UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the Fiscal Year Ended December 31, 2006
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 or organization)
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(I.R.S.
Employer Identification No.)
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430
Airport Road
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Greeneville,
Tennessee
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37745
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(Address
of principal executive offices)
|
(Zip
Code)
|
(423)
636-7000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
|
Common
Stock, $0.01 par value
|
The
NASDAQ Stock Market LLC
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|||
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(Title
of class)
|
(Name
of exchange on which registered)
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes x No
¨
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No
x
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
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. ¨
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 x
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x
The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2006 was approximately $1,277,374,667 based upon
the
$40.73 closing price of the stock as reported on The NASDAQ Stock Market
LLC on that date. For purposes of this computation, all directors and
executive officers of the registrant are assumed to be affiliates. This
assumption is not a conclusive determination for purposes other than this
calculation.
The
number of shares outstanding of the registrant’s common stock, $0.01 par value
per share, as of February 21, 2007 was 30,406,692.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the proxy statement for the 2007 Annual Meeting of Shareholders are
incorporated by reference into Part III of this report.
Forward
Air Corporation
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F-2
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| Exhibit Index | |||
Introductory
Note
This
Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (the
“Form 10-K”) contains “forward-looking statements,” as defined in Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
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.
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Business
|
We
were
formed as a corporation under the laws of the state of Tennessee on October
23,
1981. 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 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. Our typical shipment consists of a pallet-load of
freight, often consisting of electronics, telecommunications equipment, machine
parts, trade show exhibit materials or medical equipment. During 2006, our
average shipment weighed over 720 pounds. We utilize a flexible source of
capacity made up of owner-operators and, to a lesser extent, other surface
transportation providers, which results in a largely variable cost operating
model with low capital requirements.
We
also
offer our customers an array of logistic and other services including:
exclusive-use vehicles (commonly referred to as truck brokerage); dedicated
fleets; local pick-up and delivery; 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
market
our services primarily to air freight forwarders, integrated air cargo carriers,
and passenger and cargo airlines. To serve this market, we offer customers
a
very high level of service with a focus on on-time, damage-free deliveries.
We
serve our customers by locating terminals on or near airports and maintaining
regularly scheduled transportation service between major cities. We either
receive shipments at our terminals or pick up shipments directly from our
customers and transport them by truck (i) directly to the destination
terminal; (ii) to our Columbus, Ohio central sorting facility; or (iii) to
one
of our nine regional hubs, where they are unloaded, sorted and reloaded.
After reloading the shipments, we deliver them to the terminals nearest their
destinations and then, if requested by the customer, on to a final designated
site. We ship freight directly between terminals when justified
by the volume of shipments. During 2006, approximately 20.8% of the freight
we
handled was for overnight delivery, approximately 60.6% was for delivery
within two to three days and the balance was for delivery in four or more
days.
We generally do not market our services directly to shippers (where such
services might compete with our freight forwarder customers). Also, because
we
do not place significant size or weight restrictions on shipments, we generally
do not compete directly with integrated air cargo carriers such as United
Parcel
Service, Federal Express and DHL Worldwide in the overnight delivery of small
parcels. In 2006, our five largest customers accounted for approximately
27.6%
of our operating revenue and no single customer accounted for more than 10.0%
of
our operating revenue.
Our
Industry
As
businesses minimize inventory levels, perform manufacturing and assembly
operations in multiple locations and distribute their products through multiple
channels, they have an increased need for expedited delivery services. Expedited
shipments are those shipments for which the customer requires delivery the
next
day or within two to three days, usually by a specified time or within a
specified time window. The Colography Group, Inc., an independent industry
market research and consulting firm, estimates that the total U.S. expedited
cargo market, including domestic air, domestic ground parcel, domestic
less-than-truckload and U.S. air export will generate $107.6 billion in revenue
in 2007. Also according to The Colography Group, Inc., the U.S. domestic air
freight market accounts for approximately $37.5 billion, or 34.9%, of this
market. Approximately 14.1%, of that market is made up of heavyweight overnight
and deferred air freight, which is the portion of the market within which we
primarily compete.
Shippers
with expedited delivery requirements have four principal alternatives to
transport freight: freight forwarders; integrated air cargo carriers;
less-than-truckload carriers; and passenger and cargo airlines.
|
•
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Freight
forwarders obtain requests for shipments from customers, make arrangements
for transportation of the cargo by a third-party carrier and usually
arrange for both delivery from the shipper to the carrier and from
the
carrier to the recipient.
|
|
•
|
Integrated
air cargo carriers provide pick-up and delivery services primarily
using
their own fleet of trucks and provide transportation services generally
using their own fleet of aircraft.
|
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•
|
Less-than-truckload
carriers also provide pick-up and delivery services through their
own
fleet of trucks. These carriers operate terminals where freight is
unloaded, sorted and reloaded multiple times in a single shipment.
This
additional handling increases transit time, handling costs and the
likelihood of cargo damage.
|
|
•
|
Passenger
or cargo airlines provide airport-to-airport service, but have limited
cargo space and generally accept only shipments weighing less than
150
pounds.
|
Although
expedited air freight is usually transported by aircraft, freight forwarders
often elect to transport cargo by truck, especially for shipments requiring
deferred delivery. Generally, the cost of shipping freight, especially heavy
freight, by truck is substantially less than shipping by aircraft. We believe
there are several trends that are increasing demand for lower-cost truck
transportation of expedited air freight. These trends include:
|
•
|
Increased
Outsourcing of Logistics Management to Third-Party Logistics
Providers. Air
freight forwarders are playing an increasingly important role in
logistics
management. As the growing emphasis on just-in-time processes has
added to
the complexity of logistics management, companies are finding it
more
advantageous to outsource their logistics management functions to
third
parties. According to the Council of Supply Chain Management
Professionals, the United States’ third-party logistics market grew at a
compound annual rate of approximately 17.1% between 1995 and 2005.
In
contrast to integrated air cargo carriers and less-than-truckload
carriers
that are focused on utilizing their own fixed-cost assets, air freight
forwarders can select from various transportation modes and suppliers
to
meet their customers’ shipping requirements, thereby serving their
customers less expensively. In addition, air freight forwarders generally
handle shipments of any size and offer customized shipping options,
unlike
most integrated air cargo carriers and less-than-truckload carriers.
|
|
•
|
Integrated
Air Cargo Carriers’ Focus on Overnight Freight. Integrated
air cargo carriers that transport heavy freight are targeting their
marketing efforts at higher yielding overnight freight in order to
better
utilize their high fixed-cost infrastructures. As a result, these
carriers
are outsourcing deferred freight to surface transportation providers
like
us.
|
|
•
|
Reduced
Airline Cargo Capacity. Since
the 1980’s, when the domestic airlines eliminated many of their all-cargo
aircraft, growth in demand for air cargo services has generally outpaced
the growth of aircraft cargo capacity. Airlines have decreased fleet
sizes
and are utilizing smaller aircraft, including more regional jets,
in many
markets. The short supply of air cargo space has resulted in increased
demand for surface transportation of cargo.
|
Competitive
Advantages
We
believe that the following competitive advantages are critical to our success
as
a leading provider of time-definite surface transportation services and related
logistics services to the deferred air freight market in North America:
|
•
|
Focus
on the Deferred Air Freight Market. We
focus on providing time-definite surface transportation and related
logistics services to the deferred air cargo industry. We believe
that our
focused approach has enabled us to provide a higher level of service
in a
more cost-effective manner than our competitors.
|
|
•
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Expansive
Network of Terminals and Sorting Facilities. We
have built a network of terminals and sorting facilities throughout
the
United States and Canada located on or near airports. We believe
it would
be difficult for a competitor to duplicate our network without the
expertise and strategic facility locations we have acquired and without
expending significant capital and management resources. Our network
enables us to provide regularly scheduled service between most markets
with low levels of freight damage or loss, all at rates generally
significantly below air freight rates.
|
|
•
|
Concentrated
Marketing Strategy. We
provide our services mainly to air freight forwarders, integrated
air
cargo carriers, and passenger and cargo airlines rather than directly
serving shippers. We do not place significant size or weight restrictions
on shipments and, therefore, we do not compete with delivery services
such
as United Parcel Service, Federal Express and DHL Worldwide in the
overnight small parcel market. We believe that our customers prefer
to
purchase their transportation services from us because, among other
reasons, we generally do not market our services to their shipper
customers and, therefore, do not compete directly with them for customers.
|
|
•
|
Superior
Service Offerings. Our
published schedule for transit times with specific cut-off and arrival
times generally provides our customers with the predictability they
need.
In addition, our network of terminals allows us to offer our customers
later cut-off times, a higher percentage of direct shipments (which
reduces damage and lost time caused by additional sorting and reloading)
and shorter delivery times than most of our competitors.
|
|
•
|
Flexible
Business Model. Rather
than owning and operating our own trucks, we
purchase most of our transportation requirements from owner-operators
or
truckload carriers. This allows us to respond quickly to changing
demands
and opportunities in our industry and to generate higher returns
on assets
because of our low capital requirements.
|
|
•
|
Comprehensive
Logistic and Other Service Offerings. We
offer an array of logistic and other services including:
exclusive-use vehicles (commonly referred to as truck brokerage),
dedicated fleet, warehousing, customs brokerage and shipment consolidation
and handling. In addition, during 2006 we introduced our new pick-up
and
delivery service called Forward Air Complete™, whereby
we
arrange for cargo to be picked up from and/or delivered to a
customer-designated site. These services are an essential
part of many of our customers’ transportation needs and are not
offered by many of our competitors.
|
|
•
|
Leading
Technology Platform. We
are committed to using information technology to increase the volume
of
freight we can handle in our network, improve visibility of shipment
information and reduce our operating costs. Our technology allows
us to
provide our customers with electronic bookings and real-time tracking
and
tracing of shipments while in our network, complete shipment history,
proof of delivery, estimated charges and electronic bill presentment.
We
continue to enhance our systems to permit us and our customers to
access
vital information through both the Internet and electronic data
interchange.
|
|
•
|
Technology
Advances. We
have continued to invest in information technology to the benefit
of our
customers and our business processes. In 2006, we substantially completed
the development and installation of our Terminal Automation Program
(“TAP”), a new wireless application for our Company-operated
terminals. The new system enables individual operators to perform
virtually all data entry from our terminal floor locations. The new
system
provides immediate shipment updates, resulting in increased shipment
accuracy and improved data timeliness. We believe that the TAP system
not
only will reduce operational manpower compared to our previous operation,
but also will improve our on-time performance. Additionally, in order
to support our new Forward Air Complete service offering, we
developed and installed a web-based system, which coordinates activities
between our customers, operations personnel and external service
providers.
|
Growth
Strategy
Our
growth strategy is to take advantage of our competitive strengths in the
deferred air freight market in order to increase our profits and shareholder
returns. Principal components of our growth strategy include efforts to:
|
•
|
Increase
Freight Volume from Existing Customers. Many
of our customers currently use us for only a portion of their overall
transportation needs. In addition, many of our air freight forwarder
customers are growing rapidly, and we expect that they will have
a greater
need for our services as their businesses grow. We will continue
to market
directly to these customers to capture additional freight volume.
We also
believe that there is significant potential for increased freight
volume
from passenger and cargo airlines, as well as from the integrated
air
cargo carriers.
|
|
•
|
Develop
New Customers. We
continue to actively market our services to potential new air freight
forwarder customers, such as international freight forwarders. We
believe
air freight forwarders may move away from integrated air cargo carriers
because those carriers charge higher rates, and away from
less-than-truckload carriers because those carriers provide less
reliable
service and compete for the same customers as do the air freight
forwarders. In addition, we believe our comprehensive North American
network and related logistics services are attractive to domestic
and
international airlines.
|
|
•
|
Improve
Efficiency of Our Transportation Network. We
constantly seek to improve the efficiency of our network without
changing
our infrastructure or incurring significant capital expenditures.
Regional
hubs and direct shuttles improve our efficiency by reducing the number
of
miles freight must be transported and reducing the number of times
freight
must be handled and sorted. As the volume of freight between key
markets
increases, we intend to continue to add direct shuttles. In 2006,
we substantially completed a project to expand our national hub in
Columbus, Ohio. The new expanded Columbus, Ohio facility is 125,000
square feet with 168 trailer doors. This premier facility can unload,
sort and load upwards of 3.7 million pounds in five hours. In addition
to
the expansion, we process-engineered the freight sorting in the expanded
building to improve handling efficiencies. The benefits will include
reductions in the distance each shipment moves in the building to
speed up
the transfer process, less handling of freight to further improve
service
integrity and flexibility to operate multiple sorts at the same
time.
|
|
•
|
Expand
Logistic and Other Services. We
continue to expand our logistic and other services to increase revenue
and
improve utilization of our terminal facilities and labor force. Because
of
the timing of the arrival and departure of cargo, our facilities
are
underutilized during certain portions of the day, allowing us to
add
logistics services without significantly increasing our costs. Therefore,
we have added a number of services in the past few years, such as
exclusive-use transportation services, dedicated fleet, warehousing,
customs brokerage and shipment consolidation and handling services.
In
2006, we introduced Forward Air Complete, our new pick-up and delivery
service. These services directly benefit our existing customers and
increase our ability to attract new customers, particularly those
air
freight forwarders that cannot justify providing the services directly.
These services are not offered by many transportation providers with
whom
we compete and are attractive to customers who prefer to use one
provider
for all of their transportation needs.
|
|
•
|
Enhance
Information Systems. We
are committed to the continued enhancement of our information systems
in
ways that will continue to provide us competitive service advantages
and
increased productivity. We believe our enhanced systems assist us
in
capitalizing on new business opportunities with existing customers
and
developing relationships with new customers because of the
customer-friendly, cost-saving features our systems provide,
including our real-time tracking and tracing of shipments and
electronic bill presentment.
|
|
•
|
Pursue
Strategic Acquisitions. We
intend to continue to evaluate acquisitions that can increase our
penetration of a geographic area, add new customers or increase freight
volume. In addition, we expect to explore acquisitions that may enable
us
to offer additional logistics services. Since our inception, we have
acquired certain assets of nine of our competitors that met one or
more of
these criteria.
|
Operations
We
receive freight from air freight forwarders, integrated air cargo carriers
and
passenger and cargo airlines at our terminals, which are located on or near
airports in the United States and Canada. We also pick up freight from customers
at designated locations via our new Forward Air Complete service. We consolidate
and transport these shipments by truck through our network to our terminals
nearest the ultimate destinations of the shipments. We operate regularly
scheduled service to and from each of our terminals through our Columbus, Ohio
central sorting facility or through one of our nine regional hubs. We also
operate regularly scheduled shuttle service directly between terminals where
the
volume of freight warrants bypassing the Columbus, Ohio central sorting facility
or a regional hub. When a shipment arrives at our terminal nearest its
destination, the customer arranges for the shipment to be picked up and
delivered to its final destination. Through our Forward Air Complete service,
we
will also deliver the freight for the customer to its final
destination.
Terminals
Our
network consists of terminals located in the following 81 cities:
|
City
|
Airport
Served
|
City
|
Airport
Served
|
|||
|
Albany,
NY
|
ALB
|
Louisville,
KY
|
SDF
|
|||
|
Albuquerque,
NM
|
ABQ
|
Memphis,
TN
|
MEM
|
|||
|
Atlanta,
GA
|
ATL
|
McAllen,
TX*
|
MFE
|
|||
|
Austin,
TX
|
AUS
|
Miami,
FL
|
MIA
|
|||
|
Baltimore,
MD
|
BWI
|
Milwaukee,
WI
|
MKE
|
|||
|
Baton
Rouge, LA*
|
BTR
|
Minneapolis,
MN
|
MSP
|
|||
|
Birmingham,
AL*
|
BHM
|
Mobile,
AL*
|
MOB
|
|||
|
Blountville,
TN*
|
TRI
|
Nashville,
TN
|
BNA
|
|||
|
Boston,
MA
|
BOS
|
Newark,
NJ
|
EWR
|
|||
|
Brownsville,
TX*
|
BRO
|
Newburgh,
NY
|
SWF
|
|||
|
Buffalo,
NY
|
BUF
|
New
Orleans, LA
|
MSY
|
|||
|
Charleston,
SC
|
CHS
|
New
York, NY
|
JFK
|
|||
|
Charlotte,
NC
|
CLT
|
Norfolk,
VA
|
ORF
|
|||
|
Chicago,
IL
|
ORD
|
Oklahoma
City, OK
|
OKC
|
|||
|
Cincinnati,
OH
|
CVG
|
Omaha,
NE*
|
OMA
|
|||
|
Cleveland,
OH
|
CLE
|
Orlando,
FL
|
MCO
|
|||
|
Columbia,
SC*
|
CAE
|
Pensacola,
FL*
|
PNS
|
|||
|
Columbus,
OH
|
CMH
|
Philadelphia,
PA
|
PHL
|
|||
|
Corpus
Christi, TX*
|
CRP
|
Phoenix,
AZ
|
PHX
|
|||
|
Dallas/Ft.
Worth, TX
|
DFW
|
Pittsburgh,
PA
|
PIT
|
|||
|
Dayton,
OH*
|
DAY
|
Portland,
OR
|
PDX
|
|||
|
Denver,
CO
|
DEN
|
Raleigh,
NC
|
RDU
|
|||
|
Detroit,
MI
|
DTW
|
Richmond,
VA
|
RIC
|
|||
|
El
Paso, TX
|
ELP
|
Rochester,
NY
|
ROC
|
|||
|
Greensboro,
NC
|
GSO
|
Sacramento,
CA
|
SMF
|
|||
|
Greenville,
SC
|
GSP
|
Salt
Lake City, UT
|
SLC
|
|||
|
Hartford,
CT
|
BDL
|
San
Antonio, TX
|
SAT
|
|||
|
Harlingen,
TX*
|
HRL
|
San
Diego, CA
|
SAN
|
|||
|
Harrisburg,
PA*
|
MDT
|
San
Francisco, CA
|
SFO
|
|||
|
Houston,
TX
|
IAH
|
Seattle,
WA
|
SEA
|
|||
|
Huntsville,
AL*
|
HSV
|
St.
Louis, MO
|
STL
|
|||
|
Indianapolis,
IN
|
IND
|
Syracuse,
NY
|
SYR
|
|||
|
Jackson,
MS*
|
JAN
|
Tampa,
FL
|
TPA
|
|||
|
Jacksonville,
FL
|
JAX
|
Toledo,
OH*
|
TOL
|
|||
|
Kansas
City, MO
|
MCI
|
Tucson,
AZ*
|
TUS
|
|||
|
Knoxville,
TN*
|
TYS
|
Tulsa,
OK
|
TUL
|
|||
|
Lafayette,
LA*
|
LFT
|
Washington,
DC
|
IAD
|
|||
|
Laredo,
TX*
|
LRD
|
Montreal,
Canada*
|
YUL
|
|||
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Las
Vegas, NV
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LAS
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Ottawa,
Canada*
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YOW
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Little
Rock, AR
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LIT
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Toronto,
Canada
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YYZ
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Los
Angeles, CA
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LAX
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*
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Denotes
an independent agent location.
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Independent
agents operate 22 of our locations. These locations typically handle lower
volumes of freight relative to our company-operated facilities.
Direct
Service and Regional Hubs
We
operate direct terminal-to-terminal services and regional overnight service
between terminals where justified by freight volumes. We currently provide
regional overnight service to many of the markets within our network. Direct
service allows us to provide quicker scheduled service at a lower cost because
it allows us to minimize out-of-route miles and eliminate the added time and
cost of handling the freight at our central or regional hub sorting facilities.
Direct shipments also reduce the likelihood of damage because of reduced
handling and sorting of the freight. As we continue to increase volume between
various terminals, we intend to add other direct services. Where warranted
by
sufficient volume in a region, we utilize larger terminals as regional sorting
hubs, which allows us to bypass our Columbus, Ohio central sorting facility.
These regional hubs improve our operating efficiency and enhance customer
service. We operate regional hubs in Atlanta, Charlotte, Dallas/Ft. Worth,
Kansas City, Los Angeles, New Orleans, Newburgh, Orlando and San Francisco.
Shipments
The
average weekly volume of freight moving through our network
was approximately 32.2 million pounds per week in 2006. During 2006,
our average shipment weighed over 720 pounds and shipment sizes ranged from
small boxes weighing only a few pounds to large shipments of several thousand
pounds. Although we impose no significant size or weight restrictions, we focus
our marketing and price structure on shipments of 200 pounds or more. As a
result, we typically do not directly compete with integrated air cargo carriers
in the overnight delivery of small parcels. The table below summarizes the
average weekly volume of freight moving through our network for each year since
1990.
|
Year
|
Average
Weekly Volume in Pounds
|
|
(In
millions)
|
|
|
1990
|
1.2
|
|
1991
|
1.4
|
|
1992
|
2.3
|
|
1993
|
3.8
|
|
1994
|
7.4
|
|
1995
|
8.5
|
|
1996
|
10.5
|
|
1997
|
12.4
|
|
1998
|
15.4
|
|
1999
|
19.4
|
|
2000
|
24.0
|
|
2001
|
24.3
|
|
2002
|
24.5
|
|
2003
|
25.3
|
|
2004
|
28.7
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2005
|
31.2
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2006
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32.2
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Logistic
and Other Services
Customers
increasingly demand more than the movement of freight from their transportation
providers. To meet these demands, we continually seek ways to customize our
logistics services and add new services. Logistic and other services increase
our profit margins by increasing our revenue without corresponding increases
in
our fixed costs.
Our
logistic and other services allow customers to access the following
services from a single source:
|
•
|
exclusive-use
vehicles, commonly referred to as truck brokerage;
|
|
•
|
dedicated
fleets;
|
|
•
|
customs
brokerage, such as assistance with U.S. Customs and Border Protection
(“U.S. Customs”) procedures for both import and export shipments;
|
|
•
|
warehousing,
dock and office space; and
|
|
•
|
shipment
consolidation and handling, such as shipment build-up and break-down
and
reconsolidation of air or ocean pallets or containers.
|
These
services are critical to many of our air freight forwarder customers that do
not
provide logistics services themselves or that prefer to use one provider for
all
of their surface transportation needs.
