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,
|
|
2009
|
|
2008
(a)
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash
|
$ |
31,241 |
|
$ |
22,093 |
Accounts
receivable, less allowance of $2,495 in 2009 and $2,531 in
2008
|
|
48,441 |
|
|
57,206 |
Other
current assets
|
|
12,627 |
|
|
12,290 |
Total
current assets
|
|
92,309 |
|
|
91,589 |
|
|
|
|
|
|
Property
and equipment
|
|
190,384 |
|
|
186,377 |
Less
accumulated depreciation and amortization
|
|
66,453 |
|
|
63,401 |
Total
property and equipment, net
|
|
123,931 |
|
|
122,976 |
Goodwill
and other acquired intangibles:
|
|
|
|
|
|
Goodwill
|
|
43,332 |
|
|
50,230 |
Other
acquired intangibles, net of accumulated amortization of $8,838 in 2009
and $8,103 in 2008
|
|
39,292 |
|
|
40,708 |
Total
goodwill and other acquired intangibles
|
|
82,624 |
|
|
90,938 |
Other
assets
|
|
2,124 |
|
|
2,024 |
Total
assets
|
$ |
300,988 |
|
$ |
307,527 |
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable
|
$ |
7,841 |
|
$ |
11,633 |
Accrued
expenses
|
|
16,124 |
|
|
12,927 |
Current
portion of debt and capital lease obligations
|
|
1,433 |
|
|
1,602 |
Total
current liabilities
|
|
25,398 |
|
|
26,162 |
|
|
|
|
|
|
Long-term
debt and capital lease obligations, less current portion
|
|
52,868 |
|
|
53,035 |
Other
long-term liabilities
|
|
2,918 |
|
|
3,055 |
Deferred
income taxes
|
|
6,947 |
|
|
8,841 |
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
Preferred
stock
|
|
-- |
|
|
-- |
Common
stock, $0.01 par value:
|
|
|
|
|
|
Authorized
shares – 50,000,000
|
|
|
|
|
|
Issued
and outstanding shares – 28,916,313 in 2009 and 28,893,850
in 2008
|
|
289 |
|
|
289 |
Additional
paid-in capital
|
|
11,802 |
|
|
10,249 |
Retained
earnings
|
|
200,766 |
|
|
205,896 |
Total
shareholders’ equity
|
|
212,857 |
|
|
216,434 |
Total
liabilities and shareholders’ equity
|
$ |
300,988 |
|
$ |
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.
|
|
Condensed
Consolidated Statements of Operations
|
|
(In
thousands, except per share data)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
|
March
31,
|
|
|
March
31,
|
|
|
2009
|
|
|
2008
|
|
Operating
revenue:
|
|
|
|
|
|
Forward
Air
|
|
|
|
|
|
Airport-to-airport
|
$ |
63,055 |
|
|
$ |
82,059 |
|
Logistics
|
|
13,044 |
|
|
|
12,253 |
|
Other
|
|
5,867 |
|
|
|
5,789 |
|
Forward
Air Solutions
|
|
|
|
|
|
|
|
Pool
distribution
|
|
14,650 |
|
|
|
7,837 |
|
Total
operating revenue
|
|
96,616 |
|
|
|
107,938 |
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Purchased
transportation
|
|
|
|
|
|
|
|
Forward
Air
|
|
|
|
|
|
|
|
Airport-to-airport
|
|
26,153 |
|
|
|
31,540 |
|
Logistics
|
|
10,279 |
|
|
|
9,180 |
|
Other
|
|
1,064 |
|
|
|
1,633 |
|
Forward
Air Solutions
|
|
|
|
|
|
|
|
Pool
distribution
|
|
2,632 |
|
|
|
1,172 |
|
Total
purchased transportation
|
|
40,128 |
|
|
|
43,525 |
|
Salaries,
wages and employee benefits
|
|
29,056 |
|
|
|
26,447 |
|
Operating
leases
|
|
6,989 |
|
|
|
4,851 |
|
Depreciation
and amortization
|
|
4,858 |
|
|
|
3,698 |
|
Insurance
and claims
|
|
2,716 |
|
|
|
2,260 |
|
Fuel
expense
|
|
1,682 |
|
|
|
2,124 |
|
Other
operating expenses
|
|
9,056 |
|
|
|
8,383 |
|
Impairment
of goodwill and other intangible assets
|
|
7,157 |
|
|
|
-- |
|
Total
operating expenses
|
|
101,642 |
|
|
|
91,288 |
|
(Loss)
income from operations
|
|
(5,026
|
) |
|
|
16,650 |
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
Interest
expense
|
|
(141
|
) |
|
|
(301
|
) |
Other,
net
|
|
(22
|
) |
|
|
154 |
|
Total
other expense
|
|
(163
|
) |
|
|
(147
|
) |
(Loss)
income before income taxes
|
|
(5,189
|
) |
|
|
16,503 |
|
Income
tax (benefit) expense
|
|
(2,085
|
) |
|
|
6,495 |
|
Net
(loss) income
|
$ |
(3,104 |
) |
|
$ |
10,008 |
|
|
|
|
|
|
|
|
|
Net
(loss) income per share:
|
|
|
|
|
|
|
|
Basic
|
$ |
(0.11 |
) |
|
$ |
0.35 |
|
Diluted
|
$ |
(0.11 |
) |
|
$ |
0.35 |
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
28,906 |
|
|
|
28,694 |
|
Diluted
|
|
28,906 |
|
|
|
28,982 |
|
|
|
|
|
|
|
|
|
Dividends
per share:
|
$ |
0.07 |
|
|
$ |
0.07 |
|
The accompanying notes are an
integral part of the financial statements.
