UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended March 31, 2007
Commission
File No. 000-22490
FORWARD
AIR CORPORATION
(Exact
name of registrant as specified in its charter)
|
Tennessee
|
|
62-1120025
|
|
|
(State
or other jurisdiction of incorporation)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
430
Airport Road
Greeneville,
Tennessee
|
|
37745
|
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
Registrant’s
telephone number, including area code: (423)
636-7000
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
þ No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large
accelerated filer þ
|
Accelerated
filer o
|
Non-accelerated
filer 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
þ
The
number of shares outstanding of the registrant’s common stock, $0.01 par value,
as of May 1, 2007 was 30,167,408.
Table
of Contents
Forward
Air Corporation
|
Page
Number
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||
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Part
I.
|
Financial
Information
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|
Item
1.
|
Financial
Statements (unaudited)
|
|
|
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Condensed
Consolidated Balance Sheets - March 31, 2007 and December 31,
2006
|
3
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|
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|
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Condensed
Consolidated Statements of Income - Three months ended March 31,
2007 and
2006
|
4
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|
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|
|
Condensed
Consolidated Statements of Cash Flows - Three months ended March
31, 2007
and 2006
|
5
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|
|
Notes
to Condensed Consolidated Financial Statements - March 31, 2007
|
6
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|
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|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
10
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|
Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
|
16
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|
|
|
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|
Item
4.
|
Controls
and Procedures
|
16
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|
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Part
II.
|
Other
Information
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|
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Item
1.
|
Legal
Proceedings
|
16
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Item
1A.
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Risk
Factors
|
16
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|
Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
|
16
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Item
3.
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Defaults
Upon Senior Securities
|
17
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|
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|
Item
4.
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Submission
of Matters to a Vote of Security Holders
|
17
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Item
5.
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Other
Information
|
17
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Item
6.
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Exhibits
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17
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Signatures
|
18
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| Exhibit Index | ||
2
|
Part
I.
|
Financial
Information
|
|
|
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
Forward
Air Corporation
Condensed
Consolidated Balance Sheets
|
|
|
March
31, 2007
|
December
31, 2006
|
|
|||
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|
|
(Unaudited)
|
(Note
1)
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|||
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(In
thousands, except share data)
|
|
||||
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Assets
|
|
|
|||||
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,435
|
|
$
|
8,231
|
|
|
Short-term
investments
|
|
|
42,075
|
|
|
61,650
|
|
|
Accounts
receivable, less allowance of $810 in 2007 and $860 in
2006
|
|
|
48,908
|
|
|
48,486
|
|
|
Other
current assets
|
10,247
|
9,196
|
|
||||
|
Total
current assets
|
|
|
106,665
|
|
|
127,563
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
126,356
|
101,190
|
|||||
|
Less
accumulated depreciation and amortization
|
49,374
|
|
47,875
|
||||
|
Total
property and equipment, net
|
|
|
76,982
|
|
|
53,315
|
|
|
Goodwill
and other acquired intangibles:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
15,588
|
|
|
15,588
|
|
|
Other
acquired intangibles, net of accumulated amortization of $2,338
in 2007
and $2,019 in 2006
|
|
|
10,912
|
|
|
10,731
|
|
|
Total
goodwill and other acquired intangibles
|
|
|
26,500
|
|
|
26,319
|
|
|
Other
assets
|
|
|
2,705
|
|
|
5,817
|
|
|
Total
assets
|
|
$
|
212,852
|
|
$
|
213,014
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
6,777
|
|
$
|
7,949
|
|
|
Accrued
expenses
|
|
9,905
|
|
|
11,144
|
|
|
|
Current
portion of capital lease obligations
|
|
41
|
|
|
40
|
|
|
|
Total
current liabilities
|
|
16,723
|
|
|
19,133
|
|
|
|
Capital
lease obligations, less current portion
|
|
786
|
|
|
796
|
|
|
|
Other
long-term liabilities
|
2,345
|
1,271
|
|||||
|
Deferred
income taxes
|
7,558
|
6,587
|
|||||
|
Shareholders’
equity:
|
|||||||
|
Preferred
stock, $0.01 par value:
|
|
|
|
|
|
|
|
|
Authorized
shares - 5,000,000
|
|||||||
|
No
shares issued
|
--
|
--
|
|||||
|
Common
stock, $0.01 par value:
|
|||||||
|
Authorized
shares - 50,000,000
|
|
|
|
|
|
||
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Issued
and outstanding shares - 30,167,408 in 2007 and 30,372,082 in
2006
|
|
302
|
|
|
304
|
|
|
|
Retained
earnings
|
|
185,138
|
|
|
184,923
|
|
|
|
Total
shareholders’ equity
|
185,440
|
185,227
|
|||||
|
Total
liabilities and shareholders’ equity
|
|
$
|
212,852
|
|
$
|
213,014
|
|
The
accompanying notes are an integral part of the financial
statements.
3
Forward
Air Corporation
Condensed
Consolidated Statements of Income
(Unaudited)
|
|
|
Three
months ended
|
|||||
|
|
|
March
31, 2007
|
March
31, 2006
|
||||
|
|
|
(In
thousands, except per share data)
|
|||||
|
Operating
revenue
|
|
$
|
87,353
|
|
$
|
82,330
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Purchased
transportation
|
|
|
37,974
|
|
|
32,436
|
|
|
Salaries,
wages and employee benefits
|
|
|
19,013
|
|
|
18,793
|
|
|
Operating
leases
|
|
|
3,735
|
|
|
3,446
|
|
|
Depreciation
and amortization
|
|
|
2,380
|
|
|
2,399
|
|
|
Insurance
and claims
|
|
|
1,702
|
|
|
1,481
|
|
|
Other
operating expenses
|
|
|
6,710
|
|
|
6,819
|
|
|
Total
operating expenses
|
|
|
71,514
|
|
|
65,374
|
|
|
Income
from operations
|
|
|
15,839
|
|
|
16,956
|
|
|
|
|
|
|
|
|
||
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(40
|
)
|
|
(25
|
)
|
|
Other,
net
|
|
|
753
|
|
|
634
|
|
|
Total
other income
|
|
|
713
|
|
|
609
|
|
|
Income
before income taxes
|
|
|
16,552
|
|
|
17,565
|
|
|
Income
taxes
|
|
|
6,259
|
|
|
6,557
|
|
|
Net
income
|
|
$
|
10,293
|
|
$
|
11,008
|
|
|
|
|
|
|
|
|
||
|
Income
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.34
|
|
$
|
0.35
|
|
|
Diluted
|
|
$
|
0.34
|
|
$
|
0.35
|
|
|
Dividends
declared per share
|
|
$
|
0.07
|
|
$
|
0.07
|
|
The
accompanying notes are an integral part of the financial
statements.
