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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, 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 1, 2000 was approximately $375.5 million based on the
closing price of such stock on such date of $26.25.
The number of shares outstanding of the registrant's common stock, $.01 par
value, as of February 1, 2000 was 20,732,963.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2000 Annual Meeting of
Shareholders are incorporated by reference into Part III of this report. Such
definitive proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days subsequent to December 31, 1999.
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TABLE OF CONTENTS
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Page Number
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Part I
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Executive Officers of the Registrant 15
Part II
Item 5. Market for Registrant's Common Stock and 17
Related Shareholder Matters
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial 19
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 24
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on 25
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial 26
Owners and Management
Item 13. Certain Relationships and Related Transactions 26
Part IV
Item 14. Exhibits, Financial Statement Schedules and 27
Reports on Form 8-K
Signatures 28
Index to Financial Statements and Financial Statement Schedule F-2
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Forward Air Corporation, through its operating subsidiaries (the
"Company" or "Forward Air"), offers its customers scheduled ground
transportation of cargo as a cost effective, reliable alternative to air
transportation. The Company transports 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." Forward Air operates a network of 73 terminals located on or near
airports in the United States and Canada, including a central sorting facility
in Columbus, Ohio and regional hubs serving key markets. Rather than owning its
own trucks, the Company purchases most of its transportation requirements from
owner-operators and, to a lesser extent, from truckload carriers. A typical
shipment consists of a pallet load of freight, often computers,
telecommunications equipment, machine parts, trade show exhibit materials or
medical equipment. During 1999, an average shipment weighed over 750 pounds.
Forward Air has experienced rapid revenue growth from $57.9 million in 1994 to
$170.8 million in 1999, a 24% compound annual growth rate. The Company's
operating income grew from $4.5 million to $26.4 million over the same period, a
42% compound annual growth rate.
The Company focuses its services on: air freight forwarders, which are
businesses that arrange transportation of cargo for third parties; integrated
air cargo carriers; and airlines. The Company serves its customers by locating
terminals on or near airports and maintaining regularly scheduled transportation
service between major cities. Forward Air receives shipments at its terminals
and transports them by truck to its central sorting facility or one of its
regional hubs, where they are unloaded and sorted. After sorting, the shipments
are reloaded and delivered to the terminals nearest their destinations. The
Company ships freight directly between terminals when justified by the volume of
shipments. The Company typically does not provide local pickup and delivery
services and, therefore, does not market its services directly to shippers.
Since the Company does not place significant size or weight restrictions on
shipments, it does not compete directly with small or overnight package delivery
services such as DHL Worldwide, UPS and Airborne. Approximately 20% of the
shipments the Company handles are for overnight delivery, with the rest for
delivery within two to four days.
The Company commenced operating its deferred air freight business in
November 1990. Until September 1998, the Company operated its deferred air
freight business and a national truckload carrier business. In September 1998,
the Company spun off its truckload carrier business, operated as Landair
Transport, Inc., to its shareholders (the "Spin-off"). In connection with the
Spin-off, the Company received a private letter ruling from the Internal Revenue
Service that the Spin-off qualifies as a tax free distribution for federal
income tax purposes.
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INDUSTRY OVERVIEW
As businesses minimize inventory levels, perform manufacturing and
assembly operations in multiple locations and distribute their products through
many channels, they more frequently require expedited delivery services.
Expedited shipments are those shipments that the customer requires to be
delivered the next day or within two to three days, usually at a specified time
or within a specified time window. The Colography Group, Inc., an independent
industry market research and consulting company, estimated the domestic air
freight market for 1999 would be approximately $6.3 billion, nearly 44% of which
is for overnight delivery, with the remaining 56% for delivery within two to
three days.
Shippers with expedited delivery requirements have four principal
alternatives to transport freight: they may use a fully integrated air cargo
carrier, an airline, a less-than-truckload carrier or an air freight forwarder.
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. Airlines provide airport to airport service,
but have limited cargo space and generally accept only shipments weighing less
than 150 pounds. Less-than-truckload carriers provide pick-up and delivery
services through their own fleet of trucks. The national less-than-truckload
carriers operate terminals where freight is unloaded, sorted and reloaded
multiple times in a single shipment. The additional handling increases transit
time, handling costs and the likelihood of cargo damage. An air freight
forwarder obtains shipments from customers, makes arrangements for
transportation of the cargo by a third party carrier and usually arranges for
both delivery from the shipper to the carrier and from the carrier to the
recipient.
