<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
Commission File No. 000-22490
FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1120025
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
430 AIRPORT ROAD
GREENEVILLE, TENNESSEE 37745
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 636-7100
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 [ ]
The number of shares outstanding of the registrant's common stock, $.01 par
value, as of July 31, 1999 was 13,739,503.
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TABLE OF CONTENTS
FORWARD AIR CORPORATION
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income -
Three months and six months ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements -
June 30, 1999 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosure of Market Risk 16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 2. Changes in Securities and Use of Proceeds 17
ITEM 3. Defaults Upon Senior Securities 17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 5. Other Information 18
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX 20
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Forward Air Corporation
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited) (Note 1)
(In thousands, except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,484 $ 455
Accounts receivable, less allowance of $966 in 1999 and $952
in 1998 22,327 19,754
Other current assets 3,184 3,207
------- -------
Total current assets 30,995 23,416
Property and equipment 42,990 40,072
Less accumulated depreciation and amortization 12,221 10,152
------- -------
30,769 29,920
Other assets 3,501 3,472
------- -------
Total assets $65,265 $56,808
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,208 $ 4,120
Accrued expenses 8,247 7,056
Current portion of long-term debt 230 4,529
Current portion of capital lease obligations 530 676
------- -------
Total current liabilities 14,215 16,381
Long-term debt, less current portion 85 15,403
Capital lease obligations, less current portion 4,161 4,723
Deferred income taxes 2,210 1,230
Shareholders' equity:
Preferred stock -- --
Common stock, $.01 par value:
Authorized shares - 50,000,000 in 1999 and 20,000,000 in 1998
Issued and outstanding shares - 13,738,877 in 1999 and 12,587,818
in 1998 137 126
Additional paid-in capital 34,630 15,768
Retained earnings 9,827 3,177
------- -------
Total shareholders' equity 44,594 19,071
------- -------
Total liabilities and shareholders' equity $65,265 $56,808
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
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Forward Air Corporation
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenue $ 40,781 $ 30,739 $ 78,509 $ 59,589
Operating expenses:
Purchased transportation:
Provided by Landair Corporation 751 1,036 1,460 2,354
Provided by others 17,025 12,383 32,545 23,439
Salaries, wages and employee benefits 9,152 7,211 17,874 14,407
Operating leases 2,097 1,528 4,223 3,068
Depreciation and amortization 1,255 1,030 2,454 1,984
Insurance and claims 530 645 870 1,425
Other operating expenses 4,032 3,197 7,669 6,418
-------- -------- -------- --------
34,842 27,030 67,095 53,095
-------- -------- -------- --------
Income from operations 5,939 3,709 11,414 6,494
Other income (expense):
Interest expense (179) (215) (625) (425)
Other, net 46 1 78 11
-------- -------- -------- --------
(133) (214) (547) (414)
-------- -------- -------- --------
Income from continuing operations
before income taxes 5,806 3,495 10,867 6,080
Income taxes 2,256 1,328 4,217 2,348
-------- -------- -------- --------
Income from continuing operations 3,550 2,167 6,650 3,732
-------- -------- -------- --------
Discontinued operations:
Income from operations (less income taxes of
$--, $409, $-- and $850, respectively) -- 669 -- 1,345
Loss on Spin-off (less income taxes of $--,
$380, $-- and $380, respectively) -- (380) -- (380)
-------- -------- -------- --------
-- 289 -- 965
-------- -------- -------- --------
Net income $ 3,550 $ 2,456 $ 6,650 $ 4,697
======== ======== ======== ========
Income per share:
Basic
Income from continuing operations $ .27 $ .18 $ .51 $ .30
Income from discontinued operations -- .02 -- .08
-------- -------- -------- --------
Net income $ .27 $ .20 $ .51 $ .38
======== ======== ======== ========
Diluted
Income from continuing operations $ .25 $ .17 $ .49 $ .29
Income from discontinued operations -- .02 -- .08
-------- -------- -------- --------
Net income $ .25 $ .19 $ .49 $ .37
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
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Forward Air Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
-------------------------
June 30, June 30,
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Cash provided by operations $ 9,801 $ 1,598
Investing activities:
Proceeds from disposal of property and equipment 53 15
Purchases of property and equipment (3,274) (3,609)
Other (99) (111)
-------- -------
(3,320) (3,705)
Financing activities:
Proceeds from long-term debt -- 2,394
Payments of long-term debt (19,617) (1,219)
Payments of capital lease obligations (708) (479)
Proceeds from exercise of stock options 783 1,346
Common stock issued under employee stock purchase
plan 57 70
Net proceeds from public offering 18,033 --
-------- -------
(1,452) 2,112
-------- -------
Increase in cash and cash equivalents $ 5,029 $ 5
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
5
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Forward
Air Corporation annual report on Form 10-K for the year ended December 31, 1998.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date, but does not include all of the financial
information and footnotes required by generally accepted accounting principles
for complete financial statements.
