
Intercompany
eliminations were $0.3 million for the three months ended March 31, 2010 and
2009. The intercompany eliminations are the result of truckload and
airport-to-airport services Forward Air provided to FASI during the three months
ended March 31, 2010. FASI also provided cartage services to Forward
Air.
Salaries,
Wages, and Benefits
Salaries,
wages and employee benefits increased by $1.6 million, or 5.5%, to $30.7 million
in the first quarter of 2010 from $29.1 million in the same period of
2009. As a percentage of total operating revenue, salaries, wages and
employee benefits was 28.7% during the three months ended March 31, 2010
compared to 30.1% for the same period in 2009.
Forward
Air
Salaries,
wages and employee benefits of Forward Air increased by $1.9 million, or 8.8%,
to $23.4 million in the first quarter of 2010 from $21.5 million in the same
period of 2009. Salaries, wages and employee benefits were 25.7% of
Forward Air’s operating revenue in the first quarter of 2010 compared to 26.2%
for the same period of 2009. The $1.9 million
increase in salaries, wages, and benefits is driven by increased reserves for
employee incentives and loss development reserves associated with workers’
compensation claims. Employee incentives increased $1.1 million on
achievement of quarterly performance goals for the three months ended March 31,
2010. Workers’ compensation claims increased $0.6 million on
increases in loss development reserves associated with prior year
claims. Increases in dock personnel wages associated with the
increased airport-to-airport volumes discussed above, net of reductions in
administrative headcounts drove the remaining $0.2 million
increase.
FASI
Salaries,
wages and employee benefits of FASI decreased by $0.3 million, or 3.9%, to $7.3
million in the first quarter of 2010 from $7.6 million in the same period of
2009. Salaries, wages and employee benefits were 44.5% of FASI’s
operating revenue in the first quarter of 2010 compared to 51.3% for the same
period of 2009. FASI salary,
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 as opposed to
owner-operators. The decrease in salaries, wages and employee
benefits as a percentage of revenue is attributable to reduced Company-employed
driver pay, administrative salaries and loss development reserves for workers’
compensation claims. As noted above, to move FASI to a more variable
cost structure, we are in the process of shifting, wherever feasible, from
Company-employed drivers to a network of owner-operators. As a
result, we reduced pay to Company-employed drivers by 3.3% as a percentage of
revenue. To further reduce FASI’s fixed cost structure, at the end of
the second quarter of 2009, we reduced administrative headcounts and as a result
we reduced administrative pay by 2.2% as a percentage of revenue for the first
quarter of 2010 compared the first quarter of 2009. Also,
contributing to the reduction of FASI salaries, wages and employee benefits as a
percentage of revenue, FASI workers’ compensation expenses decreased 2.3% as a
percentage of revenue primarily due to decreases in loss development reserves
associated with prior year claims.
These
decreases in FASI salaries, wages and employee benefits as a percentage of
revenue, were offset by increases in FASI dock personnel wages and share-based
compensation. FASI dock wages increased 0.8% during the three months
ended March 31, 2010 compared to the same period in 2009. The
increase was largely due to inefficiencies resulting from our continued efforts
to move our FASI dock personnel from contract labor to
Company-employees. We believe the utilization of Company-employees
results in a more efficient dock operation. However, this transition
did result in dock staffing inefficiencies during the first quarter of 2010
compared to the same period in 2009. FASI share-based compensation
also increased approximately 0.2% as a percentage of revenue. The
increase in FASI share-based compensation is attributable to the expense
associated with additional grants of Forward Air Corporation stock options to
FASI senior management during the first quarter of 2010.
Operating
Leases
Operating
leases decreased by $0.4 million, or 5.7%, to $6.6 million in the first quarter
of 2010 from $7.0 million in the same period of 2009. Operating
leases, the largest component of which is facility rent, were 6.2% of
consolidated operating revenue for the three months ended March 31, 2010
compared with 7.2% in the same period of 2009.