Although expedited freight is primarily transported by aircraft,
transportation by truck often is a viable alternative, especially for shipments
requiring deferred delivery. Generally, the cost of shipping freight, especially
heavy freight, by truck is substantially less than shipping by aircraft. The
Company believes there are several trends that are increasing demand for
lower-cost truck transportation of expedited freight. These trends include:
Increased Outsourcing of Logistics Management to Third Parties. 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. 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. Air freight forwarders generally handle shipments
of any size and offer customized shipping options, unlike integrated air
cargo carriers and less-than-truckload carriers.
Integrated Air Cargo Carriers' Increased Focus on Expedited Freight.
Integrated air cargo carriers that transport heavy freight, such as Emery
Worldwide and BAX Global, are increasingly targeting their marketing efforts
at higher yielding expedited or overnight freight
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to better utilize their high fixed-cost infrastructures. As a result, these
carriers are increasingly outsourcing deferred freight to surface
transportation providers like Forward Air.
Reduced Airline Cargo Capacity. Since the 1980's, when the airlines
eliminated many of their all-cargo aircraft, growth in demand for air cargo
services has generally outpaced the growth of aircraft cargo capacity. More
recently, airlines have been modifying their domestic route systems to
provide higher frequency service to more destinations, therefore replacing
many of their wide-body aircraft with narrow-body aircraft that have less
cargo capacity. Federal Aviation Administration ("FAA") mandates have also
reduced air cargo capacity because most all-cargo aircraft are older, and it
often is not economically feasible to modify these older aircraft to meet the
FAA's noise reduction standards.
COMPETITIVE ADVANTAGES
The Company believes that its competitive advantages are:
- Exclusive focus on the deferred air freight market. Forward Air
focuses exclusively on providing ground transportation services to the
deferred air freight market. The Company believes that this exclusive
focus and commitment to reliable service has enabled Forward Air to
provide a higher level of service in a more cost effective manner than
its competitors.
- Concentrated marketing strategy. The Company provides its services to
air freight forwarders, integrated air cargo carriers and airlines
rather than marketing its services directly to shippers. The Company
does not place significant size or weight restrictions on shipments and,
therefore, does not compete with small or overnight package delivery
services such as DHL Worldwide, UPS and Airborne. The Company believes
that air freight forwarders prefer to purchase their transportation
services from Forward Air because it does not market its services to
their shipper customers and is not competing with them for customers.
- Established nationwide network of terminals and sorting facilities.
The Company has built a network throughout the United States and Canada
located on or near airports. The Company believes it would be difficult
for a competitor to duplicate its nationwide network without the
expertise it has acquired and without expending significant management
resources and capital. Forward Air's network enables it to provide
regularly scheduled service between most markets, on-time delivery with
minimal freight damage or loss, all at rates significantly below air
freight rates.
- Low-capital-intensive business model. The Company purchases virtually
all of its transportation requirements from owner-operators or truckload
carriers, rather than acquiring and operating its own tractors. This
allows the Company to respond quickly to changing demands and
opportunities in its industry and to generate a higher return on assets
with lower capital expenditures.
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- Enhanced technology. The Company is committed to using information
technology to improve its service and reduce its operating costs.
Technology allows the Company to increase the volume of freight that it
can handle in its network and provides real-time tracking and tracing of
shipments throughout the transportation process. Forward Air is
currently enhancing its systems to permit all participants in a shipment
to obtain real-time information about that shipment via the Internet.
- Broad customer base. The Company has established close relationships
with a large number of air freight forwarders, integrated air cargo
carriers and airlines. The Company's five largest customers only
accounted for approximately 17% of its operating revenue in 1999, and no
single customer accounted for more than five percent.
GROWTH STRATEGY
The key elements of Forward Air's growth strategy are to:
- Increase freight volume from existing customers. Many of the Company's
customers currently use Forward Air for only a portion of their overall
transportation needs. In addition, many of the Company's air freight
forwarder customers are growing rapidly, and the Company expects that
they will have a greater need for its services as their businesses grow.
The Company will continue to market directly to these customers to
capture additional freight volume.
- Improve efficiency of its transportation network. The Company
constantly seeks to improve the efficiency of its network without
changing its infrastructure or incurring significant capital
expenditures. As the volume of freight between key markets increases,
the Company intends to continue to add regional hubs and direct
shuttles. Additional regional hubs and direct shuttles improve Forward
Air's efficiency by reducing the number of miles freight must be
transported and reducing the number of times freight must be handled and
sorted. Increased freight volumes should increase the Company's profits
and operating margins because these additional shipments help cover the
substantial fixed costs of its operations.
- Develop new customers. The Company will actively market its services
to potential new air freight forwarder customers. The Company believes
air freight forwarders will move away from integrated air cargo carriers
because of those carriers' higher costs and away from
less-than-truckload carriers because of those carriers' less reliable
service. The Company also believes that there is significant potential
for increased freight volume from airlines as well as from the
integrated air cargo carriers.