Customers
and Marketing
Our
wholesale customer base is primarily comprised of air freight forwarders,
integrated air cargo carriers and passenger and cargo airlines. Our air freight
forwarder customers vary in size from small, independent, single facility
companies to large, international logistics companies such as SEKO Worldwide,
AIT Worldwide Logistics, DHL Danzas, UPS Supply Chain Solutions and Pilot Air
Freight. Because we deliver dependable service, integrated air cargo carriers
such as UPS Cargo and DHL Worldwide Express use our network to provide overflow
capacity and other services, including shipment of bigger packages and
pallet-loaded cargo. Our passenger and cargo airline customers include British
Airways, KLM, United Airlines and Virgin Atlantic.
We
market
our services through a sales and marketing staff located in major air cargo
transportation markets of the United States. Senior management also is actively
involved in sales and marketing at the national account level and supports
local
sales initiatives. We have a strong commitment to strategically supporting
the
wholesale air cargo industry and focus on air freight forwarders, integrated
air
cargo carriers and passenger and cargo airlines that have time-sensitive
shipping needs requiring customized services. We also participate in air cargo
trade shows and advertise our services through direct mail programs and through
the Internet via www.forwardair.com. The information contained on our website
is
not part of this filing.
Technology
and Information Systems
Our
technology allows us to provide our customers with real-time tracking and
tracing of shipments throughout the transportation process, complete shipment
history, proof of delivery, estimated charges and electronic bill presentment.
In addition, our customers are able to electronically transmit bookings to
us
from their own networks and schedule transportation and obtain tracking and
tracing information. We continue to enhance our systems to permit our customers
to obtain this information both through the Internet and through electronic
data
interchange. We have invested and expect to continue investing management
and
financial resources on maintaining and upgrading our information systems
in an
effort to increase the volume of freight we can handle in our network, improve
the visibility of shipment information and reduce our operating costs. The
ability to provide accurate, real-time information on the status of shipments
is
increasingly important and our efforts in this area could result in both
competitive service advantages and increased productivity throughout our
network. We
believe our continuing technical enhancements will assist us in capitalizing
on
new business opportunities, capturing additional freight from existing
customers, and attracting new customers.
In
2006,
we fully implemented TAP, a new program, in our continuing effort to automate
and improve terminal operations, and a new website to support our new Forward
Air Complete service offering. TAP enables operation personnel to perform
data
entry from our terminal floor locations. This greatly reduces the need for
data
entry personnel and provides immediate shipment updates. The result is increased
shipment accuracy and improved data timeliness. We believe the TAP system
will
improve our ability to provide accurate, real-time information, and will
result
in both competitive service advantages and increased productivity throughout
our
network. The Forward Air Complete website coordinates activities between
our
customers, operations personnel and external service providers. We believe
that
the TAP system, Forward Air Complete website and other
technical enhancements will assist us in capitalizing on new
business opportunities and could encourage customers to increase the volume
of
freight they send through our network.
Purchased
Transportation
We
contract for most of our transportation services on a per mile basis from
owner-operators. The owner-operators own, operate and maintain their own
tractors and employ their own drivers. Our freight handlers load and unload
our
trailers for hauling by owner-operators between our terminals.
We
seek
to establish long-term relationships with owner-operators to assure dependable
service and availability. Historically, we have experienced significantly higher
than industry average retention of owner-operators. We have established specific
guidelines relating to safety records, driving experience and personal
evaluations that we use to select our owner-operators. To enhance our
relationship with the owner-operators, our per mile rates are generally above
prevailing market rates. In addition, we typically offer our owner-operators
and
their drivers a consistent work schedule. Usually, schedules are between the
same two cities, improving quality of work life for the owner-operators and
their drivers and, in turn, increasing driver retention.
As
a
result of efforts to expand our logistics and other services, seasonal demands
and volume surges in particular markets, we also purchase transportation from
other surface transportation providers to handle overflow volume. Of the $146.7
million incurred for purchased transportation during 2006, we purchased 62.4%
from owner-operators and 37.6% from other surface transportation providers.
Competition
The
air
freight transportation industry is highly competitive and very fragmented.
Our
competitors include regional trucking companies that specialize in handling
deferred air freight and national and regional less-than-truckload carriers.
To
a lesser extent, we compete with integrated air cargo carriers and passenger
and
cargo airlines. We believe competition is based on service, primarily on-time
delivery, flexibility and reliability, as well as rates. We offer our services
at rates that generally are significantly below the charge to transport the
same
shipment to the same destination by air. We believe we have an advantage over
less-than-truckload carriers because we deliver faster, more reliable service
between many cities.
Seasonality
Historically,
our operating results have been subject to seasonal trends when measured on
a
quarterly basis. The first quarter has traditionally been the weakest and the
third and fourth quarters have traditionally been the strongest. Typically,
this
pattern has been the result of factors such as climate, national holidays,
customer demand and economic conditions. Additionally, a significant portion
of
our revenue is derived from customers whose business levels are impacted by
the
economy.
Employees
As
of
December 31, 2006, we had 1,225 full-time employees, 464 of whom were
freight handlers. Additionally as of that date, there were 709 part-time
employees, of whom the majority were freight handlers. None of our employees
are
covered by a collective bargaining agreement. We recognize that our workforce,
including our freight handlers, is one of our most valuable assets. The
recruitment, training and retention of qualified employees are essential to
support our continued growth and to meet the service requirements of our
customers.
Risk
Management and Litigation
Under
U.S. Department of Transportation (“DOT”) regulations, we are liable for
property damage and personal injuries caused by owner-operators while they
are
operating on our behalf. We currently maintain liability insurance coverage
that
we believe is adequate to cover third-party claims. We have a self-insured
retention of $0.5 million per occurrence for each vehicle and general liability
claim. We may also be subject to claims for workers’ compensation. We maintain
workers’ compensation insurance coverage that we believe is adequate to cover
such claims. We have a self-insured retention of approximately $0.3 million
for
each such claim, except in Ohio, where we are a qualified self-insured with
an
approximately $0.4 million self-insured retention. We could incur claims in
excess of our policy limits or incur claims not covered by our insurance.
From
time
to time, we are a party to litigation 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 materially adverse effect on our business, financial
condition or results of operations.
Regulation
The
DOT
and various state agencies have been granted broad powers over our business.
These entities generally regulate such activities as authorization to engage
in
property brokerage and motor carrier operations, safety and financial reporting.
We are licensed through our subsidiaries by the DOT as a motor carrier and
as a
broker to arrange for the transportation of freight by truck. Our domestic
customs brokerage operations are licensed by U.S. Customs. We are subject to
similar regulation in the Dominion of Canada.
Service
Marks
Through
one of our subsidiaries, we hold federal
trademark registrations or applications for federal trademark registration,
associated with the following service marks: Forward Air,
Inc.®, North America’s Most Complete Roadfeeder
Network®, Forward Air ™
and
Forward
Air Complete™.
These
marks are of significant value to our business.
Website
Access
We
file
reports with the Securities and Exchange Commission (the “SEC”), including
annual reports on Form 10-K, quarterly reports on Form 10-Q and other reports
from time to time. We are an electronic filer and the SEC maintains an Internet
site at www.sec.gov that contains these reports and other information filed
electronically. We make available free of charge through our website our Code
of
Ethics and our reports as soon as reasonably practicable after such material
is
electronically filed with or furnished to the SEC. Our website address is
www.forwardair.com. Please note that this website address is provided as an
inactive textual reference only. The information provided on the website is
not
part of this report, and is therefore not incorporated by reference unless
such
information is otherwise specifically referenced elsewhere in this report.
|
Risk
Factors
|
In
addition to the other information in this Form 10-K and other documents we
have
filed with the SEC from time to time, the following factors should be carefully
considered in evaluating our business. Such factors could affect results and
cause results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, us. Some or all of these factors may apply
to our business.
Our
business is subject to general economic and business factors that are largely
out of our control, any of which could have a materially adverse effect on
our
results of operations.
Our
business is dependent upon a number of factors that may have a materially
adverse effect on the results of our operations, many of which are beyond our
control. These factors include increases or rapid fluctuations in fuel prices,
capacity in the trucking industry, insurance premiums, self-insured retention
levels and difficulty in attracting and retaining qualified owner-operators
and
freight handlers. Our profitability would decline if we were unable to
anticipate and react to increases in our operating costs, including purchased
transportation and labor, or decreases in the amount of revenue per pound of
freight shipped through our system. As a result of competitive factors, we
may
be unable to raise our prices to meet increases in our operating costs, which
could result in a materially adverse effect on our business, results of
operations and financial condition.
Economic
conditions may adversely affect our customers and the amount of freight
available for transport. This may require us to lower our rates, and this may
also result in lower volumes of freight flowing through our network. Customers
encountering adverse economic conditions represent a greater potential for
loss,
and we may be required to increase our reserve for bad-debt losses.
Our
results of operations may be affected by seasonal factors. Volumes of freight
tend to be lower in the first quarter after the winter holiday season. In
addition, it is not possible to predict the short or long-term effects of any
geopolitical events on the economy or on customer confidence in the United
States, or their impact, if any, on our future results of operations.
In
order to continue growth in our business, we will need to increase the volume
and revenue per pound of the freight shipped through our system.
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. The
amount of freight shipped through our network and our revenue per pound depend
on numerous factors, many of which are beyond our control, such as economic
conditions and our competitors’ pricing. Therefore, we cannot guarantee that the
amount of freight shipped or the revenue per pound we realize on that freight
will increase or even remain at current levels. If we fail to increase the
volume of the freight shipped through our network or the revenue per pound
of
the freight shipped, we may be unable to maintain or increase our profitability.
Because
a portion of our network costs are fixed, we will be adversely affected by
any
decrease in the volume or revenue per pound of freight shipped through our
network.
Our
operations, particularly our network of hubs and terminals, represent
substantial fixed costs. As a result, any decline in the volume or revenue
per
pound of freight we handle may have an adverse effect on our operating margin
and our results of operations. Typically, we do not have contracts with our
customers and we cannot guarantee that our current customers will continue
to
utilize our services or that they will continue at the same levels. The actual
shippers of the freight moved through our network include various manufacturers
and distributors of electronics, telecommunications equipment, machine parts,
trade show exhibit materials and medical equipment. Adverse business conditions
affecting these shippers or adverse general economic conditions are likely
to
cause a decline in the volume of freight shipped through our network.
We
operate in a highly competitive and fragmented industry, and our business will
suffer if we are unable to adequately address downward pricing pressures and
other factors that may adversely affect our operations and profitability.
The
freight transportation industry is highly competitive, very fragmented and
historically has had few barriers to entry. Our principal competitors include
regional trucking companies that specialize in handling deferred air freight
and
national and regional less-than-truckload carriers. To a lesser extent, we
compete with integrated air cargo carriers and passenger airlines. Our
competition ranges from small operators that compete within a limited geographic
area to companies with substantially greater financial and other resources,
including greater freight capacity. We also face competition from air freight
forwarders who decide to establish their own networks to transport deferred
air
freight. We believe competition is based on service, primarily on-time delivery,
flexibility and reliability, as well as rates. Many of our competitors
periodically reduce their rates to gain business, especially during times of
economic decline. In the past several years, several of our competitors have
reduced their rates to unusually low levels that we believe are unsustainable
in
the long-term, but that may materially adversely affect our business in the
short-term. These competitors may cause a decrease in our volume of freight,
require us to lower the prices we charge for our services and adversely affect
both our growth prospects and profitability.
Claims
for property damage, personal injuries or workers’ compensation and related
expenses could significantly reduce our earnings.
Under
DOT
regulations, we are liable for property damage and personal injuries caused
by
owner-operators while they are operating on our behalf. We currently maintain
liability insurance coverage that we believe is adequate to cover third-party
claims. We have a self-insured retention of $0.5 million per occurrence for
each
vehicle and general liability claim. We may also be subject to claims for
workers’ compensation. We maintain workers’ compensation insurance coverage that
we believe is adequate to cover such claims. We have a self-insured retention
of
approximately $0.3 million for each such claim, except in Ohio, where we are
a
qualified self-insured with an approximately $0.4 million self-insured
retention. We could incur claims in excess of our policy limits or incur claims
not covered by our insurance. Any claims beyond the limits or scope of our
insurance coverage may have a material adverse effect on us. Because we do
not
carry “stop loss” insurance, a significant increase in the number of claims that
we must cover under our self-insurance retainage could adversely affect our
profitability. In addition, we may be unable to maintain insurance coverage
at a
reasonable cost or in sufficient amounts or scope to protect us against losses.
We
have grown and may grow, in part, through acquisitions, which involve various
risks, and we may not be able to identify or acquire companies consistent with
our growth strategy or successfully integrate acquired businesses into our
operations.
We
have
grown through acquisitions and we intend to pursue opportunities to expand
our
business by acquiring other companies in the future. Acquisitions involve risks,
including those relating to:
|
•
|
identification
of appropriate acquisition candidates;
|
|
•
|
negotiation
of acquisitions on favorable terms and valuations;
|
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•
|
integration
of acquired businesses and personnel;
|
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•
|
implementation
of proper business and accounting controls;
|
|
•
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ability
to obtain financing, on favorable terms or at all;
|
|
•
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diversion
of management attention;
|
|
•
|
retention
of employees and customers; and
|
|
•
|
unexpected
liabilities.
|
Acquisitions
also may affect our short-term cash flow and net income as we expend funds,
potentially increase indebtedness and incur additional expenses. If we are
not
able to identify or acquire companies consistent with our growth strategy,
or if
we fail to successfully integrate any acquired companies into our operations,
we
may not achieve anticipated increases in revenue, cost savings and economies
of
scale, and our operating results may actually decline.
We
may have difficulty effectively managing our growth, which could adversely
affect our results of operations.
Our
growth plans will place significant demands on our management and operating
personnel. Our ability to manage our future growth effectively will require
us
to regularly enhance our operating and management information systems and to
continue to attract, retain, train, motivate and manage key employees. If we
are
unable to manage our growth effectively, our business, results of operations
and
financial condition may be adversely affected.
If
we fail to maintain and enhance our information technology systems, we may
lose
orders and customers or incur costs beyond expectations.
We
must
maintain and enhance our information technology systems to remain competitive
and effectively handle higher volumes of freight through our network. We expect
customers to continue to demand more sophisticated, fully integrated information
systems from their transportation providers. If we are unable to maintain and
enhance our information systems to handle our freight volumes and meet the
demands of our customers, our business and results of operations will be
adversely affected. If our information systems are unable to handle higher
freight volumes and increased logistics services, our service levels and
operating efficiency may decline. This may lead to a loss of customers and
a
decline in the volume of freight we receive from customers.
Our
information technology systems are subject to risks that we cannot control.
Our
information technology systems are dependent upon global communications
providers, web browsers, telephone systems and other aspects of the Internet
infrastructure that have experienced significant system failures and electrical
outages in the past. While we take measures to ensure our major systems have
redundant capabilities, our systems are susceptible to outages from fire,
floods, power loss, telecommunications failures, break-ins and similar events.
Despite our implementation of network security measures, our servers are
vulnerable to computer viruses, break-ins and similar disruptions from
unauthorized tampering with our computer systems. The occurrence of any of
these
events could disrupt or damage our information technology systems and inhibit
our internal operations, our ability to provide services to our customers and
the ability of our customers to access our information technology systems.
This
may result in the loss of customers or a reduction in demand for our services.
If
we have difficulty attracting and retaining owner-operators or freight handlers,
our results of operations could be adversely affected.
We
depend
on owner-operators for most of our transportation needs. In 2006,
owner-operators provided 62.4% of our purchased transportation. Competition
for
owner-operators is intense, and sometimes there are shortages of available
owner-operators. In addition, we need a large number of freight handlers to
operate our business efficiently. During periods of low unemployment in the
areas where our terminals are located, we may have difficulty hiring and
retaining a sufficient number of freight handlers. If we have difficulty
attracting and retaining enough qualified owner-operators or freight handlers,
we may be forced to increase wages and benefits, which would increase our
operating costs. This difficulty may also impede our ability to maintain our
delivery schedules, which could make our service less competitive and force
us
to curtail our planned growth. If our labor costs increase, we may be unable
to
offset the increased labor costs by increasing rates without adversely affecting
our business. As a result, our profitability may be reduced.
A
determination by regulators that our independent owner-operators are employees
rather than independent contractors could expose us to various liabilities
and
additional costs.
At
times,
the Internal Revenue Service, the Department of Labor and state authorities
have
asserted that owner-operators are “employees,” rather than “independent
contractors.” One or more governmental authorities may challenge our position
that the owner-operators we use are not our employees. A determination by
regulators that our independent owner-operators are employees rather than
independent contractors could expose us to various liabilities and additional
costs including, but not limited to, employment-related expenses such as
workers’ compensation insurance coverage and reimbursement of work-related
expenses.
We
operate in a regulated industry, and increased costs of compliance with, or
liability for violation of, existing or future regulations could have a material
adverse effect on our business.
The
DOT
and various state agencies have been granted broad regulatory powers over our
business, and we are licensed by the DOT and U.S. Customs. If we fail to comply
with any applicable regulations, our licenses may be revoked or we could be
subject to substantial fines or penalties and to civil and criminal liability.
We
are
also subject to various environmental laws and regulations dealing with the
handling of hazardous materials. Our operations involve the risks of fuel
spillage or seepage. If we are involved in a spill or other accident involving
hazardous substances, our business and operating results may be adversely
affected. Changes to current environmental laws or regulations may increase
our
operating costs and adversely affect our results of operations.
The
transportation industry is subject to legislative and regulatory changes that
can affect the economics of our business by requiring changes in operating
practices or influencing the demand for, and the cost of providing,
transportation services. Heightened security concerns in the aftermath of the
September 11, 2001 terrorist attacks may continue to result in increased
regulations, including the implementation of various security measures,
checkpoints or travel restrictions on trucks.
In
addition, there may be changes in applicable federal or state tax or other
laws
or interpretations of those laws. If this happens, we may incur additional
taxes, as well as higher workers’ compensation and employee benefit costs, and
possibly penalties and interest for prior periods. This could have an adverse
effect on our results of operations.
We
are dependent on our senior management team, and the loss of any such personnel
could materially and adversely affect our business.
Our
future performance depends, in significant part, upon the continued service
of
our senior management team. We cannot assure you that we can retain these
employees. The loss of the services of one or more of these or other key
personnel could have a material adverse effect on our business, operating
results and financial condition. We must continue to develop and retain a core
group of management personnel and address issues of succession planning if
we
are to realize our goal of growing our business. We cannot assure you that
we
will be able to do so.
If
our employees were to unionize, our operating costs would likely increase.
None
of
our employees are currently represented by a collective bargaining agreement.
However, we have no assurance that our employees will not unionize in the
future, which could increase our operating costs and force us to alter our
operating methods. This could have a material adverse effect on our operating
results.
Our
shareholder rights plan, charter and bylaws and provisions of Tennessee law
could discourage or prevent a takeover that may be considered favorable.
We
have a
shareholder rights plan that may have the effect of discouraging unsolicited
takeover proposals. The rights issued under the shareholder rights plan would
cause substantial dilution to a person or group that attempts to acquire us
on
terms not approved in advance by our Board of Directors. In addition, our
shareholder rights plan, charter and bylaws and provisions of Tennessee law
may
discourage, delay or prevent a merger, acquisition or change in control that
may
be considered favorable. These provisions could also discourage proxy contests
and make it more difficult for shareholders to elect directors and take other
corporate actions. Among other things, these provisions:
| • |
authorize
us to issue preferred stock, the terms of which may be determined
at the
sole discretion of our Board of Directors and may adversely
affect the
voting or economic rights of our shareholders; and
|
| • |
establish
advance notice requirements for nominations for election to the Board
of
Directors and for proposing matters that can be acted
on
by shareholders at a meeting.
|
Our
shareholder rights plan, charter and bylaws and provisions of Tennessee law
may
discourage transactions that otherwise could provide for the payment of a
premium over prevailing market prices for our common stock, $0.01 par value
per
share, and also could limit the price that investors are willing to pay in
the
future for shares of our common stock.
|
Unresolved
Staff Comments
|
None.
|
Properties
|
Properties
and Equipment
Management
believes that we have adequate facilities for conducting our business, including
properties owned and leased. Management further believes that in the event
replacement property is needed, it will be available on terms and at costs
substantially similar to the terms and costs experienced by competitors within
the transportation industry.
We
lease
our 37,500 square foot headquarters in Greeneville, Tennessee from the
Greeneville-Greene County Airport Authority. The initial lease term ended in
2006 and has two ten-year and one five-year renewal options. We timely notified
the Greeneville-Greene County Airport Authority of our intent to renew the
lease
for an additional ten years, which will run through 2016. The extension was
signed in January 2007.
We
own
our Columbus, Ohio central sorting facility. During
2006 we completed a $5.5 million expansion of this facility. The new
expanded Columbus, Ohio facility is 125,000 square feet with 168 trailer
doors. This premier facility can unload, sort and load upwards of 3.7
million pounds in five hours. In addition to the expansion, we
process-engineered the freight sorting in the expanded building to improve
handling efficiencies. The benefits will include reductions in the distance
each
shipment moves in the building to speed up the transfer process, less handling
of freight to further improve service integrity and flexibility to operate
multiple sorts at the same time.
During
the fourth quarter of 2002, the City of Atlanta filed a Petition for
Condemnation and Declaration of Taking for a terminal facility owned by
Transportation Properties, Inc. and leased by Forward Air, Inc., two of our
wholly owned subsidiaries. The condemnation was filed in connection with
the
fifth runway airport expansion project at Atlanta Hartsfield-Jackson
International Airport. According to the 2002 condemnation petition, the City
of
Atlanta took ownership of the property and building and deposited $2.6 million
into the Registry of the Superior Court of Clayton County, Georgia (the “Court”)
as compensation to Transportation Properties, Inc. We filed a protest to
the
City of Atlanta’s evaluation of the property and building and also challenged
the method of condemnation it utilized. Prior to December 2003, the City
of
Atlanta destroyed the condemned building in conjunction with the runway
expansion project. On or about December 30, 2003, the Court ruled that the
City
of Atlanta’s method of condemnation was improper and returned ownership of the
land to us.
