form10-q.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 June 30, 2009
Commission
File No. 000-22490
FORWARD
AIR CORPORATION
(Exact
name of registrant as specified in its charter)
Tennessee
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62-1120025
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(State
or other jurisdiction of incorporation)
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(I.R.S.
Employer Identification No.)
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430
Airport Road
Greeneville,
Tennessee
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37745
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(Address
of principal executive offices)
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(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 July 29, 2009 was 28,970,080.
Table
of Contents
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Forward
Air Corporation
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Page
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Number
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Part
I.
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Financial
Information
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Item
1.
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Financial
Statements (Unaudited)
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3
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4
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5
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6
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Item
2.
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17
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Item
3.
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35
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Item
4.
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35
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Part
II.
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Other
Information
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Item
1.
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35
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Item
1A.
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35
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Item
2.
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35
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Item
3.
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36
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Item
4.
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36
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Item
5.
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36
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Item
6.
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37
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38
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Part
I.
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Financial
Information
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Item
1.
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Financial
Statements (Unaudited).
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Condensed
Consolidated Balance Sheets
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(Dollars
in thousands, except per share amounts)
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(Unaudited)
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June
30,
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December
31,
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2009
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2008
(a)
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Assets
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Current
assets:
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Cash
|
$ |
24,072 |
|
$ |
22,093 |
Accounts
receivable, less allowance of $2,096 in 2009 and $2,531 in
2008
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|
50,039 |
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|
57,206 |
Other
current assets
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|
17,667 |
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|
12,290 |
Total
current assets
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|
91,778 |
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91,589 |
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Property
and equipment
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199,819 |
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186,377 |
Less
accumulated depreciation and amortization
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69,345 |
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63,401 |
Total
property and equipment, net
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|
130,474 |
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|
122,976 |
Goodwill
and other acquired intangibles:
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Goodwill
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43,332 |
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50,230 |
Other
acquired intangibles, net of accumulated amortization of $9,986 in
2009
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|
and
$8,103 in 2008
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|
38,144 |
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40,708 |
Total
goodwill and other acquired intangibles
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|
81,476 |
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90,938 |
Other
assets
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|
1,655 |
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|
2,024 |
Total
assets
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$ |
305,383 |
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$ |
307,527 |
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Liabilities
and Shareholders’ Equity
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Current
liabilities:
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Accounts
payable
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$ |
9,477 |
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$ |
11,633 |
Accrued
expenses
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16,471 |
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12,927 |
Current
portion of debt and capital lease obligations
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1,231 |
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1,602 |
Total
current liabilities
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27,179 |
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26,162 |
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Long-term
debt and capital lease obligations, less current portion
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52,633 |
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53,035 |
Other
long-term liabilities
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3,602 |
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|
3,055 |
Deferred
income taxes
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6,572 |
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8,841 |
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Shareholders’
equity:
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Preferred
stock
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-- |
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-- |
Common
stock, $0.01 par value:
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Authorized
shares – 50,000,000
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Issued
and outstanding shares – 28,941,829 in 2009 and 28,893,850 in
2008
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|
289 |
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289 |
Additional
paid-in capital
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13,527 |
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10,249 |
Retained
earnings
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201,581 |
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205,896 |
Total
shareholders’ equity
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215,397 |
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216,434 |
Total
liabilities and shareholders’ equity
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$ |
305,383 |
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$ |
307,527 |
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(a)
Taken from audited financial statements, which are not presented in their
entirety.
|
The
accompanying notes are an integral part of the financial
statements.
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Condensed
Consolidated Statements of Operations
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(In
thousands, except per share data)
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(Unaudited)
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Three
months ended
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Six
months ended
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June
30,
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June
30,
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June
30,
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June
30,
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2009
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2008
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2009
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2008
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Operating
revenue:
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Forward
Air
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Airport-to-airport
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$ |
65,182 |
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$ |
89,187 |
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$ |
128,240 |
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$ |
171,246 |
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Logistics
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12,279 |
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14,838 |
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25,473 |
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27,091 |
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Other
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5,666 |
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6,188 |
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11,379 |
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11,977 |
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Forward
Air Solutions
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Pool
distribution
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16,570 |
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11,350 |
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31,221 |
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19,187 |
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Total
operating revenue
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99,697 |
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121,563 |
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196,313 |
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229,501 |
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Operating
expenses:
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Purchased
transportation
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Forward
Air
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Airport-to-airport
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27,830 |
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33,472 |
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53,983 |
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65,011 |
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Logistics
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9,518 |
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10,818 |
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19,798 |
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19,998 |
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Other
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1,230 |
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1,572 |
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2,294 |
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3,205 |
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Forward
Air Solutions
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Pool
distribution
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3,395 |
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2,069 |
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6,027 |
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3,242 |
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Total
purchased transportation
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41,973 |
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47,931 |
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82,102 |
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91,456 |
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Salaries,
wages and employee benefits
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29,187 |
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29,404 |
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58,243 |
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55,851 |
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Operating
leases
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6,820 |
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5,884 |
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13,809 |
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10,735 |
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Depreciation
and amortization
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|
4,823 |
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3,998 |
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|
9,682 |
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|
7,696 |
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Insurance
and claims
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2,223 |
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|
1,614 |
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|
4,939 |
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|
3,874 |
|
Fuel
expense
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1,637 |
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|
3,289 |
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3,319 |
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5,413 |
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Other
operating expenses
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8,161 |
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|
9,181 |
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17,216 |
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17,564 |
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Impairment
of goodwill and other intangible assets
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|
-- |
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|
-- |
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|
7,157 |
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|
-- |
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Total
operating expenses
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94,824 |
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|
101,301 |
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196,467 |
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192,589 |
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Income
(loss) from operations
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|
4,873 |
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|
20,262 |
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(154
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) |
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36,912 |
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Other
income (expense):
|
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|
|
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Interest
expense
|
|
(150
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) |
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|
(328
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) |
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(291
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) |
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(629
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) |
Other,
net
|
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20 |
|
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|
56 |
|
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|
(2
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) |
|
|
210 |
|
Total
other expense
|
|
(130
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) |
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|
(272
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) |
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|
(293
|
) |
|
|
(419
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) |
Income
(loss) before income taxes
|
|
4,743 |
|
|
|
19,990 |
|
|
|
(447
|
) |
|
|
36,493 |
|
Income
tax (benefit) expense
|
|
1,899 |
|
|
|
7,888 |
|
|
|
(186
|
) |
|
|
14,383 |
|
Net
income (loss)
|
$ |
2,844 |
|
|
$ |
12,102 |
|
|
$ |
(261 |
) |
|
$ |
22,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$ |
0.10 |
|
|
$ |
0.42 |
|
|
$ |
(0.01 |
) |
|
$ |
0.77 |
|
Diluted
|
$ |
0.10 |
|
|
$ |
0.42 |
|
|
$ |
(0.01 |
) |
|
$ |
0.76 |
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
28,927 |
|
|
|
28,805 |
|
|
|
28,916 |
|
|
|
28,737 |
|
Diluted
|
|
28,977 |
|
|
|
29,126 |
|
|
|
28,916 |
|
|
|
29,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
per share:
|
$ |
0.07 |
|
|
$ |
0.07 |
|
|
$ |
0.14 |
|
|
$ |
0.14 |
|
The accompanying notes are an
integral part of the financial statements.
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
(In
thousands)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Six
months ended
|
|
|
June
30,
|
|
|
June
30,
|
|
|
2009
|
|
|
2008
|
|
Operating
activities:
|
|
|
|
|
|
Net
(loss) income
|
$ |
(261 |
) |
|
$ |
22,110 |
|
Adjustments
to reconcile net (loss) income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
9,682 |
|
|
|
7,696 |
|
Impairment
of goodwill and other intangible assets
|
|
7,157 |
|
|
|
-- |
|
Share-based
compensation
|
|
3,415 |
|
|
|
3,120 |
|
(Gain)
loss on sale or disposal of property and equipment
|
|
(12
|
) |
|
|
21 |
|
Provision
for (recovery) loss on receivables
|
|
(291
|
) |
|
|
113 |
|
Provision
for revenue adjustments
|
|
1,368 |
|
|
|
1,904 |
|
Deferred
income taxes
|
|
(2,543
|
) |
|
|
1,428 |
|
Tax
benefit for stock options exercised
|
|
-- |
|
|
|
(1,079
|
) |
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
6,091 |
|
|
|
(18,301
|
) |
Prepaid
expenses and other current assets
|
|
(359
|
) |
|
|
(2,371
|
) |
Accounts
payable and accrued expenses
|
|
(2,852
|
) |
|
|
2,514 |
|
Net
cash provided by operating activities
|
|
21,395 |
|
|
|
17,155 |
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Proceeds
from disposal of property and equipment
|
|
217 |
|
|
|
33 |
|
Purchases
of property and equipment
|
|
(15,025
|
) |
|
|
(5,355
|
) |
Acquisition
of businesses
|
|
-- |
|
|
|
(18,646
|
) |
Other
|
|
356 |
|
|
|
(93
|
) |
Net
cash used in investing activities
|
|
(14,452
|
) |
|
|
(24,061
|
) |
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Payments
of debt and capital lease obligations
|
|
(773
|
) |
|
|
(870
|
) |
Borrowings
on line of credit
|
|
-- |
|
|
|
30,000 |
|
Payments
on line of credit
|
|
-- |
|
|
|
(25,000
|
) |
Proceeds
from exercise of stock options
|
|
-- |
|
|
|
2,138 |
|
Payments
of cash dividends
|
|
(4,053
|
) |
|
|
(4,036
|
) |
Common
stock issued under employee stock purchase plan
|
|
99 |
|
|
|
145 |
|
Cash
settlement of share-based awards for minimum tax
withholdings
|
|
(237
|
) |
|
|
(377
|
) |
Tax
benefit for stock options exercised
|
|
-- |
|
|
|
1,079 |
|
Net
cash (used in) provided by financing activities
|
|
(4,964
|
) |
|
|
3,079 |
|
Net
increase (decrease) in cash
|
|
1,979 |
|
|
|
(3,827
|
) |
Cash
at beginning of period
|
|
22,093 |
|
|
|
4,909 |
|
Cash
at end of period
|
$ |
24,072 |
|
|
$ |
1,082 |
|
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)
June
30, 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 and six months ended June 30, 2009 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2009. For further information, refer to the consolidated
financial statements and notes thereto included in the Forward Air Corporation
Annual Report on Form 10-K for the year ended December 31, 2008.
The
balance sheet at December 31, 2008 has been derived from the audited financial
statements at that date, but does not include all of the financial information
and notes required by United States generally accepted accounting principles for
complete financial statements.
The
accompanying consolidated financial statements of the Company include Forward
Air Corporation and its subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
The
Company has evaluated all subsequent events through July 31, 2009, the date the
financial statements were issued.
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 on January 1, 2009, did not have a
significant impact on the Company’s financial position, results of operations
and cash flows as the Company does not currently have any noncontrolling
interests in other entities.
The
Company adopted SFAS No. 165, Subsequent Events (“SFAS
165”) in the second quarter of 2009. SFAS 165 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. SFAS
165 requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, that is, whether that date
represents the date the financial statements were issued or were available to be
issued. See Note 1 for the related disclosures. The adoption of FAS No. 165
did not have a material impact on the Company’s financial
statements.
In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, an Amendment of FASB Statement No. 140 (“SFAS
166”) which amends SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, by
eliminating the concept of a qualifying special-purpose entity (“QSPE”);
clarifying and amending the derecognition criteria for a transfer to be
accounted for as a sale; amending and clarifying the unit of account eligible
for sale accounting; and requiring that a transferor initially measure 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, existing QSPEs (as defined under previous accounting
standards) must be evaluated for consolidation by reporting entities in
accordance with the applicable consolidation guidance. SFAS 166 requires
enhanced disclosures about, among other things, a transferor’s continuing
involvement with transfers of financial assets accounted for as sales, the risks
inherent in the transferred financial assets that have been retained, and the
nature and financial effect of restrictions on the transferor’s assets that
continue to be reported in the statement of financial position. The
Company will adopt SFAS 166 on January 1, 2010, but at this time the Company
does not anticipate the adoption of SFAS 166 will have a significant impact on
the Company’s financial position, results of operations and cash
flows.
In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (“SFAS 167”) which amends FASB Interpretation (“FIN”) No.
46(R) (“FIN 46(R)”), Consolidation of Variable Interest
Entities, and changes the consolidation guidance applicable to a variable
interest entity (“VIE”). It also amends 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, FIN 46(R) 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 this standard, will
be subject to the provisions of this standard when it becomes
effective. SFAS 167 also requires enhanced disclosures about an
enterprise’s involvement with a VIE. The Company will adopt SFAS 167 on January
1, 2010, but at this time the Company does not anticipate the adoption of SFAS
167 will have a significant impact on the Company’s financial position, results
of operations and cash flows.
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
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 income for the three months ended June 30, 2009 and 2008 was
$2,844 and $12,102, respectively. Comprehensive (loss) income for the
six months ended June 30, 2009 and 2008 was $(261) and $22,110,
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 and $200 of amortization during the three and six months
ended June 30, 2009.
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).