- Enhance information systems. The Company is committed to continued
enhancement of its information systems in ways that can provide it both
competitive service advantages and increased productivity. Management
believes that Forward Air's customers will increasingly demand more
sophisticated information systems to track and trace shipments.
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Forward Air believes its enhanced systems will enable it to retain
existing customers and encourage them to increase the volume of freight
they send through its network. The Company also believes these enhanced
information systems will attract new customers, particularly air freight
forwarders who do not want to develop their own information systems.
- Expand logistics services. The Company will continue to expand its
national and international logistics services to increase revenue and
improve utilization of its terminal facilities and labor force. The
Company has added a number of services in the past few years, such as
exclusive-use transportation services; subletting dock, warehouse or
office space; and insurance, customs brokerage and terminal handling
services. These services directly benefit Forward Air's customers,
particularly air freight forwarders who cannot justify providing the
services for themselves, attract new customers and improve utilization
of the Forward Air network by increasing its revenue without
significantly increasing the Company's costs.
- Pursue acquisitions. The Company intends to pursue acquisitions that
can increase its penetration of a geographic area, add customers or
freight density or allow it to offer additional services. Since its
inception, the Company has acquired the assets of six of its regional
competitors that met one or more of these criteria.
OPERATIONS
The Company receives freight from air freight forwarders, airlines and
integrated air cargo carriers at its terminals, which are located on or near
airports in the United States and Canada. The Company consolidates and
transports these shipments by truck through the Forward Air network to the
terminals nearest the ultimate destinations of the shipments. The Company
operates regularly scheduled service to and from each of its terminals through
its Columbus, Ohio central sorting facility or through one of its regional hubs.
The Company also operates regularly scheduled shuttle service directly between
cities where the volume of freight warrants bypassing the Columbus sorting
facility or a regional hub. When a shipment arrives at the terminal nearest its
destination, the customer arranges for the shipment to be picked up at the
terminal and delivered to its final destination.
A typical shipment consists of a pallet load of freight, often
computers, telecommunications equipment, machine parts, trade show exhibit
materials or medical equipment. Since Forward Air commenced operations in
November 1990, the weekly volume of freight moving through its network has
increased from an average of approximately 1.2 million pounds to over 19.4
million pounds in 1999. During 1999, an average shipment weighed over 750
pounds. Shipments range from small boxes weighing only a few pounds to large
shipments of several thousand pounds. Although the Company imposes no
significant size or weight restrictions, it focuses its marketing and price
structure on shipments of 200 pounds or more. As a result, the Company does not
directly compete for most of its business with overnight couriers or small
package delivery companies.
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TERMINALS
The Forward Air network includes 73 terminals located in the following
cities:
<TABLE>
<CAPTION>
City Airport Served
- ---- --------------
<S> <C>
Albany, NY..............................ALB
Albuquerque, NM.........................ABQ
Atlanta, GA.............................ATL
Austin, TX..............................AUS
Baltimore, MD...........................BWI
Baton Rouge, LA.........................BTR
Birmingham, AL..........................BHM
Boston, MA..............................BOS
Buffalo, NY.............................BUF
Charleston, SC..........................CHS
Charlotte, NC...........................CLT
Chicago, IL.............................ORD
Cincinnati, OH..........................CVG
Cleveland, OH...........................CLE
Columbia, SC............................CAE
Columbus, OH............................CMH
Dallas/Ft. Worth, TX....................DFW
Dayton, OH..............................DAY
Denver, CO..............................DEN
Detroit, MI.............................DTW
El Paso, TX.............................ELP
Greensboro, NC..........................GSO
Greenville, SC..........................GSP
Hartford, CT............................BDL
Houston, TX.............................IAH
Huntsville, AL..........................HSV
Indianapolis, IN........................IND
Jackson, MS.............................JAN
Jacksonville, FL........................JAX
Kansas City, MO.........................MCI
Lafayette, LA...........................LFT
Laredo, TX..............................LRD
Las Vegas, NV...........................LAS
Little Rock, AR.........................LIT
Los Angeles, CA.........................LAX
Louisville, KY..........................SDF
Memphis, TN.............................MEM
Miami, FL...............................MIA
Milwaukee, WI...........................MKE
Minneapolis, MN.........................MSP
Mobile, AL..............................MOB
Nashville, TN...........................BNA
Newark, NJ..............................EWR
Newburgh, NY............................SWF
New Orleans, LA.........................MSY
New York, NY............................JFK
Norfolk, VA.............................ORF
Oklahoma City, OK.......................OKC
Omaha, NE...............................OMA
Orlando, FL.............................MCO
Pensacola, FL...........................PNS
Philadelphia, PA........................PHL
Phoenix, AZ.............................PHX
Pittsburgh, PA..........................PIT
Portland, OR............................PDX
Raleigh, NC.............................RDU
Richmond, VA............................RIC
Rochester, NY...........................ROC
Sacramento, CA..........................SMF
Salt Lake City, UT......................SLC
San Antonio, TX.........................SAT
San Diego, CA...........................SAN
San Francisco, CA.......................SFO
Seattle, WA.............................SEA
St. Louis, MO...........................STL
Syracuse, NY............................SYR
Tampa, FL...............................TPA
Toledo, OH..............................TOL
Tulsa, OK...............................TUL
Washington, DC..........................IAD
Montreal, Canada........................YUL
Ottawa, Canada..........................YOW
Toronto, Canada.........................YYZ
</TABLE>
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Independent agents operate fifteen of these terminals, which typically
handle relatively low volumes of freight.