During
January 2004, the City of Atlanta filed a second condemnation petition to
obtain
title to the land. In connection with this second petition, the City of Atlanta
deposited an additional $1.3 million into the Registry of the Court, which
was
the City of Atlanta’s estimated fair market value of the land. The City of
Atlanta petitioned the Court and was granted the right to withdraw the original
$2.6 million escrow balance it paid into the Court as part of the first petition
for condemnation. We and our outside counsel believed that the December 30,
2003
ruling by the Court and the City of Atlanta’s actions subsequent to the first
condemnation gave rise to additional theories of recovery. We challenged
the
method of condemnation set forth in the second petition and the withdrawal
of
the original $2.6 million escrow balance. Additionally, we had claims for
damages arising from the City of Atlanta’s destruction of the Company’s building
during the wrongful possession of the property by the City of Atlanta. As
of
December 31, 2004, we had received the $1.3 million escrow into cash and
had a
$1.3 million receivable for the difference in the original $2.6 million escrow
and actual $1.3 million in escrow received.
In
the
second quarter of 2005, an agreement was reached with the City of Atlanta
to
settle the dispute. In the settlement, the City of Atlanta paid us approximately
$2.7 million, which represents payment of the receivable of $1.3 million
along
with additional pre-tax gain of approximately $1.4 million, included in other
income, net. The cash received is net of attorney’s fees.
In
July
2003, we relocated our Atlanta operations into a new 63,550 square foot Atlanta
terminal facility. The initial lease term for this terminal facility expires
in
June 2008.
As
part
of our plan to acquire three new sites in key gateway cities, we entered
into an
agreement on July 10, 2006 to purchase real property and to construct a new
terminal near Chicago, Illinois. On September 14, 2006, we entered into an
agreement to purchase real property and to construct a new regional hub near
Atlanta, Georgia. In addition, during February 2007 we purchased 36.7 acres
of
land in Irving, Texas on which we will build a new regional hub. Completion
of
the new terminal and regional hubs will occur throughout 2007.
We
lease
and maintain terminals in 57 additional cities located at or near various
airports in the United States and Canada. Lease terms are typically for three
to
five years. The remaining 22 terminals are agent stations operated by
independent agents who handle freight for us on a commission basis.
We
own
the majority of trailers we use to move freight through the Forward Air network.
Substantially all of our trailers are 53’ long, some of which have specialized
roller bed equipment required to serve air cargo industry customers. The
average
age of our owned trailer fleet was approximately 2.5 years at December 31,
2006.
|
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.
|
Submission
of Matters to a Vote of Security Holders
|
During
the fourth quarter of the fiscal year ended December 31, 2006, no matters were
submitted to a vote of security holders through the solicitation of proxies
or
otherwise.
Executive
Officers of the Registrant
Pursuant
to Instruction 3 to Item 401(b) of Regulation S-K of the Securities Act and
General Instruction G(3) to Form 10-K, the following information is included
in
Part I of this report. The ages listed below are as of December 31, 2006.
The
following are our executive officers:
|
Name
|
Age
|
Position
|
||
|
Bruce
A. Campbell
|
55
|
President
and Chief Executive Officer
|
||
|
Rodney
L. Bell
|
44
|
Chief
Financial Officer, Senior Vice President and Treasurer
|
||
|
Craig
A. Drum
|
51
|
Senior
Vice President, Sales
|
||
|
Matthew
J. Jewell
|
40
|
Senior
Vice President, General Counsel and Secretary
|
||
|
Chris
C. Ruble
|
44
|
Senior
Vice President, Operations
|
There
are
no family relationships between any of our executive officers. All officers
hold
office at the pleasure of the Board of Directors.
Bruce
A.
Campbell has served as a director since April 1993, as President since August
1998 and as Chief Executive Officer since October 2003. Mr. Campbell was Chief
Operating Officer from April 1990 until October 2003 and Executive Vice
President from April 1990 until August 1998. Prior to joining us, Mr. Campbell
served as Vice President of Ryder-Temperature Controlled Carriage in Nashville,
Tennessee from September 1985 until December 1989. Mr. Campbell also serves
as a
director of Greene County Bancshares.
Rodney
L.
Bell began serving as Chief Financial Officer, Senior Vice President and
Treasurer in June 2006. Mr. Bell, who is a Certified Public Accountant, was
appointed Chief Accounting Officer in February 2006 and continued to serve
as
Vice President and Controller, positions held since October 2000 and February
1995, respectively. Mr. Bell joined the Company in March 1992 as Assistant
Controller after serving as a senior manager with the accounting firm of Adams
and Plucker in Greeneville, Tennessee.
Craig
A.
Drum has served as Senior Vice President, Sales since July 2001 after joining
us
in January 2000 as Vice President, Sales for our Internet and technology service
and support subsidiary. In February 2001, Mr. Drum was promoted to Vice
President of National Accounts. Prior to January 2000, Mr. Drum spent most
of
his 24-year career in air freight with Delta Air Lines, Inc., most recently
as
the Director of Sales and Marketing - Cargo.
Matthew
J. Jewell has served as Senior Vice President and General Counsel since July
2002. In October 2002, he was also appointed Secretary. From July 2002 until
May
2004, Mr. Jewell was also the Senior Vice President, General Counsel and
Secretary of Landair Corporation. From January 2000 until joining us in July
2002, Mr. Jewell was a partner with the law firm of Austin & Sparks, P.C.
Mr. Jewell was an associate at Dennis, Corry & Porter, L.L.P. from July 1991
to December 1998 and a partner from January 1999 to January 2000.
Chris
C.
Ruble has served as Senior Vice President, Operations since October 2001. He
was
a Regional Vice President from September 1997 to October 2001 and a regional
manager from February 1997 to September 1997, after starting with us as a
terminal manager in January 1996. From June 1986 to August 1995, Mr. Ruble
served in various management capacities at Roadway Package System, Inc.
|
Market
for Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
|
Our
common stock, $0.01 par value per share (“Common
Stock”), trades on The NASDAQ Global Select Stock Market™ under
the symbol
“FWRD.” The following table sets forth the high and low sales prices for
the Common Stock as reported by The NASDAQ Global Select Stock Market™ for each
full
quarterly period within the two most recent fiscal years. All prices have been
restated to reflect a three-for-two stock split declared in February 2005.
|
2006
|
High
|
Low
|
||
|
First
Quarter
|
$39.49
|
$31.01
|
||
|
Second
Quarter
|
$41.05
|
$35.04
|
||
|
Third
Quarter
|
$43.67
|
$30.26
|
||
|
Fourth
Quarter
|
$37.58
|
$28.86
|
||
|
2005
|
High
|
Low
|
||
|
First
Quarter
|
$30.37
|
$25.67
|
||
|
Second
Quarter
|
$30.00
|
$22.02
|
||
|
Third
Quarter
|
$36.86
|
$28.13
|
||
|
Fourth
Quarter
|
$40.93
|
$32.58
|
||
There
were approximately 377 shareholders of
record of our Common Stock as of February 21, 2007.
On
February 15, 2005, our Board of Directors declared a three-for-two stock split
of our Common Stock to be effected in the form of a stock dividend to
shareholders of record as of March 18, 2005. Common Stock issued and additional
paid-in capital have been restated to reflect the split for all periods
presented. All common share and per share data included in the consolidated
financial statements and notes thereto have been restated to give effect to
the
stock split.
During
each of the three months ended March 31, 2006, June 30, 2006, September 30,
2006
and December 31, 2006, dividends of $0.07 per share were declared on our Common
Stock then outstanding. The quarterly dividends were paid on March 31, 2006,
June 9, 2006, September 8, 2006 and December 8, 2006. During
the three months ended March 31, 2005, June 30, 2005, September 30, 2005 and
December 31, 2005, dividends of $0.06 per share were declared on our Common
Stock then outstanding. The 2005 quarterly dividends were paid on April 18,
2005, June 3, 2005, September 2, 2005 and January 3, 2006. Subsequent to
December 31, 2006, our Board of Directors declared a cash dividend of $0.07
per
share that will be paid on March 30, 2007 to shareholders of record at the
close of business on March 15, 2007. We expect to continue to pay regular
quarterly cash dividends, though each subsequent quarterly dividend is subject
to review and approval by the Board of Directors.
There
are
no material restrictions on our ability to declare dividends.
None
of
our securities were sold during fiscal year 2006 without registration under
the
Securities Act.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table provides information as of December 31, 2006 with respect to
shares of our Common Stock that may be issued under existing equity compensation
plans, including the 1992 Amended and Restated Stock Option and Incentive Plan
(the “1992 Plan”), the 1999 Stock Option and Incentive Plan (the “1999 Plan”),
the Non-Employee Director Stock Option Plan (the “NED Plan”), the 2000
Non-Employee Director Award (the “2000 NED Award”), the 2005 Employee Stock
Purchase Plan (the “ESPP”) and the 2006 Non-Employee Director Stock Plan (the
“2006 NED Plan”). All shares and prices have been restated to reflect a
three-for-two stock split declared in February 2005. Our shareholders have
approved each of these plans.
Equity
Compensation Plan Information
|
Plan
Category
|
Number
of Securities to be Issued upon Exercise of Outstanding Options,
Warrants
and Rights
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in Column
(a))
|
|
||||||
|
(a)
|
(b)
|
|
(c)
|
|
||||||
|
Equity
Compensation Plans Approved by Shareholders
|
1,714,877
|
(1)
|
$
|
21.36
|
(2)
|
2,362,991
|
(3)
|
|||
|
Equity
Compensation Plans Not Approved by Shareholders
|
--
|
--
|
--
|
|||||||
|
Total
|
1,714,877
|
$
|
21.36
|
2,362,991
|
|
(1)
|
Includes 57,005
shares of Common Stock issuable upon the exercise of options under
the
1992 Plan. The 1992 Plan expired November 12, 2002. No additional
options
may be granted under the 1992 Plan.
|
|
(2)
|
Includes
the weighted-average exercise price of options outstanding under
the 1992
Plan. Excludes purchase rights accruing under the ESPP, which has
a
shareholder-approved reserve of 500,000 shares. Under the ESPP, each
eligible employee may purchase up to 2,000 shares of Common Stock
at
semi-annual intervals each year at a purchase price per share equal
to
90.0% of the lower of the fair market value of the Common Stock at
close
of (i) the first trading day of an option period or (ii) the last
trading
day of a option period.
|
|
(3)
|
Includes
shares available for future issuance under the ESPP. As of December
31,
2006, an aggregate of 479,079 shares of Common Stock were available
for
issuance under the ESPP.
|
Stock
Performance Graph
The
following graph compares the percentage change in the cumulative shareholder
return on our Common Stock with The NASDAQ Trucking and Transportation Stocks
Index and The NASDAQ Global Select Stock Market™ Index commencing on the last
trading day of December 2001 and ending on the last trading day of December
2006. The graph assumes a base investment of $100 made on December 31, 2001
and
the respective returns assume reinvestment of all dividends. The comparisons
in
this graph are required by the SEC and, therefore, are not intended to forecast
or necessarily be indicative of any future return on our Common Stock.
|
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
Forward
Air Corporation
|
|
$100
|
|
$
57
|
|
$
81
|
|
$132
|
|
$163
|
|
$129
|
|
|
NASDAQ
Trucking and Transportation Stocks Index
|
|
100
|
|
102
|
|
146
|
|
187
|
|
195
|
|
227
|
|
|
NASDAQ
Stock Market Index
|
|
100
|
|
69
|
|
103
|
|
112
|
|
115
|
|
126
|
|
Issuer
Purchases of Equity Securities
The
following table provides information with respect to purchases we made of
shares
of our Common Stock during each month in the quarter ended December 31, 2006.
|
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)
|
|
||||||||
|
--
|
--
|
--
|
--
|
||||||||||
|
November
1-30, 2006
|
--
|
--
|
--
|
--
|
|||||||||
|
December
1-31, 2006
|
100,000
|
$
|
29.48
|
1,386,673
|
1,613,327
|
||||||||
|
Total
|
100,000
|
$
|
29.48
|
1,386,673
|
1,613,327
|
|
(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
with a term expiring November 18,
2008.
|
|
Selected
Financial Data
|
The
following table sets forth our selected financial data. The selected financial
data should be read in conjunction with our consolidated financial statements
and notes thereto, included elsewhere in this report.
|
|
Year
ended December 31
|
|||||||||||||||
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
|
(in
thousands, except per share data)
|
||||||||||||||||
|
Income
Statement Data:
|
||||||||||||||||
|
Operating
revenue
|
$
|
352,758
|
|
$
|
320,934
|
|
$
|
282,197
|
|
$
|
241,517
|
|
$
|
226,072
|
||
|
Income
from operations
|
75,396 |
67,437
|
53,598
|
40,182
|
32,737
|
|||||||||||
|
Operating
margin (1)
|
21.4 |
%
|
21.0
|
%
|
19.0
|
%
|
16.6
|
%
|
14.5
|
%
|
||||||
|
Net
income
|
48,923 |
44,909
|
34,421
|
25,815
|
21,616
|
|||||||||||
|
Net
income per share: (2)
|
||||||||||||||||
|
Basic
|
$
|
1.57
|
|
$
|
$1.41
|
|
$
|
1.07
|
|
$
|
0.81
|
|
$
|
0.67
|
||
|
Diluted
|
$
|
1.55 |
$
|
$1.39
|
|
$
|
1.05
|
|
$
|
0.79
|
|
$
|
0.65
|
|||
|
Cash
dividends declared per common share (2)
|
$
|
0.28
|
|
$
|
0.24
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
||
|
Balance
Sheet Data (at end of period):
|
||||||||||||||||
|
Total
assets
|
$
|
213,014
|
|
$
|
212,600
|
|
$
|
214,553
|
|
$
|
175,087
|
|
$
|
145,511
|
||
|
Long-term
obligations, net of current portion
|
796 |
837
|
867
|
907
|
935
|
|||||||||||
|
Shareholders’
equity
|
185,227 |
178,816
|
181,003
|
147,708
|
118,346
|
|||||||||||
|
(1)
|
Income
from operations as a percentage of operating revenue.
|
|
(2)
|
Restated
to reflect a three-for-two stock split declared in February 2005.
|
|
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 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.
In
addition, during 2006 we introduced our new pick-up and delivery
service called Forward Air Complete whereby we arrange for cargo to be picked
up
from and/or delivered to a customer-designated site. Through offering Forward
Air Complete we expect to increase tonnage through our network by attracting
new
customers or shipments from existing customers that require door-to-door
service. Revenue from the roll out of Forward Air Complete was $1.3 million
during the year ended December 31, 2006.
Trends
and Developments
During
the year ended December 31, 2006 our logistics business experienced significant
growth while the growth rate for our airport-to-airport business slowed
over the last half of the year. The growth rate of our logistics business
is
driven by our added capacity and continuing efforts to promote and expand
the
business, as well as by our enhanced technology. During the year ended December
31, 2006, the one-year anniversary of our May 28, 2005 acquisition of certain
assets of U.S. Xpress Enterprises, Inc. (“USX”) occurred bringing an anticipated
slowing of the airport-to-airport tonnage and revenue growth. In anticipation
of
this slowing, we began a number of initiatives focused on continued growth
of
our airport-to-airport business as well as overall revenue growth. These
initiatives include the implementation of Forward Air Complete, our
partnership with DHL Global Forwarding to be their primary ground transportation
provider and new strategic business initiatives with United Airlines and
Pilot
Air Freight.
Also,
during the year ended
December 31, 2006 we completed a project to expand our national hub in
Columbus, Ohio. The new expanded Columbus, Ohio facility is 125,000 square
feet with 168 trailer doors. This premier facility can unload, sort and
load upwards of 3.7 million pounds in five hours. In addition to the expansion,
we process-engineered the freight sorting in the expanded building to improve
handling efficiencies. The benefits will include reductions in the distance
each
shipment moves in the building to speed up the transfer process, less handling
of freight to further improve service integrity and flexibility to operate
multiple sorts at the same time.
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 Form 10-K.
Results
of Operations
The
following table sets forth our historical financial data for the years ended
December 31, 2006 and 2005 (in millions):
|
|
2006
|
2005
|
Change
|
%
Change
|
|||||||||
|
Operating
revenue:
|
|||||||||||||
|
Airport-to-airport
|
$
|
299.6 |
$
|
276.9
|
$
|
22.7 | 8.2 | % | |||||
|
Logistics
|
32.1 | 24.4 | 7.7 | 31.6 | |||||||||
|
Accessorial
|
21.0 | 19.6 | 1.4 | 7.1 | |||||||||
|
Total
operating revenue
|
352.7 | 320.9 | 31.8 | 9.9 | |||||||||
|
Operating
expenses:
|
|||||||||||||
|
Purchased
transportation
|
146.7 | 132.9 | 13.8 | 10.4 | |||||||||
|
Salaries,
wages and employee benefits
|
74.4 | 68.1 | 6.3 | 9.3 | |||||||||
|
Operating
leases
|
14.5 | 13.5 | 1.0 |
7.4
|
|||||||||
|
Depreciation
and amortization
|
8.9 | 8.9 | -- | -- | |||||||||
|
Insurance
and claims
|
6.0 | 5.2 | 0.8 | 15.4 | |||||||||
|
Other
operating expenses
|
26.8 | 24.9 | 1.9 | 7.6 | |||||||||
|
Total
operating expenses
|
277.3 | 253.5 | 23.8 | 9.4 | |||||||||
|
Income
from operations
|
75.4 | 67.4 | 8.0 | 11.9 | |||||||||
|
Total
other income
|
3.1 | 3.8 | (0.7 | ) | (18.4 | ) | |||||||
|
Income
before income taxes
|
78.5 | 71.2 | 7.3 | 10.3 | |||||||||
|
Income
taxes
|
29.6 | 26.3 | 3.3 | 12.5 | |||||||||
|
Net
income
|
$
|
48.9 |
$
|
44.9
|
$
|
4.0 | 8.9 |
%
|
The
following table sets forth our historical financial
data for the years ended December 31, 2005 and 2004:
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
%
Change
|
|||
|
Operating
revenue:
|
|||||||||||||
|
Airport-to-airport
|
$
|
276.9 |
$
|
238.4
|
$
|
38.5 | 16.1 |
%
|
|||||
|
Logistics
|
24.4 | 24.1 | 0.3 | 1.2 | |||||||||
|
Accessorial
|
19.6 | 19.7 | (0.1 | ) | (0.5 | ) | |||||||
|
Total
operating revenue
|
320.9 | 282.2 | 38.7 | 13.7 | |||||||||
|
Operating
expenses:
|
|||||||||||||
|
Purchased
transportation
|
132.9 | 118.4 | 14.5 | 12.2 | |||||||||
|
Salaries,
wages and employee benefits
|
68.1 | 62.7 | 5.4 | 8.6 | |||||||||
|
Operating
leases
|
13.5 | 12.8 | 0.7 | 5.5 | |||||||||
|
Depreciation
and amortization
|
8.9 | 6.8 | 2.1 | 30.9 | |||||||||
|
Insurance
and claims
|
5.2 | 5.4 | (0.2 | ) | (3.7 | ) | |||||||
|
Other
operating expenses
|
24.9 | 22.5 | 2.4 | 10.7 | |||||||||
|
Total
operating expenses
|
253.5 | 228.6 | 24.9 | 10.9 | |||||||||
|
Income
from operations
|
67.4 | 53.6 | 13.8 | 25.7 | |||||||||
|
Total
other income
|
3.8 | 1.1 | 2.7 | 245.5 | |||||||||
|
Income
before income taxes
|
71.2 | 54.7 | 16.5 | 30.2 | |||||||||
|
Income
taxes
|
26.3 | 20.3 | 6.0 | 29.6 | |||||||||
|
Net
income
|
$
|
44.9 |
$
|
34.4
|
$
|
10.5 | 30.5 |
%
|
The
following table shows the percentage relationship of expense items to operating
revenue for the years ended December 31, 2006, 2005 and 2004:
|
2006
|
|
|
2005
|
|
|
2004
|
||||
|
Operating
revenue:
|
|
|
|
|
|
|
||||
|
Airport-to-airport
|
84.9 | 86.3 | % | 84.5 | % | |||||
|
Logistics
|
9.1 | 7.6 | 8.5 | |||||||
|
Accessorial
|
6.0 | 6.1 | 7.0 | |||||||
|
Total
operating revenue
|
100.0 | % | 100.0 | % | 100.0 | % | ||||
|
Operating
expenses:
|
||||||||||
|
Purchased
transportation
|
41.6 |
41.4
|
42.0
|
|||||||
|
Salaries,
wages and employee benefits
|
21.1
|
21.2
|
22.2
|
|||||||
|
Operating
leases
|
4.1
|
4.2
|
4.5
|
|||||||
|
Depreciation
and amortization
|
2.5
|
2.8
|
2.4
|
|||||||
|
Insurance
and claims
|
1.7
|
1.6
|
1.9
|
|||||||
|
Other
operating expenses
|
7.6
|
7.8
|
8.0
|
|||||||
|
Total
operating expenses
|
78.6
|
79.0
|
81.0
|
|||||||
|
Income
from operations
|
21.4
|
21.0
|
19.0
|
|||||||
|
Other
income, net
|
0.9
|
1.2
|
0.4
|
|||||||
|
Income
before income taxes
|
22.3
|
22.2
|
19.4
|
|||||||
|
Income
taxes
|
8.4
|
8.2
|
7.2
|
|||||||
|
Net
income
|
13.9 | % |
14.0
|
%
|
12.2
|
%
|
Year
Ended December 31, 2006 Compared to Year Ended December 31,
2005
Operating
revenue increased by $31.8 million, or 9.9%, to $352.7 million for the
year
ended December 31, 2006 from $320.9 million for the year ended December
31,
2005. Airport-to-airport revenue, which is the largest component of our
operating revenue, increased $22.7 million, or 8.2%, to $299.6 million,
accounting for 84.9% of our total operating revenue during the year ended
December 31, 2006 compared to 86.3% for the year ended December 31, 2005.