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
4.
|
Acquisition
of Businesses (continued)
|
The Pinch
purchase price allocation was as follows:
|
Forward
Air
|
|
FASI
|
|
Total
|
Current
assets
|
$ |
72 |
|
$ |
-- |
|
$ |
72 |
Property
and equipment
|
|
960 |
|
|
148 |
|
|
1,108 |
Non-compete
agreements
|
|
80 |
|
|
-- |
|
|
80 |
Customer
relationships
|
|
4,700 |
|
|
4,300 |
|
|
9,000 |
Goodwill
|
|
5,573 |
|
|
3,437 |
|
|
9,010 |
Total
assets acquired
|
|
11,385 |
|
|
7,885 |
|
|
19,270 |
|
|
|
|
|
|
|
|
|
Debt
and capital leases
|
|
480 |
|
|
108 |
|
|
588 |
Total
liabilities assumed
|
|
480 |
|
|
108 |
|
|
588 |
Net
assets acquired
|
$ |
10,905 |
|
$ |
7,777 |
|
$ |
18,682 |
The
acquired customer relationships and non-compete agreements from the Pinch
acquisition are being amortized on a straight-line basis over a weighted average
life of 12 and 5 years, respectively. The Company began amortizing
the assets as of the acquisition date and recorded $218 and $436 of amortization
during the three and six months ended June 30, 2009. Amortization on
these assets was $218 during the three and six months ended June 30,
2008.
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.
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. 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.
In
accordance with SFAS 142, the Company conducted its annual impairment test
of goodwill for each reportable segment as of June 30, 2009 and no
additional impairment charges were required. For both the March 31,
2009 and June 30, 2009 goodwill impairment calculations, the Company calculated
the fair value of the applicable reportable segments, using a combination of
discounted projected cash flows and market valuations as of the valuation date
for comparable companies. The Company's fair value calculations for
goodwill are classified within level 3 of the fair value hierarchy as defined in
SFAS 157.
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 six months ended June 30,
2009, were as follows:
|
Forward
Air
|
|
FASI
|
|
|
Total
|
|
Beginning
balance, December 31, 2008
|
$ |
37,926 |
|
$ |
12,304 |
|
|
$ |
50,230 |
|
Adjustment
to Service Express, Inc. acquisition
|
|
-- |
|
|
55 |
|
|
|
55 |
|
Impairment
loss
|
|
-- |
|
|
(6,953
|
) |
|
|
(6,953
|
) |
Ending
balance, June 30, 2009
|
$ |
37,926 |
|
$ |
5,406 |
|
|
$ |
43,332 |
|
There
were no changes to goodwill during the three months ended June 30,
2009.
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 or six months ended June 30, 2009 other
than an impairment charge of $204 at March 31, 2009 in the Forward Air segment
to write off the net book value of certain truckload and cargo handling customer
relationships purchased during 2007. These impairment charges were
recorded as the related customer relationships and services were discontinued
during the first quarter of 2009.
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 six months ended June 30, 2009 was
$7.96. No options were granted during the three months ended June 30,
2009. The weighted-average fair values of options granted during the
three and six months ended June 30, 2008 were $10.76 and $9.17,
respectively. The fair values were estimated using the
following weighted-average assumptions:
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
6.
|
Share-Based
Payments (continued)
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
June
30,
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
2009
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Expected
dividend yield
|
N/A
|
|
0.8
|
%
|
|
0.9
|
%
|
|
0.8
|
%
|
Expected
stock price volatility
|
N/A
|
|
35.2
|
%
|
|
42.3
|
%
|
|
35.2
|
%
|
Weighted
average risk-free interest rate
|
N/A
|
|
3.2
|
%
|
|
2.0
|
%
|
|
2.8
|
%
|
Expected
life of options (years)
|
N/A
|
|
4.5
|
|
|
4.5
|
|
|
4.5
|
|
During
the three months ended June 30, 2009 and 2008, share-based compensation expense
for options granted to employees was $1,437 and $962,
respectively. The total tax benefit related to the share-based
expense for these options for the three months ended June 30, 2009 and 2008, was
$409 and $232, respectively. During the six months ended June 30,
2009 and 2008, share-based compensation expense for options granted to employees
was $2,826 and $1,888, respectively. The total tax benefit
related to the share-based expense for these options for the six months ended
June 30, 2009 and 2008, was $800 and $475,
respectively. Total compensation cost, net of estimated
forfeitures, related to the options not yet recognized in earnings was $8,515 at
June 30, 2009. Total unrecognized compensation cost will be adjusted for future
changes in estimated forfeitures.
The
following tables summarize the Company’s employee stock option activity and
related information for the three and six months ended June 30,
2009:
|
Three
months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
Aggregate
|
|
Average
|
|
|
|
|
Average
|
|
Intrinsic
|
|
Remaining
|
|
Options
|
|
|
Exercise
|
|
Value
|
|
Contractual
|
|
(000)
|
|
|
Price
|
|
(000)
|
|
Term
|
Outstanding
at March 31, 2009
|
3,120
|
|
|
$
|
27
|
|
|
|
|
|
Granted
|
--
|
|
|
|
--
|
|
|
|
|
|
Exercised
|
--
|
|
|
|
--
|
|
|
|
|
|
Forfeited
|
(10
|
)
|
|
|
26
|
|
|
|
|
|
Outstanding
at June 30, 2009
|
3,110
|
|
|
$
|
27
|
|
$
|
--
|
|
5.3
|
Exercisable
at June 30, 2009
|
1,828
|
|
|
$
|
26
|
|
$
|
--
|
|
4.8
|
|
Six
months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
Aggregate
|
|
Average
|
|
|
|
|
Average
|
|
Intrinsic
|
|
Remaining
|
|
Options
|
|
|
Exercise
|
|
Value
|
|
Contractual
|
|
(000)
|
|
|
Price
|
|
(000)
|
|
Term
|
Outstanding
at December 31, 2008
|
2,446
|
|
|
$
|
28
|
|
|
|
|
|
Granted
|
675
|
|
|
|
23
|
|
|
|
|
|
Exercised
|
--
|
|
|
|
--
|
|
|
|
|
|
Forfeited
|
(11
|
)
|
|
|
26
|
|
|
|
|
|
Outstanding
at June 30, 2009
|
3,110
|
|
|
$
|
27
|
|
$
|
--
|
|
5.3
|
Exercisable
at June 30, 2009
|
1,828
|
|
|
$
|
26
|
|
$
|
--
|
|
4.8
|
Share-based
compensation expense was $25 and $342 during the three months ended June 30,
2009 and 2008, respectively, for non-vested shares granted to employees during
2006. The total tax benefit related to this share-based expense was $10 and $135
for the three months ended June 30, 2009 and 2008,
respectively. Share-based compensation expense was $244 and $750
during the six months ended June 30, 2009 and 2008, respectively, for non-vested
shares granted to employees during 2006. The total tax benefit related to this
share-based expense was $102 and $296 for the six months ended June 30, 2009 and
2008, respectively. Total compensation cost, net of estimated
forfeitures, related to the non-vested shares not yet recognized in earnings was
$11 at June 30, 2009. Total unrecognized compensation cost will be adjusted for
future changes in estimated forfeitures.
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
6.
|
Share-Based
Payments (continued)
|
Under the
2005 Employee Stock Purchase Plan (the “ESPP”), which has been approved by
shareholders, the Company is authorized to issue up to a remaining 454,176
shares of common stock to employees of the Company. These shares may be issued
at a price equal to 90% of the lesser of the market value on the first day or
the last day of each six-month purchase period. Common stock purchases are paid
for through periodic payroll deductions and/or up to two large lump sum
contributions. For the three and six months ended June 30, 2009, participants
under the plan purchased 5,148 shares at an average price of $19.19 per share.
For the three and six months ended June 30, 2008, participants under the plan
purchased 5,331 shares at an average price of $27.16 per share. The
weighted-average fair value of each purchase right under the ESPP granted for
the three and six months ended June 30, 2009, which is equal to the discount
from the market value of the common stock at the end of each six month purchase
period, was $2.13 per share. The weighted-average fair value of each
purchase right under the ESPP granted for the three and six months ended June
30, 2008, was $7.44 per share. Share-based compensation expense of $11 and $39
was recognized during the three and six months ended June 30, 2009 and 2008,
respectively.
Non-employee
Director Activity
Share-based
compensation expense during the three months ended June 30, 2009 and 2008 was
$162 and $242, respectively, for non-vested shares granted to non-employee
directors. The total tax benefit related to this share-based expense
was $67 and $95 for the three months ended June 30, 2009 and 2008,
respectively. Share-based compensation expense during the six months
ended June 30, 2009 and 2008 was $334 and $443, respectively, for non-vested
shares granted to non-employee directors. The total tax benefit
related to this share-based expense was $139 and $175 for the six months ended
June 30, 2009 and 2008, respectively. Total compensation cost, net of
estimated forfeitures, related to the non-vested shares granted to non-employee
directors not yet recognized in earnings was $488 at June 30,
2009. Total unrecognized compensation cost will be adjusted for
future changes in estimated forfeitures.
In
addition to the above activity, each May from 1995 to 2005 options were granted
to the non-employee directors of the Company. The options have terms
of ten years and are fully exercisable. At June 30, 2009, 74,375
options were outstanding and will expire between July 2010 and May
2015. At June 30, 2009, the weighted average exercise and remaining
contractual term were $22 and 3.6 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 (0.9% at June 30, 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 June 30, 2009, the Company had $50,000
outstanding under the senior credit facility. At June 30, 2009, the Company had
utilized $10,530 of availability for outstanding letters of credit and had
$39,470 of available borrowing capacity outstanding under the senior credit
facility.
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
8.
|
Net
Income (Loss) Per Share
|
The
following table sets forth the computation of basic and diluted net income
(loss) per share for the three and six months ended June 30, 2009:
|
Three
months ended
|
|
Six
months ended
|
|
June
30,
|
|
June
30,
|
|
June
30,
|
|
|
June
30,
|
|
2009
|
|
2008
|
|
2009
|
|
|
2008
|
Numerator:
|
|
|
|
|
|
|
|
|
Numerator
for basic and diluted income per share - net income (loss)
|
$ |
2,844 |
|
$ |
12,102 |
|
$ |
(261 |
) |
|
$ |
22,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic income per share - weighted-average shares
|
|
28,927 |
|
|
28,805 |
|
|
28,916 |
|
|
|
28,737 |
Effect
of dilutive stock options and non-vested shares
|
|
50 |
|
|
321 |
|
|
-- |
|
|
|
304 |
Denominator
for diluted income per share - adjusted weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
average
shares
|
|
28,977 |
|
|
29,126 |
|
|
28,916 |
|
|
|
29,041 |
Basic
income (loss) per share
|
$ |
0.10 |
|
$ |
0.42 |
|
$ |
(0.01 |
) |
|
$ |
0.77 |
Diluted
income (loss) per share
|
$ |
0.10 |
|
$ |
0.42 |
|
$ |
(0.01 |
) |
|
$ |
0.76 |
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 2,871,000 and 45,000
at June 30, 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 three and six months end June 30,
2009.
For the
three months ended June 30, 2009 and 2008, the effective income tax rates varied
from the statutory federal income tax rate of 35.0%, primarily as a result of
the effect of state income taxes, net of the federal benefit and permanent
differences between book and tax net income.
10.
|
Financial
Instruments
|
The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Accounts
receivable and accounts payable: The carrying amounts reported in the balance
sheet for accounts receivable and accounts payable approximate their fair value
based on their short-term nature.
The
Company’s senior credit facility bears interest at LIBOR plus 0.6% to 0.9% based
upon covenants related to total indebtedness to earnings. However,
due to current economic conditions, the Company believes its borrowing rate to
be favorable to current market rates. Using borrowing rates currently
available in the market, the Company estimated the fair value of its senior
credit facility, notes payable and capital lease obligations as
follows:
|
June
30, 2009
|
|
Carrying
|
|
Fair
|
|
Value
|
|
Value
|
Senior
credit facility
|
$ |
50,000 |
|
$ |
47,424 |
Notes
payable
|
|
72 |
|
|
73 |
Capital
lease obligations
|
|
3,792 |
|
|
4,051 |
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
During
each of the first and second quarters of 2009 and 2008, the Company’s Board of
Directors declared a cash dividend of $0.07 per share of common
stock. The Company expects to continue to pay regular quarterly cash
dividends, though each subsequent quarterly dividend is subject to review and
approval by the Board of Directors.
On June
22, 2009, The Company’s Board of Directors, in accordance with Article IX of the
Company’s existing amended and restated bylaws (the “Existing Bylaws”), adopted
Amended and Restated Bylaws (the “Amended and Restated Bylaws”) effective July
1, 2009 to supersede and replace the Company’s Existing Bylaws. The
principle revisions to the Existing Bylaws include the following: (i)
the addition of advanced notice provisions for shareholder proposals and
nominations of directors at meetings of the Company’s shareholders, (ii) the
addition of provisions requiring the Company’s shareholders to take certain
actions in connection with the calling of a special meeting of the Company’s
shareholders, (iii) the addition of electronic notice provisions with respect to
director and shareholder meetings and (iv) certain other technical
amendments.
12.
|
Commitments
and Contingencies
|
From time
to time, the Company is party to ordinary, routine litigation incidental to and
arising in the normal course of business. The Company does not
believe that any of these pending actions, individually or in the aggregate,
will have a material adverse effect on its business, financial condition or
results of operations.