2. DISCONTINUED OPERATIONS
The accompanying condensed consolidated financial statements include Forward Air
Corporation and its subsidiaries. On July 9, 1998 (the "Measurement Date"), the
Board of Directors of the Company authorized the separation of the Company into
two publicly-held corporations, one owning and operating the deferred air
freight operations and the other owning and operating the truckload operations
(the "Spin-off").
The Spin-off was effected on September 23, 1998 through the distribution to
shareholders of the Company of all the outstanding shares of common stock of a
new truckload holding company, Landair Corporation. Pursuant to the Spin-off,
the common stock of Landair Corporation was distributed on a pro rata basis of
one share of Landair Corporation common stock for every share of the common
stock of the Company. Subsequent to the Spin-off, the Company has continued as
the legal entity that owns and operates the deferred air freight operations
through its operating subsidiaries and Landair Corporation is the legal entity
that owns and operates the truckload operations. Additionally, the name Landair
Services, Inc. was changed to Forward Air Corporation on August 26, 1998. As a
result of the Spin-off, the results of operations and cash flows of the
truckload operations have been reported as discontinued operations in the
accompanying condensed consolidated financial statements.
6
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements (continued)
2. DISCONTINUED OPERATIONS (CONTINUED)
As used in the accompanying condensed consolidated financial statements, the
term "Forward Air" refers to the deferred air freight operations; the term
"truckload" refers to the truckload operations; and the term "the Company"
refers to the entity which, prior to the Spin-off, operated both the deferred
air freight and truckload groups and which, after the Spin-off, operates the
deferred air freight group.
Summarized income statement information relating to the truckload operations (as
reported in discontinued operations) for the period presented prior to the
Spin-off is as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1998 June 30, 1998
------------------ ----------------
<S> <C> <C>
Operating revenue $ 26,220 $ 51,543
Operating expenses 24,705 48,450
-------- --------
Income from operations 1,515 3,093
Interest expense (457) (924)
Other, net 20 26
-------- --------
Income before income taxes 1,078 2,195
Income taxes 409 850
-------- --------
Income from discontinued
truckload operations $ 669 $ 1,345
======== ========
</TABLE>
The estimated loss on Spin-off in the amount of $380,000 recorded in 1998
includes an estimate of the net of the after-tax income of the discontinued
operations from the Measurement Date through the date of the Spin-off and the
estimated costs associated with the Spin-off. The costs associated with the
Spin-off represent the cost of separating the two businesses which are
non-deductible for income tax purposes. The actual costs incurred upon effecting
the Spin-off in September 1998 approximated the $380,000 estimated amount.
3. COMPREHENSIVE INCOME
The Company had no items of other comprehensive income in 1999 or 1998 and,
accordingly, comprehensive income is equivalent to net income.
4. NET INCOME PER SHARE
On February 24, 1999, the Board of Directors approved a two-for-one split of the
common shares which was distributed on March 19, 1999 to shareholders of record
as of March 12, 1999. Common stock issued and additional paid-in capital have
been restated to reflect this split for all years presented. All common share
and per share data included in the condensed consolidated financial statements
and notes thereto have been restated to give effect to the stock split.