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
(In
thousands)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
|
March
31,
|
|
|
March
31,
|
|
|
2009
|
|
|
2008
|
|
Operating
activities:
|
|
|
|
|
|
Net
(loss) income
|
$ |
(3,104 |
) |
|
$ |
10,008 |
|
Adjustments
to reconcile net (loss) income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
4,858 |
|
|
|
3,698 |
|
Impairment
of goodwill and other intangible assets
|
|
7,157 |
|
|
|
- |
|
Share-based
compensation
|
|
1,780 |
|
|
|
1,535 |
|
Loss
on sale or disposal of property and equipment
|
|
9 |
|
|
|
16 |
|
Provision
for (recovery) loss on receivables
|
|
(35
|
) |
|
|
95 |
|
Provision
for revenue adjustments
|
|
794 |
|
|
|
996 |
|
Deferred
income taxes
|
|
(1,960
|
) |
|
|
514 |
|
Tax
benefit for stock options exercised
|
|
-- |
|
|
|
(725
|
) |
Changes
in operating assets and liabilities,
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
8,006 |
|
|
|
(5,437
|
) |
Prepaid
expenses and other current assets
|
|
705 |
|
|
|
459 |
|
Accounts
payable and accrued expenses
|
|
(1,751
|
) |
|
|
(317
|
) |
Net
cash provided by operating activities
|
|
16,459 |
|
|
|
10,842 |
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Proceeds
from disposal of property and equipment
|
|
127 |
|
|
|
4 |
|
Purchases
of property and equipment
|
|
(4,737
|
) |
|
|
(2,645
|
) |
Acquisition
of businesses
|
|
-- |
|
|
|
(18,526
|
) |
Other
|
|
(112
|
) |
|
|
(49
|
) |
Net
cash used in investing activities
|
|
(4,722
|
) |
|
|
(21,216
|
) |
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Payments
of debt and capital lease obligations
|
|
(336
|
) |
|
|
(606
|
) |
Borrowings
on line of credit
|
|
-- |
|
|
|
20,000 |
|
Payments
on line of credit
|
|
-- |
|
|
|
(10,000
|
) |
Proceeds
from exercise of stock options
|
|
-- |
|
|
|
956 |
|
Payments
of cash dividends
|
|
(2,025
|
) |
|
|
(2,013
|
) |
Cash
settlement of share-based awards for minimum tax
withholdings
|
|
(228
|
) |
|
|
(362
|
) |
Tax
benefit for stock options exercised
|
|
-- |
|
|
|
725 |
|
Net
cash (used in) provided by financing activities
|
|
(2,589
|
) |
|
|
8,700 |
|
Net
increase (decrease) in cash
|
|
9,148 |
|
|
|
(1,674
|
) |
Cash
at beginning of period
|
|
22,093 |
|
|
|
4,909 |
|
Cash
at end of period
|
$ |
31,241 |
|
|
$ |
3,235 |
|
The
accompanying notes are an integral part of the financial
statements.
Notes
to Condensed Consolidated Financial Statements
(In
thousands, except share and per share data)
(Unaudited)
March
31, 2009
Forward
Air Corporation's (the Company) services can be broadly 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 broadly 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 months ended March 31, 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.
2.
|
Recent
Accounting Pronouncements
|
During
September 2006, the Financial Accounting Standards Board (“FASB”)
issued Statement of Financial Accounting Standards (“SFAS”)
No. 157, Fair Value
Measurements (“SFAS 157”), which was effective for fiscal years beginning
after November 15, 2007. SFAS 157 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 issued FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157 , which delayed the effective date of SFAS 157 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 SFAS 157 on January 1,
2008 for all financial assets and liabilities and on January 1, 2009 for
nonfinancial assets. The adoption of SFAS 157 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.
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
2.
|
Recent
Accounting Pronouncements
(continued)
|
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(“SFAS 141R”). SFAS 141R 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. SFAS 141R also
establishes disclosure requirements to enable the evaluation of the nature and
financial effects of the business combination. This statement was effective
January 1, 2009. The impact of SFAS 141R will depend on the
nature of the Company’s business combinations subsequent to January 1,
2009.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51 (“SFAS 160”). SFAS 160 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. SFAS 160 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 SFAS 160 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.
3.
|
Comprehensive
(Loss) Income
|
Comprehensive
loss or income includes any changes in the equity of the Company from
transactions and other events and circumstances from non-owner sources.
Comprehensive (loss) income for the three months ended March 31, 2009 and 2008
was $(3,104) and $10,008, respectively. In each case, the
comprehensive results approximated net (loss) 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. Under the
purchase agreement, $1,050 of the purchase price was paid into an escrow account
to protect the Company against potential unknown liabilities. The
amount paid into escrow will be released to the sellers one year after the
acquisition date if not utilized by the Company for unknown
liabilities.
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 of amortization during the three months ended March 31,
2009.
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
4.
|
Acquisition
of Businesses (continued)
|
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). Under the purchase agreement, $1,825 of the purchase price was
paid into an escrow account to protect the Company against potential unknown
liabilities. On the anniversary date of the Pinch acquisition, the
Company made a claim against the escrow. At this time the Company
cannot estimate the amount which may ultimately be recovered. Under
the purchase agreement if an agreement cannot be reached the claim against the
escrow will be mediated.
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 of amortization during
the three months ended March 31, 2009.
5.
|
Goodwill
and Long-Lived Assets
|
In
accordance with SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”), 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.
The annual impairment tests were conducted in 2008 and did not result in
any impairment charges.
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 SFAS 142 as of March 31, 2009. The
Company calculated the fair value of the FASI segment, using a combination of
discounted projected cash flows and current market valuations for comparable
companies. 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 an estimated non-cash
goodwill impairment charge of $6,953 related to the FASI segment during the
three months ended March 31, 2009. The Company's fair value
calculations for goodwill are classified within level 3 of the fair value
hierarchy as defined in SFAS 157. The Company is still in the process of
finalizing certain valuations related to the goodwill impairment
analysis. Adjustments, if any, to the Company’s estimates as a result
of completing our valuation analysis will be recorded during the three months
end June 30, 2009.
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 three months ended March
31, 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, March 31, 2009
|
$ |
37,926 |
|
$ |
5,406 |
|
|
$ |
43,332 |
|
Additionally,
in accordance with SFAS No. 144, Accounting for the Impairment of
Disposal of Long-Lived Assets (“SFAS 144”), 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 in accordance with SFAS
144 was required during the three months ended March 31, 2009 other than an
impairment charge of $204 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.
The
Company accounts for its share-based payments using SFAS No. 123(R), Share-Based Payment (“SFAS
123R”). All share-based compensation expense is recognized in
salaries, wages and employee benefits.
Employee
Activity
On May
12, 2008, the Company’s shareholders approved the Company’s Amended and Restated
Stock Option and Incentive Plan (the “Restated Plan”) which amended the
Company’s 1999 Stock Option and Incentive Plan (the “1999
Plan”). Among other changes, the Restated Plan increased the
remaining shares available for grant by 3,000,000 shares.
The
Company’s general practice has been to make a single annual grant to key
employees and to generally make other grants only in connection with new
employment or promotions. During 2006, the Company issued non-vested
shares of common stock (“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. The share-based compensation for these
stock options will be recognized, net of estimated forfeitures, ratably over the
requisite service period, or vesting period. The Company has estimated
forfeitures based upon historical experience.