The
primary claims in the Company’s business relate to workers’ compensation,
property damage, vehicle liability and medical benefits. Most of the Company’s
insurance coverage provides for self-insurance levels with primary and excess
coverage which management believes is sufficient to adequately protect the
Company from catastrophic claims. In the opinion of management, adequate
provision has been made for all incurred claims up to the self-insured limits,
including provision for estimated claims incurred but not reported.
The
Company estimates its self-insurance loss exposure by evaluating the merits and
circumstances surrounding individual known claims and by performing hindsight
and actuarial analysis to determine an estimate of probable losses on claims
incurred but not reported. Such losses could be realized immediately
as the events underlying the claims have already occurred as of the balance
sheet dates.
Because
of the uncertainty of the ultimate resolution of outstanding claims, as well as
uncertainty regarding claims incurred but not reported, it is possible that
management’s provision for these losses could change materially in the near
term. However, no estimate can currently be made of the range of additional loss
that is at least reasonably possible.
The
Company operates in two reportable segments, based on differences in services
provided. Forward Air provides time-definite transportation and
logistics services to the deferred air freight market. FASI provides
pool distribution services primarily to regional and national distributors and
retailers.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies disclosed in Note 1 to the
Consolidated Financial Statements included in our 2008 Annual Report on Form
10-K. Segment data includes intersegment revenues. Assets and costs
of the corporate headquarters are allocated to the segments based on
usage. The Company evaluates the performance of its segments based on
net income (loss). The Company’s business is conducted principally in
the U.S. and Canada.
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
12.
|
Segment
Reporting (continued)
|
The
following tables summarize segment information about net income
(loss) and assets used by the chief operating decision maker of the
Company in making decisions regarding allocation of assets and resources as of
and for the three and six months ended June 30, 2009 and
2008.
|
Three
months ended June 30, 2009
|
|
Forward
Air
|
|
FASI
|
|
|
Eliminations
|
|
|
Consolidated
|
External
revenues
|
$ |
83,127 |
|
$ |
16,570 |
|
|
$ |
-- |
|
|
$ |
99,697 |
Intersegment
revenues
|
|
180 |
|
|
120 |
|
|
|
(300
|
) |
|
|
-- |
Depreciation
and amortization
|
|
3,893 |
|
|
930 |
|
|
|
-- |
|
|
|
4,823 |
Share-based
compensation expense
|
|
1,564 |
|
|
71 |
|
|
|
-- |
|
|
|
1,635 |
Interest
expense
|
|
123 |
|
|
27 |
|
|
|
-- |
|
|
|
150 |
Interest
income
|
|
19 |
|
|
2 |
|
|
|
-- |
|
|
|
21 |
Income
tax expense (benefit)
|
|
2,532 |
|
|
(633
|
) |
|
|
-- |
|
|
|
1,899 |
Net
income (loss)
|
|
3,173 |
|
|
(329
|
) |
|
|
-- |
|
|
|
2,844 |
Total
assets
|
|
304,475 |
|
|
39,223 |
|
|
|
(38,315
|
) |
|
|
305,383 |
Capital
expenditures
|
|
9,652 |
|
|
636 |
|
|
|
-- |
|
|
|
10,288 |
|
Three
months ended June 30, 2008
|
|
Forward
Air
|
|
FASI
|
|
|
Eliminations
|
|
|
Consolidated
|
External
revenues
|
$ |
110,213 |
|
$ |
11,350 |
|
|
$ |
-- |
|
|
$ |
121,563 |
Intersegment
revenues
|
|
662 |
|
|
13 |
|
|
|
(675
|
) |
|
|
-- |
Depreciation
and amortization
|
|
3,610 |
|
|
388 |
|
|
|
-- |
|
|
|
3,998 |
Share-based
compensation expense
|
|
1,551 |
|
|
34 |
|
|
|
-- |
|
|
|
1,585 |
Interest
expense
|
|
315 |
|
|
13 |
|
|
|
-- |
|
|
|
328 |
Interest
income
|
|
53 |
|
|
3 |
|
|
|
-- |
|
|
|
56 |
Income
tax expense (benefit)
|
|
8,050 |
|
|
(162
|
) |
|
|
-- |
|
|
|
7,888 |
Net
income (loss)
|
|
12,389 |
|
|
(287
|
) |
|
|
-- |
|
|
|
12,102 |
Total
assets
|
|
270,127 |
|
|
25,162 |
|
|
|
(21,266
|
) |
|
|
274,023 |
Capital
expenditures
|
|
2,585 |
|
|
125 |
|
|
|
-- |
|
|
|
2,710 |
Forward Air
Corporation
Notes
to Condensed Consolidated Financial Statements
12.
|
Segment
Reporting (continued)
|
|
Six
months ended June 30, 2009
|
|
|
Forward
Air
|
|
FASI
|
|
Eliminations
|
|
|
Consolidated
|
|
External
revenues
|
$
|
165,092
|
|
$
|
31,221
|
|
$
|
--
|
|
|
$
|
196,313
|
|
Intersegment
revenues
|
|
372
|
|
|
228
|
|
|
(600
|
)
|
|
|
--
|
|
Depreciation
and amortization
|
|
7,839
|
|
|
1,843
|
|
|
--
|
|
|
|
9,682
|
|
Share-based
compensation expense
|
|
3,279
|
|
|
136
|
|
|
--
|
|
|
|
3,415
|
|
Impairment
of goodwill and other intangible assets
|
|
204
|
|
|
6,953
|
|
|
--
|
|
|
|
7,157
|
|
Interest
expense
|
|
235
|
|
|
56
|
|
|
--
|
|
|
|
291
|
|
Interest
income
|
|
38
|
|
|
3
|
|
|
--
|
|
|
|
41
|
|
Income
tax expense (benefit)
|
|
3,888
|
|
|
(4,074
|
)
|
|
--
|
|
|
|
(186
|
)
|
Net
income (loss)
|
|
5,462
|
|
|
(5,723
|
)
|
|
--
|
|
|
|
(261
|
)
|
Total
assets
|
|
304,475
|
|
|
39,223
|
|
|
(38,315
|
)
|
|
|
305,383
|
|
Capital
expenditures
|
|
13,875
|
|
|
1,150
|
|
|
--
|
|
|
|
15,025
|
|
|
Six
months ended June 30, 2008
|
|
Forward
Air
|
|
FASI
|
|
Eliminations
|
|
|
Consolidated
|
External
revenues
|
$
|
210,314
|
|
$
|
19,187
|
|
$
|
--
|
|
|
$
|
229,501
|
Intersegment
revenues
|
|
893
|
|
|
13
|
|
|
(906
|
)
|
|
|
--
|
Depreciation
and amortization
|
|
7,004
|
|
|
692
|
|
|
--
|
|
|
|
7,696
|
Share-based
compensation expense
|
|
3,060
|
|
|
60
|
|
|
--
|
|
|
|
3,120
|
Interest
expense
|
|
603
|
|
|
26
|
|
|
--
|
|
|
|
629
|
Interest
income
|
|
199
|
|
|
5
|
|
|
--
|
|
|
|
204
|
Income
tax expense (benefit)
|
|
14,742
|
|
|
(359
|
)
|
|
--
|
|
|
|
14,383
|
Net
income (loss)
|
|
22,735
|
|
|
(625
|
)
|
|
--
|
|
|
|
22,110
|
Total
assets
|
|
270,127
|
|
|
25,162
|
|
|
(21,266
|
)
|
|
|
274,023
|
Capital
expenditures
|
|
5,045
|
|
|
310
|
|
|
--
|
|
|
|
5,355
|
Overview
and Executive Summary
Our
operations can be broadly classified into two principal
segments: Forward Air, Inc. (Forward Air) and Forward Air Solutions,
Inc. (FASI).
Through
our Forward Air segment, we are a leading provider of time-definite surface
transportation and related logistics services to the North American deferred air
freight market. We offer our customers local pick-up and delivery (Forward Air
Complete™) and scheduled surface transportation of cargo as a cost-effective,
reliable alternative to air transportation. We transport cargo that must be
delivered at a specific time, but is less time-sensitive than traditional air
freight. This type of cargo is frequently referred to in the transportation
industry as deferred air freight. We operate our Forward Air segment through a
network of terminals located on or near airports in 84 cities in the United
States and Canada, including a central sorting facility in Columbus, Ohio and 11
regional hubs serving key markets. We also offer our customers an array of
logistics and other services including: expedited truckload brokerage
(TLX); dedicated fleets; warehousing; customs brokerage; and shipment
consolidation, deconsolidation and handling.
FASI
provides pool distribution services throughout the Mid-Atlantic, Southeast,
Midwest and Southwest continental United States. Pool
distribution involves managing high-frequency handling and distribution of
time-sensitive product to numerous destinations in specific geographic
regions. Our primary customers for this product are regional and
nationwide distributors and retailers, such as mall, strip mall and outlet based
retail chains. We service these customers through a network of terminals and
service centers located in 19 cities.
Our
operations, particularly our network of hubs and terminals, represent
substantial fixed costs. Consequently, our ability to increase our earnings
depends in significant part on our ability to increase the amount of freight and
the revenue per pound for the freight shipped through our networks and to grow
other lines of businesses, such as TLX, which will allow us to maintain revenue
growth in challenging shipping environments.
Trends
and Developments
Acquisitions
On
September 8, 2008, we acquired certain assets and liabilities of Service
Express, Inc. (“Service Express”). Service Express was a
privately-held provider of pool distribution services primarily in the
Mid-Atlantic and Southeastern continental United States. Service
Express generated approximately $39.0 million in revenue during the year ended
December 31, 2007. The acquisition of Service Express’ pool
distribution services added to the geographic footprint of the FASI segment in
the Mid-Atlantic and Southeastern United States.
On March
17, 2008, we acquired certain assets and liabilities of Pinch Holdings, Inc. and
its related company AFTCO Enterprises, Inc. and certain of their respective
wholly owned subsidiaries (“Pinch”). Pinch was a privately-held
provider of pool distribution, airport-to-airport, truckload, customs, and
cartage services primarily to the Southwestern continental United
States. Pinch generated approximately $35.0 million in revenue during
the year ended December 31, 2007. The acquisition of Pinch’s pool
distribution services expanded the geographic footprint of the FASI segment in
the Southwestern United States. In addition, it provided additional
tonnage density to the Forward Air airport-to-airport network, and the
acquisition of Pinch’s cartage and truckload business provided an opportunity
for Forward Air to expand its service options in the Southwestern United
States.
Results
from Operations
During
the three and six months ended June 30, 2009, compared to the same period in
2008, we continued to experience significant year over year decreases in our
consolidated revenues and results from operations. We largely
attribute the decline in Forward Air revenue and income from operations to the
current economic recession and its effects on our overall business volumes and
the rates we are able to charge for our core services. FASI revenue
continued to increase substantially year over year primarily as a result of our
2008 acquisitions of Pinch and Service Express and new business
wins. However, revenues have not reached expected levels and losses
have been higher than expected largely due to the economic recession reducing
business volumes. Additionally, despite significant new business
wins, FASI revenue growth will slow throughout 2009 as we reach the anniversary
dates of our 2008 acquisitions.
Declining
fuel prices have continued to 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 have resulted in a significant reduction in our net fuel surcharge
revenue and results from operations during 2009. Total net fuel
surcharge revenue decreased 72.3% and 66.2% during the three and six months
ended June 30, 2009, respectively, as compared to the same periods in
2008.
Goodwill
During
the first quarter of 2009, we determined there were indicators of potential
impairment of the goodwill assigned to the FASI segment. This
determination was based on the continuing economic recession, declines in
current market valuations and FASI operating losses in excess of
expectations. As a result, we performed an interim impairment test in
accordance with SFAS No. 142, Goodwill and Other Intangible
Assets (“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
a non-cash goodwill impairment charge of $7.0 million related to the FASI
segment during the first quarter of 2009. We finalized certain
valuations related to the March 31, 2009 goodwill impairment during the second
quarter of 2009, which did not result in any adjustments to the impairment
recorded at March 31, 2009.
In
accordance with SFAS 142, we conducted our annual impairment test of
goodwill for each reportable segment as of June 30, 2009 and no additional
impairment charges were required.