4
Forward
Air Corporation
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
Three
months ended
|
|||||||
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
||
|
|
|
(In
thousands)
|
|||||
|
Operating
activities:
|
|
|
|
|
|
||
|
Net
income
|
|
$
|
10,293
|
|
$
|
11,008
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,380
|
|
|
2,399
|
|
|
Share-based
compensation
|
|
|
593
|
|
|
224
|
|
|
Gain
on sale of property and equipment
|
|
|
(62
|
)
|
|
(191
|
)
|
|
Provision
for (recovery) loss on receivables
|
|
|
(93
|
)
|
|
39
|
|
|
Provision
for revenue adjustments
|
|
|
655
|
|
|
593
|
|
|
Deferred
income taxes
|
|
|
1,797
|
|
|
327
|
|
|
Increase
(decrease) in income taxes payable for stock options
exercised
|
|
|
7
|
|
|
(394
|
)
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(952
|
)
|
|
(1,013
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
(440
|
)
|
|
(128
|
)
|
|
Accounts
payable and accrued expenses
|
|
|
(2,734
|
)
|
|
(5,682
|
)
|
|
Income
taxes
|
|
|
(1,024
|
)
|
|
1,753
|
|
|
Net
cash provided by operating activities
|
|
|
10,420
|
|
|
8,935
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Proceeds
from disposal of property and equipment
|
|
|
188
|
|
|
3,105
|
|
|
Purchases
of property and equipment
|
|
|
(22,570
|
)
|
|
(2,421
|
)
|
|
Proceeds
from sales or maturities of available-for-sale securities
|
|
|
64,095
|
|
|
45,700
|
|
|
Purchases
of available-for-sale securities
|
|
|
(44,520
|
)
|
|
(46,155
|
)
|
|
Other
|
|
|
(704
|
)
|
|
(25
|
)
|
|
Net
cash (used in) provided by investing activities
|
|
|
(3,511
|
)
|
|
204
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Payments
of capital lease obligations
|
|
|
(9
|
)
|
|
(9
|
)
|
|
Payments
on line of credit
|
|
|
--
|
|
|
(1,504
|
)
|
|
Proceeds
from exercise of stock options
|
|
|
196
|
|
|
1,431
|
|
|
Payments
of cash dividends
|
|
|
(2,127
|
)
|
|
(2,200
|
)
|
|
Repurchase
of common stock
|
|
|
(7,538
|
)
|
|
(4,400
|
)
|
|
Cash
settlement of share-based awards for minimum tax
withholdings
|
|
|
(220
|
)
|
|
--
|
|
|
(Increase)
decrease in income taxes payable for stock options
exercised
|
|
|
(7
|
)
|
|
394
|
|
|
Net
cash used in financing activities
|
|
|
(9,705
|
)
|
|
(6,288
|
)
|
|
Net
(decrease) increase in cash
|
|
|
(2,796
|
)
|
|
2,851
|
|
|
Cash
at beginning of period
|
|
|
8,231
|
|
|
332
|
|
|
Cash
at end of period
|
|
$
|
5,435
|
|
$
|
3,183
|
|
The
accompanying notes are an integral part of the financial
statements.
5
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
(Unaudited,
in thousands, except share and per share data)
March
31, 2007
|
1.
|
Basis
of Presentation
|
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles for interim financial information and with the instructions to
Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of
the information and footnotes required by United States generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the
three month period ended March 31, 2007 are not necessarily indicative of
the
results that may be expected for the year ending December 31, 2007. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Forward Air Corporation Annual Report on Form 10-K
for
the year ended December 31, 2006.
The
balance sheet at December 31, 2006 has been derived from the audited financial
statements at that date, but does not include all of the financial information
and footnotes required by United States generally accepted accounting principles
for complete financial statements.
|
2.
|
Recent
Accounting Pronouncements
|
During June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (an interpretation of FASB Statement
No. 109) (“FIN
48”), which is effective for fiscal years beginning after December 15,
2006. This interpretation was issued to clarify the accounting for uncertainty
in income taxes recognized in the financial statements by prescribing a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. The guidance prescribed in FIN 48 establishes a recognition
threshold of more likely than not that a tax position will be sustained upon
examination. The measurement attribute of FIN 48 requires that a tax position
be
measured at the largest amount of benefit that is greater than 50% likely
of
being realized upon ultimate settlement. The
Company adopted the provisions of FIN 48 on January 1, 2007. As a result
of the
implementation of FIN 48, the Company recognized a $1,397 increase in the
liability for unrecognized tax benefits, including related interest and
penalties, which was accounted for as a reduction to the January 1, 2007
balance
of retained earnings. The liability for unrecognized tax benefits at January
1,
2007 net of federal benefit is $977, which represents tax positions where
the
realization of the ultimate benefit is uncertain and the disallowance of
which
would affect the Company’s annual effective income tax rate.
During
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157, Fair
Value Measurements (“SFAS
157”), which is effective for fiscal years beginning after November 15,
2007 with earlier adoption encouraged. SFAS 157 defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. This
Statement applies under other accounting pronouncements that require or permit
fair value measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, SFAS 157 does not require any new fair value measurements. However,
the application of SFAS 157 could change current practice. The Company plans
to
adopt SFAS 157 on January 1, 2008, but the implementation of SFAS 157 is
not
expected to have a significant impact on the Company's financial position
or
results of operations.
During
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities—Including an
amendment of FASB Statement No. 115
(“SFAS
159”), which permits entities to choose to measure many financial instruments
and certain other items at fair value. The objective of SFAS 159 is to
improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS 159 is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. The implementation of
SFAS 159
is not expected to have a significant impact on the Company’s financial position
or results of operations.
|
3.
|
Comprehensive
Income
|
Comprehensive
income includes any changes in the equity of the Company from transactions
and
other events and circumstances from non-owner sources. Comprehensive income
for
the three months ended March 31, 2007 was $10,293, which includes less than
$1
in unrealized gains on available-for-sale securities. Comprehensive income
for
the three months ended March 31, 2006 was $11,008, which includes less than
$1
in unrealized losses on available-for-sale securities.