Airport-to-airport revenue decreased as a percentage of total operating
revenue
is the result of the significant growth of our logistics revenue, which
is
discussed below. The 8.2% increase in airport-to-airport revenue was driven
by
an increase in tonnage and an increase in average revenue per pound. Tonnage
that transited our network increased by 2.2% in the year ended December
31, 2006
compared with the year ended December 31, 2005. The increase in tonnage
is a
result of positive trends among our customer base and the acquisition of
certain
assets of USX on May 28, 2005. These positive trends were offset by a
decline in shipping demand during the last half of 2006, as demonstrated
by the
3.0% decline in our average weight per shipment, despite a 5.3% increase
in
total shipments. 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 5.9% for the year ended December 31, 2006 versus the year ended
December 31, 2005. Average revenue per pound increased primarily as a result
of
rate increases implemented in March 2006 and increased fuel surcharges
to offset
rising fuel costs.
Our
logistics revenue, which is primarily truckload brokerage and priced on
a per
mile basis, increased $7.7 million, or 31.6%, to $32.1 million, accounting
for
9.1% of our total operating revenue during the year ended December 31,
2006
compared to 7.6% for the year ended December 31, 2005. Logistics revenue
increased despite the loss of a significant customer in the second half
of 2005
who accounted for approximately $1.6 million in logistics revenue during
the
year ended December 31, 2005. The increase in logistics revenue is primarily
attributable to our ability to capture a larger percentage of truckload
opportunities as a result of our increased access to sufficient capacity
through
third-party transportation providers. During the year ended December 31,
2006,
we increased the number of miles driven to support our logistics revenue
by
32.6%. The increase in miles driven is a result of our continued efforts
to grow
our logistics business and obtain additional customers. The average revenue
per
mile of our logistics business, including the impact of fuel surcharges,
decreased 0.9% for the year ended December 31, 2006 versus the year ended
December 31, 2005. The decrease in our revenue per mile is primarily a
result of
a change in the mix of business offset by increased fuel surcharges to
offset rising fuel costs.
Accessorial
revenue, which includes Forward Air Complete, warehousing services and
terminal
handling and accounts for our final component of operating
revenue, increased $1.4 million, or 7.1% to $21.0 million for the year
ended December 31, 2006 from $19.6 million for the year ended December
31, 2005.
The increase in accessorial revenue is attributable to the 2006 introduction
of Forward Air Complete and increases in other accessorial charges for
special shipping needs, offset by decreases in terminal handling fees due
to the
customer loss discussed in logistics revenue.
Purchased
transportation increased by $13.8 million, or 10.4%, to $146.7 million
for the
year ended December 31, 2006 from $132.9 million for the year ended December
31,
2005. The increase in purchased transportation is primarily attributable
to an
increase of approximately 9.5% in miles driven and an approximate 0.9%
increase
in the total cost per mile for the year ended December 31, 2006 versus
the year
ended December 31, 2005. As a percentage of total operating revenue, purchased
transportation increased to 41.6% during the year ended December 31, 2006
compared to 41.4% in the same period of 2005. For the year ended December
31,
2006, purchased transportation costs for our airport-to-airport network
decreased to 39.4% of airport-to-airport revenue for the year ended December
31,
2006 versus 40.0% for the year ended December 31, 2005. The proportionate
improvement resulted from better load factors, or more revenue per mile,
for the
year ended December 31, 2006. For the year ended December 31, 2006, logistics
purchased transportation costs represented 71.0% of logistics revenue versus
70.3% for the year ended December 31, 2005. The increase resulted from
lower
logistics revenue per mile discussed above and a 0.1% increase in our logistics
cost per mile. Logistics cost per mile increased as a result of the use
of more
third-party transportation providers as opposed to our less costly fleet
of
owner-operators offset by lower third-party transportation provider rates
due to
our increased capacity and utilization. Accessorial purchased transportation
costs as a percentage of accessorial revenue increased to 28.2% of accessorial
revenue for the year ended December 31, 2006 from 25.1% for the year ended
December 31, 2005. The increase as a percentage of revenue is primarily
attributable to a change in the revenue mix resulting from the implementation
of
Forward Air Complete and the customer loss discussed in the analysis of
logistics revenue.
Salaries,
wages and employee benefits were 21.1% of operating revenue for the year
ended
December 31, 2006 compared to 21.2% for the same period of 2005. The
decrease in
salaries, wages and employee benefits as a percentage of operating revenue
is
attributable to operating efficiencies gained during the year. Salaries
and
wages, including payroll taxes, and workers’ compensation insurance and
expenses, which increased by $3.9 million, or 6.2%, declined 0.7% as
a
percentage of revenue. Salaries and wages and workers’ compensation insurance
and expenses increased to meet the additional demands of the increased
tonnage
through our network and increased logistics and other services provided
to our
customers, but declined as a percentage of revenue due to operating efficiencies
gained during the year as a result of TAP and other management initiatives.
This
decrease as a percentage of revenue was offset by a $2.4 million, or
0.6% as a
percentage of operating revenue, increase in health care costs due to
increased
participants in our health care plan, as well as a larger number of high
dollar
claims. Also, during 2006 we implemented Statement
of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based
Payments(“SFAS
123R”), and issued non-vested shares of Common Stock to certain key employees.
As a result we recognized $1.3 million, or 0.4% of operating revenue,
in
share-based compensation that is included in salaries, wages and employee
benefits for the year ended December 31, 2006. However, this increase
was offset
by the year ended December 31, 2005 including a $1.3 million dollar,
or 0.4% of
operating revenue, charge resulting from the decision by our Board of
Directors
to accelerate the vesting of all of our outstanding and unvested stock
options
to employees, officers and non-employee directors in the fourth quarter
of
2005.
Operating
leases, the largest component of which is facility rent, were 4.1% of operating
revenue for the year ended December 31, 2006 compared with 4.2% for the
year
ended December 31, 2005. The decrease in operating leases as a percentage
of
operating revenue was attributable to the increase in operating revenue
as
operating lease expenses increased $1.0 million, or 7.4%, from the year
ended
December 31, 2005 to the year ended December 31, 2006. The increase is
attributable to expansion of certain facilities resulting in higher facility
rent.
Depreciation
and amortization expense as a percentage of operating revenue was 2.5%
for the
year ended December 31, 2006 compared to 2.8% for the year ended December
31,
2005. Depreciation and amortization expense was $8.9 million for the year
ended
December 31, 2006 and 2005. The decrease in depreciation and amortization
expense as a percentage of operating revenue was attributable to the increase
in
operating revenue as depreciation and amortization remained consistent
year over
year. Depreciation decreased $1.1 million year over year due to the year
ended
December 31, 2005 including increased depreciation from the accelerated
depreciation of trailers sold in the third and fourth quarters of 2005.
Also,
depreciation decreased $0.8 million due to several assets becoming fully
depreciated during 2006. These decreases were offset by amortization expense
increasing during the year ended December 31, 2006 by $0.5 million, or
by five
additional months of amortization, due to the purchase of certain assets
of USX
on May 28, 2005. The decreases were also offset by increased depreciation
on new
trailers and tractors purchased during late 2005 and 2006, as well the
depreciation on our new TAP system which was fully implemented during 2006.
Insurance
and claims were 1.7% of operating revenue for the year ended December 31,
2006
compared to 1.6% for the year ended December 31, 2005 . The increase in
insurance and claims is primarily the result of higher insurance premiums,
offset by improved claims experience during the year ended December 31,
2006.
Additionally, during the year ended December 31, 2005, an independent third
party performed an actuary study of our loss development factor for vehicle
liability claims. The results of the study caused us to lower our loss
development reserve for vehicle liability claims.
Other
operating expenses were 7.6% of operating revenue for the year ended December
31, 2006 compared to 7.8% for the year ended December 31, 2005. The decrease
in
other operating expenses as a percentage of operating revenue was attributable
to the increase in operating revenue as other operating expenses increased
$1.9
million, from the year ended December 31, 2005 to the year ended December
31,
2006. The $1.9 million increase in other operating expenses is primarily
attributable to a $0.7 million decrease in the gain on the sale of trailers
due
to the replacement of approximately half of the trailers in our fleet during
2005. The remaining increase in total other operating expenses is
attributable to increases in volume related operating expenses, such as
fuel,
tires, and station handling fees.
Income
from operations increased by $8.0 million, or 11.9%, to $75.4 million for
the
year ended December 31, 2006 compared with $67.4 million for the same period
in
2005. The increase in income from operations was primarily a result of
the
increase in operating revenue and operating expenses decreasing as a percentage
of revenue.
Other
income, net was $3.1 million, or 0.9% of operating revenue, for the year
ended
December 31, 2006 compared with $3.8 million, or 1.2% of operating revenue,
for
the year ended December 31, 2005. The decrease in other income in total
dollars
and as a percentage of operating revenue was attributable to the year ended
December 31, 2005 including the $1.4 million gain from our lawsuit settlement
with the City of Atlanta regarding property we owned adjacent to the Atlanta
Hartsfield-Jackson International Airport. This decrease was offset by
higher interest income earned during the year ended December 31, 2006 due
to
higher yields and average investment balances. The decrease was further
offset
by 2006 including a $0.3 million gain on the recovery of escrow funds related
to
a 2001 asset purchase.
The
combined federal and state effective tax rate for the year ended December
31,
2006 was 37.7% compared to a rate of 37.0% for the year ended December
31, 2005.
The increase in the effective tax rate was primarily due to a decrease
in
tax-exempt interest income as a percentage of our total income before taxes.
As
a
result of the foregoing factors, net income increased by $4.0 million,
or 8.9%,
to $48.9 million for the year ended December 31, 2006 compared with $44.9
million for the year ended December 31, 2005.
Year
Ended December 31, 2005 Compared to Year Ended December 31, 2004
Operating
revenue increased by $38.7 million, or 13.7%, to $320.9 million for 2005 from
$282.2 million in 2004. Airport-to-airport, which is the largest component
of
our operating revenue, increased $38.5 million to $276.9 million, accounting
for
86.3% of our total operating revenue. The increase in airport-to-airport revenue
was driven, in part, by the acquisition of certain assets of USX in the second
quarter of 2005. During 2005, we experienced an 8.2% increase in tonnage that
transited our network as the result of a stronger economy and positive trends
among our customer base. 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 5.0% for 2005 versus 2004 primarily as the result of a
rate
increase implemented during the year. Our logistics revenue, which is primarily
truckload brokerage and priced on a per mile basis, increased $0.3 million
to
$24.4 million in 2005. During the year, we decreased the number of miles driven
to support our logistics revenue by 4.4% while increasing the revenue per mile
including the impact of fuel surcharges charged by 5.8%. Accessorial revenue,
which includes warehousing services and terminal handling and accounts for
our
final component of operating revenue, decreased $0.1 million to $19.6 million,
a
0.4% decrease from 2004.
Purchased
transportation decreased to 41.4% of operating revenue in 2005 versus 42.0%
in
the same period of 2004. The decrease in purchased transportation as a
percentage of operating revenue was primarily attributed to a year over year
improvement in tonnage transported through the airport-to-airport network and
revenue per pound that allowed us to operate our network more efficiently in
2005 versus 2004. During the year, we increased the amount we spent for
purchased transportation by $14.5 million, an increase of 12.2%. For 2005,
purchased transportation costs for our airport-to-airport network represented
40.0% of airport-to-airport revenue versus 40.6% in 2004. During this period,
we
were able to increase both the volume and revenue per pound of freight, which
enabled us to operate the airport-to-airport network more efficiently. These
increases were offset, in part, by an increase in the number of miles needed
to
operate our system as well as an increase in the average rate per mile paid.
For
2005, logistics purchased transportation costs represented 70.2% of logistics
revenue versus 69.4% last year.
Salaries,
wages and employee benefits were 21.2% of operating revenue in 2005 compared
to
22.2% for the same period of 2004. The decrease in salaries, wages and employee
benefits as a percentage of operating revenue was primarily attributed to a
year
over year improvement in operating revenue that allowed us to operate our
network more efficiently in 2005 versus 2004. This includes a $1.3 million
dollar, or 0.4% of operating revenue, charge resulting from the decision to
accelerate the vesting of Common Stock options in the fourth quarter of 2005.
Additionally, as a percentage of revenue, the amounts spent on health care
decreased 0.3%, offset by a 0.1% increase in workers’ compensation expenses.
Operating
leases, the largest component of which is facility rent, were 4.2% of operating
revenue in 2005 compared to 4.5% in the same period of 2004. The decrease in
operating leases as a percentage of operating revenue between periods was
primarily attributable to an increase in operating revenue as the dollar amount
in this category increased between the two periods.
Depreciation
and amortization expense as a percentage of operating revenue was 2.8% in 2005
compared to 2.4% in the same period of 2004. The increase in depreciation and
amortization expense as a percentage of operating revenue was partially
attributable to an increase in amortization associated with the purchase of
certain intangible assets from USX. Additionally, there was increased
depreciation resulting from the accelerated depreciation of trailers sold during
the third and fourth quarters.
Insurance
and claims were 1.6% of operating revenue in 2005 compared to 1.9% in the same
period of 2004. The decrease as a percentage of operating revenue was driven
by
an increase in operating revenue as insurance expenses and claims expenses
as a
percentage of operating revenue decreased by 0.2% and 0.1%, respectively. We
are
self-insured for each auto liability claim in the amount of
$500,000.
Other
operating expenses were 7.8% of operating revenue in 2005 compared to 8.0%
in
the same period of 2004. Other operating expenses as a percentage of operating
revenue decreased primarily as the result of a 0.2% gain from the sale of
trailers, as well as a 0.1% decrease in corporate expenses. These decreases
were
offset, in part, by a 0.1% increase in terminal and operating
expenses.
Income
from operations increased by $13.8 million, or 25.7%, to $67.4 million for
2005
compared with $53.6 million for the same period in 2004. The increase in income
from operations was primarily a result of the increase in operating revenue,
including fuel surcharges, which was offset in part by increases in variable
costs associated with operating the network.
Other
income, net was $3.8 million, or 1.2% of operating revenue, in 2005 compared
to
$1.1 million, or 0.4%, for the same period in 2004. The increase in other income
in total dollars and as a percentage of operating revenue was attributable
to
the year ended December 31, 2005 including the $1.4 million gain from our
lawsuit settlement with the City of Atlanta regarding property we owned adjacent
to the Atlanta Hartsfield-Jackson International Airport. The remaining increase
in other income, net resulted from higher interest income attributed to higher
yields on balances in available-for-sale securities during
2005.
The
combined federal and state effective tax rate for 2005 was 37.0% of pre-tax
income compared to a rate of 37.0% for the same period in 2004.
As
a
result of the foregoing factors, net income increased by $10.5 million, or
30.5%, to $44.9 million for 2005 compared to $34.4 million for the same period
in 2004.
Discussion
of Critical Accounting Policies
Our
discussion and analysis of our financial condition and results of operations
are
based upon our consolidated financial statements, which have been prepared
in
accordance with United States generally accepted accounting principles. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and
expenses, and related disclosures of contingent assets and liabilities. We
continuously evaluate our critical accounting policies and estimates, including
those related to collectibility of accounts receivable, self-insurance loss
reserves, income taxes, share-based compensation, and valuation of goodwill.
We
base our estimates on historical experience and on various assumptions that
we
believe to be reasonable under the circumstances, the results of which form
the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Our financial position
and
results of operations may be significantly different when reported under
different conditions or when using different assumptions in the application
of
such policies. In the event estimates or assumptions prove to be different
from
actual amounts, adjustments are made in subsequent periods to reflect more
current information.
We
believe the following critical accounting policies require significant judgments
and estimates in the preparation of our consolidated financial
statements.
Allowance
for Doubtful Accounts
We
evaluate the collectibility of our accounts receivable based on a combination
of
factors. In circumstances in which management is aware of a specific customer’s
inability to meet its financial obligations to us (for example, bankruptcy
filings or accounts turned over for collection or litigation), we record
a
specific reserve for these bad debts against amounts due to reduce the net
recognized receivable to the amount we reasonably believe will be collected.
For
all other customers, we recognize reserves for these bad debts based on the
length of time the receivables are past due. Specifically, amounts that are
90
days or more past due are reserved at 50.0%. If circumstances change (i.e.,
we
experience higher than expected defaults or an unexpected material adverse
change in a customer’s ability to meet its financial obligations to us), the
estimates of the recoverability of amounts due to us could be reduced by
a
material amount. Accounts are written off after all means of collection,
including legal action, have been exhausted.
Allowance
for Revenue Adjustments
Our
allowance for revenue adjustments consists of amounts reserved for billing
rate
changes that are not captured upon load initiation. These adjustments generally
arise: (i) when the sales department contemporaneously grants small rate
changes
(“spot quotes”) to customers that differ from the standard rates in the system;
(ii) when freight requires dimensionalization or is reweighed resulting in
a
different required rate; (iii) when billing errors occur; and (iv) when data
entry errors occur. When appropriate, permanent rate changes are initiated
and
reflected in the system. We monitor the manual revenue adjustments closely
through the employment of various controls that are in place to ensure that
revenue recognition is not compromised and that fraud does not occur. During
2006, average revenue adjustments per month were approximately $0.2 million,
on
average revenue per month of approximately $29.6 million (less than 1.0%
of
monthly revenue). In order to estimate the allowance for revenue adjustments
related to ending accounts receivable, we prepare an analysis that considers
average monthly revenue adjustments and the average lag for identifying and
quantifying these revenue adjustments. Based on this analysis, we establish
an
allowance for approximately 40-80 days (dependent upon experience in the
last
twelve months) of average revenue adjustments, adjusted for rebates and billing
errors. The lag is periodically adjusted based on actual historical experience.
Additionally, the average amount of revenue adjustments per month can vary
in
relation to the level of sales or based on other factors (such as personnel
issues that could result in excessive manual errors or in excessive spot
quotes
being granted). Both of these significant assumptions are continually evaluated
for validity.
Self-Insurance
Loss Reserves
Given
the
nature of our operating environment, we are subject to vehicle and general
liability, workers’ compensation and health insurance claims. To mitigate a
portion of these risks, we maintain insurance for individual vehicle and
general
liability claims exceeding $0.5 million and workers’ compensation claims
and health insurance claims exceeding approximately $0.3 million, except
in
Ohio, where we are a qualified self-insured with an approximately $0.4 million
self-insured retention. The amount of self-insurance loss reserves and loss
adjustment expenses is determined based on an estimation process that uses
information obtained from both company-specific and industry data, as well
as
general economic information. The estimation process for self-insurance loss
exposure requires management to continuously monitor and evaluate the life
cycle
of claims. Using data obtained from this monitoring and our assumptions about
the emerging trends, management develops information about the size of ultimate
claims based on its historical experience and other available market
information. The most significant assumptions used in the estimation process
include determining the trend in loss costs, the expected consistency in
the
frequency and severity of claims incurred but not yet reported to prior year
claims, changes in the timing of the reporting of losses from the loss date
to
the notification date, and expected costs to settle unpaid claims. Management
also monitors the reasonableness of the judgments made in the prior year’s
estimation process (referred to as a hindsight analysis) and adjusts current
year assumptions based on the hindsight analysis. Additionally, we utilize
an
actuary to evaluate open vehicle liability claims and estimate the ongoing
development exposure.
Income
Taxes
The
Company accounts for income taxes using the liability method, whereby deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to be recovered or settled.
Valuation
of Goodwill
In
accordance with SFAS No. 142, Goodwill
and Other Intangible Assets, we
conduct an annual impairment test of goodwill at the end of the second quarter
of each year based on judgments regarding the market value of our Common
Stock,
ongoing profitability and cash flow of the underlying assets. Changes in
strategy or market conditions could significantly impact these judgments
and
require adjustments to recorded asset balances. For example, if we had reason
to
believe that our recorded goodwill had become impaired due to decreases in
the
fair market value of the underlying business, we would have to take a charge
to
income for that portion of goodwill that we believe is impaired. The annual
impairment test was conducted and it did not result in any impairment
charges.
Share-Based
Compensation
Prior
to
January 1, 2006, as permitted by SFAS No. 123, Accounting
for Stock Based Compensation (“SFAS
123”), as amended by SFAS No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure, we
accounted for share-based payments to employees using Accounting Principles
Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees.
As
such, we generally recognized no compensation cost for employee stock options
as
options granted had exercise prices equal to the fair market value of our
Common
Stock on the date of grant. We also recorded no compensation expense in
connection with our employee stock purchase plan as the purchase price
of the
stock paid by employees was not less than 85% of the fair market value
of our
Common Stock at the beginning and at the end of each purchase period.
Effective
January 1, 2006, we adopted SFAS 123R and elected the modified prospective
transition method. Under the modified prospective transition method, awards
that
are granted, modified, repurchased or canceled after the date of adoption
should
be measured and accounted for in accordance with SFAS 123R. Share-based
awards
that are granted prior to the effective date should continue to be valued
in
accordance with SFAS 123 and stock option expense for unvested options
must be
recognized in the statement of operations. On December 31, 2005, our Board
of
Directors accelerated the vesting of all of our outstanding and unvested
stock
options awarded to employees, officers and non-employee directors under
our
stock option award plans. As a result of the acceleration of the vesting
of our
outstanding and unvested options in 2005, there was no additional compensation
expense recognized during the year ended December 31, 2006 related to options
granted prior to January 1, 2006.
Prior
to
the implementation of SFAS 123R, we utilized stock options as our sole
form of
share-based awards. During the year ended December 31, 2006, we granted
non-vested shares of Common Stock (“non-vested shares”) to key employees. The
non-vested shares’ fair values were estimated using opening market prices for
the business day of the grant. The share-based compensation for the non-vested
shares is recognized, net of estimated forfeitures, ratably over the requisite
service period, or vesting period, of three years. Forfeitures have been
estimated based on our historical experience, but will be adjusted for
future
changes in forfeiture experience. We estimate the forfeitures of dividends
paid
on non-vested shares and record expense for the estimated forfeitures in
accordance with SFAS 123R.