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 June 30, 2009 and 2008 (in millions):
|
Three
months ended
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
%
Change
|
|
|
Operating
revenue
|
$ |
99.7 |
|
|
$ |
121.6 |
|
|
$ |
(21.9 |
) |
|
(18.0
|
) |
% |
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
transportation
|
|
42.0 |
|
|
|
47.9 |
|
|
|
(5.9
|
) |
|
(12.3
|
) |
|
Salaries,
wages, and employee benefits
|
|
29.2 |
|
|
|
29.4 |
|
|
|
(0.2
|
) |
|
(0.7
|
) |
|
Operating
leases
|
|
6.8 |
|
|
|
5.9 |
|
|
|
0.9 |
|
|
15.3 |
|
|
Depreciation
and amortization
|
|
4.8 |
|
|
|
4.0 |
|
|
|
0.8 |
|
|
20.0 |
|
|
Insurance
and claims
|
|
2.2 |
|
|
|
1.6 |
|
|
|
0.6 |
|
|
37.5 |
|
|
Fuel
expense
|
|
1.6 |
|
|
|
3.3 |
|
|
|
(1.7
|
) |
|
(51.5
|
) |
|
Other
operating expenses
|
|
8.2 |
|
|
|
9.2 |
|
|
|
(1.0
|
) |
|
(10.9
|
) |
|
Total
operating expenses
|
|
94.8 |
|
|
|
101.3 |
|
|
|
(6.5
|
) |
|
(6.4
|
) |
|
Income
from operations
|
|
4.9 |
|
|
|
20.3 |
|
|
|
(15.4
|
) |
|
(75.9
|
) |
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(0.2
|
) |
|
|
(0.3
|
) |
|
|
(0.1
|
) |
|
(33.3
|
) |
|
Other,
net
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
-- |
|
|
Total
other (expense) income
|
|
(0.2
|
) |
|
|
(0.3
|
) |
|
|
(0.1
|
) |
|
(33.3
|
) |
|
Income
before income taxes
|
|
4.7 |
|
|
|
20.0 |
|
|
|
(15.3
|
) |
|
(76.5
|
) |
|
Income
taxes
|
|
1.9 |
|
|
|
7.9 |
|
|
|
(6.0
|
) |
|
(75.9
|
) |
|
Net
income
|
$ |
2.8 |
|
|
$ |
12.1 |
|
|
$ |
(9.3 |
) |
|
(76.9
|
) |
% |
The
following table sets forth our historical financial data by segment for the
three months ended June 30, 2009 and 2008 (in millions):
|
Three
months ended
|
|
June
30,
|
|
|
Percent
of
|
|
|
June
30,
|
|
|
Percent
of
|
|
|
|
|
|
Percent
|
|
|
2009
|
|
|
Revenue
|
|
|
2008
|
|
|
Revenue
|
|
|
Change
|
|
|
Change
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
$
|
83.3
|
|
|
83.6
|
%
|
|
$
|
110.9
|
|
|
91.2
|
%
|
|
$
|
(27.6
|
)
|
|
(24.9
|
)%
|
FASI
|
|
16.7
|
|
|
16.7
|
|
|
|
11.4
|
|
|
9.4
|
|
|
|
5.3
|
|
|
46.5
|
|
Intercompany
Eliminations
|
|
(0.3
|
)
|
|
(0.3
|
)
|
|
|
(0.7
|
)
|
|
(0.6
|
)
|
|
|
0.4
|
|
|
(57.1
|
)
|
Total
|
|
99.7
|
|
|
100.0
|
|
|
|
121.6
|
|
|
100.0
|
|
|
|
(21.9
|
)
|
|
(18.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
38.7
|
|
|
46.5
|
|
|
|
45.9
|
|
|
41.4
|
|
|
|
(7.2
|
)
|
|
(15.7
|
)
|
FASI
|
|
3.6
|
|
|
21.5
|
|
|
|
2.7
|
|
|
23.7
|
|
|
|
0.9
|
|
|
33.3
|
|
Intercompany
Eliminations
|
|
(0.3
|
)
|
|
100.0
|
|
|
|
(0.7
|
)
|
|
100.0
|
|
|
|
0.4
|
|
|
(57.1
|
)
|
Total
|
|
42.0
|
|
|
42.2
|
|
|
|
47.9
|
|
|
39.4
|
|
|
|
(5.9
|
)
|
|
(12.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and employee benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
21.1
|
|
|
25.3
|
|
|
|
24.7
|
|
|
22.3
|
|
|
|
(3.6
|
)
|
|
(14.6
|
)
|
FASI
|
|
8.1
|
|
|
48.5
|
|
|
|
4.7
|
|
|
41.2
|
|
|
|
3.4
|
|
|
72.3
|
|
Total
|
|
29.2
|
|
|
29.3
|
|
|
|
29.4
|
|
|
24.2
|
|
|
|
(0.2
|
)
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
4.7
|
|
|
5.6
|
|
|
|
4.6
|
|
|
4.2
|
|
|
|
0.1
|
|
|
2.2
|
|
FASI
|
|
2.1
|
|
|
12.6
|
|
|
|
1.3
|
|
|
11.4
|
|
|
|
0.8
|
|
|
61.5
|
|
Total
|
|
6.8
|
|
|
6.8
|
|
|
|
5.9
|
|
|
4.8
|
|
|
|
0.9
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
3.9
|
|
|
4.7
|
|
|
|
3.6
|
|
|
3.2
|
|
|
|
0.3
|
|
|
8.3
|
|
FASI
|
|
0.9
|
|
|
5.4
|
|
|
|
0.4
|
|
|
3.5
|
|
|
|
0.5
|
|
|
125.0
|
|
Total
|
|
4.8
|
|
|
4.8
|
|
|
|
4.0
|
|
|
3.3
|
|
|
|
0.8
|
|
|
20.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
1.7
|
|
|
2.0
|
|
|
|
1.6
|
|
|
1.4
|
|
|
|
0.1
|
|
|
6.2
|
|
FASI
|
|
0.5
|
|
|
3.0
|
|
|
|
--
|
|
|
--
|
|
|
|
0.5
|
|
|
100.0
|
|
Total
|
|
2.2
|
|
|
2.2
|
|
|
|
1.6
|
|
|
1.3
|
|
|
|
0.6
|
|
|
37.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
0.7
|
|
|
0.8
|
|
|
|
1.8
|
|
|
1.6
|
|
|
|
(1.1
|
)
|
|
(61.1
|
)
|
FASI
|
|
0.9
|
|
|
5.4
|
|
|
|
1.5
|
|
|
13.2
|
|
|
|
(0.6
|
)
|
|
(40.0
|
)
|
Total
|
|
1.6
|
|
|
1.6
|
|
|
|
3.3
|
|
|
2.7
|
|
|
|
(1.7
|
)
|
|
(51.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
6.7
|
|
|
8.1
|
|
|
|
8.0
|
|
|
7.2
|
|
|
|
(1.3
|
)
|
(16.3
|
)
|
FASI
|
|
1.5
|
|
|
9.0
|
|
|
|
1.2
|
|
|
10.5
|
|
|
|
0.3
|
|
|
25.0
|
|
Total
|
|
8.2
|
|
|
8.2
|
|
|
|
9.2
|
|
|
7.6
|
|
|
|
(1.0
|
)
|
(10.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
5.8
|
|
|
7.0
|
|
|
|
20.7
|
|
|
18.7
|
|
|
|
(14.9
|
)
|
|
(72.0
|
)
|
FASI
|
|
(0.9
|
)
|
|
(5.4
|
)
|
|
|
(0.4
|
)
|
|
(3.5
|
)
|
|
|
(0.5
|
)
|
|
125.0
|
|
Total
|
$
|
4.9
|
|
|
4.9
|
%
|
|
$
|
20.3
|
|
|
16.7
|
%
|
|
$
|
(15.4
|
)
|
|
(75.9
|
)%
|
The
following table presents the components of the Forward Air segment’s operating
revenue and purchased transportation for the three months ended June 30, 2009
and 2008 (in millions):
|
For
three months ended
|
|
|
|
June
30,
|
|
Percent
of
|
|
|
June
30,
|
|
Percent
of
|
|
|
|
|
|
|
Percent
|
|
|
|
2009
|
|
Revenue
|
|
|
2008
|
|
Revenue
|
|
|
Change
|
|
|
Change
|
|
|
Forward
Air revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airport-to-airport
|
$
|
65.3
|
|
78.4
|
%
|
|
$
|
89.2
|
|
80.4
|
%
|
|
$
|
(23.9
|
)
|
|
(26.8
|
)
|
%
|
Logistics
|
|
12.3
|
|
14.8
|
|
|
|
15.5
|
|
14.0
|
|
|
|
(3.2
|
)
|
|
(20.6
|
)
|
|
Other
|
|
5.7
|
|
6.8
|
|
|
|
6.2
|
|
5.6
|
|
|
|
(0.5
|
)
|
|
(8.1
|
)
|
|
Total
|
$
|
83.3
|
|
100.0
|
%
|
|
$
|
110.9
|
|
100.0
|
%
|
|
$
|
(27.6
|
)
|
|
(24.9
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air purchased transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airport-to-airport
|
$
|
27.9
|
|
42.7
|
%
|
|
$
|
33.5
|
|
37.6
|
%
|
|
$
|
(5.6
|
)
|
|
(16.7
|
)
|
%
|
Logistics
|
|
9.5
|
|
77.2
|
|
|
|
10.8
|
|
69.7
|
|
|
|
(1.3
|
)
|
|
(12.0
|
)
|
|
Other
|
|
1.3
|
|
22.8
|
|
|
|
1.6
|
|
25.8
|
|
|
|
(0.3
|
)
|
|
(18.8
|
)
|
|
Total
|
$
|
38.7
|
|
46.5
|
%
|
|
$
|
45.9
|
|
41.4
|
%
|
|
$
|
(7.2
|
)
|
|
(15.7
|
)
|
%
|
Three
Months Ended June 30, 2009 compared to Three Months Ended June 30,
2008
Revenues
Operating
revenue decreased by $21.9 million, or 18.0%, to $99.7 million for the three
months ended June 30, 2009 from $121.6 million in the same period of
2008.
Forward
Air
Forward
Air operating revenue decreased $27.6 million, or 24.9%, to $83.3 million from
$110.9 million, accounting for 83.6% of consolidated operating revenue for the
three months ended June 30, 2009 compared to 91.2% for the same period in
2008. Airport-to-airport revenue, which is the largest component of
our consolidated operating revenue, decreased $23.9 million, or 26.8%, to $65.3
million from $89.2 million, accounting for 78.4% of the segment’s operating
revenue during the three months ended June 30, 2009 compared to 80.4% for the
three months ended June 30, 2008. A significant decrease in tonnage
and a decrease in our base revenue per pound, excluding net fuel surcharge
revenue and Forward Air Complete revenue, accounted for $19.0 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 3.6% for the three months
ended June 30, 2009 versus the three months ended June 30, 2008. Tonnage that
transited our network decreased by 22.2% in the three months ended June 30, 2009
compared with the three months ended June 30, 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 and lower price per pound routes as well as increased pricing
competition brought on by the current economic environment. The
remaining decrease in airport-to-airport revenue is the result of reduced net
fuel charge revenue offset by increased revenue from our Forward Air Complete
pick-up and delivery service. Net fuel surcharge revenue decreased
$6.2 million during the three months ended June 30, 2009 as compared to three
months ended June 30, 2008 as a result of decreasing fuel prices as well as
decreased overall business volumes. Partially offsetting these
decreases was a $1.3 million increase in Forward Air Complete (“Complete”)
revenue during the three months ended June 30, 2009 compared to the same period
of 2008. The increase in Complete revenue is attributable to an
increased frequency of airport-to-airport shippers opting to utilize our
Complete service.
Logistics
revenue, which is primarily truckload brokerage (TLX) and priced on a per mile
basis, decreased $3.2 million, or 20.6%, to $12.3 million in the second quarter
of 2009 from $15.5 million in the same period of 2008. TLX revenue
decreased $2.9 million as miles driven to support our TLX revenue
decreased by approximately 6.8% during the three months ended June 30, 2009
compared to the same period in 2008. Also, TLX average revenue per
mile decreased approximately 14.6%. The decrease in average revenue per mile is
mainly attributable to decreased fuel surcharges as a result of decreased fuel
prices and reduced yields as a result of increased truckload price
competition. The remaining decrease in logistics revenue was
primarily driven by a $0.3 million decrease in other non-mileage based logistic
revenues which decreased in conjunction with the overall decline in TLX business
volumes.
Other
revenue, which includes warehousing services and terminal handling, accounts for
the final component of Forward Air operating revenue. Other revenue decreased
$0.5 million, or 8.1%, to $5.7 million in the second quarter of 2009 from $6.2
million in the same period of 2008. The decline in revenue was
primarily due to volume decreases in conjunction with the decline in our
airport-to-airport business. These declines were partially offset by
increases in dedicated pick up and delivery
services.
FASI
FASI
operating revenue increased $5.3 million and 46.5% to $16.7 million for the
three months ended June 30, 2009 from $11.4 million for the same period in
2008. The increase in revenue is the result of additional activity
from the Service Express acquisition on September 8, 2008 and new business
awards which began throughout the second quarter of 2009. These
increases were slightly offset by reduced fuel surcharge revenues as a result of
declining fuel prices and reduced shipping volumes at pre-acquisition terminals
resulting from the current economic recession.
Intercompany
Eliminations
Intercompany
eliminations decreased $0.4 million, or 57.1% to $0.3 million in the second
quarter of 2009 from $0.7 million in the same period of
2008. The intercompany eliminations are the result of truckload
and airport-to-airport services Forward Air provided to FASI during the three
months ended June 30, 2009. FASI also provided cartage services to
Forward Air. The decrease in intercompany eliminations was the result
of reduced Forward Air truckload services provided to FASI. These
decreases were partially offset by FASI providing cartage services in support of
Forward Air’s Complete service.
Purchased
Transportation
Purchased
transportation decreased by $5.9 million, or 12.3%, to $42.0 million in the
second quarter of 2009 from $47.9 million in the same period of
2008. As a percentage of total operating revenue, purchased
transportation was 42.2% during the three months ended June 30, 2009 compared to
39.4% for the same period in 2008.
Forward
Air
Forward
Air’s purchased transportation decreased by $7.2 million, or 15.7%, to $38.7
million for the three months ended June 30, 2009 from $45.9 million for the
three months ended June 30, 2008. The decrease in purchased transportation is
primarily attributable to a 18.7% decrease in miles driven offset by a 3.6%
increase in the total cost per mile for the second quarter of 2009 versus the
same period in 2008. As a percentage of segment operating revenue, Forward Air
purchased transportation was 46.5% during the three months ended June 30, 2009
compared to 41.4% for the same period in 2008.