6
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
|
4.
|
Share-Based
Payments
|
The
Company accounts for share-based payments using SFAS No. 123 (Revised 2004),
Share-Based
Payment
(“SFAS
123R”), and elected the modified prospective transition method on January 1,
2006. SFAS 123R requires share-based payments to employees, including grants
of
stock options, non-vested shares of common stock and purchases under employee
stock purchase plans, to be recognized in the Company’s statements of income
based on their fair values. On
December 31, 2005, the Company’s Board of Directors accelerated the vesting of
all outstanding and unvested stock options awarded to employees, officers
and non-employee directors under the Company’s stock option award plans. The
primary purpose of the accelerated vesting of these options was to eliminate
future compensation expense that the Company would otherwise have recognized
in
its statement of operations with respect to these unvested options upon the
adoption of SFAS 123R. As a result of the acceleration of the vesting of
the
Company’s outstanding and unvested options in 2005, there was no additional
compensation expense recognized during the three months ended March 31, 2007
and
2006 related to options granted prior to January 1,
2006.
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, 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 long-term goals
of the
Company. Stock options
issued during the three months ended March 31, 2007 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.
Based
on the Company’s historical experience, forfeitures have been estimated. The
Company used the Black-Scholes option-pricing model to estimate the grant-date
fair value of options granted during the three months ended March 31,
2007. The weighted-average fair values of options granted during the three
months ended March 31, 2007 were $11.19 and were estimated using the following
weighted-average assumptions:
|
|
|
March 31,
2007
|
||
|
Expected
dividend yield
|
0.8
|
%
|
||
|
Expected
stock price volatility
|
37.0
|
%
|
||
|
Weighted
average risk-free interest rate
|
4.7
|
%
|
||
|
Expected
life of options (years)
|
4.5
|
|||
Share-based
compensation expense for options granted during the three months ended March
31,
2007 of $285 was recognized in salaries, wages and employee benefits during
the
three months ended March 31, 2007. The total tax benefit related to the
share-based expense for these options was $108 for the three months ended
March
31, 2007. Total compensation cost, net of estimated forfeitures, related
to the
options not yet recognized in earnings was $4,944 at March 31, 2007. Total
unrecognized compensation cost will be adjusted for future changes in estimated
forfeitures. The following table summarizes the Company’s employee stock option
activity and related information for the three months ended March 31, 2007:
|
Three
months ended March 31, 2007
|
||||||||||||
|
Options
(000)
|
Weighted-Average
Exercise Price
|
Aggregate
Intrinsic Value (000)
|
Weighted-Average
Remaining Contractual Term
|
|
||||||||
|
Outstanding
at beginning of period
|
1,475
|
$
|
23
|
|||||||||
|
Granted
|
545
|
32
|
||||||||||
|
Exercised
|
(9
|
)
|
21
|
|||||||||
|
Forfeited
|
(1
|
)
|
16
|
|||||||||
|
Outstanding
at end of period
|
2,010
|
$
|
26
|
$
|
12,639
|
6.7
|
||||||
|
Exercisable
at end of period
|
1,464
|
$
|
23
|
$
|
12,582
|
6.7
|
||||||
In
addition to the above activity, each May from 1995 to 2005 options were granted
to the non-employee directors of the Company. The options have terms of
ten years and are fully exercisable. At March 31, 2007, 111,875 options were
outstanding and will expire in July 2010 through May 2015 unless a non-employee
director resigns, is not re-elected and does not meet one of the exceptions
under the Company's Non-Employee Director Stock Option Plan, in which
event the options would expire 90 days after the option holder is no longer
a non-employee director. At March 31, 2007, the total aggregate intrinsic
value of these options was $1,081 and the weighted-average exercise price
and
remaining contractual term were $22.13 and 6.4 years, respectively.
7
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
|
4.
|
Share-Based
Payments (continued)
|
Share-based
compensation expense of $272 and $224 for non-vested shares granted during
2006
was recognized in salaries, wages and employee benefits during the three
months
ended March 31, 2007 and 2006, respectively. The total tax benefit related
to
this share-based expense was $103 and $84 for the three months ended March
31,
2007 and 2006, respectively. Total compensation cost, net of estimated
forfeitures, related to the non-vested shares not yet recognized in earnings
was
$2,396 at March 31, 2007. Total unrecognized compensation cost will be adjusted
for future changes in estimated forfeitures.
Share-based
compensation expense of $35 for non-vested shares granted to non-employees
directors in May 2006 was recognized in salaries, wages and employee benefits
during the three months ended March 31, 2007. The total tax benefit related
to
this share-based expense was $13 for the three months ended March 31, 2007.
Total compensation cost, net of estimated forfeitures, related to the non-vested
shares granted to non-employee directors not yet recognized in earnings was
$303
at March 31, 2007. Total unrecognized compensation cost will be adjusted
for
future changes in estimated forfeitures.
Dividends
paid on non-vested shares that are subsequently forfeited prior to vesting
are
required by SFAS No. 123R to be recorded to expense instead of as a direct
reduction to retained earnings. SFAS No. 123R requires dividend forfeitures
to
be estimated. Estimated dividend forfeitures recorded to share-based
compensation during the three months ended March 31, 2007 and 2006 were $1
and
$0, respectively.
|
5.
|
Net
Income Per Share
|
The
following table sets forth the computation of basic and diluted income per
share
(in thousands, except per share data):
|
Three
months ended
|
|||||||
|
March
31, 2007
|
March
31, 2006
|
||||||
|
Numerator:
|
|||||||
|
Numerator
for basic and diluted income per share - net income
|
$
|
10,293
|
$
|
11,008
|
|||
|
Denominator:
|
|||||||
|
Denominator
for basic income per share - weighted- average shares
|
30,338
|
31,277
|
|||||
|
Effect
of dilutive stock options and non-vested shares
|
327
|
510
|
|||||
|
Denominator
for diluted income per share - adjusted weighted-average
shares
|
30,665
|
31,787
|
|||||
|
Income
per share - basic
|
$
|
0.34
|
$
|
0.35
|
|||
|
Income
per share - diluted
|
$
|
0.34
|
$
|
0.35
|
|||
The
number of options and non-vested shares that could potentially dilute income
per
share in the future, but that were not included in the computation of income
per
diluted share because to do so would have been anti-dilutive for the periods
presented, were approximately 136,000 and 5,000, respectively.
|
6.
|
Income
Taxes
|
The
Company or one of its subsidiaries files income tax returns in the U.S.
federal
jurisdiction, various states and Canada. With a few exceptions, the Company
is
no longer subject to U.S. federal, state and local, or Canadian examinations
by
tax authorities for years before 2003.
The
Company adopted the provisions of FIN 48 on January 1, 2007. As a result
of the
implementation of FIN 48, the Company recognized a $1,397 increase in the
liability for unrecognized tax benefits, including related interest and
penalties, which was accounted for as a reduction to the January 1, 2007
balance
of retained earnings. The liability for unrecognized tax benefits at January
1,
2007 net of federal benefit is $977, which represents tax positions where
the
realization of the ultimate benefit is uncertain and the disallowance of
which
would affect the Company’s annual effective income tax rate.