7
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements (continued)
4. NET INCOME PER SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------- -----------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted income per share:
Income from continuing operations $ 3,550 $ 2,167 $ 6,650 $ 3,732
Income from discontinued operations -- 289 -- 965
------- ---------- ------- ----------
Net income $ 3,550 $ 2,456 $ 6,650 $ 4,697
======= ========== ======= ==========
Denominator:
Denominator for basic income per share -
weighted-average shares 13,340 12,354 12,985 12,254
Effect of dilutive stock options 817 564 655 586
------- ---------- ------- ----------
Denominator for diluted income per share -
adjusted weighted-average shares 14,157 12,918 13,640 12,840
======= ========== ======= ==========
Income per share - basic:
Income from continuing operations $ .27 $ .18 $ .51 $ .30
Income from discontinued operations -- .02 -- .08
------- ---------- ------- ----------
Net income $ .27 $ .20 $ .51 $ .38
======= ========== ======= ==========
Income per share - diluted:
Income from continuing operations $ .25 $ .17 $ .49 $ .29
Income from discontinued operations -- .02 -- .08
------- ---------- ------- ----------
Net income $ .25 $ .19 $ .49 $ .37
======= ========== ======= ==========
Securities that could potentially dilute basic income per
share in the future that were not included in the
computation of diluted income per share because to
do so would have been antidilutive for the periods
presented 15 -- 15 --
======= ========== ======= ==========
</TABLE>
5. SHAREHOLDERS' EQUITY
On May 4, 1999, 1.0 million shares of the common stock of the Company were sold
under a Form S-3 Registration Statement dated April 23, 1999. The net proceeds
of the offering were $18.0 million and were used principally to repay
outstanding debt.
8
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements (continued)
6. INCOME TAXES
For the three and six months ended June 30, 1999 and 1998, the effective income
tax rate varied from the statutory federal income tax rate of 35% primarily as a
result of the effect of state income taxes, net of the federal benefit, and
permanent differences.
7. CONTINGENCIES
The Company is, from time to time, a party to litigation arising in the normal
course of its business, most of which involve claims for personal injury and
property damage incurred in connection with the transportation of freight.
Management believes none of these actions, individually or in the aggregate,
will have a material adverse effect on the financial condition or results of
operations of the Company.
8. RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial statements
to conform to the 1999 presentation. These reclassifications had no effect on
net income as previously reported.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
We provide scheduled ground transportation of cargo on a time-definite basis. As
a result of our established transportation schedule and network of terminals,
our operating cost structure includes significant fixed costs. Our ability to
improve our operating margins will depend on our ability to increase the volume
of freight moved through our network.
The following does not include a discussion and analysis of the truckload
carrier business, which has been accounted for as a discontinued operation as a
result of the Spin-off effected on September 23, 1998. (See Note 2 to the
Condensed Consolidated Financial Statements.)
RESULTS OF OPERATIONS
The following table shows the percentage relationship of expense items to
operating revenue for the periods indicated.
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation 43.6 43.6 43.3 43.3
Salaries, wages and employee
benefits 22.4 23.4 22.8 24.2
Operating leases 5.1 5.0 5.4 5.1
Depreciation and amortization 3.1 3.4 3.1 3.3
Insurance and claims 1.3 2.1 1.1 2.4
Other operating expenses 9.9 10.4 9.8 10.8
----- ----- ----- -----
85.4 87.9 85.5 89.1
Income from operations 14.6 12.1 14.5 10.9
Other income (expense):
Interest expense (0.4) (0.7) (0.8) (0.7)
Other, net 0.1 0.0 0.1 0.0
----- ----- ----- -----
(0.3) (0.7) (0.7) (0.7)
----- ----- ----- -----
Income before income taxes 14.3 11.4 13.8 10.2
Income taxes 5.6 4.4 5.3 3.9
----- ----- ----- -----
Income from continuing operations 8.7% 7.0% 8.5% 6.3%
===== ===== ===== =====
</TABLE>
10
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Three Months Ended June 30, 1999 compared to Three Months Ended June 30, 1998
Operating revenue increased by $10.1 million, or 32.9%, to $40.8 million in the
second quarter of 1999 from $30.7 million in the same period of 1998. The
increase resulted primarily from increased volume of freight shipments from
domestic and international air cargo customers, increased operating terminals
and direct shuttles and enhanced logistics services.
Purchased transportation represented 43.6% of operating revenue in the second
quarter of 1999 compared to 43.6% in the same period of 1998.
Salaries, wages and employee benefits were 22.4% of operating revenue in the
second quarter of 1999 compared to 23.4% in the same period of 1998. The
decrease in salaries, wages and employee benefits as a percentage of operating
revenue was due primarily to operating efficiencies resulting from increased
volume of freight transported through our network coupled with a reduction in
Company linehaul drivers which were hired initially as a part of the acquisition
of certain of the assets of Adams Air Cargo, Inc. in October 1997.