Purchased
transportation costs for our airport-to-airport network decreased $5.6 million,
or 16.7%, to $27.9 million for the three months ended June 30, 2009 from $33.5
million for the three months ended June 30, 2008. For the three
months ended June 30, 2009, purchased transportation for our airport-to-airport
network increased to 42.7% of airport-to-airport revenue from 37.6% for the same
period in 2008. The $5.6 million decrease is mostly attributable to a
22.2% decrease in miles driven by our network of owner-operators or third party
transportation providers and slightly offset by a 0.3% increase in the cost
per mile paid to our network of owner-operators or third party transportation
providers. The reduction in miles decreased purchased transportation
by $6.7 million while the increase in cost per mile increased 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 $1.0 million increase in
expenses for third party transportation costs associated with the increased
customer utilization of Complete.
Purchased
transportation costs for our logistics revenue decreased $1.3 million, or
12.0%, to $9.5 million for the three months ended June 30, 2009 from $10.8
million for the three months ended June 30, 2008. For the three months ended
June 30, 2009, logistics’ purchased transportation costs represented 77.2% of
logistics revenue versus 69.7% for the three months ended June 30,
2008. In conjunction with the decline in per mile TLX revenue, the
decrease in logistics purchased transportation was primarily due to a 6.8%
decrease in miles driven during the three months ended June 30, 2009 compared to
the same period in 2008. In addition, cost per mile decreased by
approximately 5.3%. The reduction in miles decreased purchased
transportation by $0.7 million while the decrease in cost per mile decreased
purchased transportation by $0.4 million. The reduction in cost per
mile was mostly the result of increased utilization of our less costly network
of owner-operators. The remaining decrease in logistics purchase
transportation was primarily driven by a $0.2 million decrease in transportation
costs associated with other non-mileage based logistic revenues.
Purchased
transportation costs related to our other revenue decreased $0.3 million, or
18.8%, to $1.3 million for the three months ended June 30, 2009 from $1.6
million for the three months ended June 30, 2008. Other purchased transportation
costs as a percentage of other revenue decreased to 22.8% of other revenue for
the three months ended June 30, 2009 from 25.8% for the same period in
2008. The improvement in other purchased transportation costs
as a percentage of other revenue is attributable to the use of Company-employed
drivers to provide the transportation services associated with certain dedicated
pick up and delivery services. 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 $3.6 million for the three months ended
June 30, 2009 from $2.7 million for the same period in 2008. FASI
purchased transportation as a percentage of revenue was 21.5% for the three
months ended June 30, 2009 compared to 23.7% for the three months ended June 30,
2008. The decrease in purchased transportation as percentage of
revenue is largely attributable to operational efficiencies gained as we
integrate our 2008 acquisitions.
Intercompany
Eliminations
Intercompany
eliminations decreased $0.4 million, or 57.1% to $0.3 million in the second
quarter of 2009 from $0.7 million in the same period of 2008. The
intercompany eliminations are the result of truckload and airport-to-airport
services Forward Air provided to FASI during the three months ended June 30,
2009. FASI also provided cartage services to Forward
Air. The decrease in intercompany eliminations was the result of
reduced FAI truckload services provided to FASI. These decreases were
offset by FASI providing cartage services in support of FAI’s Complete
service.
Salaries,
Wages, and Benefits
Salaries,
wages and employee benefits decreased by $0.2 million, or 0.7%, to $29.2 million
in the second quarter of 2009 from $29.4 million in the same period of
2008. As a percentage of total operating revenue, salaries, wages and
employee benefits was 29.3% during the three months ended June 30, 2009 compared
to 24.2% for the same period in 2008.
Forward
Air
Salaries,
wages and employee benefits of Forward Air decreased by $3.6 million, or 14.6%,
to $21.1 million in the second quarter of 2009 from $24.7 million in the same
period of 2008. Salaries, wages and employee benefits were 25.3% of
Forward Air’s operating revenue in the second quarter of 2009 compared to 22.3%
for the same period of 2008. The $3.6 million
decrease in salaries, wages, and benefits was driven by a reduction in employee
incentives and our efforts to reduce personnel costs in conjunction with the
overall decline in Forward Air revenue. Expenses for employee
incentives decreased $1.4 million, or 1.3% as a percentage of revenue, as a
result of failures to meet internal performance goals during the second quarter
of 2009. Our efforts to reduce personnel costs to date have primarily focused on
controlling airport-to-airport variables wages, such as dock
personnel. Through these reductions we have reduced terminal related
pay by approximately $1.8 million, or 0.9% as a percentage of
revenue. The remaining $0.4 million decrease was driven by reductions
in sales force and various back-office functions. 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 has declined, and as a result salaries, wages,
and benefits increased as a percentage of revenue.
FASI
FASI
salaries, wages and employee benefits increased to $8.1 million for the three
months ended June 30, 2009 compared to $4.7 million for the three months ended
June 30, 2008. As a percentage of FASI operating revenue, salaries,
wages and benefits increased to 48.5% for the three months ended June 30, 2009
compared to 41.2% for the same period in 2008. FASI salaries, wages
and employee benefits are higher as a percentage of operating revenue than our
Forward Air segment, as a larger percentage of the transportation services are
performed by Company-employed drivers. The increase in salaries,
wages and employee benefits as a percentage of revenue is attributable to the
acquisition of Service Express in September 2008 and increases to our reserves
for FASI worker’s compensation claims. 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. Contract labor
increased to 9.4% of revenue during the three months ended June 30, 2009 from
4.0% in the same period in 2008. We continue to evaluate the proper
utilization of contract labor in these terminals. In addition,
worker’s compensation expense increased $0.3 million, or 1.6% as a percentage of
revenue, due to a $0.1 million increase in current claims and a $0.2 million
increase in our loss development reserves resulting from an actuarial analysis
of our workers’ compensation claims.
Operating
Leases
Operating
leases increased by $0.9 million, or 15.3%, to $6.8 million in the second
quarter of 2009 from $5.9 million in the same period of
2008. Operating leases, the largest component of which is facility
rent, were 6.8% of consolidated operating revenue for the three months ended
June 30, 2009 compared with 4.8% in the same period of 2008.
Forward
Air
Operating
leases increased $0.1 million, or 2.2%, to $4.7 million in the second quarter of
2009 from $4.6 million in the same period of 2008. Operating leases
were 5.6% of Forward Air operating revenue for the three months ended June 30,
2009 compared with 4.2% in the same period of 2008. The increase in
operating leases in total dollars was attributable to a $0.1 million increase in
facility rent expense due to the expansion of existing facilities for our IT and
TLX groups.
FASI
FASI
operating lease expense increased $0.8 million to $2.1 million for the three
months ended June 30, 2009 from $1.3 million for the same period in
2008. Approximately $0.8 million of the increase was attributable to
higher facility rent expense due to the increased number of terminals resulting
from the Service Express acquisition.
Depreciation
and Amortization
Depreciation
and amortization increased $0.8 million, or 20.0%, to $4.8 million in the second
quarter of 2009 from $4.0 million in the same period of
2008. Depreciation and amortization was 4.8% of consolidated
operating revenue for the three months ended June 30, 2009 compared with 3.3% in
the same period of 2008.
Forward
Air
Depreciation
and amortization increased $0.3 million, or 8.3%, to $3.9 million in the second
quarter of 2009 from $3.6 million in the same period of
2008. Depreciation and amortization expense as a percentage of
Forward Air operating revenue was 4.7% in the second quarter of 2009 compared to
3.2% in the same period of 2008. Trailer depreciation increased $0.1
million due to new trailers placed in service during the fourth quarter of
2008. Amortization expense decreased $0.1 million as the result of
impairment charges recorded during the first quarter of 2009. Other
depreciation increased $0.3 million as a result of capital expenditures for
improvements and expansion of existing facilities. 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 $0.5 million to $0.9 million for the
three months ended June 30, 2009 from $0.4 million for the same period in
2008. Depreciation and amortization expense as a percentage of FASI
operating revenue was 5.4% in the second quarter of 2009 compared to 3.5% in the
same period of 2008. Depreciation on tractors and
trailers obtained in conjunction with our acquisitions of Service Express
accounted for $0.3 million of the increase. Amortization of
intangible assets also increased $0.1 million due to intangible assets acquired
through the Service Express acquisition. The remaining $0.1 million
increase was attributable to depreciation on terminal improvements for
conveyors, security systems and office improvements.
Insurance
and Claims
Insurance
and claims expense increased $0.6 million, or 37.5%, to $2.2 million for the
three months ended June 30, 2009 from $1.6 million for the three months ended
June 30, 2008. Insurance and claims were 2.2% of consolidated
operating revenue for the three months ended June 30, 2009 compared with 1.3%
for the same period in 2008.
Forward
Air
Insurance
and claims was 2.0% of Forward Air operating revenue in the second quarter of
2009, compared with 1.4% for the same period in 2008. The $0.1
million, or 6.2% increase in insurance and claims for the second quarter of 2009
compared to the second quarter of 2008 is the result of increases in our vehicle
claims reserves offset by reduced cargo claims. We increased our
reserves for vehicle claims by $0.2 million as the result of an actuary analysis
of our claims experience. The increase in vehicle claims reserve was
offset by a $0.1 million decrease in cargo claims during the second quarter of
2009 compared to the same period in 2008. Cargo claims have decreased
in conjunction with the decline in business volumes discussed
previously.
FASI
FASI
insurance and claims for the three months ended June 30, 2009 was $0.5 million
and increased to 3.0% of revenues for the three months ended June 30,
2009. The $0.5 million increase in insurance and claims is primarily
the result of insurance audit refunds received during the three month ended June
30, 2008 that substantially offset other insurance and claim expenses incurred
during the same period. The three months ended June 30, 2009 included
$0.3 million of vehicle insurance and claims expense and $0.2 million of cargo
related claims.
Fuel
Expense
Fuel
expense decreased $1.7 million, to $1.6 million in the second quarter of 2009
from $3.3 million in the same period of 2008. Fuel expense was 1.6%
of consolidated operating revenue for the three months ended June 30, 2009
compared with 2.7% in the same period of 2008.
Forward
Air
Fuel
expense was 0.8% of Forward Air operating revenue in the second quarter of 2009
compared to 1.6% in the same period of 2008. The $1.1 million, or 61.1%,
decrease was primarily due to the significant reduction in average fuel prices
during the three months ended June 30, 2009 as compared to the same period in
2008.
FASI
FASI fuel
expense decreased $0.6 million, or 40.0%, to $0.9 million in the second quarter
of 2009 from $1.5 million in the same period of 2008. Fuel expenses
were 5.4% of FASI operating revenue in the second quarter of 2009 compared to
13.2% in the second quarter of 2008. FASI fuel expense is
significantly higher as a percentage of operating revenue than Forward Air’s
fuel expense, as FASI utilizes a higher ratio of Company-employed drivers and
Company-owned or leased vehicles in its operations than Forward
Air. The decrease in fuel expense was primarily due to the
significant reduction in average fuel prices during the three months ended June
30, 2009 as compared to the same period in 2008 offset by increased activity as
a result of the Service Express acquisition.
Other
Operating Expenses
Other
operating expenses decreased $1.0 million, or 10.9%, to $8.2 million in the
second quarter of 2009 from $9.2 million in the same period of
2008. Other operating expenses were 8.2% of consolidated operating
revenue for the three months ended June 30, 2009 compared with 7.6% in the same
period of 2008.
Forward
Air
Other
operating expenses decreased $1.3 million, or 16.3%, to $6.7 million during the
three months ended June 30, 2009 from $8.0 million in the same period of
2008. Other operating expenses were 8.1% of Forward Air operating
revenue in the second quarter of 2009 compared to 7.2% in the same period of
2008. The increase as a percentage of revenue is the result of expenses not
decreasing at the same rate as revenue. Volume related expenses such
as tires, dock supplies, maintenance and station handling fees decreased $1.7
million and 23.9% due to the decreased business volumes discussed
previously. However, these decreases were offset by a $0.4 million
increase in reserves for property and other taxes associated with our
company-owned terminals.
FASI
FASI
other operating expenses increased $0.3 million, or 25.0%, to $1.5 million for
the three months ended June 30, 2009 compared to $1.2 million for the same
period in 2008. FASI other operating expenses for the second quarter
of 2009 were 9.0% of the segment’s operating revenue compared to 10.5% for the
same period in 2008. The $0.3 million increase is attributable to the
increased revenue activity associated with the acquisition of Service
Express. The decrease as a percentage of revenue is
attributable to the increase in revenue outpacing the increase in other
operating expenses.
Results
from Operations
Income
from operations decreased by $15.4 million to $4.9 million for the second
quarter of 2009 compared to $20.3 million in the same period of
2008. Income from operations was 4.9% of consolidated operating revenue for
the three months ended June 30, 2009 compared with 16.7% in 2008.
Forward
Air
Income
from operations decreased by $14.9 million, or 72.0%, to $5.8 million for the
second quarter of 2009 compared with $20.7 million for the same period in
2008. Income from operations as a percentage of Forward Air operating
revenue was 7.0% for the three months ended June 30, 2009 compared with 18.7% 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 $0.5 million to a $0.9 million loss for
the three months ended June 30, 2009 from a $0.4 million loss for the three
months ended June 30, 2008. The increase in loss
is primarily driven by increased insurance and claims
expense. Insurance and claims increased $0.5 million on increased
activity associated with the Service Express acquisition and refunds of
insurance audit premiums that offset insurance and claims expenses during second
quarter of 2008.