Under
the
ESPP, which has been approved by shareholders, we are authorized to issue
shares
of Common Stock to our employees. 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. As the
ESPP
does not qualify as non-compensatory under the requirements of SFAS 123R,
we
recognize share-based compensation on the date of purchase based on the
difference between the purchase date fair market value and the employee
purchase
price.
Prior
to
the adoption of SFAS 123R, we presented all tax benefits for tax deductions
resulting from the exercise of stock options as operating cash flows on
our
statements of cash flows. SFAS 123R requires the cash flows resulting from
the tax benefits for tax deductions in excess of the compensation expense
recorded for those options (excess tax benefits) to be classified as financing
cash flows. Accordingly, we classified excess tax benefits as financing
cash
inflows rather than as operating cash inflows on our statement of cash
flows for
the year ended December 31, 2006.
SFAS 123R
also requires companies to calculate an initial “pool” of excess tax benefits
available at the adoption date to absorb any unused deferred tax assets
that may
be recognized under SFAS 123R. The pool includes the net excess tax benefits
that would have been recognized if we had adopted SFAS 123 for recognition
purposes on its effective date. We have elected to calculate the pool of
excess
tax benefits under the alternative transition method described in Financial
Accounting Standards Board (“FASB”) Staff Position
No. FAS 123(R)-3,
Transition Election Related to Accounting for Tax Effects of Share-Based
Payment
Awards,
which
also specifies the method we must use to calculate excess tax benefits
reported
on the statement of cash flows.
Impact
of Recent Accounting Pronouncements
During
June 2006, the 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 us on January 1, 2007. 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 are
continuing to evaluate the impact of FIN 48 on our consolidated financial
statements as a result of on-going litigation between taxing authorities
and
entities that are not related to us in certain tax
jurisdictions in which we file. The results of this litigation may materially
impact the financial statement recognition of tax positions taken in certain
state income tax returns. Upon initial adoption, as specified by FIN 48
any
required cumulative effect adjustment will be charged to retained
earnings.
During
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”), which is effective for fiscal years beginning after November 15,
2007 with early 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 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.
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 line of credit.
Net cash provided by operating activities totaled approximately $52.5 million
for the year ended December 31, 2006 compared to approximately $51.2 million
in
the same period of 2005. The increase in cash provided by operating activities
was primarily generated from the increase in our net income and decreases
in our
income taxes receivable. These increases were offset by the reclassification
of cash provided by tax deductions in excess of the compensation expense
recorded for options, which due to the implementation of SFAS 123R is now
recorded in financing cash flows.
Net
cash
provided by investing activities was approximately $0.8 million for the
year
ended December 31, 2006 compared with approximately $3.1 million provided
by
investing activities in the same period of 2005. Investing activities consisted
primarily of the purchase and sale or maturities of available-for-sale
securities, payments and deposits for expanded or new facilities and the
purchase of operating equipment and management information systems during
the
year ended December 31, 2006. The decrease in cash provided by investing
activities was the result of a $15.3 million decrease in net cash provided
by
the sale and purchasing of available-for-sale-securities. Also, the year
ended
December 31, 2005 included $2.8 million in cash provided by the settlement
of
our lawsuit with the City of Atlanta regarding property we owned adjacent
to the
Atlanta Hartsfield-Jackson International Airport. These decreases in cash
provided were offset by $12.8 million in cash used for the acquisition
of USX
during the year ended December 31, 2005. Additionally, cash paid for
capital expenditures and deposits, net of proceeds from the disposal of
property
and equipment, decreased $2.7 million.
Net
cash
used in financing activities totaled approximately $45.4 million for the
year
ended December 31, 2006 compared with approximately $54.1 million used
in
financing activities for the same period of 2005. The decrease in cash
used in
financing activities was primarily attributable to a $12.3 million decrease
in
cash used for the repurchase of our Common Stock. Also, cash used for financing
activities improved due to the implementation of SFAS 123R and the $2.0
million benefit resulting from the requirement to classify tax deductions
in
excess of the compensation expense recorded for options as financing cash
flows
as opposed to operating cash flows. Offsetting these improvements in cash
flow,
during the year ended December 31, 2006 we received approximately $1.6
million
less in proceeds from the exercise of stock options than during 2005. In
addition, positive movements in cash used in financing activities were
offset by
a $1.0 million increase in cash dividends paid, a $1.5 million decrease
in
borrowings from our line of credit and a $1.5 million increase in payments
on our line of credit.
During
2006, we substantially completed the project to expand our national hub
in
Columbus, Ohio and continue to execute our plan to acquire three sites
in key
gateway cities for construction of new terminals and regional hubs. For
the
national hub expansion, we have paid approximately $5.5 million through
December
31, 2006. In addition, during 2006 we entered into an agreement to purchase
real
property and to construct a terminal near Chicago, Illinois for $22.1
million. A deposit of $3.3 million was paid to the sellers upon execution
of the
agreement. Also, in 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 both the Chicago and Atlanta agreements, the
remainder of the purchase prices will be paid upon completion of each project,
which we estimate will occur during the first half of 2007. In addition,
during February 2007 we purchased 36.7 acres of land in Irving, Texas for
$3.1
million. The land will be used to build a new regional hub. We expect to
spend up to $15 million to complete this regional hub by the end of 2007.
On
July
25, 2002, we announced that our Board of Directors approved a stock repurchase
program for up to 3.0 million shares of Common Stock, which we completed
in the
third quarter of 2005. On November 17, 2005, we announced that our Board
of
Directors approved a subsequent stock repurchase program for an additional
3.0
million shares of Common Stock (the “2005 Repurchase Plan”). During the year
ended December 31, 2006, we repurchased 1,302,695 shares of Common Stock
under the 2005 Repurchase Plan for $41.7 million, or $32.03 per share.
On
February 15, 2005, our Board of Directors declared a three-for-two stock
split
of our Common Stock to be effected in the form of a stock dividend to
shareholders of record as of March 18, 2005. Common Stock issued and additional
paid-in capital have been restated to reflect the split for all years presented.
All common share and per share data have been restated to give effect to
the
stock split.
During
the three months ended March 31, 2006, June 30, 2006, September 30, 2006
and
December 31, 2006, dividends of $0.07 per share were declared on Common
Stock
then outstanding. The quarterly dividends were paid on March 31, 2006,
June 9,
2006, September 8, 2006 and December 8, 2006. During the three months ended
March 31, 2005, June 30, 2005, September 30, 2005 and December 31, 2005,
dividends of $0.06 per share were declared on Common Stock then outstanding.
The
2005 quarterly dividends were paid on April 18, 2005, June 3, 2005, September
2,
2005 and January 3, 2006. Subsequent to December 31, 2006, our Board of
Directors declared a cash dividend of $0.07 per share that will be paid
on March
30, 2007 to shareholders of record at the close of business on March
15, 2007. We expect 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.
Off-Balance
Sheet Arrangements
At
December 31, 2006, we had letters of credit outstanding from a bank totaling
$4.4 million required by our workers’ compensation and vehicle liability
insurance providers.
Contractual
Obligations and Commercial Commitments
Our
contractual obligations and other commercial commitments as of December 31,
2006
(in thousands) are summarized below:
|
Contractual
Obligations
|
Payment
Due Period
|
|||||||||||||||
|
Total
|
Less
Than 1 Year
|
2-3
Years
|
|
|
4-5
Years
|
|
|
After
5 Years
|
||||||||
|
Capital
lease obligations
|
$
|
1,217 |
$
|
89
|
$
|
178
|
$
|
178
|
$
|
772
|
||||||
| Real estate purchase commitments |
32,088
|
32,088
|
--
|
--
|
--
|
|||||||||||
|
Operating
leases
|
28,698
|
11,127
|
13,248
|
4,224
|
99
|
|||||||||||
|
Total
contractual cash obligations
|
$
|
62,003
|
$
|
43,304
|
$
|
13,426
|
$
|
4,402
|
$
|
871
|
||||||
As
of
December 31, 2006, we had a commitment to acquire 77 new forklifts for
approximately $1.1 million during 2007. We can cancel the order for 25, or
approximately $0.4 million, of these forklifts by March 30, 2007. This
commitment is expected to be funded by proceeds from the sale of existing
equipment and cash flows from operations.
We
believe that our available cash, available-for-sale securities, cash expected
to
be generated from future operations and available borrowings under lines
of
credit, will be sufficient to satisfy these cash needs for at least the next
twelve months.
Related
Party Transactions
Scott
M.
Niswonger, Chairman of the Board until May 2005, owns a majority interest
in
Landair Transport, Inc. (“Landair”). Matthew J. Jewell, our Senior Vice
President and General Counsel, served in these same capacities with Landair
until May 2004. During 2004, we purchased approximately $0.2 million of
truckload transportation services from Landair, which have been included
in
purchased transportation in our consolidated statements of income. No
transportation services were purchased from Landair during 2006 and 2005.
During
2004, we provided various operational and administrative services to
Landair. We charged Landair approximately $0.2 million during 2004 for
these services. These amounts have been included as a reduction of salaries,
wages and employee benefits in our consolidated statements of income for
2004.
Landair provided various operational and administrative services to us
and
charged approximately $0.1 million during the year ended December 31, 2004
for these services. These charges have been included in salaries, wages
and
employee benefits in our consolidated statements of income. No operational
and
administrative services were provided during 2006 and 2005.
Until
September 2005, we had a sublease with Landair pursuant to which we sublet
to
Landair a portion of our headquarters in Greeneville, Tennessee that is
leased
from the Greeneville-Greene County Airport Authority. We sublet the facility
to
Landair for consideration based upon the cost of such facility to us and
an
agreed-upon percentage of usage. Sublease rental income charged to Landair
in
2005 and 2004 was less than $0.1 million in both years. These amounts are
included in sublease rental income disclosed in our consolidated statements
of
income.
Transactions
with Sky Night, LLC
Sky
Night, LLC (“Sky Night”) is a limited liability corporation owned by Mr.
Niswonger, Chairman of the Board until May 2005. During 2006, 2005 and 2004
we
purchased air transportation services from Sky Night. Air charter expense
totaled $0.1 million in 2006, 2005 and 2004, respectively.
During
2001, we entered into an agreement to sublease hangar space at our Greeneville,
Tennessee headquarters to Sky Night. The initial term of the sublease was
for 12
months. Currently, the hangar space is being sublet on a month-to-month
basis.
Forward-Looking
Statements
This
report contains “forward-looking statements,” as defined in Section 27A of the
Securities Act and Section 21E of the Exchange Act. 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.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Except
for capital lease obligations totaling $0.8 million, we had no long-term
debt at
December 31, 2006. Accordingly, our exposure to market risk related to debt
is
not significant.
We
are
also exposed to changes in interest rates from our available-for-sale
securities. As a result of the regularly reset interest rates to market rates
on
the available-for-sale securities we own, a material adverse effect to the
fair
market value of the investments is unlikely.
|
Financial
Statements and Supplementary Data
|
The
response to this item is submitted as a separate section of this report.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
None.
|
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 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.
Management’s
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining effective internal control
over
financial reporting as defined in Rules 13a-15(f) under the Exchange Act. Our
internal control over financial reporting is designed to provide reasonable
assurance to management and the Board of Directors regarding the preparation
and
fair presentation of financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Therefore, even those systems determined to
be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Under
the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we assessed the effectiveness
of
our internal control over financial reporting as of December 31, 2006. In making
this assessment, management used the framework set forth by the Committee on
Sponsoring Organizations of the Treadway Commission in Internal
Control — Integrated Framework.
Based
on our assessment, we believe, as of December 31, 2006, that our internal
control over financial reporting was effective based on those
criteria.
Management’s
assessment of the effectiveness of internal control over financial reporting
as
of December 31, 2006, has been audited by Ernst & Young LLP, the independent
registered public accounting firm who also audited our consolidated financial
statements. Ernst & Young LLP’s attestation report on management’s
assessment of our internal control over financial reporting appears below.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting during the
fourth quarter of 2006 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
.
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Shareholders
Forward
Air Corporation
We
have
audited management’s assessment, included in the accompanying Management’s
Report on Internal Control over Financial Reporting, that Forward Air
Corporation maintained effective internal control over financial reporting
as of
December 31, 2006, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of
the
Treadway Commission (the COSO criteria). Forward Air Corporation’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management’s
assessment and an opinion on the effectiveness of the company’s internal control
over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that Forward Air Corporation maintained
effective internal control over financial reporting as of December 31, 2006,
is
fairly stated, in all material respects, based on the COSO criteria. Also,
in
our opinion, Forward Air Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2006,
based on the COSO criteria.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Forward
Air
Corporation as of December 31, 2006 and 2005, and the related consolidated
statements of income, shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2006 and our report dated February 26,
2007 expressed an unqualified opinion thereon.
|
/s/
Ernst & Young LLP
|
|
|
Nashville,
Tennessee
|
|
|
February
26, 2007
|
|
Other
Information
|
Not
applicable.
|
Directors,
Executive Officers and Corporate Governance
|
The
information required by this item with respect to our directors is incorporated
herein by reference to our proxy statement for the 2007 Annual Meeting of
Shareholders (the “2007 Proxy Statement”). The 2007 Proxy Statement will be
filed with the SEC not later than 120 days subsequent to December 31, 2006.
Pursuant
to Item 401(b) of Regulation S-K, the information required by this item with
respect to our executive officers is set forth in Part I of this report.
|
Executive
Compensation
|
The
information required by this item is incorporated herein by reference to the
2007 Proxy Statement.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
|
The
information required by this item is incorporated herein by reference to the
2007 Proxy Statement.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The
information required by this item is incorporated herein by reference to the
2007 Proxy Statement.
|
Principal
Accounting Fees and Services
|
The
information required by this item is incorporated herein by reference to the
2007 Proxy Statement.
|
Exhibits,
Financial Statement
Schedules
|
|
(a)(1)
and (2)
|
List
of Financial Statements and Financial Statement
Schedules.
|
The
response to this portion of Item 15 is submitted as a separate section of this
report.
|
(a)(3)
|
List
of Exhibits.
|
The
response to this portion of Item 15 is submitted as a separate section of this
report.
|
(b)
|
Exhibits.
|
The
response to this portion of Item 15 is submitted as a separate section of this
report.
|
(c)
|
Financial
Statement Schedules.
|
The
response to this portion of Item 15 is submitted as a separate section of this
report.
Pursuant
to the requirements of Section 13 or 15(d) 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:
February 27, 2007
|
|
By:
|
/s/
Bruce A. Campbell
|
|
|
|
|
Bruce
A. Campbell
President
and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report
has been
signed below by the following persons on behalf of the registrant and in
the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Richard W. Hanselman
|
|
Chairman
of the Board
|
|
February
27, 2007
|
|
Richard
W. Hanselman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Bruce A. Campbell
|
|
President,
Chief Executive Officer
|
|
February
27, 2007
|
|
Bruce
A. Campbell
|
|
and
Director
|
|
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Rodney L. Bell
|
|
Chief
Financial Officer, Senior Vice
|
|
February
27, 2007
|
|
Rodney
L. Bell
|
|
President
and Treasurer
|
|
|
|
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/
C. Robert Campbell
|
|
Director
|
|
February
27, 2007
|
|
C.
Robert Campbell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
C. John Langley, Jr.
|
|
Director
|
|
February
27, 2007
|
|
C.
John Langley, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
G. Michael Lynch
|
|
Director
|
|
February
27, 2007
|
|
G.
Michael Lynch
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Ray A. Mundy
|
|
Director
|
|
February
27, 2007
|
|
Ray
A. Mundy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
B. Clyde Preslar
|
|
Director
|
|
February
27, 2007
|
|
B.
Clyde Preslar
|
|
|
|
|
Annual
Report on Form 10-K
Item
8, Item 15(a)(1) and (2), (a)(3), (b) and (c)
List
of Financial Statements and Financial Statement Schedule
Financial
Statements and Supplementary Data
Certain
Exhibits
Financial
Statement Schedule
Year
Ended December 31, 2006
Forward
Air Corporation
Greeneville,
Tennessee
Form
10-K — Item 8 and Item 15(a)(1) and (2)
Index
to Financial Statements and Financial Statement Schedule
The
following consolidated financial statements of Forward Air Corporation are
included as a separate section of this report:
|
Page
No.
|
|
|
F-3
|
|
|
F-4
|
|
|
F-6
|
|
|
F-7
|
|
|
F-8
|
|
|
F-9
|
The
following financial statement schedule of Forward Air Corporation is included
as
a separate section of this report.
All
other
schedules for which provision is made in the applicable accounting regulation
of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been
omitted.
The
Board
of Directors and Shareholders
Forward
Air Corporation
We
have
audited the accompanying consolidated balance sheets of Forward Air Corporation
as of December 31, 2006 and 2005, and the related consolidated statements of
income, shareholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2006. Our audits also included the financial statement
schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our
audits.
We
conducted our audits in accordance with the auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that
we plan and perform the audit to obtain reasonable assurance about whether
the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Forward Air
Corporation at December 31, 2006 and 2005, and the consolidated results of
its
operations and its cash flows for each of the three years in the period ended
December 31, 2006, in conformity with United States generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as
a whole, present fairly in all material respects the information set forth
therein.
As
discussed in Note 1 to the consolidated financial statements, in 2006 the
Company changed its method of accounting for share-based
compensation.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Forward Air Corporation’s
internal control over financial reporting as of December 31, 2006, based on
criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 26, 2007 expressed an unqualified opinion thereon.
|
/s/
Ernst & Young LLP
|
|
|
Nashville,
Tennessee
|
|
|
February
26, 2007
|
Consolidated
Balance Sheets
|
December
31
|
|||||||
|
2006
|
|
|
2005
|
||||
|
(In
thousands, except share data)
|
|||||||
|
Assets
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
|
$
|
8,231
|
$
|
332
|
|||
|
Short-term
investments
|
61,650
|
79,000
|
|||||
|
Accounts
receivable, less allowances of $860 in 2006 and $922 in
2005
|
48,486
|
45,763
|
|||||
|
Income
taxes receivable
|
3,403
|
5,179
|
|||||
|
Inventories
|
501
|
567
|
|||||
|
Prepaid
expenses and other current assets
|
4,114
|
4,455
|
|||||
|
Deferred
income taxes
|
1,178
|
1,438
|
|||||
|
Total
current assets
|
127,563
|
136,734
|
|||||
|
Property
and equipment:
|
|||||||
|
Land
|
2,611
|
2,611
|
|||||
|
Buildings
|
12,367
|
8,051
|
|||||
|
Equipment
|
82,646
|
77,165
|
|||||
|
Leasehold
improvements
|
3,566
|
3,259
|
|||||
|
Total
property and equipment
|
101,190
|
91,086
|
|||||
|
Accumulated
depreciation and amortization
|
47,875
|
43,864
|
|||||
|
Net
property and equipment
|
53,315
|
47,222
|
|||||
|
Goodwill
and other acquired intangibles:
|
|||||||
|
Goodwill
|
15,588
|
15,588
|
|||||
|
Other
acquired intangibles, net of accumulated amortization of $2,019 in
2006
and $744 in 2005
|
10,731
|
12,007
|
|||||
|
Total
net goodwill and other acquired intangibles
|
26,319
|
27,595
|
|||||
|
Other
assets
|
5,817
|
1,049
|
|||||
|
Total
assets
|
$
|
213,014
|
$
|
212,600
|
|||
Forward
Air Corporation
Consolidated
Balance Sheets (continued)
|
December
31
|
|||||||
|
2006
|
|
|
2005
|
||||
|
(In
thousands, except share data)
|
|||||||
|
Liabilities
and shareholders’ equity
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
$
|
7,949
|
$
|
12,640
|
|||
|
Accrued
payroll and related items
|
3,117
|
|
3,262
|
||||
|
Insurance
and claims accruals
|
3,265 |
4,381
|
|||||
|
Payables
to owner-operators
|
2,128 | 1,779 | |||||
|
Collections
on behalf of customers
|
1,347 | 1,572 | |||||
|
Other
accrued expenses
|
1,287
|
788
|
|||||
|
Short-term
debt
|
--
|
1,504
|
|||||
|
Current
portion of capital lease obligations
|
40
|
38
|
|||||
|
Total
current liabilities
|
19,133
|
25,964
|
|||||
|
Capital
lease obligations, less current portion
|
796
|
837
|
|||||
| Other long-term liabilities | 1,271 |
--
|
|||||
|
Deferred
income taxes
|
6,587
|
6,983
|
|||||
| Commitments and contingencies (Note 9) | |||||||
|
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
|
|||||||
|
Issued
and outstanding shares - 30,372,082 in 2006 and 31,360,842 in
2005
|
304
|
314
|
|||||
|
Additional
paid-in capital
|
--
|
--
|
|||||
|
Accumulated
other comprehensive income
|
--
|
--
|
|||||
|
Retained
earnings
|
184,923
|
178,502
|
|||||
|
Total
shareholders’ equity
|
185,227
|
178,816
|
|||||
|
Total
liabilities and shareholders’ equity
|
$
|
213,014
|
$
|
212,600
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
Consolidated
Statements of Income
|
Year
ended December 31
|
||||||||||
|
2006
|
|
|
2005
|
|
|
2004
|
||||
|
(In
thousands, except per share data)
|
||||||||||
|
Operating
revenue
|
$
|
352,758
|
$
|
320,934
|
$
|
282,197
|
||||
|
Operating
expenses:
|
||||||||||
|
Purchased
transportation
|
146,721
|
132,912
|
118,425
|
|||||||
|
Salaries,
wages and employee benefits
|
74,448
|
68,086
|
62,728
|
|||||||
|
Operating
leases
|
14,458
|
13,486
|
12,791
|
|||||||
|
Depreciation
and amortization
|
8,934
|
8,947
|
6,817
|
|||||||
|
Insurance
and claims
|
5,967
|
5,202
|
5,382
|
|||||||
|
Other
operating expenses
|
26,834
|
24,864
|
22,456
|
|||||||
|
Total
operating expenses
|
277,362
|
253,497
|
228,599
|
|||||||
|
Income
from operations
|
75,396
|
67,437
|
53,598
|
|||||||
|
Other
income (expense):
|
||||||||||
|
Interest
expense
|
(81
|
)
|
(104
|
)
|
(55
|
)
|
||||
|
Other,
net
|
3,229
|
3,904
|
1,127
|
|||||||
|
Total
other income
|
3,148
|
3,800
|
1,072
|
|||||||
|
Income
before income taxes
|
78,544
|
71,237
|
54,670
|
|||||||
|
Income
taxes
|
29,621
|
26,328
|
20,249
|
|||||||
|
Net
income
|
$
|
48,923
|
$
|
44,909
|
$
|
34,421
|
||||
|
Income
per share:
|
||||||||||
|
Basic
|
$
|
1.57
|
$
|
1.41
|
$
|
1.07
|
||||
|
Diluted
|
$
|
1.55
|
$
|
1.39
|
$
|
1.05
|
||||
|
Dividends
declared per share
|
$
|
0.28
|
$
|
0.24
|
$
|
--
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements.