Operating leases, the largest component of which is terminal rent, were 5.1% of
operating revenue in the second quarter of 1999 compared to 5.0% in the same
period of 1998. The increase in operating leases as a percentage of operating
revenue between periods was attributable to an increase in rent expense for
trailers. The increase in operating lease expense attributable to trailers was
partially offset by greater operating revenue through our network.
Depreciation and amortization expense as a percentage of operating revenue was
3.1% in the second quarter of 1999, compared to 3.4% in the same period of 1998.
The decrease in depreciation and amortization expense as a percentage of revenue
was attributable to increased utilization of operating equipment.
Insurance and claims were 1.3% of operating revenue in the second quarter of
1999, compared with 2.1% in the same period of 1998. The decrease in insurance
and claims as a percentage of operating revenue was due primarily to a decrease
in the frequency and severity of accidents and lower premium costs.
Other operating expenses were 9.9% of operating revenue in the second quarter of
1999 compared to 10.4% in the same period of 1998. The decrease in other
operating expenses as a percentage of operating revenue was primarily
attributable to a lower operating cost structure due to increased operating
revenue and a reduction in commissions paid to agent terminals.
Income from operations increased by $2.2 million, or 59.5%, to $5.9 million for
the second quarter of 1999 compared to $3.7 million for the same period in 1998.
The improvement in income from operations is due primarily to a lower operating
cost structure in the current year resulting from an increase in operating
revenue which allowed the Company to spread the fixed costs of the network over
a larger revenue base.
11
<PAGE> 12
Interest expense was $179,000, or 0.4%, of operating revenue in the second
quarter of 1999, compared to $215,000, or 0.7%, for the same period in 1998. The
decrease in interest expense was due to lower average net borrowings during
1999.
The combined federal and state effective tax rate for the second quarter of 1999
was 38.9% compared to a rate of 38.0% for the same period in 1998.
As a result of the foregoing factors, income from continuing operations
increased by $1.4 million, or 63.6%, to $3.6 million for the second quarter of
1999, compared to $2.2 million for the same period of 1998.
Six Months Ended June 30, 1999 compared to Six Months Ended June 30, 1998
Operating revenue increased by $18.9 million, or 31.7%, to $78.5 million in the
first six months of 1999 from $59.6 million in the same period of 1998. The
increase resulted primarily from increased volume of freight shipments from
domestic and international air cargo customers, increased operating terminals
and direct shuttles and enhanced logistics services.
Purchased transportation represented 43.3% of operating revenue in the first six
months of 1999 compared to 43.3% in the same period of 1998.
Salaries, wages and employee benefits were 22.8% of operating revenue in the
first six months of 1999 compared to 24.2% in the same period of 1998. The
decrease in salaries, wages and employee benefits as a percentage of operating
revenue was due primarily to operating efficiencies resulting from increased
volume of freight transported through our network coupled with a reduction in
Company linehaul drivers which were hired initially as a part of the acquisition
of certain of the assets of Adams Air Cargo, Inc. in October 1997.
Operating leases, the largest component of which is terminal rent, were 5.4% of
operating revenue in the first six months of 1999 compared to 5.1% in the same
period of 1998. The increase in operating leases as a percentage of operating
revenue between periods was attributable to an increase in rent expense for
trailers. The increase in operating lease expense attributable to trailers was
partially offset by greater operating revenue through our network.
Depreciation and amortization expense as a percentage of operating revenue was
3.1% in the first six months of 1999, compared to 3.3% in the same period of
1998. The decrease in depreciation and amortization expense as a percentage of
revenue was attributable to increased utilization of operating equipment.
Insurance and claims were 1.1% of operating revenue in the first six months of
1999, compared with 2.4% in the same period of 1998. The decrease in insurance
and claims as a percentage of operating revenue was due primarily to a decrease
in the frequency and severity of accidents and lower premium costs.
12
<PAGE> 13
Other operating expenses were 9.8% of operating revenue in the first six months
of 1999 compared to 10.8% in the same period of 1998. The decrease in other
operating expenses as a percentage of operating revenue was primarily
attributable to a lower operating cost structure due to increased operating
revenue and a reduction in commissions paid to agent terminals.