The
Company recognizes interest accrued related to unrecognized tax benefits
in
interest expense and penalties in operating expenses. At January 1, 2007,
the
Company had accrued $181 and $196 for the potential payment of interest
and
penalties, respectively.
There
were no significant changes to any of these amounts during the first quarter
of
2007.
8
Forward
Air Corporation
Notes
to Condensed Consolidated Financial Statements
|
6.
|
Income
Taxes (continued
|
For
the
three months ended March 31, 2007 and 2006, 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. See Note 8 for discussion
of other contingencies.
|
7.
|
Shareholders'
Equity
|
During
the three months ended March 31, 2007 dividends of $0.07 per share were declared
on common stock outstanding on March 15, 2007. The quarterly dividends were
paid on March 30, 2007. During the three months ended March 31, 2006 dividends
of $0.07 per share were declared on common stock outstanding on March 17,
2006. The quarterly dividends were paid on March 31, 2006. 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
November 17, 2005, the Company announced that its Board of Directors approved
a
stock repurchase program for up to 3.0 million shares of common stock (the
“2005
Repurchase Plan”). For the three months ended March 31, 2007, the Company
repurchased 242,200 shares of common stock, under the 2005 Repurchase Plan
for
$7,538, or $31.12 per share. For the three months ended March 31, 2006, the
Company repurchased 124,000 shares of common stock, under the 2005 Repurchase
Plan for $4,400, or $35.49 per share.
|
8.
|
Commitments
and Contingencies
|
The
primary claims in the Company’s business are workers’ compensation, property
damage, vehicle liability and medical benefits. Most of the Company’s insurance
coverage provides for self-insurance levels with primary and excess coverage
which management believes is sufficient to adequately protect the Company
from
catastrophic claims. In the opinion of management, adequate provision has
been
made for all incurred claims up to the self-insured limits, including provision
for estimated claims incurred but not reported.
The
Company estimates its self-insurance loss exposure by evaluating the merits
and
circumstances surrounding individual known claims and by performing hindsight
analysis to determine an estimate of probable losses on claims incurred but
not
reported. Such losses could be realized immediately as the events underlying
the
claims have already occurred as of the balance sheet dates.
Because
of the uncertainty of the ultimate resolution of outstanding claims, as well
as
uncertainty regarding claims incurred but not reported, it is possible that
management’s provision for these losses could change materially in the near
term. However, no estimate can currently be made of the range of additional
loss
that is at least reasonably possible.
New
Terminal Projects
On
September 14, 2006, as part of the Company’s plan to acquire three new sites in
key gateway cities, the Company entered into an agreement to purchase real
property and to construct a new regional hub near Atlanta, Georgia for $14,776.
A deposit of $1,477 was paid to the sellers upon execution of the agreement.
The
remainder of the purchase price will be paid upon completion of the new
terminal, which the Company estimates will occur in the second quarter
of 2007. The deposit is included in noncurrent other assets. The Company
plans to fund this expenditure through cash and short-term investments currently
on the balance sheet, cash provided by operating activities and/or borrowings
under the credit facility.
In
February 2007, the Company acquired land near Dallas/Fort Worth, Texas for
$3,043 on which the Company plans to build a new regional hub facility.
The Company anticipates completion of this facility during 2008.
In
addition, in March 2007 the Company completed the purchase of a new terminal
near Chicago, Illinois for $22,312. The deposit of $3,316 paid in July 2006,
previously included in noncurrent other assets, was applied to this purchase
price.
9
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
and Executive Summary
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 through a network of 81 terminals located on or near airports
in the
United States and Canada, including a central sorting facility in Columbus,
Ohio
and nine regional hubs serving key markets.
We
also
offer our customers an array of logistic and other services including:
exclusive-use vehicles (commonly referred to as truck brokerage); dedicated
fleets; warehousing; customs brokerage; and shipment consolidation,
deconsolidation and handling. These services are critical to our air
freight forwarder customers, which are businesses that arrange transportation
of
cargo for third parties, that do not provide these logistics services themselves
or that prefer to use one provider for all of their surface transportation
needs.
We
believe the demand for lower-cost truck transportation will continue to
increase
due to several trends. These trends include:
| § |
Increased
outsourcing of logistics management to third party logistics
providers;
|
| § |
Integrated
air cargo carriers’ focus on overnight freight;
and
|
| § |
Reduced
airline cargo capacity.
|
These
trends combined with our expansive network of 81 terminals, focus on the
deferred air freight market and superior service offerings are key to our
continued success.
Our
operations, particularly our network of hubs and terminals, represent
substantial fixed costs. Consequently, our continued growth depends in
significant part on our ability to increase the amount and revenue per
pound of
the freight shipped through our network. In addition to increasing freight
through our network, a key factor to success is our ability to efficiently
manage our owner-operator fleet limiting the use of more expensive third-party
transportation providers.
Trends
and Developments
During
the three months ended March 31, 2007 our logistics business continued to
experience significant growth while the growth rate for our airport-to-airport
business was limited due to challenging market conditions. We are
continuing our efforts to grow our business through additional products so
as to
ensure revenue growth in any market conditions. Through our strategic initiative
“Completing the Model” we continue to develop and implement complementary
services to the airport-to-airport network, such as pick-up and delivery,
truckload brokerage, value-added handling and airline road feeder services.
Also, during the three months ended March 31, 2007, we experienced a decrease
in
our operating income in total dollars and as a percentage of operating revenue
mainly driven by increased purchased transportation costs. The increased
purchased transportation costs were primarily the product of changes in our
business mix due to the implementation of the “Completing the Model” strategic
initiatives and the overall weak freight environment impacting the performance
of our airport-to-airport network.
In
February 2007, we purchased land in Dallas/Fort Worth, Texas for the
construction of a new regional hub. In addition, in March 2007, we completed
our
purchase of a new terminal near Chicago, Illinois. With these facilities
we
believe we will have room to grow our business in key gateway cities and
to
offer additional services such as value-added handling.
Reclassifications
Effective
January 1, 2007 we reclassified certain 2006 revenue components between
our
three product lines to be consistent with current year classifications.
Primarily, we reclassified Forward Air Complete revenue from
accessorial revenue to airport-to-airport revenue as management views Forward
Air Complete as an extension of our airport-to-airport network. Also, portions
of the 2006 fuel surcharge were reclassified between airport-to-airport
and
logistics revenue to be consistent with current year
presentation.