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, 2009 and 2008 was $7.96
and $9.15. The fair values were estimated using the following
weighted-average assumptions:
|
Three
months ended
|
|
|
March
31,
|
|
|
March
31,
|
|
|
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
|
% |
|
2.7
|
% |
Expected
life of options (years)
|
4.5 |
|
|
4.5 |
|
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
6.
|
Share-Based
Payments (continued)
|
During
the three months ended March 31, 2009 and 2008, share-based compensation expense
for options granted to employees was $1,388 and $926,
respectively. The total tax benefit related to the share-based
expense for these options for the three months ended March 31, 2009 and 2008,
was $376 and $242, respectively. Total compensation cost, net of
estimated forfeitures, related to the options not yet recognized in earnings was
$10,039 at March 31, 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 months ended March 31, 2009:
|
Three
months ended March 31, 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
|
--
|
|
|
|
--
|
|
|
|
|
|
|
Forfeited
|
(1
|
)
|
|
|
16
|
|
|
|
|
|
|
Outstanding
at March 31, 2009
|
3,120
|
|
|
$
|
27
|
|
$
|
--
|
|
|
7.3
|
Exercisable
at March 31, 2009
|
1,825
|
|
|
$
|
26
|
|
$
|
--
|
|
|
6.0
|
Share-based
compensation expense was $220 and $408 during the three months ended March 31,
2009 and 2008, respectively, for non-vested shares granted to employees during
2006. The total tax benefit related to this share-based expense was $88 and $161
for the three months ended March 31, 2009 and 2008,
respectively. Total compensation cost, net of estimated forfeitures,
related to the non-vested shares not yet recognized in earnings was $33 at March
31, 2009. Total unrecognized compensation cost will be adjusted for future
changes in estimated forfeitures.
Non-employee
Director Activity
Share-based
compensation expense during the three months ended March 31, 2009 and 2008 was
$172 and $202, respectively, for non-vested shares granted to non-employee
directors. The total tax benefit related to this share-based expense
was $69 and $79 for the three months ended March 31, 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 $90 at March 31, 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 March 31, 2009, 74,375
options were outstanding and will expire between July 2010 and May
2015. At March 31, 2009, the weighted average exercise and remaining
contractual term were $22 and 3.85 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
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 (1.1% at March 31, 2009).
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, 2009, the Company had $50,000
outstanding under the senior credit facility. At March 31, 2009, the Company had
utilized $9,730 of availability for outstanding letters of credit and had
$40,270 of available borrowing capacity outstanding under the senior credit
facility.
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
8.
|
Net
(Loss) Income Per Share
|
The
following table sets forth the computation of basic and diluted net (loss)
income per share:
|
Three
months ended
|
|
March
31,
|
|
|
March
31,
|
|
2009
|
|
|
2008
|
Numerator:
|
|
|
|
|
Numerator
for basic and diluted (loss) income per share - net (loss)
income
|
$ |
(3,104 |
) |
|
$ |
10,008 |
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Denominator
for basic (loss) income per share - weighted-average
shares
|
|
28,906 |
|
|
|
28,694 |
Effect
of dilutive stock options and non-vested shares
|
|
-- |
|
|
|
288 |
Denominator
for diluted (loss) income per share - adjusted weighted-average
shares
|
|
28,906 |
|
|
|
28,982 |
Basic
(loss) income per share
|
$ |
(0.11 |
) |
|
$ |
0.35 |
Diluted
(loss) income per share
|
$ |
(0.11 |
) |
|
$ |
0.35 |
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 (loss) income per diluted share because to do so would have been
anti-dilutive for the periods presented, were approximately 2,750,000 and
638,000 at March 31, 2009 and 2008, respectively.
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 first quarter of 2009.
For the
three months ended March 31, 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.
During
the first 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.
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.
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
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. The Company’s business is conducted principally in the
U.S. and Canada.
The
following table summarizes segment information about net
income 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, 2009 and
2008.
|
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
|
|
|
Three
months ended March 31, 2008
|
|
Forward
Air
|
|
FASI
|
|
|
Eliminations
|
|
|
Consolidated
|
External
revenues
|
$
|
100,101
|
|
$
|
7,837
|
|
|
$
|
--
|
|
|
$
|
107,938
|
Intersegment
revenues
|
|
232
|
|
|
--
|
|
|
|
(232
|
)
|
|
|
--
|
Depreciation
and amortization
|
|
3,395
|
|
|
303
|
|
|
|
--
|
|
|
|
3,698
|
Stock-based
compensation expense
|
|
1,509
|
|
|
26
|
|
|
|
--
|
|
|
|
1,535
|
Interest
expense
|
|
288
|
|
|
13
|
|
|
|
--
|
|
|
|
301
|
Interest
income
|
|
146
|
|
|
3
|
|
|
|
--
|
|
|
|
149
|
Income
tax expense (benefit)
|
|
6,692
|
|
|
(197
|
)
|
|
|
--
|
|
|
|
6,495
|
Net
income (loss)
|
|
10,346
|
|
|
(338
|
)
|
|
|
--
|
|
|
|
10,008
|
Total
assets
|
|
260,212
|
|
|
17,418
|
|
|
|
(13,085
|
)
|
|
|
264,545
|
Capital
expenditures
|
|
2,460
|
|
|
185
|
|
|
|
--
|
|
|
|
2,645
|
Overview
and Executive Summary
Our
operations can be broadly classified into two principal
segments: Forward Air and 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 82 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 continued growth 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 months ended March 31, 2009, compared to the same period in 2008, we
experienced a decrease in our consolidated revenues and results from
operations. The first quarter 2009 results were driven by the
decrease in airport-to-airport revenue during the first quarter of 2009 versus
the same period in 2008 and lower than expected FASI revenue and results of
operations. The significant decline in airport-to-airport revenue was
driven by an over 20.0% decrease in the tonnage shipped through our network
during the first quarter of 2009 compared to the same period in
2008. The decline in airport-to-airport tonnage was primarily related
to the current economic recession. The economic recession was also
largely responsible for lower than expected revenue and higher losses than
anticipated from our FASI segment during the first quarter of
2009.
Increases
in revenues from our logistics services, mainly TLX, and FASI partially offset
the decline in airport-to-airport revenue; however, these services are not as
profitable and do not generate comparable operating results with our
airport-to-airport business. We expect these year-over-year decreases
in revenue and results from operations to continue throughout 2009 as the
economic recession continues. Also, during the first quarter of 2009
we began to experience slower revenue growth from our TLX service largely driven
by increased price competition and the resulting loss of certain
business. Additionally, despite significant new business wins, FASI
revenue growth will slow throughout 2009 as we reach the anniversary dates of
our Pinch and Service Express acquisitions.
Declining
fuel prices may adversely affect our revenues and results of operations 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 decline
in tonnage levels combined with the continuing decline in diesel fuel prices
could result in a significant reduction in our net fuel surcharge revenue and
results from operations during 2009. Total net fuel surcharge revenue
decreased 56.7% during the first quarter of 2009 as compared to the first
quarter of 2008.
Goodwill
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 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 SFAS 142 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 an estimated non-cash goodwill
impairment charge of $6,953 related to the FASI segment during the three months
ended March 31, 2009. We are still in the process of finalizing
certain valuations related to the goodwill impairment
analysis. Adjustments, if any, to our estimates as a result of
completing our valuation analysis will be recorded during the three months ended
June 30, 2009.