Income from operations increased by $4.9 million, or 75.4%, to $11.4 million for
the first six months of 1999 compared to $6.5 million for the same period in
1998. The improvement in income from operations is due primarily to a lower
operating cost structure in the current year resulting from an increase in
operating revenue which allowed the Company to spread the fixed costs of the
network over a larger revenue base.
Interest expense was $625,000, or 0.8%, of operating revenue in the first six
months of 1999, compared to $425,000, or 0.7%, for the same period in 1998. The
increase was due to higher average net borrowings.
The combined federal and state effective tax rate for the first six months of
1999 was 38.8% compared to a rate of 38.6% for the same period in 1998.
As a result of the foregoing factors, income from continuing operations
increased by $3.0 million, or 81.1%, to $6.7 million for the first six months of
1999, compared to $3.7 million for the same period of 1998.
Liquidity and Capital Resources
Prior to the Spin-off in September 1998, we operated our business and the
Truckload operations together. As a result, our statement of cash flows for 1998
does not fully reflect the cash flows of our business as a stand-alone company.
We have historically financed working capital needs, including capital
purchases, with cash flows from operations and borrowings under our bank lines
of credit. Net cash provided by operating activities totaled approximately $9.8
million for the six months ended June 30, 1999 compared with $1.6 million in the
same period of 1998.
Net cash used in investing activities was approximately $3.3 million in the six
months ended June 30, 1999 compared with $3.7 in the same period of 1998. Our
investing activities consisted primarily of the purchase of operating equipment
and management information systems during these periods.
Net cash used in financing activities was $1.5 million in the six months ended
June 30, 1999 compared with net cash provided by financing activities of $2.1
million in the same period of 1998. Our financing activities included the
continued financing of operating equipment and working capital needs, the
repayment of long-term debt and capital leases and proceeds received from the
exercise of stock options, common stock issued under an employee stock purchase
plan and common stock issued from a public offering.
13
<PAGE> 14
On May 4, 1999, 1.0 million shares of the common stock of the Company were sold
under a Form S-3 Registration Statement dated April 23, 1999. The net proceeds
of the offering were $18.0 million and were used principally to repay
outstanding debt.
Our credit facilities include a working capital line of credit and an equipment
financing facility. As long as we comply with the financial covenants and ratios
established in the credit facility agreements, these credit facilities permit us
to borrow up to $20.0 million under the working capital line of credit and up to
$25.0 million under equipment financing facilities. Interest rates for advances
under the facilities vary based on covenants related to total indebtedness, cash
flows, results of operations and other ratios. The facilities bear interest at
LIBOR plus .80% to 1.90%, expire in September and December 2000 and are secured
by accounts receivable and most of our equipment. The amount we can borrow under
the line of credit is reduced by the amount of any outstanding letters of
credit.
We believe that our available cash, together with proceeds from the recent
public offering of the common stock of the Company, expected cash generated from
future operations and borrowings under available lines of credit, will be
sufficient to satisfy our anticipated cash needs for at least the next 12
months.
Year 2000 Issues
The Company continues to assess the potential impact of the Year 2000 on our
internal information technology ("IT") systems and operations. The Company's
Year 2000 initiatives include (i) testing and upgrading internal systems; (ii)
contacting technology vendors to determine their Year 2000 compliance status;
(iii) interface testing of the Company's internal systems with the systems of
its principal technology vendors; and (iv) contingency planning. The scope of
these efforts include business systems, systems software, computer hardware,
local networking and external telecommunications services.
The Company's State of Readiness
The Company has completed its initial assessment of its IT systems for Year 2000
compliance. During this assessment, the Company identified certain software
applications that required modifications or updates for IT systems to be Year
2000 compliant. The Company has obtained or will obtain such modifications and
updates. Based upon its initial assessment, the Company believes that
substantially all of its critical IT systems are Year 2000 compliant or can be
made Year 2000 compliant with minor modifications. The Company anticipates all
critical IT systems will be Year 2000 compliant by October 31, 1999.
As an integral part of its Year 2000 compliance effort, the Company has been
testing the interfacing of its IT systems with the systems of certain of its IT
vendors with whom the Company has material relationships. The Company will
continue this testing in an effort to minimize operations disruptions due to
Year 2000 issues. At present, the Company has not identified any material IT
vendor which will not be Year 2000 compliant.