10
Results
of Operations
The
following table sets forth our historical financial data for the three months
ended March 31, 2007 and 2006 (in millions):
|
|
2007
|
2006
|
Change
|
%
Change
|
|||||||||
|
Operating
revenue:
|
|||||||||||||
|
Airport-to-airport
|
$
|
74.2
|
$
|
71.9
|
$
|
2.3
|
3.2
|
%
|
|||||
|
Logistics
|
|
8.2
|
|
5.8
|
|
2.4
|
41.4
|
|
|||||
|
Accessorial
|
|
5.0
|
|
4.6
|
|
0.4
|
8.7
|
|
|||||
|
Total
operating revenue
|
|
87.4
|
|
82.3
|
|
5.1
|
6.2
|
|
|||||
|
Operating
expenses:
|
|
|
|
|
|||||||||
|
Purchased
transportation
|
|
38.0
|
|
32.4
|
|
5.6
|
17.3
|
|
|||||
|
Salaries,
wages and employee benefits
|
|
19.0
|
|
18.8
|
|
0.2
|
1.1
|
|
|||||
|
Operating
leases
|
|
3.7
|
|
3.4
|
|
0.3
|
8.8
|
|
|||||
|
Depreciation
and amortization
|
|
2.4
|
|
2.4
|
|
--
|
--
|
||||||
|
Insurance
and claims
|
|
1.7
|
|
1.5
|
|
0.2
|
13.3
|
|
|||||
|
Other
operating expenses
|
|
6.7
|
|
6.8
|
|
(0.1
|
)
|
(1.5
|
)
|
||||
|
Total
operating expenses
|
|
71.5
|
|
65.3
|
|
6.2
|
9.5
|
|
|||||
|
Income
from operations
|
|
15.9
|
|
17.0
|
|
(1.1
|
)
|
(6.5
|
)
|
||||
|
Total
other income
|
|
0.7
|
|
0.6
|
|
0.1
|
16.7
|
|
|||||
|
Income
before income taxes
|
|
16.6
|
|
17.6
|
|
(1.0
|
)
|
(5.7
|
)
|
||||
|
Income
taxes
|
|
6.3
|
|
6.6
|
|
(0.3
|
)
|
(4.5
|
)
|
||||
|
Net
income
|
$
|
10.3
|
$
|
11.0
|
$
|
(0.7
|
)
|
(6.4
|
)%
|
||||
The
following table shows the percentage relationship of expense items to operating
revenue for the three months ended March 31, 2007 and 2006:
|
2007
|
2006
|
||||||
|
Operating
revenue:
|
|||||||
|
Airport-to-airport
|
84.9
|
%
|
87.4
|
%
|
|||
|
Logistics
|
9.4
|
7.0
|
|||||
|
Accessorial
|
5.7
|
5.6
|
|||||
|
Total
operating revenue
|
100.0
|
%
|
100.0
|
%
|
|||
|
Operating
expenses:
|
|
||||||
|
Purchased
transportation
|
43.5
|
39.4
|
|||||
|
Salaries,
wages and employee benefits
|
21.7
|
22.8
|
|||||
|
Operating
leases
|
4.2
|
4.1
|
|||||
|
Depreciation
and amortization
|
2.8
|
2.9
|
|||||
|
Insurance
and claims
|
1.9
|
1.8
|
|||||
|
Other
operating expenses
|
7.7
|
8.3
|
|||||
|
Total
operating expenses
|
81.8
|
79.3
|
|||||
|
Income
from operations
|
18.2
|
20.7
|
|||||
|
Total
other income
|
0.8
|
0.7
|
|||||
|
Income
before income taxes
|
19.0
|
21.4
|
|||||
|
Income
taxes
|
7.2
|
8.0
|
|||||
|
Net
income
|
11.8
|
%
|
13.4
|
%
|
|||
11
Three
Months Ended March 31, 2007 compared to Three Months Ended March 31,
2006
Operating
revenue increased by $5.1 million, or 6.2%, to $87.4 million in the first
quarter of 2007 from $82.3 million in the same period of 2006.
Airport-to-airport revenue, which is the largest component of our operating
revenue, increased $2.3 million, or 3.2%, to $74.2 million, accounting
for 84.9%
of our total operating revenue during the three months ended March 31,
2007
compared to 87.4% for the three months ended March 31, 2006. The increase
in
airport-to-airport revenue was driven by an increase in tonnage and an
increase
in our rate per pound. Our airport-to-airport business is priced on a
per pound
basis and the average revenue per pound, including the impact of fuel
surcharges, increased 2.4% for the three months ended March 31, 2007
versus the
three months ended March 31, 2006. Tonnage that transited our network
increased
by approximately 0.8% in the three months ended March 31, 2007 compared
with the
three months ended March 31, 2006. The tonnage increase was driven by
new
airport-to-airport business generated by Forward Air Complete, our new
pick-up
and delivery product introduced during the second half of 2006 offset
by a weak
shipping environment. The weak environment is evidenced by our 4.1% decline
in
average weight per shipment, despite a 5.0% increase in total shipments.
Approximately, 50.0% of the increase in average revenue per pound resulted
from
increased customer utilization of Forward Air Complete. The remaining
increase
in average revenue per pound is attributable to rate increases implemented
in
March 2007.
Our
logistics revenue, which is primarily truckload brokerage and priced
on a per
mile basis, increased $2.4 million, or 41.4%, to $8.2 million in the
first
quarter of 2007 from $5.8 million in the same period of 2006. The increase
in
logistics revenue is mainly the result of our increased efforts as part
of our
“Completing the Model” strategic initiative to grow this product. We are placing
emphasis on capturing a larger percentage of truckload opportunities
and
correspondingly increasing our access to sufficient truckload capacity
through
the use of third-party transportation providers. During the three months
ended
March 31, 2007, we increased the number of miles driven to support our
logistics
revenue by 59.0%. The average revenue per mile of our logistics business,
including the impact of fuel surcharges, decreased 11.6% for the three
months
ended March 31, 2007 versus the three months ended March 31, 2006. The
decrease
in our revenue per mile is largely due to the weak shipping environment
and the
change in our business mix resulting from our efforts to capture additional
truckload opportunities as well as utilizing truckload opportunities
to cost
effectively position our owner-operators within our airport-to-airport
network.
Accessorial
revenue, which includes warehousing services and terminal handling and
accounts
for our final component of operating revenue, increased $0.4 million
to $5.0
million, an 8.7% increase from $4.6 million for the same period in 2006.
The
increase was primarily due to increased handling and storage revenue
due to new
services offered through our newly expanded hub facility in Columbus,
Ohio.