Consolidated
Statements of Shareholders’ Equity
|
Common
Stock
|
Additional
Paid-in Capital
|
Retained
Earnings
|
Accumulated
Other Comprehensive Income
(Loss)
|
Total
Shareholders’ Equity
|
|||||||||||||||
|
Shares
|
Amount
|
||||||||||||||||||
|
(In
thousands)
|
|||||||||||||||||||
|
Balance
at December 31, 2003
|
32,245
|
$
|
322
|
$
|
37,410
|
$
|
109,975
|
$
|
1
|
$
|
147,708
|
||||||||
|
Net
income for 2004
|
--
|
--
|
--
|
34,421
|
--
|
34,421
|
|||||||||||||
|
Unrealized
gain on securities available for sale, net of $2 tax
|
--
|
--
|
--
|
--
|
3
|
3
|
|||||||||||||
|
Comprehensive
income
|
34,424
|
||||||||||||||||||
|
Exercise
of stock options
|
588
|
6
|
7,097
|
--
|
--
|
7,103
|
|||||||||||||
|
Common
stock issued under employee stock purchase plan
|
14
|
--
|
250
|
--
|
--
|
250
|
|||||||||||||
|
Common
stock repurchased under stock repurchase plan
|
(449
|
)
|
(4
|
)
|
(11,384
|
)
|
--
|
--
|
(11,388
|
)
|
|||||||||
|
Income
tax benefit from stock options exercised
|
--
|
--
|
2,906
|
--
|
--
|
2,906
|
|||||||||||||
|
Balance
at December 31, 2004
|
32,398
|
324
|
36,279
|
144,396
|
4
|
181,003
|
|||||||||||||
|
Net
income for 2005
|
--
|
--
|
--
|
44,909
|
--
|
44,909
|
|||||||||||||
|
Unrealized
loss on securities available for sale, net of ($2) tax
|
--
|
--
|
--
|
--
|
(4
|
)
|
(4
|
)
|
|||||||||||
|
Comprehensive
income
|
44,905
|
||||||||||||||||||
|
Exercise
of stock options
|
643
|
6
|
6,206
|
--
|
--
|
6,212
|
|||||||||||||
|
Common
stock issued under employee stock purchase plan
|
11
|
1
|
293
|
--
|
--
|
294
|
|||||||||||||
|
Acceleration
of vesting of stock options
|
--
|
--
|
1,300
|
--
|
--
|
1,300
|
|||||||||||||
|
Dividends
($0.24 per share)
|
--
|
--
|
--
|
(7,668
|
)
|
--
|
(7,668
|
)
|
|||||||||||
|
Common
stock repurchased under stock repurchase plan
|
(1,690
|
)
|
(17
|
)
|
(49,108
|
)
|
(3,135
|
)
|
--
|
(52,260
|
)
|
||||||||
|
Cash
paid for fractional shares in 3-for-2 stock split
|
(1
|
)
|
--
|
(44
|
)
|
--
|
--
|
(44
|
)
|
||||||||||
|
Income
tax benefit from stock options exercised
|
--
|
--
|
5,074
|
--
|
--
|
5,074
|
|||||||||||||
|
Balance
at December 31, 2005
|
31,361
|
|
|
314
|
|
|
--
|
|
|
178,502
|
|
|
--
|
|
|
178,816
|
|||
|
Net
and comprehensive income for 2006
|
--
|
--
|
--
|
48,923 |
--
|
48,923 | |||||||||||||
|
Exercise
of stock options
|
305 | 3 | 4,359 |
--
|
--
|
4,362 | |||||||||||||
|
Common
stock issued under employee stock purchase plan
|
9 |
--
|
268 |
--
|
--
|
268 | |||||||||||||
|
Share-based
compensation
|
--
|
--
|
1,307 |
--
|
--
|
1,307 | |||||||||||||
|
Dividends
($0.28 per share)
|
--
|
--
|
--
|
(8,694 | ) |
--
|
(8,694 | ) | |||||||||||
|
Common
stock repurchased under stock repurchase plan
|
(1,303 | ) | (13 | ) |
(7,901
|
) | (33,808 | ) | -- | (41,722 | ) | ||||||||
|
Income
tax benefit from stock options exercised
|
--
|
--
|
1,967
|
--
|
-- | 1,967 | |||||||||||||
|
Balance
at December 31, 2006
|
30,372 |
$
|
304 |
$
|
-- |
$
|
184,923 |
$
|
-- |
$
|
185,227 | ||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
Consolidated
Statements of Cash Flows
|
Year
ended December 31
|
||||||||||
|
2006
|
|
|
2005
|
|
|
2004
|
||||
|
(In
thousands)
|
||||||||||
|
Operating
activities:
|
||||||||||
|
Net
income
|
$
|
48,923
|
|
$
|
44,909
|
|
$
|
34,421
|
||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||
|
Depreciation
and amortization
|
8,934
|
8,947
|
6,817
|
|||||||
|
Share-based
compensation
|
1,307 | 1,300 | -- | |||||||
|
Atlanta
condemnation settlement gain
|
--
|
|
(1,428
|
) |
--
|
|||||
|
Other
non-cash charges
|
--
|
274
|
--
|
|||||||
|
Gain
on sale of property and equipment
|
(42
|
)
|
(728
|
) |
--
|
|||||
|
Provision
for (recovery) loss on receivables
|
(223
|
)
|
(121
|
)
|
161
|
|||||
|
Provision
for revenue adjustments
|
2,095
|
2,100
|
1,848
|
|||||||
|
Deferred
income taxes
|
(136
|
)
|
(48
|
)
|
1,511
|
|
||||
|
Tax
benefit of stock options exercised
|
(1,967 | ) |
5,074
|
2,906
|
||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Accounts
receivable
|
(6,516
|
)
|
(7,438
|
)
|
(8,886
|
)
|
||||
|
Inventories
|
66
|
|
(145
|
)
|
(23
|
) | ||||
|
Prepaid
expenses and other current assets
|
341
|
|
(705
|
)
|
(1,081
|
)
|
||||
|
Accounts
payable and accrued expenses
|
(4,058
|
) |
615
|
4,262
|
||||||
|
Income
taxes
|
3,743
|
|
(1,374
|
)
|
(4,521
|
) | ||||
|
Net
cash provided by operating activities
|
52,467
|
51,232
|
37,415
|
|||||||
|
Investing
activities:
|
||||||||||
|
Proceeds
from disposal of property and equipment
|
3,665 |
2,804
|
9
|
|||||||
|
Purchases
of property and equipment
|
(15,454 |
)
|
(22,077
|
)
|
(11,200
|
)
|
||||
| Deposits in escrow for construction of new terminals | (4,793 |
)
|
-- | -- | ||||||
|
Proceeds
from sales or maturities of available-for-sale securities
|
229,330
|
229,865
|
232,496
|
|||||||
|
Purchases
of available-for-sale securities
|
(211,980
|
)
|
(197,265
|
)
|
(273,916
|
)
|
||||
|
Acquisition
of business
|
-- |
|
(12,750
|
) |
--
|
|||||
|
Proceeds
from Atlanta condemnation settlement/release of amounts held in
escrow
|
--
|
2,765
|
1,260
|
|||||||
|
Other
|
26
|
|
(242
|
)
|
(94
|
) | ||||
|
Net
cash provided by (used in) investing activities
|
794
|
3,100
|
|
(51,445
|
)
|
|||||
|
Financing
activities:
|
||||||||||
| Payments of capital lease obligations | (39 |
)
|
(31
|
)
|
(30
|
)
|
||||
| (Payments) borrowings on line of credit | (1,504 | ) |
1,504
|
-- | ||||||
|
Proceeds
from exercise of stock options
|
4,362
|
5,938
|
7,103
|
|||||||
|
Payments
of cash dividends
|
(8,694 |
)
|
(7,668
|
)
|
--
|
|||||
|
Cash
paid for fractional shares in 3-for-2 stock split
|
-- |
(44
|
)
|
--
|
||||||
|
Proceeds
from common stock issued under employee stock purchase plan
|
268 | 294 |
250
|
|||||||
|
Repurchase
of common stock
|
(41,722 |
)
|
(54,071
|
)
|
(9,577
|
)
|
||||
| Tax benefit of stock options exercised | 1,967 | -- | -- | |||||||
|
Net
cash used in financing activities
|
(45,362
|
)
|
(54,078
|
)
|
(2,254
|
)
|
||||
|
Net
increase (decrease) in cash
|
7,899
|
254
|
|
(16,284
|
) | |||||
|
Cash
at beginning of year
|
332 |
78
|
16,362
|
|||||||
|
Cash
at end of year
|
$
|
8,231
|
|
$
|
332
|
|
$
|
78
|
||
|
Common
stock repurchase liabilities included in accounts payable
|
$
|
-- |
|
$
|
--
|
|
$
|
1,811
|
|
|
|
Uncollected
proceeds from disposal of property and equipment in accounts
receivable
|
$
|
49 |
$
|
1,970 |
$
|
-- | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006
(In
thousands, except share and per share
data)
|
1.
|
Accounting
Policies
|
Basis
of Presentation and Principles of Consolidation
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 operates a comprehensive national network for the time-definite surface
transportation of deferred air freight. The Company provides its transportation
services through a network of terminals located at or near airports in the
United States and Canada. The Company’s customers primarily consist of air
freight forwarders, domestic and international airlines and integrated air
cargo
carriers. The Company’s operations involve receiving shipments at its
terminals or picking up shipments directly from customers and transporting
them
by truck. The shipments are delivered to the terminals nearest their
destinations and then, if requested by the customer, on to final designated
sites. These activities constitute a single business segment as defined by
the
Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting
Standards (“SFAS”) No. 131, Disclosure
about Segments of an Enterprise and Related Information.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates. Significant areas requiring management
estimates include the following key financial areas:
Allowance
for Doubtful Accounts
The
Company evaluates the collectibility of its accounts receivable based on a
combination of factors. In circumstances in which management is aware of a
specific customer’s inability to meet its financial obligations to the Company
(for example, bankruptcy filings, accounts turned over for collection or
litigation), the Company records a specific reserve for these bad debts against
amounts due to reduce the net recognized receivable to the amount the Company
reasonably believes will be collected. For all other customers, the Company
recognizes reserves for these bad debts based on the length of time the
receivables are past due. Specifically, amounts that are 90 days or more past
due are reserved at 50.0%. If circumstances change (i.e., the Company
experiences higher than expected defaults or an unexpected material adverse
change in a customer’s ability to meet its financial obligations to the
Company), the estimates of the recoverability of amounts due to the Company
could be reduced by a material amount. Accounts are written off after all means
of collection, including legal action, have been exhausted.
Allowance
for Revenue Adjustments
The
Company’s allowance for revenue adjustments consists of amounts reserved for
billing rate changes that are not captured upon load initiation. These
adjustments generally arise: (1) when the sales department contemporaneously
grants small rate changes (“spot quotes”) to customers that differ from the
standard rates in the system; (2) when freight requires dimensionalization
or is
reweighed resulting in a different required rate; (3) when billing errors occur;
and (4) when data entry errors occur. When appropriate, permanent rate changes
are initiated and reflected in the system. The Company monitors the manual
revenue adjustments closely through the employment of various controls that
are
in place to ensure that revenue recognition is not compromised and that fraud
does not occur. During 2006, average revenue adjustments per month were
approximately $175, on average revenue per month of approximately
$29,571 (less than 1.0% of monthly revenue). In order to estimate the
allowance for revenue adjustments related to ending accounts receivable, the
Company prepares an analysis that considers average monthly revenue adjustments
and the average lag for identifying and quantifying these revenue adjustments.
Based on this analysis, the Company establishes an allowance for approximately
40-80 days (dependent upon experience in the last twelve months) of average
revenue adjustments, adjusted for rebates and billing errors. The lag is
periodically adjusted based on actual historical experience. Additionally,
the
average amount of revenue adjustments per month can vary in relation to the
level of sales or based on other factors (such as personnel issues that could
result in excessive manual errors or in excessive spot quotes being granted).
Both of these significant assumptions are continually evaluated for validity.
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
1.
|
Accounting
Policies (Continued)
|
Self-Insurance
Loss Reserves
Given
the
nature of the Company’s operating environment, the Company is subject to vehicle
and general liability, workers’ compensation and health insurance claims. To
mitigate a portion of these risks, the Company maintains insurance for
individual vehicle and general liability claims exceeding $500 and workers’
compensation claims and health insurance claims exceeding $250, except in Ohio,
where for workers’ compensation we are a qualified self-insured with a $350
self-insured retention. The amount of self-insurance loss reserves and loss
adjustment expenses is determined based on an estimation process that uses
information obtained from both company-specific and industry data, as well
as
general economic information. The estimation process for self-insurance loss
exposure requires management to continuously monitor and evaluate the life
cycle
of claims. Using data obtained from this monitoring and the Company’s
assumptions about the emerging trends, management develops information about
the
size of ultimate claims based on its historical experience and other available
market information. The most significant assumptions used in the estimation
process include determining the trend in loss costs, the expected consistency
in
the frequency and severity of claims incurred but not yet reported to prior
year
claims, changes in the timing of the reporting of losses from the loss date
to
the notification date, and expected costs to settle unpaid claims. Management
also monitors the reasonableness of the judgments made in the prior year’s
estimation process (referred to as a hindsight analysis) and adjusts current
year assumptions based on the hindsight analysis. Additionally, the Company
utilizes an actuary to evaluate open claims and estimate the ongoing development
exposure.
Revenue
Recognition
Operating
revenue and related costs are recognized as of the date shipments are completed.
No single customer accounted for more than 10.0% of operating revenue in 2006,
2005 or 2004.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash and cash equivalents.
Available-For-Sale
Securities
Available-for-sale
securities are carried at fair value, with unrealized gains and losses, net
of
tax, reported in other comprehensive income. The amortized cost of debt
securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity computed under the effective interest method.
Such amortization is included in other income. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in other income. The cost of securities sold is based
on
the specific identification method. Interest on securities classified as
available-for-sale is included in other income in the consolidated statements
of
income.
Inventories
Inventories
of tires, replacement parts, supplies, and fuel for equipment are stated at
the
lower of cost or market utilizing the FIFO (first-in, first-out) method of
determining cost. Inventories of tires and replacement parts are not material
in
the aggregate. Replacement parts are expensed when placed in service, while
tires are capitalized and amortized over their expected life. Replacement parts
and tires are included as a component of other operating expenses in the
consolidated statements of income.
Property
and Equipment
Property
and equipment are stated at cost. Expenditures for normal repair and maintenance
are expensed as incurred. Depreciation of property and equipment is calculated
based upon the cost of the asset, reduced by its estimated salvage value, using
the straight-line method over the estimated useful lives as
follows:
|
Buildings
|
30-40
years
|
|
Equipment
|
3-10
years
|
|
Leasehold
improvements
|
Lesser
of Useful Life or Initial Lease
Term
|
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
1.
|
Accounting
Policies
(Continued)
|
Depreciation
expense for each of the three years ended December 31, 2006, 2005 and 2004
was
$7,659, $8,203 and $6,817, respectively.
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. When the criteria have been
met
for long-lived assets to be classified as held for sale, the assets are recorded
at the lower of carrying value or fair market value (less selling
costs).
Operating
Leases
Certain
operating leases include rent increases during the initial lease term.
For these
leases, the Company recognizes the related rental expenses on a straight-line
basis over the term of the lease, which includes any rent holiday period,
and
records the difference between the amounts charged to operations and amount
paid
as rent as a rent liability.
Goodwill
and Other Intangible Assets
Goodwill
is recorded at cost based on the excess of purchase price over the fair value
of
assets acquired. Under the provisions of SFAS No. 142, Goodwill
and Other Intangible Assets,
goodwill and intangible assets with indefinite lives are not amortized but
are
subject to annual impairment tests in accordance with the statement. Other
intangible assets are amortized over their useful lives. The Company completed
the required annual impairment test of goodwill during each of the second
quarters of 2006, 2005 and 2004, and determined that goodwill had not been
impaired. Any subsequent impairment losses will be reflected in income from
operations in the consolidated statements of income.
The
definite-lived intangible assets of the Company resulting from the acquisition
of certain assets of U.S. Express Enterprises, Inc. (“USX”) and the related
amortization are described in Note 2,
Acquisition of Business.
Software
Development
Costs
related to software developed or acquired for internal use are expensed or
capitalized and then amortized in accordance with the American Institute of
Certified Public Accountants Statement Of Position No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use.
The
Company uses a five-year straight line amortization for the capitalized amounts
of software development costs.
Income
Taxes
The
Company accounts for income taxes using the liability method, whereby deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to be recovered or settled.
Income
Per Share
The
Company calculates income per share in accordance with SFAS No. 128,
Earnings
Per Share
(“SFAS
128”). Under SFAS 128, income per basic share excludes any
dilutive effects of options, warrants and convertible securities. Income
per
diluted share includes any dilutive effects of options, warrants and convertible
securities, and uses the treasury stock method in calculating dilution. All
income per share data included in the consolidated financial statements and
notes thereto have been restated to give effect to a three-for-two stock
split
declared in February 2005 (see Note 5).
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
1.
|
Accounting
Policies (Continued)
|
Comprehensive
Income
Comprehensive
income includes any changes in the equity of the Company from transactions
and
other events and circumstances from non-operational sources. Unrealized gains
and losses on available-for-sale securities are included in other comprehensive
income for all years presented.
Share-Based
Payments
Prior
to
January 1, 2006, as permitted by SFAS No. 123, Accounting
for Stock Based Compensation (“SFAS
123”), as amended by SFAS No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure, the
Company accounted for share-based payments to employees using Accounting
Principles Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees.
As
such, the Company generally recognized no compensation cost for employee
stock
options as options granted had exercise prices equal to the fair market
value of
our common stock on the date of grant. The Company also recorded no
compensation
expense in connection with our employee stock purchase plan as the
purchase
price of the stock paid by employees was not less than 85% of the fair
market
value of our common stock at the beginning and at the end of each purchase
period.
Effective
January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based
Payments (“SFAS 123R”), and elected the modified prospective transition
method. Under the modified prospective transition method, awards that
are
granted, modified, repurchased or canceled after the date of adoption
should be
measured and accounted for in accordance with SFAS 123R. Share-based
awards that
are granted prior to the effective date should continue to be valued
in
accordance with SFAS 123 and stock option expense for unvested options
must be
recognized in the statement of operations. 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 year ended December 31, 2006 related to options
granted
prior to January 1, 2006.
Prior
to
the implementation of SFAS 123R, the Company utilized stock options
as the sole
form of share-based awards. During the year ended December 31, 2006,
the Company
granted non-vested shares of common stock (“non-vested shares”) to key
employees. The non-vested shares’ fair values were estimated using opening
market prices for the business day of the grant. The share-based compensation
for the non-vested shares is recognized, net of estimated forfeitures,
ratably
over the requisite service period, or vesting period, of three years.
Forfeitures have been estimated based on historical experience, but
will be
adjusted for future changes in forfeiture experience. The Company estimates
the
forfeitures of dividends paid on non-vested shares and records expense
for the
estimated forfeitures in accordance with SFAS 123R.
Under
the
2005 Employee Stock Purchase Plan (the “ESPP”), which has been approved by
shareholders, the Company is authorized to issue shares of common stock
to our
employees. 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. As the ESPP does not
qualify as
non-compensatory under the requirements of SFAS 123R, the Company recognizes
share-based compensation on the date of purchase based on the difference
between
the purchase date fair market value and the employee purchase price.
Prior
to
the adoption of SFAS 123R, the Company presented all tax benefits for tax
deductions resulting from the exercise of stock options as operating cash
flows
on its statements of cash flows. SFAS 123R requires the cash flows
resulting from the tax benefits for tax deductions in excess of the compensation
expense recorded for those options (excess tax benefits) to be classified
as
financing cash flows. Accordingly, the Company classified excess tax benefits
as
financing cash inflows rather than as operating cash inflows on its statement
of
cash flows for the year ended December 31, 2006.
SFAS 123R
also requires companies to calculate an initial “pool” of excess tax benefits
available at the adoption date to absorb any unused deferred tax assets that
may
be recognized under SFAS 123R. The pool includes the net excess tax
benefits that would have been recognized if the Company had adopted
SFAS 123 for recognition purposes on its effective date. The Company has
elected to calculate the pool of excess tax benefits under the alternative
transition method described in FASB Staff Position No. FAS 123(R)-3,
Transition
Election Related to Accounting for Tax Effects of Share-Based Payment
Awards,
which
also specifies the method the Company must use to calculate excess tax benefits
reported on the statement of cash flows.