Interest
Expense
Interest
expense decreased approximately $0.1 million, or 33.3%, to $0.2 million for the
three months ended June 30, 2009 compared to $0.3 million for the three months
ended June 30, 2008. The decrease in interest expense is due to the
decline in the interest rate on net borrowings of our senior credit
facility.
Other,
Net
Other,
net was expense of less than $0.1 million for the three months ended June 30,
2009 and 2008.
Income
Taxes
The
combined federal and state effective tax rate for the second quarter of 2009 was
40.0% compared to a rate of 39.5% for the same period in
2008. The increase in our effective tax rate is primarily
attributable to the decline in our net income before tax combined with an
increase in share-based compensation on incentive stock options. The
share-based compensation for incentive stock options is mostly not deductible
for income tax reporting.
Net
Income
As a
result of the foregoing factors, net income decreased by $9.3 million, to $2.8
million for the second quarter of 2009 compared to $12.1 million for the same
period in 2008.
Results
of Operations
The
following table sets forth our consolidated historical financial data for the
six months ended June 30, 2009 and 2008 (in millions):
|
Six
months ended
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
%
Change
|
|
|
Operating
revenue
|
$ |
196.3 |
|
|
$ |
229.5 |
|
|
$ |
(33.2 |
) |
|
(14.5
|
) |
% |
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
transportation
|
|
82.1 |
|
|
|
91.4 |
|
|
|
(9.3
|
) |
|
(10.2
|
) |
|
Salaries,
wages, and employee benefits
|
|
58.2 |
|
|
|
55.9 |
|
|
|
2.3 |
|
|
4.1 |
|
|
Operating
leases
|
|
13.8 |
|
|
|
10.7 |
|
|
|
3.1 |
|
|
29.0 |
|
|
Depreciation
and amortization
|
|
9.7 |
|
|
|
7.7 |
|
|
|
2.0 |
|
|
26.0 |
|
|
Insurance
and claims
|
|
4.9 |
|
|
|
3.9 |
|
|
|
1.0 |
|
|
25.6 |
|
|
Fuel
expense
|
|
3.3 |
|
|
|
5.4 |
|
|
|
(2.1
|
) |
|
(38.9
|
) |
|
Other
operating expenses
|
|
17.2 |
|
|
|
17.5 |
|
|
|
(0.3
|
) |
|
(1.7
|
) |
|
Impairment
of goodwill
|
|
7.2 |
|
|
|
-- |
|
|
|
7.2 |
|
|
100.0 |
|
|
Total
operating expenses
|
|
196.4 |
|
|
|
192.5 |
|
|
|
3.9 |
|
|
2.0 |
|
|
Income
from operations
|
|
(0.1
|
) |
|
|
37.0 |
|
|
|
(37.1
|
) |
|
(100.3
|
) |
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(0.3
|
) |
|
|
(0.6
|
) |
|
|
0.3 |
|
|
(50.0
|
) |
|
Other,
net
|
|
-- |
|
|
|
0.2 |
|
|
|
(0.2
|
) |
|
(100.0
|
) |
|
Total
other (expense) income
|
|
(0.3
|
) |
|
|
(0.4
|
) |
|
|
0.1 |
|
|
(25.0
|
) |
|
Income
before income taxes
|
|
(0.4
|
) |
|
|
36.6 |
|
|
|
(37.0
|
) |
|
(101.1
|
) |
|
Income
taxes
|
|
(0.1
|
) |
|
|
14.4 |
|
|
|
(14.5
|
) |
|
(100.7
|
) |
|
Net
income
|
$ |
(0.3 |
) |
|
$ |
22.2 |
|
|
$ |
(22.5 |
) |
|
(101.4
|
) |
% |
The
following table sets forth our historical financial data by segment for the six
months ended June 30, 2009 and 2008 (in millions):
|
Six
months ended
|
|
June
30,
|
|
|
Percent
of
|
|
|
June
30,
|
|
|
Percent
of
|
|
|
|
|
|
Percent
|
|
|
2009
|
|
|
Revenue
|
|
|
2008
|
|
|
Revenue
|
|
|
Change
|
|
|
Change
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
$
|
165.5
|
|
|
84.3
|
%
|
|
$
|
211.2
|
|
|
92.0
|
%
|
|
$
|
(45.7
|
)
|
|
(21.6
|
)%
|
FASI
|
|
31.4
|
|
|
16.0
|
|
|
|
19.2
|
|
|
8.4
|
|
|
|
12.2
|
|
|
63.5
|
|
Intercompany
Eliminations
|
|
(0.6
|
)
|
|
(0.3
|
)
|
|
|
(0.9
|
)
|
|
(0.4
|
)
|
|
|
0.3
|
|
|
(33.3
|
)
|
Total
|
|
196.3
|
|
|
100.0
|
|
|
|
229.5
|
|
|
100.0
|
|
|
|
(33.2
|
)
|
|
(14.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
76.2
|
|
|
46.1
|
|
|
|
88.2
|
|
|
41.8
|
|
|
|
(12.0
|
)
|
|
(13.6
|
)
|
FASI
|
|
6.4
|
|
|
20.4
|
|
|
|
4.1
|
|
|
21.4
|
|
|
|
2.3
|
|
|
56.1
|
|
Intercompany
Eliminations
|
|
(0.5
|
)
|
|
83.3
|
|
|
|
(0.9
|
)
|
|
100.0
|
|
|
|
0.4
|
|
|
(44.4
|
)
|
Total
|
|
82.1
|
|
|
41.8
|
|
|
|
91.4
|
|
|
39.8
|
|
|
|
(9.3
|
)
|
|
(10.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and employee benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
42.5
|
|
|
25.7
|
|
|
|
47.3
|
|
|
22.4
|
|
|
|
(4.8
|
)
|
|
(10.1
|
)
|
FASI
|
|
15.7
|
|
|
50.0
|
|
|
|
8.6
|
|
|
44.8
|
|
|
|
7.1
|
|
|
82.6
|
|
Total
|
|
58.2
|
|
|
29.7
|
|
|
|
55.9
|
|
|
24.3
|
|
|
|
2.3
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
9.5
|
|
|
5.7
|
|
|
|
8.9
|
|
|
4.2
|
|
|
|
0.6
|
|
|
6.7
|
|
FASI
|
|
4.3
|
|
|
13.7
|
|
|
|
1.8
|
|
|
9.4
|
|
|
|
2.5
|
|
|
138.9
|
|
Total
|
|
13.8
|
|
|
7.0
|
|
|
|
10.7
|
|
|
4.7
|
|
|
|
3.1
|
|
|
29.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
7.9
|
|
|
4.8
|
|
|
|
7.0
|
|
|
3.3
|
|
|
|
0.9
|
|
|
12.9
|
|
FASI
|
|
1.8
|
|
|
5.7
|
|
|
|
0.7
|
|
|
3.6
|
|
|
|
1.1
|
|
|
157.1
|
|
Total
|
|
9.7
|
|
|
4.9
|
|
|
|
7.7
|
|
|
3.4
|
|
|
|
2.0
|
|
|
26.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
4.0
|
|
|
2.4
|
|
|
|
3.4
|
|
|
1.6
|
|
|
|
0.6
|
|
|
17.6
|
|
FASI
|
|
0.9
|
|
|
2.9
|
|
|
|
0.5
|
|
|
2.6
|
|
|
|
0.4
|
|
|
80.0
|
|
Total
|
|
4.9
|
|
|
2.5
|
|
|
|
3.9
|
|
|
1.7
|
|
|
|
1.0
|
|
|
25.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
1.5
|
|
|
0.9
|
|
|
|
3.1
|
|
|
1.4
|
|
|
|
(1.6
|
)
|
|
(51.6
|
)
|
FASI
|
|
1.8
|
|
|
5.7
|
|
|
|
2.3
|
|
|
12.0
|
|
|
|
(0.5
|
)
|
|
(21.7
|
)
|
Total
|
|
3.3
|
|
|
1.7
|
|
|
|
5.4
|
|
|
2.4
|
|
|
|
(2.1
|
)
|
|
(38.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
14.1
|
|
|
8.5
|
|
|
|
15.4
|
|
|
7.3
|
|
|
|
(1.3
|
) |
|
(8.4
|
)
|
FASI
|
|
3.2
|
|
|
10.2
|
|
|
|
2.1
|
|
|
10.9
|
|
|
|
1.1
|
|
|
52.4
|
|
Intercompany
Eliminations
|
|
(0.1
|
)
|
16.7
|
|
|
|
--
|
|
|
--
|
|
|
|
(0.1
|
) |
|
(100.0
|
)
|
Total
|
|
17.2
|
|
|
8.8
|
|
|
|
17.5
|
|
|
7.6
|
|
|
|
(0.3
|
)
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
of goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
0.2
|
|
|
0.1
|
|
|
|
--
|
|
|
--
|
|
|
|
0.2
|
|
|
100.0
|
|
FASI
|
|
7.0
|
|
|
22.3
|
|
|
|
--
|
|
|
--
|
|
|
|
7.0
|
|
|
100.0
|
|
Total
|
|
7.2
|
|
|
3.7
|
|
|
|
--
|
|
|
--
|
|
|
|
7.2
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air
|
|
9.6
|
|
|
5.8
|
|
|
|
37.9
|
|
|
18.0
|
|
|
|
(28.3
|
)
|
|
(74.7
|
)
|
FASI
|
|
(9.7
|
)
|
|
(30.9
|
)
|
|
|
(0.9
|
)
|
|
(4.7
|
)
|
|
|
(8.8
|
)
|
|
977.8
|
|
Total
|
$
|
(0.1
|
)
|
|
(0.1
|
)%
|
|
$
|
37.0
|
|
|
16.1
|
%
|
|
$
|
(37.1
|
)
|
|
(100.3
|
)%
|
The
following table presents the components of the Forward Air segment’s operating
revenue and purchased transportation for the six months ended June 30, 2009 and
2008 (in millions):
|
For
six months ended
|
|
|
|
June
30,
|
|
Percent
of |
|
|
June
30,
|
|
Percent
of |
|
|
|
|
|
|
Percent
|
|
|
|
2009
|
|
Revenue |
|
|
2008
|
|
Revenue |
|
|
Change
|
|
|
Change
|
|
|
Forward
Air revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airport-to-airport
|
$
|
128.5
|
|
77.6
|
%
|
|
$
|
171.2
|
|
81.1
|
%
|
|
$
|
(42.7
|
)
|
|
(24.9
|
)
|
%
|
Logistics
|
|
25.6
|
|
15.5
|
|
|
|
28.0
|
|
13.2
|
|
|
|
(2.4
|
)
|
|
(8.6
|
)
|
|
Other
|
|
11.4
|
|
6.9
|
|
|
|
12.0
|
|
5.7
|
|
|
|
(0.6
|
)
|
|
(5.0
|
)
|
|
Total
|
$
|
165.5
|
|
100.0
|
%
|
|
$
|
211.2
|
|
100.0
|
%
|
|
$
|
(45.7
|
)
|
|
(21.6
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Air purchased transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airport-to-airport
|
$
|
54.1
|
|
42.1
|
%
|
|
$
|
65.0
|
|
38.0
|
%
|
|
$
|
(10.9
|
)
|
|
(16.8
|
)
|
%
|
Logistics
|
|
19.8
|
|
77.3
|
|
|
|
20.0
|
|
71.4
|
|
|
|
(0.2
|
)
|
|
(1.0
|
)
|
|
Other
|
|
2.3
|
|
20.2
|
|
|
|
3.2
|
|
26.7
|
|
|
|
(0.9
|
)
|
|
(28.1
|
)
|
|
Total
|
$
|
76.2
|
|
46.1
|
%
|
|
$
|
88.2
|
|
41.8
|
%
|
|
$
|
(12.0
|
)
|
|
(13.6
|
)
|
%
|
Six
months Ended June 30, 2009 compared to Six months Ended June 30,
2008
Revenues
Operating
revenue decreased by $33.2 million, or 14.5%, to $196.3 million for the six
months ended June 30, 2009 from $229.5 million in the same period of
2008.
Forward
Air
Forward
Air operating revenue decreased $45.7 million, or 21.6%, to $165.5 million from
$211.2 million, accounting for 84.3% of consolidated operating revenue for the
six months ended June 30, 2009 compared to 92.0% for the same period in 2008.
Airport-to-airport revenue, which is the largest component of our consolidated
operating revenue, decreased $42.7 million, or 24.9%, to $128.5 million from
$171.2 million, accounting for 77.6% of the segment’s operating revenue during
the six months ended June 30, 2009 compared to 81.1% for the same period in
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 $35.8 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 2.3% for the six months ended June 30, 2009 versus the
six months ended June 30, 2008. Tonnage that transited our network decreased by
22.2% in the six months ended June 30, 2009 compared with the six months ended
June 30, 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 and lower price per pound
routes as well as increased pricing competition brought on by the current
economic environment. The remaining decrease in airport-to-airport
revenue is the result of reduced net fuel charge revenue offset by increased
revenue from our Forward Air Complete pick-up and delivery
service. Net fuel surcharge revenue decreased $9.7 million during the
six months ended June 30, 2009 as compared to six months ended June 30, 2008 as
a result of decreasing fuel prices as well as decreased overall business
volumes. Partially offsetting these decreases was a $2.8 million
increase in Forward Air Complete (“Complete”) revenue during the six months
ended June 30, 2009 compared to the same period of 2008. The increase
in Complete revenue is attributable to an increased frequency of
airport-to-airport shippers opting to utilize our Complete service.