Segments
Our
operations can be broadly classified into two principal
segments: Forward Air and FASI.
Our
Forward Air segment includes our airport-to-airport, 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, 2009 and 2008 (in millions):
|
Three
months ended
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
Operating
revenue
|
$ |
96.6 |
|
|
$ |
107.9 |
|
|
$ |
(11.3 |
) |
|
(10.5
|
) |
% |
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
transportation
|
|
40.1 |
|
|
|
43.5 |
|
|
|
(3.4
|
) |
|
(7.8
|
) |
|
Salaries,
wages, and employee benefits
|
|
29.1 |
|
|
|
26.4 |
|
|
|
2.7 |
|
|
10.2 |
|
|
Operating
leases
|
|
7.0 |
|
|
|
4.8 |
|
|
|
2.2 |
|
|
45.8 |
|
|
Depreciation
and amortization
|
|
4.8 |
|
|
|
3.7 |
|
|
|
1.1 |
|
|
29.7 |
|
|
Insurance
and claims
|
|
2.7 |
|
|
|
2.3 |
|
|
|
0.4 |
|
|
17.4 |
|
|
Fuel
expense
|
|
1.7 |
|
|
|
2.1 |
|
|
|
(0.4
|
) |
|
(19.0
|
) |
|
Other
operating expenses
|
|
9.0 |
|
|
|
8.4 |
|
|
|
0.6 |
|
|
7.1 |
|
|
Impairment
of goodwill and other intangible assets
|
|
7.2 |
|
|
|
-- |
|
|
|
7.2 |
|
|
100.0 |
|
|
Total
operating expenses
|
|
101.6 |
|
|
|
91.2 |
|
|
|
10.4 |
|
|
11.4 |
|
|
(Loss)
income from operations
|
|
(5.0
|
) |
|
|
16.7 |
|
|
|
(21.7
|
) |
|
(129.9
|
) |
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(0.2
|
) |
|
|
(0.3
|
) |
|
|
(0.1
|
) |
|
(33.3
|
) |
|
Other,
net
|
|
-- |
|
|
|
0.1 |
|
|
|
(0.1
|
) |
|
(100.0
|
) |
|
Total
other expense
|
|
(0.2
|
) |
|
|
(0.2
|
) |
|
|
-- |
|
|
-- |
|
|
(Loss)
income before income taxes
|
|
(5.2
|
) |
|
|
16.5 |
|
|
|
(21.7
|
) |
|
(131.5
|
) |
|
Income
tax (benefit) expense
|
|
(2.1
|
) |
|
|
6.5 |
|
|
|
(8.6
|
) |
|
(132.3
|
) |
|
Net
(loss) income
|
$ |
(3.1 |
) |
|
$ |
10.0 |
|
|
$ |
(13.1 |
) |
|
(131.0
|
) |
% |
The
following table sets forth our historical financial data by segment for the
three months ended March 31, 2009 and 2008 (in millions):
|
Three
months ended
|
|
March
31,
|
|
|
Percent
of
|
|
|
|
March
31,
|
|
|
Percent
of
|
|
|
|
|
|
Percent
|
|
|
|
2009
|
|
|
Revenue
|
|
|
|
2008
|
|
|
Revenue
|
|
|
Change
|
|
|
Change
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
$ |
82.1 |
|
|
85.0 |
|
% |
|
$ |
100.3 |
|
|
93.0
|
% |
|
$ |
(18.2 |
) |
|
(18.1
|
) |
% |
FASI
|
|
14.8 |
|
|
15.3 |
|
|
|
|
7.8 |
|
|
7.2 |
|
|
|
7.0 |
|
|
89.7 |
|
|
Intercompany
Eliminations
|
|
(0.3
|
) |
|
(0.3
|
) |
|
|
|
(0.2
|
) |
|
(0.2
|
) |
|
|
(0.1
|
) |
|
50.0 |
|
|
Total
|
|
96.6 |
|
|
100.0 |
|
|
|
|
107.9 |
|
|
100.0 |
|
|
|
(11.3
|
) |
|
(10.5
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
37.6 |
|
|
45.8 |
|
|
|
|
42.3 |
|
|
42.2 |
|
|
|
(4.7
|
) |
|
(11.1
|
) |
|
FASI
|
|
2.8 |
|
|
19.0 |
|
|
|
|
1.4 |
|
|
17.9 |
|
|
|
1.4 |
|
|
100.0 |
|
|
Intercompany
Eliminations
|
|
(0.3
|
) |
|
100.0 |
|
|
|
|
(0.2
|
) |
|
(0.2
|
) |
|
|
(0.1
|
) |
|
50.0 |
|
|
Total
|
|
40.1 |
|
|
41.5 |
|
|
|
|
43.5 |
|
|
40.3 |
|
|
|
(3.4
|
) |
|
(7.8
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and employee benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
21.5 |
|
|
26.2 |
|
|
|
|
22.6 |
|
|
22.5 |
|
|
|
(1.1
|
) |
|
(4.9
|
) |
|
FASI
|
|
7.6 |
|
|
51.3 |
|
|
|
|
3.8 |
|
|
48.7 |
|
|
|
3.8 |
|
|
100.0 |
|
|
Total
|
|
29.1 |
|
|
30.1 |
|
|
|
|
26.4 |
|
|
24.5 |
|
|
|
2.7 |
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
4.8 |
|
|
5.8 |
|
|
|
|
4.3 |
|
|
4.3 |
|
|
|
0.5 |
|
|
11.6 |
|
|
FASI
|
|
2.2 |
|
|
14.8 |
|
|
|
|
0.5 |
|
|
6.4 |
|
|
|
1.7 |
|
|
340.0 |
|
|
Total
|
|
7.0 |
|
|
7.2 |
|
|
|
|
4.8 |
|
|
4.5 |
|
|
|
2.2 |
|
|
45.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
3.9 |
|
|
4.8 |
|
|
|
|
3.4 |
|
|
3.4 |
|
|
|
0.5 |
|
|
14.7 |
|
|
FASI
|
|
0.9 |
|
|
6.1 |
|
|
|
|
0.3 |
|
|
3.8 |
|
|
|
0.6 |
|
|
200.0 |
|
|
Total
|
|
4.8 |
|
|
5.0 |
|
|
|
|
3.7 |
|
|
3.4 |
|
|
|
1.1 |
|
|
29.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
2.2 |
|
|
2.7 |
|
|
|
|
1.8 |
|
|
1.8 |
|
|
|
0.4 |
|
|
22.2 |
|
|
FASI
|
|
0.5 |
|
|
3.4 |
|
|
|
|
0.5 |
|
|
6.4 |
|
|
|
-- |
|
|
-- |
|
|
Total
|
|
2.7 |
|
|
2.8 |
|
|
|
|
2.3 |
|
|
2.1 |
|
|
|
0.4 |
|
|
17.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
0.7 |
|
|
0.9 |
|
|
|
|
1.3 |
|
|
1.3 |
|
|
|
(0.6
|
) |
|
(46.2
|
) |
|
FASI
|
|
1.0 |
|
|
6.8 |
|
|
|
|
0.8 |
|
|
10.3 |
|
|
|
0.2 |
|
|
25.0 |
|
|
Total
|
|
1.7 |
|
|
1.8 |
|
|
|
|
2.1 |
|
|
1.9 |
|
|
|
(0.4
|
) |
|
(19.0
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
7.4 |
|
|
9.0 |
|
|
|
|
7.4 |
|
|
7.4 |
|
|
|
-- |
|
|
-- |
|
|
FASI
|
|
1.6 |
|
|
10.8 |
|
|
|
|
1.0 |
|
|
12.8 |
|
|
|
0.6 |
|
|
60.0 |
|
|
Total
|
|
9.0 |
|
|
9.3 |
|
|
|
|
8.4 |
|
|
7.8 |
|
|
|
0.6 |
|
|
7.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
3.8 |
|
|
4.6 |
|
|
|
|
17.2 |
|
|
17.1 |
|
|
|
(13.4
|
) |
|
(77.9
|
) |
|
FASI
|
|
(8.8
|
) |
|
(59.5
|
) |
|
|
|
(0.5
|
) |
|