Purchased
transportation increased by $5.6 million, or 17.3%, to $38.0 million
for the
three months ended March 31, 2007 from $32.4 million for the three months
ended
March 31, 2006. As a percentage of total operating revenue, purchased
transportation was 43.5% during the three months ended March 31, 2007
compared
to 39.4% for the same period in 2006. The increase in purchased transportation
is caused by changes in the shipping patterns within our airport-to-airport
network, our focus on truckload brokerage and Forward Air Complete the
latter
two of which have higher purchased transportation costs than our core
airport-to
airport business. Further, we failed to take full advantage of excess
capacity
present in the truckload market which could have driven our cost per
mile
down.
Purchased
transportation costs for our airport-to-airport network increased $3.4
million,
or 12.5%, to $30.5 million for the three months ended March 31, 2007
from $27.1
million for the three months ended March 31, 2006. For the three months
ended
March 31, 2007 airport-to-airport purchased transportation costs increased
to
41.1% of airport-to-airport revenue from 37.7% of airport-to-airport
revenue for
the same period in 2006. An 8.5% increase in miles driven for the
airport-to-airport network accounted for $2.3 million of this increase
in
purchased transportation. The increase in airport-to-airport miles was
due to
changes in our shipping patterns as a result of changes in our business
mix,
such as increased shipments from our west coast terminals. In addition,
the
increasing number of shipments and decreasing average weight per shipment,
discussed above, resulted in airport-to-airport inefficiencies which
ultimately
increased the number of miles driven. Approximately $0.7 million of the
increase
in airport-to-airport purchased transportation is attributable to increased
customer utilization of Forward Air Complete which was introduced during
the
second half of 2006. The remaining $0.4 million increase in airport-to-airport
purchased transportation is attributable to a 1.6% increase in cost per
mile for
the three months ended March 31, 2007 compared to the same period in
2006. The
primary reason for the increase in cost per mile is increased rates paid
to
third party transportation providers primarily driven by the inefficiencies
in
our airport-to-airport network discussed above.
Purchased
transportation costs related to our logistics revenue increased $2.0
million, or 47.6%, to $6.2 million for the three months ended March 31,
2007
from $4.2 million for the three months ended March 31, 2006. For the
three
months ended March 31, 2007, logistics purchased transportation costs
represented 75.1% of logistics revenue versus 71.9% for the three months
ended
March 31, 2006. The increase in logistics purchased transportation costs
as a
percentage of revenue resulted from lower revenue per mile as discussed
above
partially offset by a decrease in our cost per mile. Logistics cost per
mile
decreased due to increased capacity resulting in improved purchasing
power from
third party transportation providers.
Purchased
transportation costs related to our accessorial revenue increased $0.2
million,
or 18.2%, to $1.3 million for the three months ended March 31, 2007 from
$1.1
million for the three months ended March 31, 2006. Accessorial purchased
transportation costs as a percentage of revenue increased to 26.2% of
other
revenue for the three months ended March 31, 2007 from 25.2% for the
same period
in 2006.
12
Salaries,
wages and employee benefits were 21.7% of operating revenue during the
three
months ended March 31, 2007 compared to 22.8% for the same period of
2006.
Salaries, wages and employee benefits decreased as a percentage of revenue
due
to decreases in employee incentives and group health and workers compensation
costs. Employee incentives for the three months ended March 31, 2007
decreased
0.8% as a percentage of operating revenue, due to shortfalls from our
quarterly
performance goals reducing bonuses earned from the same period in 2006.
Group
health and workers compensation insurance costs for the three months
ended March
31, 2007 decreased 0.5% as a percentage of operating revenue, due to
modifications to our group health insurance plan reducing health care
costs and
worker’s compensation claims experience improving over the same period in 2006.
These decreases were partially offset by a 0.4% increase in share-based
compensation due the issuance of stock options to key members of management
during the three months ended March 31, 2007. The remaining decrease
as a
percentage of operating revenue is due to improved operating efficiencies
resulting from initiatives such as our terminal automation process (TAP).
Operating
leases, the largest component of which is facility rent, were 4.2% of
operating
revenue for the three months ended March 31, 2007 compared with 4.1%
in the same
period of 2006. The increase in operating leases in total dollars and
as a
percentage of operating revenue between periods was attributable to higher
rent
costs attributable to the expansion of certain facilities.
Depreciation
and amortization expense as a percentage of operating revenue was 2.8%
in the
first quarter of 2007 compared to 2.9% in the same period of 2006. The
decrease
in depreciation and amortization expense as a percentage of revenue is
due to
the increase in revenue as depreciation and amortization expense was
$2.4
million for the three months ended March 31, 2007 and 2006.
Insurance
and claims were 1.9% of operating revenue in the first quarter of 2007
compared
to 1.8% in the same period of 2006. The increase in insurance and claims
as a
percentage of revenue is primarily the result of a favorable claim settlement
during the three months ended March 31, 2006 resulting in a $0.1 million,
or
0.1% as a percentage of revenue, reduction of our 2006 insurance and
claims
expense. The remaining $0.1 million increase in total dollars is attributable
to
increased insurance premiums which are a product of the increased number
of
tractors in our owner-operator fleet and slightly higher insurance
rates.
Other
operating expenses were 7.7% of operating revenue in the first quarter
of 2007
compared to 8.3% in the same period of 2006. The decrease in other operating
expenses as a percentage of operating revenue was primarily attributable
to a
0.4% decrease in equipment maintenance costs due to improved cost control
efforts and a 0.2% decrease in bad debt expense.
Income
from operations decreased by $1.1 million or 6.5%, to $15.9 million for
the
first quarter of 2007 compared with $17.0 million for the same period
in 2006.
The decrease in income from operations was primarily a result of the
increase in
revenue being outpaced by the increase in purchased transportation.
Other
income, net was $0.7 million, or 0.8% of operating revenue, in the first
quarter
of 2007 compared with $0.6 million, or 0.7%, for the same period in 2006.
The
increase in other income was attributable to higher interest income earned
due
to higher yields on investment balances.
The
combined federal and state effective tax rate for the first quarter of
2007 was
37.8% compared to a rate of 37.3% for
the
same period in 2006. The increase in the effective tax rate was due to
the
implementation of Financial Accounting Standards Board (“FASB”) Interpretation
No. 48, Accounting
for Uncertainty in Income Taxes (an interpretation of FASB Statement
No. 109) (“FIN
48”). Our effective rate increased to provide for uncertain tax positions
under FIN 48 and an anticipated decrease in tax exempt interest income
during
2007 due to anticipated capital expenditures reducing our investment
balances.