18
Forward
Air
Operating
leases decreased $0.3 million, or 6.3%, to $4.5 million in the first quarter of
2010 from $4.8 million in the same period of 2009. Operating leases
were 5.0% of Forward Air operating revenue for the three months ended March 31,
2010 compared with 5.8% in the same period of 2009. Our new regional
hub in Dallas/Fort Worth was completed at the beginning of the third quarter of
2009. In conjunction with the opening of this facility we were able
to move out of the previously leased facilities and reduce operating lease
expense by approximately $0.3 million during the three months ended March 31,
2010 compared to the three months ended March 31, 2009.
FASI
FASI
operating lease expense decreased $0.1 million, or 4.5%, to $2.1 million for the
three months ended March 31, 2010 from $2.2 million for the same period in
2009. Decrease is primarily due to the first quarter of 2009
including the recording of a reserve for net remaining payments on a vacated
duplicate facility.
Depreciation
and Amortization
Depreciation
and amortization increased $0.1 million, or 2.1%, to $4.9 million in the first
quarter of 2010 from $4.8 million in the same period of
2009. Depreciation and amortization was 4.6% of consolidated
operating revenue for the three months ended March 31, 2010 compared with 5.0%
in the same period of 2009.
Forward
Air
Depreciation
and amortization increased $0.1 million, or 2.6%, to $4.0 million in the first
quarter of 2010 from $3.9 million in the same period of
2009. Depreciation and amortization expense as a percentage of
Forward Air operating revenue was 4.4% in the first quarter of 2010 compared to
4.8% in the same period of 2009. The increase in depreciation and
amortization expense is attributable to increased depreciation related to the
completion of the Company-owned Dallas/Fort Worth regional hub at the beginning
of the third quarter of 2009. Improvement as a percentage of revenue
is attributable to better leverage from increased revenue.
FASI
FASI
depreciation and amortization was $0.9 million for the three months ended March
31, 2010 and 2009. Depreciation and amortization expense as a
percentage of FASI operating revenue was 5.5% in the first quarter of 2010
compared to 6.1% in the same period of 2009. Improvement
as a percentage of revenue is attributable to the increases in FASI revenue as
depreciation and amortization remained consistent year-over-year.
Insurance
and Claims
Insurance
and claims expense decreased $0.4 million, or 14.8%, to $2.3 million for the
three months ended March 31, 2010 from $2.7 million for the three months ended
March 31, 2009. Insurance and claims were 2.1% of consolidated
operating revenue for the three months ended March 31, 2010 compared with 2.8%
for the same period in 2009.
Forward
Air
Insurance
and claims was 2.0% of Forward Air operating revenue in the first quarter of
2010, compared with 2.7% in 2009. The $0.4 million, or 18.2%,
decrease in insurance and claims for the first quarter of 2010 compared to the
first quarter of 2009 is the result of reduced insurance premiums and a
significant cargo claim incurred during the first quarter of
2009. Insurance premiums decreased $0.3 million as a result of the
decreased number of our owner-operators in our network during the first quarter
of 2010 compared to the first quarter of 2009 as a result of fleet reductions
that we experienced during the economic recession in 2009. The
remaining decrease was attributable to a significant individual cargo claim
included in the first quarter of 2009.
FASI
FASI
insurance and claims for the three months ended March 31, 2010 and 2009 was $0.5
million and decreased to 3.0% of revenues for the three months ended March 31,
2010 compared to 3.4% of revenues for the three months ended March 31,
2009. The decrease as a percentage of revenue is attributable to the
increase in revenue outpacing the increase in claims and insurance
premiums.
Fuel
Expense
Fuel
expense increased $0.4 million, or 23.5%, to $2.1 million in the first quarter
of 2010 from $1.7 million in the same period of 2009. Fuel expense
was 2.0% of consolidated operating revenue for the three months ended March 31,
2010 compared with 1.8% in the same period of 2009.