(6.3
|
) |
|
|
(8.3
|
) |
|
1,660.0 |
|
|
Total
|
$ |
(5.0 |
) |
|
(5.2
|
) |
% |
|
$ |
16.7 |
|
|
15.5
|
% |
|
$ |
(21.7 |
) |
|
(129.9
|
) |
% |
The
following table presents the components of the Forward Air segment’s operating
revenue and purchased transportation for the three months ended March 31, 2009
and 2008 (in millions):
|
For
three months ended
|
|
|
|
March
31,
|
|
Percent
of
|
|
|
March
31,
|
|
Percent
of
|
|
|
|
|
|
|
Percent
|
|
|
|
2009
|
|
Revenue
|
|
|
2008
|
|
Revenue
|
|
|
Change
|
|
|
Change
|
|
|
Forward
Air revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airport-to-airport
|
$
|
63.2
|
|
77.0
|
%
|
|
$
|
82.0
|
|
81.7
|
%
|
|
$
|
(18.8
|
)
|
|
(22.9
|
)
|
%
|
Logistics
|
|
13.1
|
|
15.9
|
|
|
|
12.5
|
|
12.5
|
|
|
|
0.6
|
|
|
4.8
|
|
|
Other
|
|
5.8
|
|
7.1
|
|
|
|
5.8
|
|
5.8
|
|
|
|
--
|
|
|
--
|
|
|
Total
|
$
|
82.1
|
|
100.0
|
%
|
|
$
|
100.3
|
|
100.0
|
%
|
|
$
|
(18.2
|
)
|
|
(18.1
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air purchased transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airport-to-airport
|
$
|
26.2
|
|
41.5
|
%
|
|
$
|
31.5
|
|
38.4
|
%
|
|
$
|
(5.3
|
)
|
|
(16.8
|
)
|
%
|
Logistics
|
|
10.3
|
|
78.6
|
|
|
|
9.2
|
|
73.6
|
|
|
|
1.1
|
|
|
12.0
|
|
|
Other
|
|
1.1
|
|
19.0
|
|
|
|
1.6
|
|
27.6
|
|
|
|
(0.5
|
)
|
|
(31.3
|
)
|
|
Total
|
$
|
37.6
|
|
45.8
|
%
|
|
$
|
42.3
|
|
42.2
|
%
|
|
$
|
(4.7
|
)
|
|
(11.1
|
)
|
%
|
Three
Months Ended March 31, 2009 compared to Three Months Ended March 31,
2008
Revenues
Operating
revenue decreased by $11.3 million, or 10.5%, to $96.6 million for the three
months ended March 31, 2009 from $107.9 million in the same period of
2008.
Forward
Air
Forward
Air operating revenue decreased $18.2 million, or 18.1%, to $82.1 million from
$100.3 million, accounting for 85.0% of consolidated operating revenue for the
three months ended March 31, 2009. Airport-to-airport revenue, which is the
largest component of our consolidated operating revenue, decreased $18.8
million, or 22.9%, to $63.2 million from $82.0 million, accounting for 77.0% of
the segment’s operating revenue during the three months ended March 31, 2009
compared to 81.7% for the three months ended March 31, 2008. A
significant decrease in tonnage and a decrease in our base revenue per pound,
excluding net fuel surcharge revenue and Forward Air Complete revenue, accounted
for $16.8 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 Forward Air
Complete, decreased 0.8% for the three months ended March 31, 2009 versus the
three months ended March 31, 2008. Tonnage that transited our network decreased
by 22.2% in the three months ended March 31, 2009 compared with the three months
ended March 31, 2008. The decrease in tonnage was primarily driven by
the impact of the continuing 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 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 charge revenue offset by increased
revenue from our Forward Air Complete pick-up and delivery
service. Net fuel surcharge revenue decreased $3.5 million during the
three months ended March 31, 2009 as compared to three months ended March 31,
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 Forward Air Complete (“Complete”) revenue during the three months
ended March 31, 2009 compared to the same period of 2008. The
increase in Complete revenue is attributable to an increased attachment rate of
the Complete service to our standard airport-to-airport service.
Logistics
revenue, which is primarily truckload brokerage (TLX), increased $0.6 million,
or 4.8%, to $13.1 million in the first quarter of 2009 from $12.5 million in the
same period of 2008. The increase in logistics revenue was primarily
driven by $0.6 million in new revenue from service lines obtained from Pinch as
a result of our March 2008 acquisition. TLX revenue experienced a
minor year over year decrease as the increase in the number of miles driven was
offset by the decreased revenue per mile. Miles driven to support our
TLX revenue increased by approximately 10.0% during the three months ended March
31, 2009 compared to the same period in 2008. However, average
revenue per mile decreased approximately 9.0%. The decrease in average revenue
per mile is mainly attributable to decreased fuel surcharges as a result of
decreased fuel prices, reduced yields as a result of increased truckload price
competition, and increased use of TLX truckloads to strategically place owner
operators in our airport-to-airport network.
Other
revenue, which includes warehousing services and terminal handling, accounts for
the final component of Forward Air operating revenue. Other revenue remained
consistent year over year at approximately $5.8 million during the three months
ended March 31, 2009 and 2008.