As
a
result of the foregoing factors, net income decreased by $0.7 million,
or 6.4%,
to $10.3 million for the first quarter of 2007 compared to $11.0 million
for the
same period in 2006.
Liquidity
and Capital Resources
We
have
historically financed our working capital needs, including capital purchases,
with cash flows from operations and borrowings under our bank lines of
credit.
Net cash provided by operating activities totaled approximately $10.4 million
for the three months ended March 31, 2007 compared to approximately $8.9
million
in the same period of 2006. The increase in cash provided by operating
activities was the result of our decrease in net income being offset by
increases in our non-cash expenses, primarily deferred income taxes and
share-based compensation.
13
Net
cash
used by investing activities was approximately $3.5 million for the three
months
ended March 31, 2007 compared with approximately $0.2 million provided
by
investing activities in the same period of 2006. Investing activities during
the
three months ended March 31, 2007 consisted primarily of the purchase and
sale
or maturities of available-for-sale securities and the purchases of our
new
Chicago, Illinois facility and land for a new regional hub near Dallas/Fort
Worth, Texas. During the three months ended March 31, 2006 investing activities
consisted primarily of the purchase and sale or maturities of available-for-sale
securities and the sale and purchase of operating equipment, mainly
trailers.
Net
cash
used in financing activities totaled approximately $9.7 million for the
three
months ended March 31, 2007 compared with approximately $6.3 million used
in
financing activities for the same period of 2006. The increase in cash
used in
financing activities was primarily attributable to a $3.1 million increase
in
cash used for the repurchase of our common stock and $1.2 million decrease
in
proceeds from the exercise of stock options. The increase in the repurchases
of
our common stock and the decrease in proceeds from the exercise of stock
options
is primarily the result of lower average market prices for our common stock
during the three months ended March 31, 2007 as compared to the same period
in
2006. These increases in cash used in financing activities were offset
by a $0.1
million decrease in cash dividends paid and a $1.5 million decrease in
payments
on our line of credit.
For
the
remainder of 2007, we expect net capital expenditures for operating equipment
and management information systems to be approximately $9.5 million. Separate
from these capital expenditures, we continue to execute our plan to purchase
or
build new terminals and regional hubs in key gateway cities. During March
2007,
we completed our purchase of a new terminal new near Chicago, Illinois
for $22.3
million. The deposit of $3.3 million paid during 2006 was applied to the
purchase price. In addition, on September 14, 2006 we entered into an agreement
to purchase real property and to construct a new regional hub near Atlanta,
Georgia for $14.8 million. A deposit of $1.5 million was paid to the
sellers upon execution of the agreement. For the Atlanta agreement, the
remainder of the purchase prices will be paid upon completion of the regional
hub, which we estimate will occur during the second quarter of 2007. In
February
2007, we paid approximately $3.0 million for land near Dallas/Fort Worth,
Texas
on which we are planning to build a new regional hub which we estimate
will be
completed in 2008. We intend to fund the expenditures for the Atlanta and
Dallas/Fort Worth regional hubs through cash and short-term investments
currently on our balance sheet, cash provided by operating activities,
the sale
of existing equipment and/or borrowings under our credit facility, if necessary.
Our
credit facility consists of a working capital line of credit. As long as
we
comply with the financial covenants and ratios, the credit facility permits
us
to borrow up to $20.0 million less the amount of any outstanding letters
of
credit. Interest rates for advances under the facility vary based on how
our
performance measures against covenants related to total indebtedness, cash
flows, results of operations and other ratios. The facility bears interest
at
LIBOR plus 1.0% to 1.9% and is unsecured. The facility’s expiration is April
2008. At March 31, 2007, we had no balance outstanding under the line of
credit
facility and had utilized approximately $4.4 million of availability for
outstanding letters of credit. We were in compliance with the financial
covenants and ratios under the credit facility at March 31, 2007.
On
November 17, 2005, we announced that our Board of Directors approved a
stock
repurchase program for up to 3.0 million shares of common stock (the “2005
Repurchase Plan”). During the three months ended March 31, 2007, we
repurchased 242,200 shares of common stock under the 2005 Repurchase Plan
for $7.5 million, or $31.12 per share. During the three months ended March
31,
2006, we repurchased 124,000 shares of common stock under the 2005 Repurchase
Plan for $4.4 million, or $35.49 per share.
During
the three months ended March 31, 2007 dividends of $0.07 per share were
declared
on common stock outstanding on March 15, 2007. The quarterly dividends
were paid
on March 30, 2007. During the three months ended March 31, 2006 dividends
of
$0.07 per share were declared on common stock outstanding on March 17,
2006. The
quarterly dividends were paid on March 31, 2006. 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.
Management
believes that our available cash, investments, expected cash generated
from
future operations and borrowings under available credit facilities will
be
sufficient to satisfy our anticipated cash needs for at least the next
twelve
months.
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
footnotes. 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 2006
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
2006 Annual Report on Form 10-K. In addition, following the adoption of
FIN 48,
the Company considers its policies related to income tax contingencies
to be a
critical accounting policy (see discussion of income tax contingency policies
in
the Impact
of Recent Accounting Pronouncements
section).
14
Impact
of Recent Accounting Pronouncements
During
June 2006, the FASB issued FIN 48, which is effective for fiscal years
beginning
after December 15, 2006. This interpretation was issued to clarify the
accounting for uncertainty in income taxes recognized in the financial
statements by prescribing a recognition threshold and measurement attribute
for
the financial statement recognition and measurement of a tax position taken
or
expected to be taken in a tax return. The guidance prescribed in FIN 48
establishes a recognition threshold of more likely than not that a tax
position
will be sustained upon examination. The measurement attribute of FIN 48
requires
that a tax position be measured at the largest amount of benefit that is
greater
than 50% likely of being realized upon ultimate settlement. We
adopted the provisions of FIN 48 on January 1, 2007. As a result of the
implementation of FIN 48, we recognized a $1.4 million increase in the
liability
for unrecognized tax benefits, including related interest and penalties,
which
was accounted for as a reduction to the January 1, 2007 balance of retained
earnings. The liability for unrecognized tax benefits at January 1, 2007
net of
federal benefit is $1.0 million, which represents tax positions where the
realization of the ultimate benefit is uncertain and the disallowance of
which
would affect the Company’s annual effective income tax rate.
We
file
income tax returns in the U.S. federal jurisdiction, various states, and
Canada.
With a few exceptions, we are no longer subject to U.S. federal, state
and
local, or Canadian examinations by tax authorities for years before 2003.