Logistics
revenue, which is primarily truckload brokerage (TLX), decreased $2.4 million,
or 8.6%, to $25.6 million for the six months ended June 30, 2009 from $28.0
million for the same period of 2008. TLX revenue decreased $2.9
million, or approximately 11.2%, as the increase in miles driven to support TLX
were offset by reduced revenue per mile. The miles driven to support
TLX revenue increased by approximately 1.2% but the TLX average revenue per mile
decreased approximately 12.3% during the six months ended June 30, 2009 compared
to the same period in 2008. The decrease in average revenue per mile
is mainly attributable to decreased fuel surcharge revenue as a result of lower
fuel prices, reduced yields driven by increased truckload price competition, and
increased use of TLX truckloads to strategically place owner operators in our
airport-to-airport network. Offsetting the decrease in TLX revenue
was a $0.5 million increase in other non-mileage based logistic revenues,
primarily due to the acquisition of Pinch in March
2008.
Other
revenue, which includes warehousing services and terminal handling, accounts for
the final component of Forward Air operating revenue. Other revenue decreased
$0.6 million, or 5.0%, to $11.4 million for the six months ended June 30, 2009
from $12.0 million in the same period of 2008. The decline in revenue
was primarily due to volume decreases in conjunction with the decline in our
airport-to-airport business. These declines were partially offset by
increases in certain dedicated pick up and delivery
services.
FASI
FASI
operating revenue increased $12.2 million, or 63.5%, to $31.4 million for the
six months ended June 30, 2009 from $19.2 million for the same period in
2008. The increase in revenue is the result of additional activity
from the Service Express acquisition on September 8, 2008 and new business
awards which began throughout the second quarter of 2009. These
increases were slightly offset by reduced fuel surcharge revenues as a result of
declining fuel prices and reduced shipping volumes at pre-acquisition terminals
resulting from the current economic recession.
Intercompany
Eliminations
Intercompany
eliminations decreased $0.3 million, or 33.3%, to $0.6 million for the six
months ended June 30, 2009 from $0.9 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 six
months ended June 30, 2009. FASI also provided cartage services to
Forward Air. The decrease in intercompany eliminations was the result
of reduced Forward Air truckload services provided to FASI. These
decreases were partially offset by FASI providing cartage services in support of
Forward Air’s Complete service.
Purchased
Transportation
Purchased
transportation decreased by $9.3 million, or 10.2%, to $82.1 million for the six
months ended June 30, 2009 from $91.4 million in the same period of
2008. As a percentage of total operating revenue, purchased
transportation was 41.8% during the six months ended June 30, 2009 compared to
39.8% for the same period in 2008.
Forward
Air
Forward
Air’s purchased transportation decreased by $12.0 million, or 13.6%, to $76.2
million for the six months ended June 30, 2009 from $88.2 million for the six
months ended June 30, 2008. The decrease in purchased transportation is
primarily attributable to a 17.2% decrease in miles driven offset by a 4.3%
increase in the total cost per mile for the first six months of 2009 versus the
same period in 2008. As a percentage of segment operating revenue, Forward Air
purchased transportation was 46.1% during the six months ended June 30, 2009
compared to 41.8% for the same period in 2008.
Purchased
transportation costs for our airport-to-airport network decreased $10.9 million,
or 16.8%, to $54.1 million for the six months ended June 30, 2009 from $65.0
million for the six months ended June 30, 2008. For the six months
ended June 30, 2009, purchased transportation for our airport-to-airport network
increased to 42.1% of airport-to-airport revenue from 38.0% for the same period
in 2008. The $10.9 million decrease is mostly attributable to a 22.4%
decrease in miles driven by our network of owner-operators or third party
transportation providers slightly offset by a 0.1% increase in the cost per mile
paid to our network of owner-operators or third party transportation
providers. The reduction in miles decreased purchased transportation
by $13.3 million while the increase in cost per mile increased 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 $2.3 million increase in
expenses for third party transportation costs associated with the increased
customer utilization of Complete.
Purchased
transportation costs for our logistics revenue decreased $0.2 million, or
1.0%, to $19.8 million for the six months ended June 30, 2009 from $20.0 million
for the six months ended June 30, 2008. For the six months ended June 30, 2009,
logistics’ purchased transportation costs represented 77.3% of logistics revenue
versus 71.4% for the six months ended June 30, 2008. The decrease in
logistics purchased transportation is partially attributable to $0.3 million
decrease in purchase transportation associated with other non-mileage based
logistic revenues. The decreases were offset by $0.1 million, or
0.8%, increase in TLX purchased transportation. We increased the
number of miles driven to support our TLX revenue by approximately 1.2% during
the six months ended June 30, 2009 compared to the same period in 2008, but
reduced the cost per mile by approximately 0.4%. The reduction
in cost per mile was mostly attributable to the increased utilization of our
less costly network of owner-operators. Logistics purchase
transportation increased as a percentage of revenue primarily due to the decline
in yield per mile resulting from lower fuel surcharges and increased truckload
pricing competition. These decreases have reduced our TLX yield per
mile at a faster rate than we can reduce the related cost per mile.
Purchased
transportation costs related to Forward Air’s other revenue decreased $0.9
million, or 28.1%, to $2.3 million for the six months ended June 30, 2009 from
$3.2 million for the six months ended June 30, 2008. Other purchased
transportation costs as a percentage of other revenue decreased to 20.2% of
other revenue for the six months ended June 30, 2009 from 26.7% for the same
period in 2008. The improvement in other purchased
transportation costs as a percentage of other revenue is attributable to the use
of Company-employed drivers to provide the transportation services associated
with certain dedicated pick up and delivery services. 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 $6.4 million for the six months ended June
30, 2009 from $4.1 million for the same period in 2008. FASI
purchased transportation as a percentage of revenue was 20.4% for the six months
ended June 30, 2009 compared to 21.4% for the six months ended June 30,
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. The
decrease in purchased transportation as percentage of revenue is largely
attributable to operating efficiencies gained as we continue to integrate our
2008 acquisitions.
Intercompany
Eliminations
Intercompany
eliminations decreased $0.4 million, or 44.4%, to $0.5 million for the six
months ended June 30, 2009 from $0.9 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 June 30, 2009. FASI also provided cartage services to
Forward Air. The decrease in intercompany eliminations was the result
of reduced FAI truckload services provided to FASI. These decreases
were offset by FASI providing cartage services in support of FAI’s Complete
service.
Salaries,
Wages, and Benefits
Salaries,
wages and employee benefits increased by $2.3 million, or 4.1%, to $58.2 million
in for the six months ended June 30, 2009 from $55.9 million in the same period
of 2008. As a percentage of total operating revenue, salaries, wages
and employee benefits was 29.7% during the six months ended June 30, 2009
compared to 24.3% for the same period in 2008.
Forward
Air
Salaries,
wages and employee benefits of Forward Air decreased by $4.8 million, or 10.1%,
to $42.5 million for the six months ended June 30, 2009 from $47.3 million in
the same period of 2008. Salaries, wages and employee benefits were
25.7% of Forward Air’s operating revenue for the six months ended June 30, 2009
compared to 22.4% for the same period of 2008. The $4.8 million
decrease in salaries, wages, and benefits was driven by a reduction in employee
incentives and our efforts to reduce personnel costs in conjunction with the
overall decline in Forward Air revenue. Expenses for employee
incentives decreased $1.4 million, or 0.6% as a percentage of revenue, as a
result of failures to meet internal performance goals during the six months
ended June 30, 2009. Our efforts to reduce personnel costs to date have
primarily focused on controlling airport-to-airport variables wages, such as
dock personnel. Through these reductions we have reduced terminal
related pay by approximately $3.2 million, or 0.7% as a percentage of
revenue. The remaining $0.2 million decrease was driven by reductions
in sales force and various back-office functions offset by increases in
share-based compensation, workers compensation claim and health insurance
costs. 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 Forward Air revenue has
declined, and as a result salaries, wages, and benefits increased as a
percentage of revenue.
FASI
FASI
salaries, wages and employee benefits increased to $15.7 million for the six
months ended June 30, 2009 compared to $8.6 million for the six months ended
June 30, 2008. As a percentage of FASI operating revenue, salaries,
wages and benefits increased to 50.0% for the six months ended June 30, 2009
compared to 44.8% 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 and to additional reserves
recorded to increase our reserves for FASI worker’s compensation
claims. 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. Contract labor increased to 8.5% of revenue during the six
months ended June 30, 2009 from 2.8% in the same period in 2008. We
continue to evaluate the proper utilization of contract labor in these
terminals. Worker’s compensation expense increased $0.4
million, or 0.8% as a percentage of revenue, due to a $0.2 million increase in
current claims and a $0.2 million increase in our loss development reserves
resulting from an actuarial analysis of our workers’ compensation
claims. The increases were partially offset by reductions in manager
and back office salaries as a percentage of revenue. These reductions
were driven by improvements in terminal efficiencies as we continue to integrate
our 2008 acquisitions and headcount reductions made during the second quarter of
2009.
Operating
Leases
Operating
leases increased by $3.1 million, or 29.0%, to $13.8 million for the six months
ended June 30, 2009 from $10.7 million in the same period of
2008. Operating leases, the largest component of which is facility
rent, were 7.0% of consolidated operating revenue for the six months ended June
30, 2009 compared with 4.7% in the same period of 2008.
Forward
Air
Operating
leases increased $0.6 million, or 6.7%, to $9.5 million for the six months ended
June 30, 2009 from $8.9 million in the same period of 2008. Operating
leases were 5.7% of Forward Air operating revenue for the six months ended June
30, 2009 compared with 4.2% in the same period of 2008. The increase
in operating leases in total dollars was attributable to a $0.5 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 $2.5 million to $4.3 million for the six
months ended June 30, 2009 from $1.8 million for the same period in
2008. Approximately $1.9 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 $2.0 million, or 26.0%, to $9.7 million for the six
months ended June 30, 2009 from $7.7 million in the same period of
2008. Depreciation and amortization was 4.9% of consolidated
operating revenue for the six months ended June 30, 2009 compared with 3.4% in
the same period of 2008.
Forward
Air
Depreciation
and amortization increased $0.9 million, or 12.9%, to $7.9 million for the six
months ended June 30, 2009 from $7.0 million in the same period of
2008. Depreciation and amortization expense as a percentage of
Forward Air operating revenue was 4.8% for the six months ended June 30, 2009
compared to 3.3% 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 $0.2 million due to new trailers placed in service during
the fourth quarter of 2008. Amortization expense increased $0.1
million for amortization of intangible assets acquired with the Pinch
acquisition in March 2008. Other depreciation increased $0.6 million
as a result of capital expenditures for improvements to new and expanded
facilities and for capital expenditures required to assimilate rolling
equipment, terminals and office facilities obtained through our recent
acquisitions into our network. 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 $1.1 million to $1.8 million for the six
months ended June 30, 2009 from $0.7 million for the same period in
2008. Depreciation on tractors and trailers obtained in conjunction
with our acquisitions of Pinch and Service Express accounted for $0.5 million of
the increase. Amortization of intangible assets also increased $0.3
million due to intangible assets acquired with the Pinch and Service Express
acquisitions. The remaining $0.3 million increase was attributable to
depreciation on terminal improvements for conveyors, security systems and office
improvements as well as depreciation on non-rolling stock assets acquired with
the Pinch and Service Express acquisitions.
Insurance
and Claims
Insurance
and claims expense increased $1.0 million, or 25.6%, to $4.9 million for the six
months ended June 30, 2009 from $3.9 million for the six months ended June 30,
2008. Insurance and claims were 2.5% of consolidated operating
revenue for the six months ended June 30, 2009 compared with 1.7% for the same
period in 2008.
Forward
Air
Insurance and claims was 2.4% of
Forward Air operating revenue for the six months ended June 30, 2009, compared with 1.6% in 2008. The $0.6 million, or
17.6%, increase in insurance and claims for the six months ended June 30, 2009
compared to the same period in 2008 is the result of increases in our vehicle
insurance premiums, loss development reserves and cargo
claims. Insurance premiums increased $0.3
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
during the six months ended June 30, 2009 as compared to the same period in
2008. Our loss development reserves for vehicle accidents were
increased by approximately $0.2 million based on an updated
analysis of Forward Air’s vehicle accident claim
experience. Additionally, our cargo claims increased $0.1 million
during the six months ended June 30, 2009 compared to the same period in 2008
primarily due to an individual cargo claim of approximately $0.2
million. Excluding the large individual claim, our cargo claims have
decreased consistently with the declines in business
volumes.
FASI
FASI
insurance and claims increased $0.4 million, or 80.0%, to $0.9 million for the
six months ended June 30, 2009 from $0.5 million for the six months ended June
30, 2008. Insurance and claims as a percentage of FASI operating
revenue increased to 2.9% for the six months ended June 30, 2009 compared to
2.6% of revenues for the six months ended June 30, 2008. The $0.4
million increase in insurance and claims is primarily the result of refunds from
insurance premiums that were received during the six months ended June 30, 2008
that partially offset other insurance and claim expenses incurred during the
same period. The six months ended June 30, 2009 included $0.4 million
of vehicle claims and insurance and $0.5 million of cargo related
claims.