14
<PAGE> 15
Estimated Cost to Address Year 2000 Issues
To date, costs incurred in connection with Year 2000 issues have not been
material. Management estimates that the total Year 2000 project costs will not
have a material impact on the Company's results of operations, liquidity, or
financial condition. Except for expenditures for capital items, Year 2000
project costs are being expensed and are funded through cash from operations.
The Company has not yet deferred any IT project due to its Year 2000 efforts.
Risks of the Company's Year 2000 Issues
Virtually every aspect of the Company's operations might be disrupted if our
systems or the systems of our material vendors are not Year 2000 compliant.
While the Company is attempting to minimize any negative consequences arising
from Year 2000 issues, there can be no assurance that Year 2000 issues will not
have a material adverse impact on our business, operations or financial
condition. Moreover, while the Company expects that upgrades to its IT systems
will be completed in a timely manner, there can be no assurances that the
Company will not encounter unexpected costs or delays.
Moreover, if any of the Company's significant vendors or customers experience
business disruptions due to Year 2000 issues, the Company might be adversely
affected. In certain instances, primarily telecommunications vendors or vendors
materially dependent on telecommunications, the Company is limited in its
ability to verify Year 2000 compliance and must rely on vendor representations
which may not provide unqualified Year 2000 compliance assurances. Regarding
customers, the Company's efforts have been focused on electronic data interface
("EDI") support. The Company is contacting each customer with whom there is an
EDI relationship to offer conversion to the Year 2000 compliant version of EDI
standards. In certain cases, customers have elected not to upgrade.
At present, the Company is not able to determine whether there would be a
material impact on the Company's results of operations, liquidity, or financial
condition if the Company's material systems, vendors, and customers are not Year
2000 compliant. A worst-case scenario would result in the short-term inability
of the Company to transport freight for its customers. This would result in lost
revenue; however, the amount would be dependent on the length and nature of the
disruption which cannot be predicted or estimated.
Contingency Plans
The Company will formulate detailed contingency plans at that point in time when
the Company believes that a material vendor will not be Year 2000 compliant. As
the Company anticipates that all its material vendors will be Year 2000
compliant, the Company has not yet established detailed contingency plans.
However, as a general precaution, the Company will document manual procedures to
be implemented if the IT systems of certain of its material vendors, primarily
telecommunications vendors, fail. It is recognized that these procedures would
provide limited
15
<PAGE> 16
support in the event of a material vendor failure and would only partially
mitigate the impact of the failure on Company operations.
Forward-Looking Statements
The Company, or its executive officers and directors on behalf of the Company,
may from time to time make written or oral "forward-looking statements." Written
forward-looking statements may appear in documents filed with the Securities and
Exchange Commission, in press releases and in reports to shareholders. Oral
forward-looking statements may be made by the Company's executive officers and
directors on behalf of the Company to the press, potential investors, securities
analysts and others. The Private Securities Litigation Reform Act of 1995
contains a safe harbor for forward-looking statements. The Company relies on
this safe harbor in making such disclosures. In connection with this safe harbor
provision, the Company is hereby identifying important factors that could cause
actual results to differ materially from those contained in any forward-looking
statement made by or on behalf of the Company. Without limitation, factors that
might cause such a difference include economic factors such as recessions,
inflation, higher interest rates and downturns in customer business cycles, the
Company's inability to maintain its historical growth rate due to a decreased
volume of freight moving through the Company's network, competition, surplus
inventories, loss of a major customer, the Company's lack of prior operating
history as an entity independent of the truckload operations, the ability of the
Company's information systems to handle increased volume of freight moving
through its network, and the availability and compensation of qualified
independent owner-operators to serve the Company's transportation needs. The
Company disclaims any intent or obligation to update these forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
On May 4, 1999, the Company sold 1.0 million shares of its common stock in a
public offering. The net proceeds of $18.0 million were used principally to
repay outstanding debt. With this repayment, the Company's exposure to market
risk related to its remaining outstanding debt is not significant.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the normal
course of its business, most of which involve claims for personal injury and
property damage incurred in connection with the transportation of freight.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 18, 1999, the Board of Directors of the Company declared a distribution
of one stock purchase right (a "Right") for each outstanding share of the common
stock of the Company, par value $.01 per share (the "Company Common Stock"), to
shareholders of record at the close of business on June 1, 1999 and for each
share of Company Common Stock issued thereafter. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share (a
"Unit") of Series A Junior Preferred Stock, par value $.01 per share, at a
purchase price of $110.00 per Unit, subject to adjustment. The description and
terms and conditions of the Rights are set forth in a Rights Agreement between
the Company and SunTrust Bank, Atlanta, N.A., as Rights Agent, dated May 18,
1999, a copy of which is filed as an exhibit to the Company's Current Report on
Form 8-K, as filed with the Securities and Exchange Commission on May 28, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on May 18, 1999 for
the purpose of (a) electing six directors; (b) approving an amendment to the
Company's Restated Charter; (c) approving and adopting the 1999 Stock Option and
Incentive Plan; and (d) approving the appointment of independent auditors for
1999.