19
Forward
Air
Fuel
expense was 1.0% of Forward Air operating revenue for the three months ended
March 31, 2010 compared to 0.9% for the three months ended March 31, 2009. The
$0.2 million, or 28.6%, increase was primarily due to the significant increase
in average fuel prices during the three months ended March 31, 2010 as compared
to the same period in 2009.
FASI
FASI fuel
expense increased $0.2 million, or 20.0%, to $1.2 million for the three months
ended March 31, 2010 from $1.0 million for the three months ended March 31,
2009. Fuel expense was 7.3% of FASI operating revenue in the first
quarter of 2010 compared to 6.8% in the first quarter of 2009. 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 increase in FASI fuel expense was attributable to the
increase in average fuel prices during the three months ended March 31, 2010 as
compared to the same period in 2009.
Other
Operating Expenses
Other
operating expenses increased $0.8 million, or 8.9%, to $9.8 million for the
three months ended March 31, 2010 from $9.0 million for the three months ended
March 31, 2009. Other operating expenses were 9.1% of consolidated
operating revenue for the three months ended March 31, 2010 compared with 9.3%
in the same period of 2009.
Forward
Air
Other
operating expenses increased $0.6 million, or 8.1%, to $8.0 million for the
three months ended March 31, 2010 from $7.4 million for the three months ended
March 31, 2009. Other operating expenses were 8.8% of Forward Air
operating revenue in the first quarter of 2010 compared to 9.0% in the same
period of 2009. The increase in other operating expenses in total dollars was
attributable to increases in variable costs, such as dock supplies and vehicle
maintenance, as a result of the increased business volumes discussed
previously. Forward Air other operating expenses decreased as
percentage of revenue as these variable cost increases were outpaced by the
increase in revenue.
FASI
FASI
other operating expenses increased $0.2 million, or 12.5%, to $1.8 million for
the three months ended March 31, 2010 compared to $1.6 million for the three
months ended March 31, 2009. FASI other operating expenses for the
three months ended March 31, 2010 were 11.0% of the segment’s operating revenue
compared to 10.8% for the same period in 2009. The increase as a
percentage of revenue is largely attributable to increases in utilities,
communications and property and miscellaneous taxes attributable to FASI moving
into larger facilities, primarily in Dallas/Fort Worth and Denver.
Impairment
of Goodwill and Other Intangible Assets
No
impairment charges were incurred during the three months ended March 31,
2010. Impairment of goodwill and other intangible assets was $7.2
million in the first quarter of 2009. Impairment of goodwill was 7.5%
of consolidated operating revenue for the three months ended March 31,
2009.
Forward
Air
No
impairment charges were incurred for Forward Air during the three months ended
March 31, 2010. During the three months ended March 31, 2009, Forward
Air recorded a $0.2 million charge to write off the net book value of certain
truckload and cargo handling customer relationships that had been discontinued
during the three months ended March 31, 2009.
FASI
No
impairment charges were incurred for FASI during the three months ended March
31, 2010. However, during the three months ended March 31, 2009, we
determined there were indicators of potential impairment of the goodwill
assigned to the FASI segment. This determination was made 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 as of March 31, 2009. Based on
the results of the impairment test, we recorded a non-cash goodwill impairment
charge of $7.0 million related to the FASI segment during the three months ended
March 31, 2009.
Results
from Operations
Income
from operations for the first quarter of 2010 increased $11.1 million to $6.1
million, or 5.7% as a percentage of consolidated operating revenue. Results from
operations for the same period of 2009 were a $5.0 million loss from operations.
The loss from operations was 5.2% of consolidated operating revenue for the
three months ended March 31, 2009.