Fuel
Expense
Fuel
expense decreased $2.1 million, to $3.3 million for the six months ended June
30, 2009 from $5.4 million in the same period of 2008. Fuel expense
was 1.7% of consolidated operating revenue for the six months ended June 30,
2009 compared with 2.4% in the same period of 2008.
Forward
Air
Fuel
expense was 0.9% of Forward Air operating revenue during the six months ended
June 30, 2009 compared to 1.4% in the same period of 2008. The $1.6 million, or
51.6%, decrease was primarily due to the significant reduction in average fuel
prices during the six months ended June 30, 2009 as compared to the same period
in 2008.
FASI
FASI fuel
expense decreased $0.5 million, or 21.7%, to $1.8 million during the six months
ended June 30, 2009 from $2.3 million in the same period of
2008. Fuel expenses were 5.7% of FASI operating revenue during the
six months ended June 30, 2009 compared to 12.0% for the same period in
2008. FASI fuel expense is significantly higher as a percentage of
operating revenue than Forward Air’s fuel expense, as FASI utilizes a higher
ratio of Company-employed drivers and Company-owned or leased vehicles in its
operations than Forward Air. The decrease in fuel expense was
primarily due to the significant reduction in average fuel prices during the six
months ended June 30, 2009 as compared to the same period in 2008 offset by
increased activity as a result of the Pinch and Service Express
acquisitions.
Other
Operating Expenses
Other
operating expenses decreased $0.3 million, or 1.7%, to $17.2 million for the six
months ended June 30, 2009 from $17.5 million in the same period of
2008. Other operating expenses were 8.8% of consolidated operating
revenue for the six months ended June 30, 2009 compared with 7.6% in the same
period of 2008.
Forward
Air
Other
operating expenses decreased $1.3 million, or 8.4%, to $14.1 million during the
six months ended June 30, 2009 from $15.4 million in the same period of
2008. Other operating expenses were 8.5% of Forward Air operating
revenue during the six months ended June 30, 2009 compared to 7.3% in the same
period of 2008. The increase as a percentage of revenue is the result of
expenses not decreasing at the same rate as revenue. Volume related
expenses such as tires, dock supplies, maintenance and station handling fees
decreased $2.8 million and 20.1%. However, these decreases were
offset by a $0.4 expense for the cancellation of certain sales and promotion
events and a $1.1 million increase in reserves for property and other taxes
primarily associated with our company-owned terminals.
FASI
FASI
other operating expenses increased $1.1 million to $3.2 million for the six
months ended June 30, 2009 compared to $2.1 million for the same period in
2008. FASI other operating expenses for the six months ended June 30,
2009 were 10.2% of the segment’s operating revenue compared to 10.9% for the
same period in 2008. The $1.1 million increase is attributable to
increased volume related expenses, such as dock supplies, tires, and vehicle
maintenance. The increase in the volume related expenses was directly
related to the increased revenue activity associated with the acquisitions of
Pinch and Service Express. The decrease as a percentage of revenue is
attributable to the increase in revenue outpacing the increase in other
operating expenses.
Intercompany
Eliminations
Intercompany
eliminations were $0.1 million during the six months ended June 30, 2009. The intercompany
eliminations are for agent station services FASI provided to FAI during the six
months ended June 30, 2009.
Impairment
of Goodwill and Other Intangible Assets
Impairment
of goodwill and other intangible assets was $7.2 million during the six months
ended June 30, 2009. Impairment of goodwill was 3.7% of consolidated
operating revenue for the six months ended June 30, 2009.
Forward
Air
Impairment
of goodwill and other intangible assets was $0.2 million, or 0.1%, of Forward
Air operating revenue, during the six months ended June 30,
2009. During the six months ended June 30, 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 six months ended June 30, 2009.
FASI
During
the six months ended June 30, 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 June 30, 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 six months ended June 30,
2009.
Results
from Operations
Results
from operations decreased to a $0.1 million loss from operations during the six
months ended June 30, 2009. The loss from operations was 0.1%
of consolidated operating revenue for the six months ended June 30,
2009. Income from operations for the six months ended June 30, 2008
was $37.0 million, or 16.1% as a percentage of consolidated operating
revenue.
Forward
Air
Income
from operations decreased by $28.3 million, or 74.7%, to $9.6 million during the
six months ended June 30, 2009 compared with $37.9 million for the same period
in 2008. Income from operations as a percentage of Forward Air
operating revenue was 5.8% for the six months ended June 30, 2009 compared with
18.0% 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
$8.8 million to a $9.7 million loss for the six months ended June 30, 2009 from
a $0.9 million loss for the six months ended June 30, 2008. The
increase in FASI’s loss from operations was primarily driven by the $7.0 million
non-cash, goodwill impairment charge. Also, increasing the loss from
operations was the $0.4 million increase in insurance and
claims. Insurance and claims increased $0.4 million on increased
activity associated with the Pinch and Service Express acquisitions and refunds
from insurance premiums that offset insurance and claims expenses during the six
months ended June 30, 2008.
Interest
Expense
Interest
expense decreased approximately $0.3 million to $0.3 million for the six months
ended June 30, 2009 compared to $0.6 million for the six months ended June 30,
2008. The decrease in interest expense is due to the decline in the
interest rate on net borrowings of our senior credit facility.
Other,
Net
Other,
net was expense of less than $0.1 million for the six months ended June 30, 2009
compared with income of $0.2 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 six months ended June 30,
2009 was 41.6% compared to a rate of 39.4% for the same period in
2008. The increase in our effective tax rate is primarily
attributable to declines in our net income before tax combined with an increase
in share-based compensation on incentive stock options. The
share-based compensation for incentive stock options is mostly not deductible
for income tax reporting.
Net
(Loss) Income
As a
result of the foregoing factors, net earnings decreased by $22.5 million, to a
$0.3 million net loss during the six months ended June 30, 2009 compared to net
income of $22.2 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 on January 1, 2009, did not have a
significant impact on our financial position, results of operations and cash
flows as we do not currently have any noncontrolling interests in other
entities.
We
adopted SFAS No. 165, Subsequent Events (“SFAS
165”) in the second quarter of 2009. SFAS 165 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. SFAS
165 requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, that is, whether that date
represents the date the financial statements were issued or were available to be
issued. See Note 1 of the Condensed Consolidated Financial Statements herein for
the related disclosures. The adoption of FAS No. 165 did not have a
material impact on our financial statements.
In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, an Amendment of FASB Statement No. 140 (“SFAS
166”) which amends SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, by eliminating the
concept of a qualifying special-purpose entity (“QSPE”); clarifying and amending
the derecognition criteria for a transfer to be accounted for as a sale;
amending and clarifying the unit of account eligible for sale accounting; and
requiring that a transferor initially measure 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, existing
QSPEs (as defined under previous accounting standards) must be evaluated for
consolidation by reporting entities in accordance with the applicable
consolidation guidance. SFAS 166 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. We will adopt SFAS 166 on January 1,
2010, but at this time we do not anticipate the adoption of SFAS 166 will have a
significant impact on our financial position, results of operations and cash
flows.
In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (“SFAS 167”) which amends FASB Interpretation (“FIN”) No.
46(R) (“FIN 46(R)”), Consolidation of Variable Interest
Entities, and changes the consolidation guidance applicable to a variable
interest entity (“VIE”). It also amends 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, FIN 46(R) 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 this standard, will
be subject to the provisions of this standard when it becomes
effective. SFAS 167 also requires enhanced disclosures about an
enterprise’s involvement with a VIE. We will adopt SFAS 167 on January 1, 2010,
but at this time we do not anticipate the adoption of SFAS 167 will 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 $21.4 million
for the six months ended June 30, 2009 compared to approximately $17.2 million
for the six months ended June 30, 2008. The $4.2 million increase in cash
provided by operating activities is mainly attributable to a $24.4 million
improvement in cash provided from accounts receivable offset by a $16.8 million
reduction in net earnings after consideration of non-cash items and a $3.3
million increase in cash used for settlement of prepaid assets and accounts
payable. Collections on receivables improved due to our
reorganization of our billing and collections department that have allowed us to
increase the speed and accuracy of our billing as well as address collection
issues in a more timely manner. The increase in cash used for
settlement of prepaid assets and accounts payable is primarily attributable to
increases in our income tax receivables as estimated tax payments have not
declined at the same rate as our income before income taxes.
Net cash
used in investing activities was approximately $14.5 million for the six months
ended June 30, 2009 compared with approximately $24.1 million used in investing
activities during the six months ended June 30, 2008. Investing activities
during the six months ended June 30, 2009 consisted primarily of capital
expenditures for the construction of our new regional hub in Dallas/Fort Worth,
Texas. Cash used for investing activities during the six months ended
June 30, 2008 included $18.6 million for the acquisition of Pinch.
Net cash
used in financing activities totaled approximately $5.0 million for the six
months ended June 30, 2009 compared with approximately $3.1 million provided by
financing activities during the six months ended June 30, 2008. Cash
used in financing activities mainly included our quarterly dividend payment and
scheduled capital lease payments. The change in financing activities
for the six months ended June 30, 2009 compared to the same period in 2008 was
attributable to a $5.0 million reduction in net borrowings from our senior
credit facility and a $3.2 million reduction in cash from the exercise and the
tax benefit of employee stock option exercises. 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 June 30,
2009, we had $39.5 million of available borrowing capacity under the senior
credit facility, not including the accordion feature, and had utilized $10.5
million of availability for outstanding letters of credit.
At June
30, 2009, we have capitalized in land and in construction in progress
approximately $29.6 million for the construction of the Dallas/Forth Worth
regional hub. This new regional hub was substantially completed and
opened for operation in late June 2009, but we expect to incur an additional
$4.0 million in capital expenditures during the third quarter of 2009 to fully
complete its construction. We intend to fund the remaining
expenditures for the Dallas/Fort Worth regional hub through existing cash, cash
provided by operating activities, the sale of existing equipment and/or
borrowings under our senior credit facility, if necessary.
During
each of the first and second 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 and six months ended June 30, 2009 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.
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 purchases of shares of our common stock during the six months ended June
30, 2009.
Not
Applicable.
The
Company’s Annual Meeting of Shareholders was held on May 11, 2009 for the
purposes of (i) electing eight members of the Board of Directors and (ii)
ratifying the appointment of the independent registered public accounting firm
for 2009.
(i)
|
Shareholders
elected each director nominee for a one-year term expiring at the 2010
annual meeting of shareholders. The vote for each director was as
follows:
|
Name
|
|
For
|
|
Withheld
|
Bruce
A. Campbell
|
|
25,020,557
|
|
584,006
|
C.
Robert Campbell
|
|
25,486,081
|
|
118,482
|
Richard
W. Hanselman
|
|
25,482,788
|
|
121,775
|
C.
John Langley, Jr.
|
|
25,486,096
|
|
118,467
|
Tracy
A. Leinbach
|
|
25,480,745
|
|
123,818
|
G.
Michael Lynch
|
|
25,470,506
|
|
134,057
|
Ray
A. Mundy
|
|
25,484,565
|
|
119,998
|
Gary
L. Paxton
|
|
25,486,801
|
|
117,762
|
(ii)
|
The
proposal to ratify the appointment of Ernst & Young LLP as the
Company’s independent registered public accounting firm for 2008 was
approved as follows:
|
For
|
Against
|
Abstain
|
25,500,830
|
97,184
|
6,550
|
Not
Applicable.
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 Landair Services, Inc. Common Stock Certificate (incorporated herein by
reference to Exhibit 4.1 to the registrant’s Registration Statement on
Form S-1, filed with the Securities and Exchange Commission on September
27, 1993)
|
4.2
|
|
Form
of Forward Air Corporation Common Stock Certificate (incorporated herein
by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1998, filed with the
Securities and Exchange Commission on November 16,
1998)
|
4.3
|
|
Rights
Agreement, dated May 18, 1999, between the registrant and SunTrust Bank,
Atlanta, N.A., including the Form of Rights Certificate (Exhibit A) and
the Form of Summary of Rights (Exhibit B) (incorporated herein by
reference to Exhibit 4 to the registrant’s Current Report on Form 8-K
filed with the Commission on May 28, 1999)
|
31.1
|
|
Certification
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
|
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:
July 31, 2009
|
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)
|
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 Landair Services, Inc. Common Stock Certificate (incorporated herein by
reference to Exhibit 4.1 to the registrant’s Registration Statement on
Form S-1, filed with the Securities and Exchange Commission on September
27, 1993)
|
4.2
|
|
Form
of Forward Air Corporation Common Stock Certificate (incorporated herein
by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1998, filed with the
Securities and Exchange Commission on November 16,
1998)
|
4.3
|
|
Rights
Agreement, dated May 18, 1999, between the registrant and SunTrust Bank,
Atlanta, N.A., including the Form of Rights Certificate (Exhibit A) and
the Form of Summary of Rights (Exhibit B) (incorporated herein by
reference to Exhibit 4 to the registrant’s Current Report on Form 8-K
filed with the Commission on May 28, 1999)
|
31.1
|
|
Certification
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
|