(a) Shareholders elected each director nominee for a one-year term expiring
at the 2000 annual meeting. The vote for each director was as follows:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Bruce A. Campbell 10,796,202 372,378
Edward W. Cook 10,796,202 372,378
James A. Cronin, III 10,802,390 366,190
Hon. Robert K. Gray 10,802,390 366,190
Scott M. Niswonger 10,796,202 372,378
Richard H. Roberts 10,796,202 372,378
</TABLE>
17
<PAGE> 18
(b) The proposal to amend the Company's Restated Charter to increase the
number of authorized shares of the Company Common Stock from 20,000,000
to 50,000,000 was approved. Results are as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
10,024,682 1,140,972 2,926
</TABLE>
(c) The Company's 1999 Stock Option and Incentive Plan was approved and
adopted by the shareholders by the following vote:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
<S> <C> <C> <C>
9,400,566 985,300 19,736 762,978
</TABLE>
(d) The appointment of Ernst & Young LLP as independent auditors for 1999
was ratified and approved as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
11,162,052 2,404 4,124
</TABLE>
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The response to this portion of Item 6 is submitted as a
separate section of this report.
(b) Reports on Form 8-K - The Company filed two Current Reports on Form 8-K
during the three months ended June 30, 1999. The Form 8-K filed April
16, 1999 announced selected results of operations for the three months
ended March 31, 1999. The Form 8-K filed May 28, 1999 announced that the
Board of Directors of the Company had declared a distribution of one
stock right for each outstanding share of Company Common Stock to
shareholders of record at the close of business on June 1, 1999 and for
each share of Company Common Stock issued thereafter.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Forward Air Corporation
Date: August 12, 1999 By: /s/ Edward W. Cook
-------------------------------------
Edward W. Cook
Chief Financial Officer
and Senior Vice President
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
27.1 Financial Data Schedule - Period Ended
June 30, 1999 (Electronic Filing Only)
27.2 Financial Data Schedule (Restated) - Period
Ended June 30, 1998 (Electronic Filing
Only)
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FORWARD AIR CORPORATION FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000912728
<NAME> FORWARD AIR CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 5,484
<SECURITIES> 0
<RECEIVABLES> 23,293
<ALLOWANCES> 966
<INVENTORY> 0
<CURRENT-ASSETS> 30,995
<PP&E> 42,990
<DEPRECIATION> 12,221
<TOTAL-ASSETS> 65,265
<CURRENT-LIABILITIES> 14,215
<BONDS> 0
0
0
<COMMON> 137
<OTHER-SE> 44,457
<TOTAL-LIABILITY-AND-EQUITY> 65,265
<SALES> 0
<TOTAL-REVENUES> 78,509
<CGS> 0
<TOTAL-COSTS> 67,095
<OTHER-EXPENSES> (78)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 625
<INCOME-PRETAX> 10,867
<INCOME-TAX> 4,217
<INCOME-CONTINUING> 6,650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,650
<EPS-BASIC> .51
<EPS-DILUTED> .49
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FORWARD AIR CORPORATION FOR THE SIX MONTHS ENDED JUNE
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000912728
<NAME> FORWARD AIR CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 59,589
<CGS> 0
<TOTAL-COSTS> 53,095
<OTHER-EXPENSES> (11)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 425
<INCOME-PRETAX> 6,080
<INCOME-TAX> 2,348
<INCOME-CONTINUING> 3,732
<DISCONTINUED> 965
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,697
<EPS-BASIC> .38
<EPS-DILUTED> .37
</TABLE>