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
1.
|
Accounting
Policies (Continued)
|
If
the
Company had adopted SFAS 123R in the prior periods the amount of
compensation cost that would have been recognized during the years ended
December 31, 2005 and 2004, would have approximated the following:
|
|
2005
|
2004
|
|||||
|
Net
income, as reported
|
$
|
44,909
|
$
|
34,421
|
|||
|
Pro
forma compensation expense, net of tax
|
(12,579
|
)
|
(2,658
|
)
|
|||
|
Pro
forma net income
|
$
|
32,330
|
$
|
31,763
|
|||
|
Pro
forma net income per share:
|
|||||||
|
Basic
|
$
|
1.02
|
$
|
0.98
|
|||
|
Diluted
|
$
|
1.00
|
$
|
0.96
|
The
fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for
2005
and 2004, respectively: risk-free interest rates of 4.0% and 3.7%; dividend
yields of 0.8% and 0.0%; volatility factors of the expected market price
of the
common stock of 0.4 and 0.4; and a weighted-average expected life of the
option
of seven years. The Black-Scholes option valuation model was developed for
use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected
stock
price volatility. Because the Company’s stock options have characteristics
significantly different from those of traded options, and because changes
in the
subjective input assumptions can materially affect the fair value estimate,
in
management’s opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
Recently
Issued Accounting Pronouncements
During June
2006, the 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 the Company on January 1, 2007. 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 is continuing to evaluate the impact
of FIN 48
on its consolidated financial statements as a result of on-going litigation
between taxing authorities and entities that are not related to the Company
in
certain tax
jurisdictions in which the Company files. The results of this litigation
may
materially impact the financial statement recognition of tax positions
taken in
certain state income tax returns. Upon initial adoption, as specified
by FIN 48
any required cumulative effect adjustment will be charged to retained
earnings.
During
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements
(“SFAS
157”), which is effective for fiscal years beginning after November 15, 2007
with early 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 our financial position or results
of
operations.
Reclassifications
Certain
reclassifications have been made to prior-year financial statements to
conform
to the 2006 presentation. These reclassifications had no effect on net
income as
previously reported.
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
2.
|
Acquisition
of Business
|
On
May
28, 2005, the Company acquired certain assets of the airport-to-airport
operations of USX for $12,750 in cash. In connection with the purchase, the
Company acquired the airport-to-airport customer list of USX and USX agreed
not
to compete in the airport-to-airport market for a period of ten years. The
purchase price allocation in accordance with SFAS No. 141, Business
Combinations,
is
acquired intangible assets with a total value of $12,750 (majority of the
allocation to the non-compete agreement). The acquired intangible assets
will be
amortized over a period of ten years. The Company began amortizing the assets
on
a straight-line basis during June 2005 and recorded amortization expense
of
approximately $1,275 and $744 for the years ended December 31, 2006 and 2005,
respectively. Ongoing annual amortization expense will be $1,275 for the
next
five years and throughout the life of the assets. The results of operations
of
the USX airport-to-airport operations are included in the consolidated income
statement for the year ended December 31, 2006, but only the results of
operations from May 28, 2005 through December 31, 2005 are included in the
consolidated income statement for the year ended December 31, 2005.
The
airport-to-airport business had been reported by USX as a part of the Xpress
Global Systems (“XGS”) business segment. XGS had total revenue for the year
ended December 31, 2004 of approximately $159,000, of which an estimated
$57,000
was attributable to the airport-to-airport operations. The XGS segment reported
an operating loss of approximately $5,000 for the year ended December 31,
2004.
USX did not account for the related expenses of the airport-to-airport
operations separately within the XGS segment and, accordingly, the USX operating
profit or loss attributable to the airport-to-airport operations is not
known.
|
3.
|
Investments
|
The
Company had a total of $61,650 and $79,000 in available-for-sale securities
as
of December 31, 2006 and 2005, respectively. The Company’s investments consist
of state municipal bonds (often referred to as auction rate securities). The
Company has the option to go to auction every 7-35 days with the auction rate
securities, but the stated maturities of the investments are longer-term. The
Company had interest income of $2,973, $2,476 and $1,143 for each of the years
ended December 31, 2006, 2005 and 2004, respectively, on its
investments.
Securities
are classified as available for sale when the Company does not intend to hold
the securities to maturity nor regularly trade the securities.
The
following is a summary of available-for-sale securities at December 31, 2006
and
2005:
|
|
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Fair
Value
|
|||||||||
|
December
31, 2006
|
|||||||||||||
|
Available-for-sale
securities
|
$
|
61,650
|
|
$
|
--
|
|
$
|
--
|
|
$
|
61,650
|
|
|
|
December
31, 2005
|
|||||||||||||
|
Available-for-sale
securities
|
$
|
78,999
|
|
$
|
1
|
|
$
|
--
|
|
$
|
79,000
|
|
The
gross
realized gains (losses) on sales of available-for-sale securities totaled $0
for
each of the years ended December 31, 2006, 2005 and 2004, respectively. The
net
adjustments to unrealized holding gains (losses) on available-for-sale
securities included in other comprehensive income totaled $0, ($4) and $3 in
2006, 2005 and 2004, respectively. Realized gains and losses are recorded based
on the specific identification of securities sold.
The
net
carrying value and estimated fair value of debt securities at December 31,
2006
by contractual maturity are shown below. Expected maturities will differ from
contractual maturities because the Company has the intent and ability to sell
prior to stated maturity without penalty (via auction).
F-14
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
3.
|
Investments
(Continued)
|
|
Cost
|
Fair
Value
|
||||||
|
Debt
securities:
|
|||||||
|
Contractual
maturity within one year
|
$
|
--
|
|
$
|
--
|
|
|
|
Contractual
maturity after one year through five years
|
8,400
|
8,400
|
|||||
|
Contractual
maturity after five years through ten years
|
700
|
700
|
|||||
|
Contractual
maturity after ten years
|
52,550
|
52,550
|
|||||
|
Total
debt securities with contractual maturities
|
$
|
61,650
|
|
$
|
61,650
|
|
|
4.
|
Credit
Facilities and Long-Term Debt
|
The
Company has a $20,000 unsecured working capital line of credit facility with
a
Tennessee bank. On May 25, 2006, the Company amended the unsecured working
capital line of credit facility to extend the maturity date to April 30,
2008. Interest rates for advances under the facility vary from LIBOR plus 1.0%
to 1.9% based upon covenants related to total indebtedness and cash flows,
(6.4%
and 5.3% at December 31, 2006 and 2005, respectively). The agreement contains
certain covenants and restrictions, none of which are expected to significantly
affect our operations or ability to pay dividends. As of December 31, 2006
and
2005, the Company had $0 and $1,504 outstanding under the line of credit
facility, respectively. At December 31, 2006 and 2005, the Company had $15,615
and $14,196 of available borrowing capacity outstanding under the line,
respectively, and had utilized $4,385 and $4,300 of availability for
outstanding letters of credit, respectively.
Interest
payments during 2006, 2005 and 2004 were $81, $104 and $55, respectively,
none
of which were capitalized.
|
5.
|
Shareholders’
Equity and Stock Options
|
Preferred
Stock —
The
Board of Directors is authorized to issue, at its discretion, up to 5,000,000
shares of preferred stock, par value $0.01. The terms and conditions of the
preferred shares are to be determined by the Board of Directors. No shares
have
been issued to date.
Common
Stock Split—
On
February 15, 2005, the Board of Directors declared a three-for-two stock
split
of the common stock to be effected in the form of a stock dividend to
shareholders of record as of March 18, 2005. Common stock issued and additional
paid-in capital have been restated to reflect the split for all years presented.
All common share and per share data included in the consolidated financial
statements and notes thereto have been restated to give effect to the stock
split.
Cash
Dividend — Prior
to
February 15, 2005, the Company had never declared a cash dividend. During each
quarter of 2006, the Company’s Board of Directors declared a cash dividend of
$0.07 per share of common stock. During each quarter of 2005, the Company’s
Board of Directors declared a cash dividend of $0.06 per share of common stock.
On February 12, 2007, the Company’s Board of Directors declared a $0.07 per
share dividend that will be paid in the first quarter of 2007. 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.
Repurchase
of Common Stock
—
On
July
25, 2002, the Company announced that its Board of Directors approved a stock
repurchase program for up to 3,000,000 shares of common stock (the “2002
Repurchase Plan”). During the third quarter of 2005, the Company completed the
repurchase of the shares authorized under the 2002 Repurchase Plan. For the
year
ended December 31, 2005, the Company repurchased 1,558,350 shares of common
stock, under the 2002 Repurchase Plan for $49,049, or $31.47 per share.
On
November 17, 2005, the Company announced that its Board of Directors approved
a
stock repurchase program for up to 3,000,000 shares of common stock (the “2005
Repurchase Plan”). For the year ended December 31, 2006, the Company repurchased
1,302,695 shares of common stock under the 2005 Repurchase Plan for $41,722,
or
$32.03 per share. For the year ended December 31, 2005, the Company repurchased
83,978 shares of common stock under the 2005 Repurchase Plan for $3,210, or
$38.23 per share.
F-15
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
5.
|
Shareholders’
Equity and Stock Options
(Continued)
|
Share-Based
Compensation — At
December 31, 1998, the Company had reserved 4,500,000 shares of common stock
under the 1992 Amended and Restated Stock Option and Incentive Plan (the “1992
Plan”). As of February 2004, the Company had reserved 4,500,000 common shares
under the 1999 Stock Option and Incentive Plan, resulting in a total of
9,000,000 shares being reserved under the Plans. Options issued under the Plans
have eight to ten-year terms and originally vested over a one to five year
period. As of November 12, 2002, no additional options may be granted under
the
1992 Plan resulting in the cancellation of 57,000 options available for grant
under the 1992 Plan. On December 31, 2005, the Company's Board of Directors
accelerated the vesting of all of the Company's outstanding and unvested stock
options awarded to employees, officers and non-employee directors under the
Company's stock option award plans.
The
following table summarizes the Company’s employee stock option activity and
related information for the years ended December 31, 2006, 2005 and 2004:
|
2006
|
2005
|
2004
|
|||||||||||||||||
|
Options
(000)
|
Weighted-Average
Exercise Price
|
Options
(000)
|
|
Weighted-Average
Exercise Price
|
Options
(000)
|
|
Weighted-Average
Exercise Price
|
||||||||||||
|
Outstanding
at beginning of year
|
1,957
|
$
|
23
|
|
|
1,443
|
|
$
|
15
|
|
|
1,476
|
|
$
|
15
|
||||
|
Granted/converted
|
--
|
--
|
985
|
29
|
326
|
19
|
|||||||||||||
|
Exercised
|
(476
|
)
|
23
|
(443
|
)
|
9 |
(333
|
)
|
17
|
||||||||||
|
Forfeited
|
(6
|
)
|
34
|
(28
|
)
|
22 |
(26
|
)
|
19
|
||||||||||
|
Outstanding
at end of year
|
|
1,475
|
|
$
|
23
|
|
|
1,957
|
|
$
|
23
|
|
|
1,443
|
|
$
|
15
|
|
|
|
Exercisable
at end of year
|
|
1,475
|
|
$
|
23
|
|
|
1,957
|
|
$
|
23
|
|
|
783
|
|
$
|
12
|
|
|
|
Options
available for grant
|
1,192
|
1,315
|
2,273
|
||||||||||||||||
| Average aggregate intrinsic value |
$
|
18,381 |
|
||||||||||||||||
|
Weighted-average
fair value of options granted during the year
|
$
|
--
|
|
|
|
|
$
|
12.79
|
|
|
|
|
$
|
9.49
|
|
|
|
||
The
following table summarizes information about stock options outstanding as of
December 31, 2006:
|
Range
of Exercise Price
|
Number
Outstanding (000)
|
|
Weighted-Average
Remaining Contractual Life
|
Weighted-Average
Exercise Price
|
Number
Exercisable (000)
|
|
Weighted-Average
Exercise Price
|
||||||||||
|
$
|
4.17 —
4.95
|
68
|
|
2.0
years
|
$
|
4 |
|
68
|
|
|
$
|
4
|
|
||||
|
|
11.33 —
15.87
|
226
|
|
5.9 years
|
14
|
226
|
|
14
|
|||||||||
|
17.60
— 24.94
|
402
|
|
6.0
years
|
20 |
402
|
|
20
|
||||||||||
|
28.97
— 32.46
|
779
|
8.1 years
|
29 |
779
|
29 | ||||||||||||
|
$
|
4.17
—
32.46
|
1,475
|
|
6.9 years
|
$
|
23
|
|
1,475
|
|
|
$
|
23
|
|
||||
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
5.
|
Shareholders’
Equity and Stock Options
(Continued)
|
Each
May
from 1995 to 2005 options have been granted to the non-employee directors
of the
Company. The options have terms of ten years and are fully exercisable. At
December 31, 2006, 111,875 options were outstanding and will expire in July
2010
through May 2015 unless a non-employee director resigns or is not re-elected,
in
which event the options expire 90 days after the option holder is no longer
a
non-employee director. During the year ended December 31, 2006, 2,500
options with a weighted-average exercise price of $20.20 were exercised.
At December 31, 2006, the total aggregate intrinsic value of these options
was
$1,513 and the weighted-average exercise price and remaining contractual
term
were $22.13 and 6.7 years, respectively.
During
the year ended December 31, 2006, the Company granted 129,350 non-vested
shares
of common stock (“non-vested shares”), respectively, to key employees with a
weighted-average fair value of $36.09. During the year ended December 31,
2006,
employees forfeited 13,750 non-vested shares with a weighted-average fair
value
of $36.17 per share. Share-based compensation expense of $1,175 was recognized
in salaries, wages and employee benefits during the year ended December
31,
2006. Estimated dividend forfeitures on non-vested shares recorded to
share-based compensation during the year ended December 31, 2006 were $5.
The
total tax benefit related to this share-based expense was $443 for the
year
ended December 31, 2006. Total compensation cost, net of estimated forfeitures,
related to the non-vested shares not yet recognized in earnings was $2,827
at
December 31, 2006.
On
May
23, 2006, the Company’s shareholders approved the Company’s 2006 Non-Employee
Director Stock Plan (the “2006 Plan”). The 2006 Plan is designed to better
enable the Company to attract and retain well-qualified persons for service
as
directors of the Company. Under the 2006 Plan, on the first business day
after
each Annual Meeting of Shareholders, each non-employee director will
automatically be granted an award of 2,250 non-vested shares of the Company’s
common stock. The non-vested shares will become vested and non-forfeitable
in
equal annual installments over three years. Each director may elect to
defer
receipt of the shares under a non-vested share award until the director
terminates service on the Board of Directors. If a director elects to defer
receipt, the Company will issue deferred stock units to the director which
does
not represent actual ownership in shares and the director will not have
voting
rights or other incidents of ownership until the shares are issued. However,
the
Company will credit the director with dividend equivalent payments in the
form
of additional deferred stock units for each cash dividend payment made
by the
Company. After approval of the 2006 Plan, 11,250 non-vested shares and
2,250
deferred stock units were issued to the Company’s non-employee directors with a
weighted-average fair value of $36.27. Share-based compensation expense
of
$82 was recognized in salaries, wages and employee benefits during the year
ended December 31, 2006. The total tax benefit related to the share-based
expense was $31 for the year ended December 31, 2006. Total compensation
cost,
net of estimated forfeitures, related to the non-vested shares and deferred
stock units not yet recognized in earnings was $338 at December 31, 2006.
No
unvested shares issued under the 2006 Plan were forfeited during the year
ended
December 31, 2006.
Under
the ESPP, the Company is authorized to issue up to a remaining 479,079
shares of common stock to employees of the Company. For the year ended
December
31, 2006, participants under the plan purchased 9,237 shares at an average
price of $28.54. The weighted-average fair value of each purchase right
under
the ESPP granted for the year ended December 31, 2006, which is equal to
the
discount from the market value of the common stock at the end of each six
month
purchase period, was $4.90 per share. Share-based compensation expense
of $45
was recognized in salaries, wages and employee benefits, during the year
ended
December 31, 2006. The total tax benefit related to this share-based expense
was
$17 for the year ended December 31, 2006.
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
5.
|
Shareholders’
Equity and Stock Options
(Continued)
|
Income
Per Share—
The
following table sets forth the computation of income per basic and diluted
share:
|
2006
|
2005
|
2004
|
||||||||
|
Numerator:
|
||||||||||
|
Numerator
for income per basic and diluted share - net income
|
$
|
48,923
|
|
$
|
44,909
|
|
$
|
34,421
|
||
|
Denominator:
|
||||||||||
|
Denominator
for income per basic share - weighted-average shares (in
thousands)
|
31,091
|
31,847
|
32,310
|
|||||||
|
Effect
of dilutive stock options and non-vested shares (in
thousands)
|
430
|
572
|
630
|
|||||||
|
Denominator
for income per diluted share - adjusted weighted-average shares (in
thousands)
|
31,521
|
32,419
|
32,940
|
|||||||
|
Income
per basic share
|
$
|
1.57
|
|
$
|
1.41
|
|
$
|
1.07
|
||
|
Income
per diluted share
|
$
|
1.55
|
|
$
|
1.39
|
|
$
|
1.05
|
|
The
number of options and non-vested shares that could potentially
dilute income per basic 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
105,000, 3,000 and 30,000 in 2006, 2005 and 2004, respectively.
|
6.
|
Income
Taxes
|
The
provision for income taxes consists of the following:
|
2006
|
|
|
2005
|
|
|
2004
|
||||
|
Current:
|
||||||||||
|
Federal
|
$
|
25,663
|
|
$
|
22,706
|
|
$
|
16,598
|
||
|
State
|
4,094
|
3,670
|
2,140
|
|||||||
|
29,757
|
26,376
|
18,738
|
||||||||
|
Deferred:
|
||||||||||
|
Federal
|
(57
|
)
|
(50
|
) |
1,224
|
|
||||
|
State
|
(79 | ) |
2
|
287
|
|
|||||
|
(136
|
)
|
(48
|
) |
1,511
|
|
|||||
|
$
|
29,621
|
|
$
|
26,328
|
|
$
|
20,249
|
The
tax
benefits associated with the exercise of stock options during the years ended
December 31, 2006, 2005 and 2004 were $1,967, $5,074 and $2,906,
respectively, and are reflected as an increase in additional paid-in capital
in
the accompanying consolidated statements of shareholders’ equity.
In
addition to the provision for income taxes included in the accompanying
consolidated statements of income, a deferred tax provision (benefit) of
approximately $0, ($2) and $2 is included in other comprehensive income for
the
years ended December 31, 2006, 2005 and 2004, respectively.
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
6.
|
Income
Taxes (Continued)
|
|
2006
|
|
|
2005
|
|
|
2004
|
||||
|
Tax
expense at the statutory rate
|
$
|
27,490
|
|
$
|
24,933
|
|
$
|
19,134
|
||
|
State
income taxes, net of federal benefit
|
2,839
|
2,386
|
1,578
|
|||||||
|
Meals
and entertainment
|
233
|
207
|
195
|
|||||||
|
Tax-exempt
interest income
|
(1,005
|
)
|
(872
|
)
|
(419
|
)
|
||||
|
Other
|
64
|
|
(326
|
)
|
(239
|
)
|
||||
|
$
|
29,621
|
|
$
|
26,328
|
|
$
|
20,249
|
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes. Significant components of the
Company’s deferred tax liabilities and assets are as follows:
|
December
31
|
|||||||
|
2006
|
|
|
2005
|
||||
|
Deferred
tax assets:
|
|||||||
|
Accrued
expenses
|
$
|
1,917
|
|
$
|
2,032
|
|
|
|
Allowance
for doubtful accounts
|
351
|
353
|
|||||
|
Non-compete
agreements
|
260 |
95
|
|||||
|
Acceleration
of option vesting
|
854
|
476
|
|||||
|
Net
operating loss carryforwards
|
408
|
530
|
|||||
|
Total
deferred tax assets
|
3,790
|
3,486
|
|||||
|
Valuation
allowance
|
(408 |
)
|
(408
|
)
|
|||
|
Total
deferred tax assets, net of valuation allowance
|
3,382
|
3,078
|
|||||
|
Deferred
tax liabilities:
|
|||||||
|
Tax
over book depreciation
|
5,943
|
6,054
|
|||||
|
Research
and development expenses
|
12
|
180
|
|||||
|
Prepaid
expenses deductible when paid
|
1,090 |
948
|
|||||
|
Other
|
1,746
|
1,441
|
|||||
|
Total
deferred tax liabilities
|
8,791
|
8,623
|
|||||
|
Net
deferred tax liabilities
|
$
|
(5,409
|
)
|
$
|
(5,545
|
)
|
|
The
balance sheet classification of deferred income taxes is as follows:
|
December
31
|
|||||||
|
2006
|
|
|
2005
|
||||
|
Current
assets
|
$
|
1,178
|
|
$
|
1,438
|
||
|
Noncurrent
liabilities
|
(6,587
|
)
|
(6,983
|
)
|
|||
|
$
|
(5,409
|
)
|
$
|
(5,545
|
)
|
||
Total
income tax payments, net of refunds, during fiscal years 2006, 2005 and
2004 were $26.019, $22,476 and $20,389, respectively.
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
6.
|
Income
Taxes (Continued)
|
At
December 31, 2006 and 2005, the Company had state net operating loss
carryforwards of $8,425 and $12,117, respectively, that will expire between
2013 and 2024. The use of these state net operating losses is limited to the
future taxable income of separate legal entities. As a result, the valuation
allowance has been provided for certain state loss carryforwards. The valuation
allowance was unchanged during 2006. Based on expectations of future taxable
income, management believes that it is more likely than not that the results
of
operations will generate sufficient taxable income to realize the deferred
tax
assets after giving consideration to the valuation allowance.
|
7.
|
Leases
|
In
September 2000, the Company entered into an agreement with the Rickenbacker
Port
Authority (“Rickenbacker”) to lease a building located near the Company’s
Columbus, Ohio hub facility. At the inception of the lease, the Company made
a
$2,004 loan to Rickenbacker. The lease agreement has a ten-year initial term,
with two five-year renewal options. The present value of the future minimum
lease payments of $836 (at December 31, 2006) is included in capital lease
obligations in the accompanying consolidated balance sheets. Because the lease
met the criteria for classification as a capital lease, the leased building
was
recorded in property and equipment at $3,015 (which represents the present
value
of minimum lease payments, including the $2,004 initial payment), as it is
less
than the fair value at the inception date. The building is being depreciated
over the initial lease term.