FASI
FASI
operating revenue increased $7.0 million and 89.7% to $14.8 million for the
three months ended March 31, 2009 from $7.8 million for the same period in
2008. The increase in revenue is the result of additional activity
from the Pinch acquisition on March 17, 2008 and the Service Express acquisition
on September 8, 2008. These increases were slightly offset by reduced
fuel surcharge revenues as a result of declining fuel prices and reduced
shipping volumes resulting from the current economic recession.
Intercompany
Eliminations
Intercompany
eliminations increased $0.1 million, or 50.0% to $0.3 million in the first
quarter of 2009 from $0.2 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 March 31, 2009. FASI also provided cartage services to
Forward Air.
Purchased
Transportation
Purchased
transportation decreased by $3.4 million, or 7.8%, to $40.1 million in the first
quarter of 2009 from $43.5 million in the same period of 2008. As a
percentage of total operating revenue, purchased transportation was 41.5% during
the three months ended March 31, 2009 compared to 40.3% for the same period in
2008.
Forward
Air
Forward
Air’s purchased transportation decreased by $4.7 million, or 11.1%, to $37.6
million for the three months ended March 31, 2009 from $42.3 million for the
three months ended March 31, 2008. The decrease in purchased transportation is
primarily attributable to a 15.6% decrease in miles driven offset by a 5.1%
increase in the total cost per mile for the first quarter of 2009 versus the
same period in 2008. As a percentage of segment operating revenue, Forward Air
purchased transportation was 45.8% during the three months ended March 31, 2009
compared to 42.2% for the same period in 2008.
Purchased
transportation costs for our airport-to-airport network decreased $5.3 million,
or 16.8%, to $26.2 million for the three months ended March 31, 2009 from $31.5
million for the three months ended March 31, 2008. For the three
months ended March 31, 2009, purchased transportation for our airport-to-airport
network increased to 41.5% of airport-to-airport revenue from 38.4% for the same
period in 2008. The $5.3 million decrease is attributable to a 22.5%
decrease in miles driven by our network of owner-operators or third party
transportation providers and a 0.2% decrease 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 $6.6 million while the change in cost per mile decreased purchased
transportation by less than $0.1 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 $1.3 million increase in
expenses for third party transportation costs associated with the increased
customer utilization of Complete.
Purchased
transportation costs for our logistics revenue increased $1.1 million, or
12.0%, to $10.3 million for the three months ended March 31, 2009 from $9.2
million for the three months ended March 31, 2008. For the three months ended
March 31, 2009, logistics’ purchased transportation costs represented 78.6% of
logistics revenue versus 73.6% for the three months ended March 31,
2008. The increase in logistics purchased transportation is partially
attributable to $0.5 million of new purchased transportation costs related to
the new revenue streams obtained with the Pinch acquisition in March
2008. The remaining $0.6 million increase was attributable to
increased TLX purchased transportation. We increased the number of
miles driven to support our TLX revenue by approximately 10.0% during the three
months ended March 31, 2009 compared to the same period in 2008, but were able
to reduce the cost per mile by approximately 3.7%. The
reduction in cost per mile was mostly the result of decreasing fuel prices,
increased utilization of our less costly network of owner operators and improved
purchasing power with third party transportation providers as the result of the
excess truckload capacity in the market attributable to the current economic
conditions.
Purchased
transportation costs related to our other revenue decreased $0.5 million, or
31.3%, to $1.1 million for the three months ended March 31, 2009 from $1.6
million for the three months ended March 31, 2008. Other purchased
transportation costs as a percentage of other revenue decreased to 19.0% of
other revenue for the three months ended March 31, 2009 from 27.6% 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 new business obtained from the Pinch acquisition. Further, due
to the economic recession we have ceased providing other ancillary services in
circumstances in which the overall yield was insufficient.
FASI
FASI
purchased transportation increased to $2.8 million for the three months ended
March 31, 2009 from $1.4 million for the same period in 2008. FASI
purchased transportation as a percentage of revenue was 19.0% for the three
months ended March 31, 2009 compared to 17.9% for the three months ended March
31, 2008. The increase in purchased transportation is mainly due to
our continued expansion of the FASI business through the acquisitions of Pinch
and Service Express in March 2008 and September 2008,
respectively. Purchased transportation has increased as a percentage
of FASI revenue due to efforts to increase the use of owner operators as opposed
to company-employed drivers.
Intercompany
Eliminations
Intercompany
eliminations increased $0.1 million, or 50.0% to $0.3 million in the first
quarter of 2009 from $0.2 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 March 31, 2009. FASI also provided cartage services to
Forward Air.
Salaries,
Wages, and Benefits
Salaries,
wages and employee benefits increased by $2.7 million, or 10.2%, to $29.1
million in the first quarter of 2009 from $26.4 million in the same period of
2008. As a percentage of total operating revenue, salaries, wages and
employee benefits was 30.1% during the three months ended March 31, 2009
compared to 24.5% for the same period in 2008.
Forward
Air
Salaries,
wages and employee benefits of Forward Air decreased by $1.1 million, or 4.9%,
to $21.5 million in the first quarter of 2009 from $22.6 million in the same
period of 2008. Salaries, wages and employee benefits were 26.2% of
Forward Air’s operating revenue in the first quarter of 2009 compared to 22.5%
for the same period of 2008. The $1.1 million
decrease in salaries, wages, and benefits is driven by our efforts to reduce
personnel costs in conjunction with the overall decline in Forward Air
revenue. Our efforts to date have primarily focused on controlling
airport-to-airport variables wages, such as dock personnel. However,
we have not been able to reduce 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 tonnage has declined, and as a
result salaries, wages, and benefits increased as a percentage of
revenue. Management and administrative salaries increased $0.2
million, or 1.5% as a percentage of revenue, as administrative and management
personnel were added as a result of our 2008 acquisitions and reductions in
these categories of pay have not kept pace with the decline in our
revenue. Our health care costs and share based compensation
increased $0.3 million, or 0.7% as a percentage of revenue, and $0.2 million, or
0.6% as a percentage of revenue, respectively, for the three months ended March
31, 2009 compared to the same period in 2008. Increases in health
care costs and share based compensation are largely attributable to increased
headcount associated with our recent acquisitions.
FASI
FASI
salaries, wages and employee benefits increased to $7.6 million for the three
months ended March 31, 2009 compared to $3.8 million for the three months ended
March 31, 2008. As a percentage of FASI operating revenue, salaries,
wages and benefits increased to 51.3% for the three months ended March 31, 2009
compared to 48.7% for the same period in 2008. 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. The increase in salaries,
wages and employee benefits as a percentage of revenue is attributable to the
acquisition of Service Express in September 2008. The terminals we
acquired with the Service Express acquisition utilize a much higher percentage
of contract labor for its dock personnel than used by preexisting FASI
terminals. Contract labor is more expensive in the short term than
Company-employed cargo handlers and dock personnel. Throughout 2009
we will evaluate the proper utilization of contract labor in these
terminals.