20
Forward
Air
Income
from operations increased by $3.4 million, or 89.5%, to $7.2 million for the
first quarter of 2010 compared with $3.8 million for the same period in
2009. Income from operations as a percentage of Forward Air operating
revenue was 7.9% for the first quarter of 2010 compared with 4.6% for the first
quarter of 2009. The increase in income from operations was primarily
the result of the increased revenues discussed above and the resulting positive
leverage the additional revenue provides against the fixed costs of the Forward
Air network.
FASI
FASI’s
loss from operations decreased $7.7 million, or 87.5%, to a $1.1 million loss
for the first quarter of 2010 from a $8.8 million loss for the first quarter of
2009. The decrease in FASI’s loss from operations was primarily
driven by the $7.0 million non-cash, goodwill impairment charge included in the
results from operations for the first quarter of 2009. In addition,
losses improved during the first quarter of 2010 compared to the first quarter
of 2009 due to the increases in revenue and reductions in FASI fixed costs
discussed above.
Interest
Expense
Interest
expense was approximately $0.2 million for the three months ended March 31, 2010
and 2009. Interest rates and our net borrowings remained consistent
during the three months ended March 31, 2010 as compared to the same period in
2009.
Income
Taxes
The
combined federal and state effective tax rate for the three months ended March
31, 2010 was 42.1% compared to a rate of 40.2% for the three months
ended March 31, 2009. The increase in our effective tax rate is
primarily attributable to a $0.1 million increase in reserves for a certain
state income tax contingency.
Net
Income (Loss)
As a
result of the foregoing factors, net earnings increased by $6.5 million, to $3.4
million in net income for the first quarter of 2010 compared to a net loss of
$3.1 million for the same period in 2009.
Critical
Accounting Policies
Our
unaudited condensed consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles
(“GAAP”). The preparation of financial statements in accordance with
GAAP requires our management to make estimates and assumptions that affect the
amounts reported in the unaudited condensed consolidated financial statements
and accompanying notes. Our estimates and assumptions are based on
historical experience and changes in the business
environment. However, actual results may differ from estimates under
different conditions, sometimes materially. Critical accounting
policies and estimates are defined as those that are both most important to the
portrayal of our financial condition and results and require management’s most
subjective judgments. A summary of significant accounting policies is
disclosed in Note 1 to the Consolidated Financial Statements included in our
2009 Annual Report on Form 10-K/A. 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 2009 Annual Report on Form 10-K/A.
Impact
of Recent Accounting Pronouncements
In
January 2010, the Financial Accounting Standard Board (“the FASB”) expanded the
disclosure requirements for fair value measurements. The expanded disclosures
will require a greater level of disaggregated information and additional
disclosures about valuation techniques and inputs to fair value measurements.
The amendment will require expanded disclosures on transfers in and out of Level
1 and Level 2 fair values, activity in Level 3 investments and inputs and
valuation techniques. The new disclosure requirements and
clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosure
requirements involving activity in Level 3 fair value measurements. Those
disclosure requirements are effective for fiscal years beginning after December
15, 2010, and for interim periods within those fiscal years. The
adoption of the provisions of this amendment required in the first interim
period after December 15, 2009 did not have a material impact on our financial
statement disclosures. In addition, the adoption of the provisions of
this amendment required for periods beginning after December 15, 2010 is not
expected to have a material impact on our financial statement
disclosures.
We
adopted the FASB’s new guidance regarding subsequent events in the second
quarter of 2009. The FASB’s new guidance 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 adoption of
the new subsequent event guidance did not have a material impact on our
financial statements.
21
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. Our adoption of the amended guidance on January 1, 2010,
did not have a significant impact on our 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. We
adopted the amended guidance on January 1, 2010, and this adoption did not have
a significant impact on our financial position, results of operations and cash
flows.
Liquidity
and Capital Resources
We have
historically financed our working capital needs, including capital expenditures,
with cash flows from operations and borrowings under our bank lines of credit.