The
total liability balance at March 31, 2007 consists of state tax positions
for
which the realization of the ultimate benefit is uncertain and the disallowance
of which would affect our annual effective income tax rate. These positions
mainly consist of deductions taken on state tax returns for which the ultimate
deductibility is highly uncertain and the position that certain subsidiaries
are
not subject to income taxes by certain states.
As
permitted by FIN 48, we recognize interest accrued related to unrecognized
tax
benefits in interest expense and penalties in operating
expenses.
During
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157, Fair
Value Measurements (“SFAS
157”), which is effective for fiscal years beginning after November 15,
2007 with earlier adoption encouraged. SFAS 157 defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. This
Statement applies under other accounting pronouncements that require
or permit
fair value measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is the relevant measurement
attribute.
Accordingly, SFAS 157 does not require any new fair value measurements.
However,
the application of SFAS 157 could change current practice. We currently
plan to
adopt SFAS 157 on January 1, 2008, but the implementation of SFAS 157
is not
expected to have a significant impact on our financial position or results
of
operations.
During
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities—Including an
amendment of FASB Statement No. 115
(“SFAS
159”), which permits entities to choose to measure many financial instruments
and certain other items at fair value. The objective of SFAS 159 is to
improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS 159 is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. We currently plan to
adopt SFAS
No. 159 on January 1, 2008, but the implementation of SFAS 159 is not
expected
to have a significant impact on our financial position or results of
operations.
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.
15
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Our
exposure to market risk related to our remaining outstanding debt and
available-for-sale securities is not significant and has not changed materially
since December 31, 2006.
|
Item
4.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
We
maintain controls and procedures designed to ensure that we are able to collect
the information required to be disclosed in the reports we file with the
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
first quarter of 2007 that have materially affected, or are reasonably likely
to
materially affect, our internal control over financial reporting.
|
Part
II.
|
Other
Information
|
|
Item
1.
|
Legal
Proceedings
|
From
time
to time, we are a party to ordinary, routine litigation incidental to and
arising in the normal course of our business, most of which involve claims
for
personal injury, property damage related to the transportation and handling
of
freight, or workers’ compensation. We do not believe that any of these pending
actions, individually or in the aggregate, will have a material adverse effect
on our business, financial condition or results of operations.
|
Item
1A.
|
Risk
Factors
|
A
summary
of factors which could affect results and cause results to differ materially
from those expressed in any forward-looking statements made by us, or on
our
behalf, are further described under the caption “Risk Factors” in the Business
portion of our 2006 Annual Report on Form 10-K. There have been no changes
in
the nature of these factors since December 31, 2006.
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
The
following table provides information with respect to purchases we made of
shares
of our common stock during each month in the quarter ended March 31,
2007:
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced
Program
|
Maximum
Number of Shares that May Yet Be Purchased Under the Program
(1)
|
|
||||||||
|
January
1-31, 2007
|
--
|
$
|
--
|
--
|
--
|
||||||||
|
February
1-28, 2007
|
--
|
--
|
--
|
--
|
|||||||||
|
March
1-31, 2007
|
242,200
|
31.12
|
1,628,873
|
1,371,127
|
|||||||||
|
Total
|
242,200
|
$
|
31.12
|
1,628,873
|
1,371,127
|
||||||||
|
(1)
|
On
November 17, 2005, we announced that our Board of Directors approved
a
stock repurchase program for up to 3.0 million shares of our common
stock.
|
16
|
Item
3.
|
Defaults
Upon Senior Securities
|
Not
Applicable.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Not
Applicable.
|
Item
5.
|
Other
Information
|
Not
Applicable.
|
Item
6.
|
Exhibits
|
In
accordance with SEC Release No. 33-8212, Exhibits 32.1 and 32.2 are to be
treated as “accompanying” this report rather than “filed” as part of the
report.
|
No.
|
Exhibit
|
|
|
|
|
|
|
3.1
|
Restated
Charter of the registrant (incorporated herein by reference to
Exhibit 3
to the registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on May 28, 1999)
|
|
|
3.2
|
Amended
and Restated Bylaws of the registrant (incorporated herein by reference
to
Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2004, filed with the Securities
and
Exchange Commission on November 2, 2004)
|
|
|
4.1
|
Form
of Landair Services, Inc. Common Stock Certificate (incorporated
herein by
reference to Exhibit 4.1 to the registrant’s Registration Statement on
Form S-1, filed with the Securities and Exchange Commission on
September
27, 1993)
|
|
|
4.2
|
Form
of Forward Air Corporation Common Stock Certificate (incorporated
herein
by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1998, filed with
the
Securities and Exchange Commission on November 16, 1998)
|
|
|
4.3
|
Rights
Agreement, dated May 18, 1999, between the registrant and SunTrust
Bank,
Atlanta, N.A., including the Form of Rights Certificate (Exhibit
A) and
the Form of Summary of Rights (Exhibit B) (incorporated herein
by
reference to Exhibit 4 to the registrant’s Current Report on Form 8-K
filed with the Commission on May 28, 1999)
|
|
|
31.1
|
Certification
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
|
17
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
|||
|
Forward
Air Corporation
|
||||
|
Date:
May 7, 2007
|
|
By:
|
/s/
Rodney L. Bell
|
|
|
|
|
|
Rodney
L. Bell
Chief
Financial Officer, Senior Vice President and Treasurer
(Principal
Financial and Accounting Officer)
|
|
18
EXHIBIT
INDEX
|
No.
|
Exhibit
|
|
|
3.1
|
Restated
Charter of the registrant (incorporated herein by reference to
Exhibit 3
to the registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on May 28, 1999)
|
|
|
3.2
|
Amended
and Restated Bylaws of the registrant (incorporated herein by reference
to
Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2004, filed with the Securities
and
Exchange Commission on November 2, 2004)
|
|
|
4.1
|
Form
of Landair Services, Inc. Common Stock Certificate (incorporated
herein by
reference to Exhibit 4.1 to the registrant’s Registration Statement on
Form S-1, filed with the Securities and Exchange Commission on
September
27, 1993)
|
|
|
4.2
|
Form
of Forward Air Corporation Common Stock Certificate (incorporated
herein
by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1998, filed with
the
Securities and Exchange Commission on November 16, 1998)
|
|
|
4.3
|
Rights
Agreement, dated May 18, 1999, between the registrant and SunTrust
Bank,
Atlanta, N.A., including the Form of Rights Certificate (Exhibit
A) and
the Form of Summary of Rights (Exhibit B) (incorporated herein
by
reference to Exhibit 4 to the registrant’s Current Report on Form 8-K
filed with the Commission on May 28, 1999)
|
|
|
31.1
|
Certification
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
|