Operating
Leases
Operating
leases increased by $2.2 million, or 45.8%, to $7.0 million in the first quarter
of 2009 from $4.8 million in the same period of 2008. Operating
leases, the largest component of which is facility rent, were 7.2% of
consolidated operating revenue for the three months ended March 31, 2009
compared with 4.5% in the same period of 2008.
Forward
Air
Operating
leases increased $0.5 million, or 11.6%, to $4.8 million in the first quarter of
2009 from $4.3 million in the same period of 2008. Operating leases
were 5.8% of Forward Air operating revenue for the three months ended March 31,
2009 compared with 4.3% in the same period of 2008. The increase in
operating leases in total dollars was attributable to a $0.4 million increase in
facility rent expense due to the assumption of additional facilities as a result
of the Pinch acquisition and the expansion of other facilities. Operating leases
also increased $0.1 million for trailer and tractor leases assumed in
conjunction with the Pinch acquisition.
FASI
FASI
operating lease expense increased $1.7 million to $2.2 million for the three
months ended March 31, 2009 from $0.5 million for the same period in
2008. Approximately $1.1 million of the increase was attributable to
higher facility rent expense due to the increased number of terminals resulting
from the Pinch and Service Express acquisitions. Operating leases
also increased $0.6 million for trailer and tractor leases assumed in
conjunction with the acquisitions of Pinch and Service
Express.
Depreciation
and Amortization
Depreciation
and amortization increased $1.1 million, or 29.7%, to $4.8 million in the first
quarter of 2009 from $3.7 million in the same period of
2008. Depreciation and amortization was 5.0% of consolidated
operating revenue for the three months ended March 31, 2009 compared with 3.4%
in the same period of 2008.
Forward
Air
Depreciation
and amortization increased $0.5 million, or 14.7%, to $3.9 million in the first
quarter of 2009 from $3.4 million in the same period of
2008. Depreciation and amortization expense as a percentage of
Forward Air operating revenue was 4.8% in the first quarter of 2009 compared to
3.4% in the same period of 2008. The increase in depreciation and
amortization expense is attributable to increased depreciation on new trailers,
terminal and facility leasehold improvements, software and computer equipment
and amortization of intangible assets. Trailer depreciation increased
$0.1 million due to new trailers placed in service during the fourth quarter of
2008. Amortization expense increased $0.1 million for amortization on
intangible assets associated with the Pinch acquisition. Terminal and
leasehold improvement depreciation increased $0.1 million as a result of capital
expenditures for improvements to new and expanded facilities. The
remaining increase in depreciation is mainly attributable to capital
expenditures required to assimilate rolling equipment, terminals and office
facilities obtained through our acquisitions into our network. 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 $0.6 million to $0.9 million for the
three months ended March 31, 2009 from $0.3 million for the same period in
2008. Depreciation on tractors, trailers and other equipment obtained
in conjunction with our acquisitions of Pinch and Service Express accounted for
$0.4 million of the increase. The remaining $0.2 million increase is
additional amortization of intangible assets acquired through the Pinch and
Service Express acquisitions.
Insurance
and Claims
Insurance
and claims expense increased $0.4 million, or 17.4%, to $2.7 million for the
three months ended March 31, 2009 from $2.3 million for the three months ended
March 31, 2008. Insurance and claims were 2.8% of consolidated
operating revenue for the three months ended March 31, 2009 compared
with 2.1% for the same period in 2008.
Forward
Air
Insurance
and claims was 2.7% of Forward Air operating revenue in the first quarter of
2009, compared with 1.8% in 2008. The $0.4 million, or 22.2% increase
in insurance and claims for the first quarter of 2009 compared to the first
quarter of 2008 is the result of increased insurance premiums and a significant
cargo claim incurred during the first quarter of 2009. Insurance
premiums increased $0.2 million as a result of the increased number of our owner
operators in our network as well as the increased number of Company-employed
drivers and trailers from the first quarter of 2009 to the same period in
2008. The remaining increase was attributable to an individual cargo
claim for approximately $0.2 million.
FASI
FASI
insurance and claims for the three months ended March 31, 2009 and 2008 was $0.5
million and decreased to 3.4% of revenues for the three months ended March 31,
2009 compared to 6.4% of revenues for the three months ended March 31,
2008. 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 decreased $0.4 million, to $1.7 million in the first quarter of 2009
from $2.1 million in the same period of 2008. Fuel expense was 1.8%
of consolidated operating revenue for the three months ended March 31, 2009
compared with 1.9% in the same period of 2008.
Forward
Air
Fuel
expense was 0.9% of Forward Air operating revenue in the first quarter of 2009
compared to 1.3% in the same period of 2008. The $0.6 million, or 46.2%,
decrease was primarily due to the significant reduction in average fuel prices
during the three months ended March 31, 2009 as compared to the same period in
2008.
FASI
FASI fuel
expense increased $0.2 million, or 25.0%, to $1.0 million in the first quarter
of 2009 from $0.8 million in the same period of 2008. Fuel expenses
were 6.8% of FASI operating revenue in the first quarter of 2009 compared to
10.3% in the first 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 increase in FASI fuel expense was attributable to the
increase in owned or leased tractors as a result of the Pinch and Service
Express acquisitions. These increases were offset by the drop in fuel
prices during the three months ended March 31, 2009 as compared to the same
period in 2008.
Other
Operating Expenses
Other
operating expenses increased $0.6 million, or 7.1%, to $9.0 million in the first
quarter of 2009 from $8.4 million in the same period of 2008. Other
operating expenses were 9.3% of consolidated operating revenue for the three
months ended March 31, 2009 compared with 7.8% in the same period of
2008.
Forward
Air
Other
operating expenses were $7.4 million during the three months ended March 31,
2009 and 2008. Other operating expenses were 9.0% of Forward Air
operating revenue in the first quarter of 2009 compared to 7.4% in the same
period of 2008. The increase as a percentage of revenue is the result of
expenses remaining constant while revenue decreased. Other operating
expenses remained consistent despite cost control efforts due to the 2008
expense being offset by the receipt of $0.2 million in property tax credits and
2009 including a $0.4 million expense for the cancelation of certain sales
promotion events.
FASI
FASI
other operating expenses increased $0.6 million to $1.6 million for the three
months ended March 31, 2009 compared to $1.0 million for the same period in
2008. FASI other operating expenses for the first quarter of 2009
were 10.8% of the segment’s operating revenue compared to 12.8% for the same
period in 2008. The $0.6 million increase is attributable to the
increased revenue activity associated with the acquisitions of Pinch and Service
Express as well as a $0.1 million increase in vehicle maintenance expense
associated with the return of certain leased and rented tractors and trailers
assumed in the Pinch and Service Express acquisitions. The decrease
as a percentage of revenue is attributable to the increase in revenue outpacing
the increase in other operating expenses.