Net cash provided by operating activities totaled approximately $10.2 million
for the three months ended March 31, 2010 compared to approximately $16.5
million for the three months ended March 31, 2009. The decrease in cash provided
by operating activities is mainly attributable to an $11.2 million reduction in
cash provided by accounts receivable partially offset by a $4.7 million
reduction in cash used for prepaid assets and accounts payable and a $0.2
million increase in net earnings after consideration of non-cash items. The
decrease in cash from accounts receivable is largely attributable to the
increase in business volumes during the first quarter of 2010, particularly in
March 2010, resulting in revenues that will not be collected until the second
quarter of 2010. The decrease in cash used for settlement of prepaid
assets and accounts payable is primarily attributable to timing of payments on
various items, such as prepaid insurance premiums.
Net cash
used in investing activities was approximately $5.4 million for the three months
ended March 31, 2010 compared with approximately $4.7 million used in investing
activities during the three months ended March 31, 2009. Investing activities
during the three months ended March 31, 2010 consisted primarily of capital
expenditures for new tractors and vehicles to replace aging
units. Cash used for investing activities during the three months
ended March 31, 2009 included capital expenditures primarily for the Dallas/Fort
Worth regional hub that was completed at the beginning of the third quarter of
2009.
Net cash
used in financing activities totaled approximately $2.2 million for the three
months ended March 31, 2010 compared with approximately $2.6 million used in
financing activities during the three months ended March 31,
2009. Cash used in financing activities for the three months ended
March 31, 2010 and 2009 mainly included our quarterly dividend payment and
scheduled capital lease payments.
We
currently have access to a $100.0 million senior credit facility. The
facility expires in October 2012 and includes an accordion feature, which if
approved by our lender, allows for an additional $50.0 million in borrowings on
such terms and conditions as set forth in the credit
agreement. Interest rates for advances under the senior credit
facility are at LIBOR plus 0.6% to 0.9% based upon covenants related
to total indebtedness to earnings. At March 31, 2010, we had $38.2
million of available borrowing capacity under the senior credit facility, not
including the accordion feature, and had utilized $11.8 million of availability
for outstanding letters of credit.
During
the first quarter of 2010 and 2009, cash dividends of $0.07 per share were
declared on common stock outstanding. 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.
We
believe that our available cash, investments, expected cash generated from
future operations and borrowings under the available senior credit facility will
be sufficient to satisfy our anticipated cash needs for at least the next twelve
months.
22
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. 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.
Our
exposure to market risk related to our outstanding debt is not significant and
has not changed materially since December 31, 2009.
Item
4.
|
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
Securities and Exchange Commission (“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 Control
There
were no changes in our internal control over financial reporting during the
three months ended March 31, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Part
II.
|
Other
Information
|
Item
1.
|
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 and 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
1A.
|
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 2009 Annual Report on Form 10-K/A. There have been no changes in
the nature of these factors since December 31, 2009.
There
were no unregistered purchases of shares of our common stock during the three
months ended March 31, 2010.
23
Item
3.
|
Not
Applicable.
Not
Applicable.
Item
5.
|
Not
Applicable.
Item
6.
|
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.
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 3-1 to the registrant’s Current Report on Form 8-K filed with the
Commission on July 6, 2009)
|
|
4.1
|
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)
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) (17 CFR
240.13a-14(a))
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) (17 CFR
240.13a-14(a))
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
24
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:
April 29, 2010
|
By:
|
/s/
Rodney L. Bell
|
Rodney
L. Bell
Chief
Financial Officer, Senior Vice President and Treasurer
(Principal
Financial Officer)
|
By:
|
/s/
Michael P. McLean
|
|
Michael
P. McLean
Chief
Accounting Officer, Vice President and Controller
(Principal
Accounting Officer)
|
25
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 3-1 to the registrant’s Current Report on Form 8-K filed with the
Commission on July 6, 2009)
|
|
4.1
|
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)
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) (17 CFR
240.13a-14(a))
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) (17 CFR
240.13a-14(a))
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|