SFAS
No.
13, Accounting
for Leases,
requires that a lease meet one or more of four specified criteria in order
to be
classified as a capital lease. With respect to the Rickenbacker lease, it was
classified as a capital lease since the present value of the minimum lease
payments, including the initial $2,004 payment, exceeded 90.0% of the fair
value
of the property at lease inception.
Property
and equipment include the following amounts for assets under capital leases:
|
December
31
|
|||||||
|
2006
|
|
|
2005
|
||||
|
Buildings
|
$
|
3,015
|
|
$
|
3,015
|
||
|
Less
accumulated amortization
|
1,066
|
888
|
|||||
|
$
|
1,949
|
|
$
|
2,127
|
|||
Amortization
of assets under capital leases is included in depreciation and amortization
expense.
The
Company leases certain facilities under noncancellable operating leases that
expire in various years through 2012. Certain of these leases may be renewed
for
periods varying from one to ten years.
Sublease
rental income, including amounts from related parties (see Note 8), was $622,
$447 and $323 in 2006, 2005 and 2004, respectively, and was included in
operating revenue in the accompanying consolidated statements of income. The
Company expects to receive aggregate future minimum rental payments under
noncancellable subleases of approximately $185.
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
7.
|
Leases
(Continued)
|
|
|
Capital
Leases
|
Operating
Leases
|
||||||
|
Fiscal
Year
|
||||||||
|
2007
|
$
|
89
|
$
|
11,127
|
||||
|
2008
|
89
|
8,197
|
||||||
|
2009
|
89
|
5,051
|
||||||
|
2010
|
89
|
2,977
|
||||||
|
2011
|
89
|
1,247
|
||||||
|
Thereafter
|
772
|
99
|
||||||
|
Total
minimum lease payments
|
$
|
1,217
|
|
$
|
28,698
|
|||
|
Amounts
representing interest
|
381
|
|||||||
|
Present
value of net minimum lease payments
(including
current portion of $40)
|
$
|
836
|
||||||
|
8.
|
Transactions
With Related Parties
|
Transactions
with Landair Transport, Inc.
Scott
M.
Niswonger, Chairman of the Board of the Company until May 2005, owns a majority
interest in the parent company of Landair Transport, Inc. (“Landair”). Matthew
J. Jewell, our Senior Vice President and General Counsel, served in these
same
capacities with Landair until May 2004. During 2004, the Company purchased
approximately $200 of truckload transportation services from Landair, which
have been included in purchased transportation in the consolidated statements
of
income. No transportation services were purchased from Landair during 2006
and
2005.
During
2004, the Company provided various operational and administrative services
to
Landair. The Company charged Landair approximately $200 during 2004 for
these services. These amounts have been included as a reduction of salaries,
wages and employee benefits in the accompanying consolidated statements of
income for 2004. Landair provided various operational and administrative
services to the Company and charged it approximately $93 during the year
ended
December 31, 2004 for these services. These charges have been included in
salaries, wages and employee benefits in the accompanying consolidated
statements of income. No operational and administrative services were provided
during 2006 and 2005.
Until
September 2005, the Company had a sublease with Landair pursuant to which
the
Company sublet to Landair a portion of the headquarters of the Company in
Greeneville, Tennessee that is leased from the Greeneville-Greene County
Airport
Authority. The Company sublet the facility to Landair for consideration based
upon the cost of such facility to the Company and an agreed-upon percentage
of
usage. Sublease rental income charged to Landair in 2005 and 2004 was
approximately $17 and $25, respectively. These amounts are included in sublease
rental income disclosed in Note 7.
Transactions
With Sky Night, LLC
During
2006, 2005 and 2004, we purchased air transportation services from Sky Night,
LLC (“Sky Night”), a limited liability corporation owned by Scott M. Niswonger.
The air charter expense totaled approximately $143, $105 and $86 in 2006,
2005 and 2004, respectively, and is included in other operating expenses
in the
accompanying consolidated statements of income.
During
2001, the Company entered into an agreement to sublease hangar space at its
Greeneville, Tennessee headquarters to Sky Night. The initial term of the
sublease was for 12 months. Currently, the hangar space is being sublet on
a
month-to-month basis. Sublease rental income charged to Sky Night was
approximately $35 in 2006, 2005 and 2004.
F-21
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
9.
|
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.
Site
Expansion
On
July
10, 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 terminal near Chicago, Illinois for $22,105. A deposit
of
$3,316 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 during the first quarter of 2007. The deposit
is
included in noncurrent other assets.
In
addition, on September 14, 2006, 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 regional hub, 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 these expenditures through
cash and short-term investments currently on the balance sheet, cash provided
by
operating activities and/or borrowings under the credit
facility.
Contractual
Obligations and Commercial Commitments
As
of
December 31, 2006, the Company had a commitment to acquire 77 new forklifts
for
approximately $1,114 during 2007. The Company can cancel the order for
25, or
$357, of these forklifts by March 30, 2007. This commitment is expected
to be
funded by proceeds from the sale of existing equipment and cash flows from
operations.
Atlanta
Terminal Condemnation
During
the fourth quarter of 2002, the City of Atlanta filed a Petition for
Condemnation and Declaration of Taking for a terminal facility owned
by
Transportation Properties, Inc. and leased by Forward Air, Inc., two
of the
Company’s wholly owned subsidiaries. The condemnation was filed in connection
with the fifth runway airport expansion project at Atlanta Hartsfield-Jackson
International Airport. According to the 2002 condemnation petition, the
City of
Atlanta took ownership of the property and building and deposited $2,600
into
the Registry of the Superior Court of Clayton County, Georgia (the “Court”) as
compensation to Transportation Properties, Inc. The Company filed a protest
to
the City of Atlanta’s evaluation of the property and building and also
challenged the method of condemnation it utilized. Prior to December
2003, the
City of Atlanta destroyed the condemned building in conjunction with
the runway
expansion project. On or about December 30, 2003, the Court ruled that
the City
of Atlanta’s method of condemnation was improper and returned ownership of the
land to the Company.
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
9.
|
Commitments
and Contingencies
(Continued)
|
During
January 2004, the City of Atlanta filed a second condemnation petition to
obtain
title to the land. In connection with this second petition, the City of Atlanta
deposited an additional $1,261 into the Registry of the Court, which was
the
City of Atlanta’s estimated fair market value of the land. The City of Atlanta
petitioned the Court and was granted the right to withdraw the original $2,600
escrow balance it paid into the Court as part of the first petition for
condemnation. The Company and its outside counsel believed that the December
30,
2003 ruling by the Court and the City of Atlanta’s actions subsequent to the
first condemnation gave rise to additional theories of recovery. The Company
challenged the method of condemnation set forth in the second petition and
the
withdrawal of the original $2,600 escrow balance. Additionally, the Company
had
claims for damages arising from the City of Atlanta’s destruction of the
Company’s building during the wrongful possession of the property by the City of
Atlanta. As of December 31, 2004, the Company had received the $1,261 escrow
into cash and had a $1,339 receivable for the difference in the original
$2,600
escrow and actual $1,261 in escrow received.
In
the
second quarter of 2005, an agreement was reached with the City of Atlanta
to
settle the dispute. In the settlement, the City of Atlanta paid the Company
approximately $2,765, which represents payment of the receivable of $1,339
along
with additional pre-tax gain of approximately $1,426, included in other income,
net. The cash received is net of attorney’s fees.
|
10.
|
Employee
Benefit Plan
|
The
Company has a retirement savings plan (the “401(k) Plan”). The 401(k) Plan is a
defined contribution plan whereby employees who have completed 90 days of
service, a minimum of 1,000 hours of service and are age 21 or older are
eligible to participate. The 401(k) Plan allows eligible employees to make
contributions of 2.0% to 80.0% of their annual compensation. Employer
contributions were made at 25.0% during 2006, 2005 and 2004 of the
employee’s contribution up to a maximum of 6.0% for all periods presented of
total annual compensation except where government limitations prohibit.
Employer
contributions vest 20.0% after two years of service and continue vesting 20.0%
per year until fully vested. The Company’s matching contributions included in
operations for 2006, 2005 and 2004 were approximately $365, $256 and
$203, respectively.
|
11.
|
Financial
Instruments
|
Off
Balance Sheet Risk
At
December 31, 2006, the Company had letters of credit outstanding totaling
$4,385 as required by its workers’ compensation and vehicle liability
insurance providers.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash investments and trade accounts
receivable. The Company does not generally require collateral from its
customers. Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of entities comprising the
Company’s customer base and their dispersion across many different industries.
Fair Value of Financial Instruments
The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Investments:
The carrying amount for investments in available-for-sale securities was
reported in the consolidated balance sheet at fair market value.
Accounts
receivable and accounts payable: The carrying amounts reported in the balance
sheet for accounts receivable and accounts payable approximate their fair
value.
FORWARD
AIR CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER
31, 2006
|
11.
|
Financial
Instruments
(Continued)
|
Long-
and
short-term debt: The fair value of the Company’s capital lease obligations is
estimated using discounted cash flow analyses, based on the Company’s current
incremental borrowing rates for similar types of borrowing arrangements, and
does not differ materially from the carrying amount.
|
12.
|
Subsequent
Event
|
During
February 2007, the Company purchased 36.7
acres of land in Irving, Texas for $3,100. The land will be used to build
a new regional hub. The Company expects to spend up to $15 million to complete
this regional hub by the end of 2007.
|
13.
|
Quarterly
Results of Operations (Unaudited)
|
The
following is a summary of the quarterly results of operations for the years
ended December 31, 2006 and 2005:
|
2006
|
|||||||||||||
|
|
March
31
|
June
30
|
|
|
September
30
|
|
|
December
31
|
|||||
|
Operating
revenue
|
$
|
82,330
|
|
$
|
86,779
|
|
$
|
90,441
|
|
$
|
93,208
|
|
|
|
Income
from operations
|
16,956
|
19,767
|
19,788
|
18,885
|
|||||||||
|
Net
income
|
11,008
|
13,021
|
12,725
|
12,169
|
|||||||||
|
Net
income per share:
|
|||||||||||||
|
Basic
|
$
|
0.35
|
|
$
|
0.41
|
|
$
|
0.41
|
|
$
|
0.40
|
|
|
|
Diluted
|
$
|
0.35
|
|
$
|
0.41
|
|
$
|
0.41
|
|
$
|
0.40
|
|
|
|
2005
|
|||||||||||||
|
|
March
31
|
June
30
|
|
|
September
30
|
|
|
December
31
|
|||||
|
Operating
revenue
|
$
|
69,533
|
|
$
|
77,488
|
|
$
|
84,841
|
|
$
|
89,072
|
||
|
Income
from operations
|
13,381
|
16,791
|
18,669
|
18,595
|
|||||||||
|
Net
income
|
8,693
|
11,954
|
12,065
|
12,197
|
|||||||||
|
Net
income per share:
|
|||||||||||||
|
Basic
|
$
|
0.27
|
|
$
|
0.37
|
|
$
|
0.38
|
|
$
|
0.39
|
||
|
Diluted
|
$
|
0.27
|
|
$
|
0.37
|
|
$
|
0.38
|
|
$
|
0.38
|
||
Schedule
II — Valuation and Qualifying Accounts
|
Col.
A
|
Col.
B
|
Col.
C
|
Col.
D
|
|
|
Col.
E
|
|
|||||||||
|
Additions
|
||||||||||||||||
|
Description
|
Balance
at Beginning of Period
|
(1)
Charged
to Costs and Expenses
|
(2)
Charged
to Other Accounts-Describe
|
Deductions-Describe
|
Balance
at End of Period
|
|||||||||||
|
(In
thousands)
|
||||||||||||||||
| Year ended December 31, 2006: | ||||||||||||||||
|
Allowance
for doubtful accounts
|
$
|
637 |
$
|
(223
|
) |
$
|
--
|
$
|
(210
|
)(2) |
$
|
624
|
||||
|
Allowance
for revenue adjustments
(1)
|
285 |
2,095
|
--
|
2,144
|
(3) |
236
|
||||||||||
| 922 |
1,872
|
--
|
1,934
|
860
|
||||||||||||
|
Year
ended December 31, 2005:
|
||||||||||||||||
|
Allowance
for doubtful accounts
|
$
|
826
|
$
|
(121
|
)
|
$
|
--
|
$
|
68
|
(2)
|
$
|
637
|
||||
|
Allowance
for revenue adjustments
(1)
|
246
|
2,100
|
--
|
2,061
|
(3)
|
285
|
||||||||||
|
1,072
|
1,979
|
--
|
2,129
|
922
|
||||||||||||
|
Year
ended December 31, 2004:
|
||||||||||||||||
|
Allowance
for doubtful accounts
|
$
|
943
|
$
|
161
|
$
|
--
|
$
|
278
|
(2)
|
$
|
826
|
|||||
|
Allowance
for revenue adjustments
(2)
|
320
|
1,848
|
--
|
1,922
|
(3)
|
246
|
||||||||||
|
1,263
|
2,009
|
--
|
2,200
|
1,072
|
||||||||||||
___________________
|
(1)
|
Represents
an allowance for adjustments to accounts receivable due to disputed
rates,
accessorial charges and other aspects of previously billed
shipments.
|
|
(2)
|
Uncollectible
accounts written off, net of
recoveries.
|
|
(3)
|
Adjustments
to billed accounts receivable.
|
|
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 (File No.
0-22490))
|
|
|
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 (File No.
0-22490))
|
|
|
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 (File No. 0-22490))
|
|
|
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 (File No.
0-22490))
|
|
|
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 Securities and Exchange Commission on May 28, 1999
(File
No. 0-22490))
|
|
|
10.1*
|
Forward
Air Corporation 2005 Employee Stock Purchase Plan (incorporated herein
by
reference to the registrant’s Proxy Statement filed with the Securities
and Exchange Commission on April 20, 2005 (File No.
0-22490))
|
|
|
10.2*
|
Amended
and Restated Stock Option and Incentive Plan (incorporated herein
by
reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form
10-Q for the period ended June 30, 1995 filed with the Securities
and
Exchange Commission on August 14, 1995 (File No.
0-22490))
|
|
|
10.4
|
Air
Carrier Certificate, effective August 28, 2003 (incorporated herein
by
reference to Exhibit 10.5 to the registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2003 filed with the Securities
and
Exchange Commission on March 11, 2004 (File No.
0-22490))
|
|
|
10.5*
|
Non-Employee
Director Stock Option Plan (incorporated herein by reference to Exhibit
10.2 to the registrant’s Quarterly Report on Form 10-Q for the period
ended June 30, 1995 filed with the Securities and Exchange Commission
on
August 14, 1995 (File No. 0-22490))
|
|
|
10.6*
|
Amendment
to the Non-Employee Director Stock Option Plan (incorporated herein
by
reference to Exhibit 10.7 to the registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2003 filed with the Securities
and
Exchange Commission on March 11, 2004 (File No.
0-22490))
|
|
|
10.7
|
Amended
and Restated Loan and Security Agreement, dated as of September 10,
1998,
between First Tennessee Bank National Association and the registrant
(incorporated herein by reference to Exhibit 10.5 to the registrant’s
Quarterly Report on Form 10-Q for the period ended September 30,
1998
filed with the Securities and Exchange Commission on November 16,
1998
(File No. 0-22490))
|
|
|
10.8
|
Modification
Agreement (to Amended and Restated Loan and Security Agreement),
dated as
of June 18, 2002, among the registrant, First Tennessee Bank National
Association, FAF, Inc., Forward Air, Inc. and Transportation Properties,
Inc. (incorporated herein by reference to Exhibit 10.1 to the registrant’s
Quarterly Report on Form 10-Q for the period ended June 30, 2002
filed
with the Securities and Exchange Commission on August 14, 2002 (File
No.
0-22490))
|
|
10.9
|
Letter
Agreement, dated May 17, 2005, between the registrant and First Tennessee
Bank National Association extending the maturity date of the registrant’s
$20.0 million Master Secured Promissory Note under the Amended and
Restated Loan and Security Agreement, dated as of September 10, 1998,
as
modified by Modification Agreement, dated as of June 18, 2002
(incorporated herein by reference to Exhibit 10.1 to the registrant’s
Quarterly Report on Form 10-Q for the period ended June 30, 2005
filed
with the Securities and Exchange Commission on August 9, 2005 (File
No.
0-22490))
|
|
|
10.10
|
Letter
Agreement, dated as of May 25, 2006, between the registrant and First
Tennessee Bank National Association extending the maturity date of
the
registrant’s $20.0 million Master Secured Promissory Note under the
Amended and Restated Loan and Security Agreement, dated as of September
10, 1998, as modified by Modification Agreement, dated as of June
18, 2002
and by Letter Agreement, dated May 17, 2005 (incorporated herein
by
reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form
10-Q for the period ended June 30, 2006 filed with the Securities
and
Exchange Commission on August 4, 2006 (File No.
0-22490))
|
|
|
10.11*
|
Employment
Agreement dated January 24, 2006, between Forward Air Corporation
and
Bruce A. Campbell, including Exhibit A, Restrictive Covenants Agreement
entered into contemporaneously with and as part of the Employment
Agreement (incorporated herein by reference to Exhibit 99.1 to the
registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 26, 2006 (File No.
0-22490))
|
|
|
10.12*
|
Form
of Incentive Stock Option Agreement under the registrant’s Amended and
Restated Stock Option and Incentive Plan, as amended, and 1999 Stock
Option and Incentive Plan, as amended, for grants prior to February
12,
2006 (incorporated herein by reference to Exhibit 10.12 to the
registrant’s Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2005 filed with the Securities and Exchange Commission
on
March 22, 2006 (File No. 0-22490))
|
|
|
10.13*
|
Form
of Non-Qualified Stock Option Agreement under the registrant’s
Non-Employee Director Stock Option Plan, as amended, for grants prior
to
February 12, 2006 (incorporated herein by reference to Exhibit 10.13
to
the registrant’s Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2005 filed with the Securities and Exchange Commission
on
March 22, 2006 (File No. 0-22490))
|
|
|
10.14*
|
1999
Stock Option and Incentive Plan (incorporated herein by reference
to
Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the
period ended March 31, 1999 filed with the Securities and Exchange
Commission on May 17, 1999 (File No. 0-22490))
|
|
|
10.15*
|
Amendment
to the 1999 Stock Option and Incentive Plan (incorporated herein
by
reference to Exhibit 10.14 to the registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2003 filed with the Securities
and
Exchange Commission on March 11, 2004 (File No.
0-22490))
|
|
|
10.16*
|
Non-Qualified
Stock Option Agreement dated August 21, 2000 between the registrant
and
Ray A. Mundy (incorporated herein by reference to Exhibit 10.1 to
the
registrant’s Quarterly Report on Form 10-Q for the period ended September
30, 2000 filed with the Securities and Exchange Commission on November
6,
2000 (File No. 0-22490))
|
|
|
10.17
|
Forward
Air Corporation Section 125 Plan (incorporated herein by reference
to
Exhibit 10.18 to the registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2001 filed with the Securities and
Exchange
Commission on March 15, 2002 (File No. 0-22490))
|
|
|
10.18*
|
Form
of Option Restriction Agreement between the registrant and each executive
officer regarding certain restrictions on transferability of accelerated
stock options granted under the registrant’s 1999 Stock Option and
Incentive Plan, as amended (incorporated herein by reference to Exhibit
10.18 to the registrant’s Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2005 filed with the Securities and Exchange Commission
on March 22, 2006 (File No.
0-22490))
|
|
10.19*
|
Form
of Restricted Stock Agreement for an award of restricted stock under
the
registrant’s 1999 Stock Option and Incentive Plan, as amended, granted on
or after February 12, 2006 (incorporated herein by reference to Exhibit
10.19 to the registrant’s Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2005 filed with the Securities and Exchange Commission
on March 22, 2006 (File No. 0-22490))
|
|
|
10.20*
|
2006
Non-Employee Director Stock Plan (incorporated by reference
to Appendix A of the registrant’s Proxy Statement filed with the
Securities and Exchange Commission on April 24, 2006 (File No.
22490))
|
|
10.21*
|
Form
of Non-Employee Director Restricted Stock Agreement for an award
of
restricted stock under the registrant's 2006 Non-Employee Director
Stock
Plan (incorporated by reference to Exhibit 99.2 to the registrant's
Registration Statement on Form S-8 filed with the Securities and
Exchange
Commission on May 19, 2006 (File No. 22490))
|
|
|
10.22*
|
Schedule
of Non-Employee Director Compensation effective May 24, 2006 (incorporated
herein by reference to Exhibit 99.1 to the registrant’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on May
23, 2006
(File No. 0-22490))
|
|
|
10.23
|
Agreement
of Purchase and Sale, dated as of July 10, 2006, among AMB Property
II,
L.P., Headlands Realty Corporation and Forward Air, Inc. (incorporated
herein by reference to Exhibit 10.2 to the registrant’s Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2006 filed with
the
Securities and Exchange Commission on August 4, 2006 (File No.
0-22490))
|
|
|
10.24
|
Agreement
of Purchase and Sale, dated as of September 14, 2006, by and between
Headlands Realty Corporation and Forward Air, Inc. (incorporated
herein by
reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2006 filed with the
Securities and Exchange Commission on November 3, 2006 (File No.
0-22490))
|
|
|
14.1
|
Code
of Ethics (incorporated herein by reference to Exhibit 14.1 to the
registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 2003 filed with the Securities and Exchange Commission on March
11,
2004 (File No. 0-22490))
|
|
|
21.1
|
Subsidiaries
of the registrant (incorporated herein by reference to Exhibit 21.1
to the
registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 2000 filed with the Securities and Exchange Commission on April
2,
2001 (File No. 0-22490))
|
|
______________
*Denotes
a management contract or compensatory plan or
arrangement.