Impairment
of Goodwill and Other Intangible Assets
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
Impairment
of goodwill and other intangible assets increased to $0.2 million, or 0.2% of
Forward Air operating revenue, in the first quarter of
2009. 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 first quarter of 2009.
FASI
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 an estimated 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
Results
from operations decreased to a $5.0 million loss from operations for the first
quarter of 2009. The loss from operations was 5.2% of consolidated
operating revenue for the three months ended March 31, 2009. Income
from operations for the first quarter of 2008 was $16.7 million, or 15.5% as a
percentage of consolidated operating revenue.
Forward
Air
Income
from operations decreased by $13.4 million, or 77.9%, to $3.8 million for the
first quarter of 2009 compared with $17.2 million for the same period in
2008. Income from operations as a percentage of Forward Air operating
revenue was 4.6% for the three months ended March 31, 2009 compared with 17.1%
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.
FASI
FASI loss
from operations increased approximately $8.3 million to an $8.8 million loss for
the three months ended March 31, 2009 from a $0.5 million loss for the three
months ended March 31, 2008. The increase in FASI’s loss from
operations was primarily driven by the $7.0 million non-cash, goodwill
impairment charge. In addition, losses increased as first quarter
revenue volumes were adversely impacted by the current economic
recession.
Interest
Expense
Interest
expense decreased approximately $0.1 million to $0.2 million for the three
months ended March 31, 2009 compared to $0.3 million for the three months ended
March 31, 2008. The decrease in interest expense is due to the
decline in the interest rate on net borrowings of our senior credit facility,
partially offset by an over $10.0 million increase in our average borrowings
outstanding.
Other,
Net
Other,
net was expense of less than $0.1 million for the three months ended March 31,
2009 compared with income of $0.1 million for the same period in 2008. The
decrease in other income was attributable to decreased average cash and
investment balances as well as lower returns received on cash invested due to
the decline in short term interest rates.
Income
Taxes
The
combined federal and state effective tax rate for the first quarter of 2009 was
40.2% compared to a rate of 39.4% for the same period in
2008. The increase in our effective tax rate is primarily
attributable to increases in share based compensation on incentive stock
options, for which the expense is disallowed for income tax
reporting.
Net
(Loss) Income
As a
result of the foregoing factors, net earnings decreased by $13.1 million, to a
$3.1 million net loss for the first quarter of 2009 compared to net income of
$10.0 million for the same period in 2008.
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
2008 Annual Report on Form 10-K. Our critical accounting policies are further
described under the caption “Discussion of Critical Accounting Policies” in
Management’s Discussion and Analysis of Financial Condition and Results of
Operations in our 2008 Annual Report on Form 10-K.
Impact
of Recent Accounting Pronouncements
During
September 2006, the Financial Accounting Standards Board (“FASB”)
issued SFAS No. 157, Fair Value
Measurements (“SFAS 157”), which was effective for fiscal
years beginning after November 15, 2007. SFAS 157 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 issued FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157 , which delayed the effective date of SFAS 157 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. We adopted SFAS 157 on January 1, 2008 for all
financial assets and liabilities and on January 1, 2009 for nonfinancial
assets. The adoption of SFAS 157 did not have a significant impact on
our financial position or results of operations other than considerations used
in the fair value calculations of our goodwill impairment tests.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(“SFAS 141R”). SFAS 141R 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. SFAS 141R also
establishes disclosure requirements to enable the evaluation of the nature and
financial effects of the business combination. This statement was effective
January 1, 2009. The impact of SFAS 141R will depend on the nature of our
business combinations subsequent to January 1, 2009.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51 (“SFAS 160”). SFAS 160 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. SFAS 160 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 SFAS 160 did not have a significant impact on
our financial position, results of operations and cash flows as the Company does
not currently have any noncontrolling interests in other entities.
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 $16.5 million
for the three months ended March 31, 2009 compared to approximately $10.8
million for the three months ended March 31, 2008. The $5.6 million increase in
cash provided by operating activities is mainly attributable to a $13.4 million
improvement in cash provided from accounts receivable offset by a $6.6 million
reduction in net earnings after consideration of non-cash items and a $1.4
million increase in cash used for settlement of accounts
payable. Collections on receivables improved due to our
reorganization of our billing and collections department that have allowed us to
increase the speed of our billing as well as address collection issues in a more
timely manner. The increase in cash used for settlement of accounts
payable is primarily attributable to $1.6 million of capital expenditures that
were included in accounts payable at December 31, 2008 that were paid during the
first quarter of 2009.
Net cash
used in investing activities was approximately $4.7 million for the three months
ended March 31, 2009 compared with approximately $21.2 million used in investing
activities during the three months ended March 31, 2008. Investing activities
during the three months ended March 31, 2009 consisted primarily of capital
expenditures for the construction of our new terminal in Dallas/Fort Worth,
Texas. Cash used for investing activities during the first quarter of
2008 included $18.5 million for the acquisition of Pinch.
Net cash
used in financing activities totaled approximately $2.6 million for the three
months ended March 31, 2009 compared with approximately $8.7 million provided by
financing activities during the three months ended March 31,
2008. Cash used in financing activities mainly included our quarterly
dividend payment and scheduled capital lease payments. The change in
financing activities for the three months ended March 31, 2009 compared to the
same period in 2008 was attributable to a $10.0 million reduction in net
borrowings from our senior credit facility and a $1.0 million reduction in cash
from the exercise of employee stock options. Prior year net borrowings from our
line of credit were used to partially fund the Pinch
acquisition.
On
October 10, 2007, we entered into a $100.0 million senior credit
facility. The facility has a term of five years 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. We entered into this larger credit
facility in order to fund potential acquisitions, repurchases of our common
stock, and for financing other general business purposes. At March
31, 2009, we had $40.3 million of available borrowing capacity under the senior
credit facility, not including the accordion feature, and had utilized $9.7
million of availability for outstanding letters of credit.
At March
31, 2009 we have capitalized in construction in progress approximately $20.2
million for the construction of the Dallas/Forth Worth regional
hub. We anticipate completion of this new regional hub during the
third quarter of 2009 and expect to incur an additional $10.8 million in capital
expenditures during 2009 to complete its construction. We intend to fund
the expenditures for the Dallas/Fort Worth regional hub through cash currently
on our balance sheet, cash provided by operating activities, the sale of
existing equipment and/or borrowings under our senior credit facility, if
necessary.
During
the first quarters of 2009 and 2008, 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.
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, 2008.
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, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Part
II.
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Other
Information
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Item
1.
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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.
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 2008 Annual Report on Form 10-K. There have been no changes in
the nature of these factors since December 31, 2008.
There
were no unregistered purchases of shares of our common stock during the three
months ended March 31, 2009.
Not
Applicable.
Not
Applicable.
Not
Applicable.