SHUTTLE SERVICE AND REGIONAL HUBS
The Company operates direct terminal-to-terminal shuttles and regional
overnight service between cities where justified by freight volumes. The Company
currently provides regional overnight service to many of the markets within its
network. Direct service allows the Company to provide quicker scheduled service
at a lower cost because it can transport freight over the most direct route and
eliminate the added time and cost of handling the freight at its central or a
regional hub sorting facility. Direct shipments also reduce the likelihood of
damage because of reduced handling and sorting of the freight. As Forward Air
continues to increase volume between various cities, it intends to continue to
add direct shuttles. For example, the Northeast Shuttle transports freight
between Albany, Baltimore, Boston, Buffalo, Hartford, Newark, Newburgh, New
York, Philadelphia, Rochester, Syracuse and Washington. The Company accomplishes
this by direct shipment, as from Boston to Newark, or by overnight service
routed through the Newburgh regional hub. Where warranted by sufficient volume
in a region, the Company utilizes larger terminals as regional sorting hubs,
which allows it to bypass the Columbus sorting facility. These regional hubs
improve the Company's operating efficiency and enhance customer service. The
Company currently operates regional hubs in Atlanta, Dallas/Ft. Worth, Kansas
City, Los Angeles, New Orleans, Newburgh, Orlando and San Francisco.
SHIPMENTS
Since operations were commenced in November 1990, the weekly volume of
freight moving through the Company's network has increased from an average of
approximately 1.2 million pounds to over 19.4 million pounds per week as shown
below:
<TABLE>
<CAPTION>
Average Weekly
Volume in Pounds
----------------
(In millions)
<S> <C>
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
</TABLE>
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CUSTOMERS AND MARKETING
The Company's customers are air freight forwarders, airlines and
integrated air cargo carriers. Air freight forwarder customers vary in size from
small, independent, single facility companies to large, international logistics
companies, such as USF Worldwide, Associated Global Systems, Pilot Air Freight,
AIT Freight Systems and Eagle USA Air Freight. Airline customers include Virgin
Atlantic, Delta, Continental, United Airlines, Air Nippon, Air France, Korean
Airlines, KLM and Japan Airlines. Because of Forward Air's reputation for
dependable service, integrated air cargo carriers such as Emery Worldwide,
Airborne and BAX Global utilize its services to provide overflow capacity and
other services.
The Company markets its services through a sales and marketing staff
located in various regions of the United States. Senior management also is
actively involved in sales and marketing at the national account level and
supports local sales activity. The Company has a strong commitment to marketing
and focuses on air freight forwarders, airlines and integrated air cargo
carriers that have time sensitive shipping requirements requiring customized
services. The Company also participates in air cargo trade shows and advertises
its services through direct mail programs and point of sale material.
LOGISTICS SERVICES
Customers increasingly demand more than the movement of freight from
their transportation providers. To meet these demands, the Company continually
seeks ways to customize its logistics services and add new services. Logistics
services increase the Company's profit margins by increasing its revenue without
corresponding increases in its costs.
Forward Air logistics services include providing:
- exclusive-use transportation services;
- dock, warehouse and office space;
- customs brokerage, such as assistance with customs procedures for both
import and export shipments; and
- terminal handling, such as shipment build-up and break-down and
reconsolidation of air or ocean pallets or containers.
TECHNOLOGY AND INFORMATION SYSTEMS
The regular enhancement of the Company's information systems is a key
component of its growth strategy. The Company has invested and will continue to
invest significant management and financial resources on improving its
information systems in an effort to provide accurate, real-time information to
its management and customers. Management believes the ability to provide
accurate, real-time information on the status of shipments will become
increasingly important and
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that its efforts in this area will result in both competitive service advantages
and increased productivity throughout the Forward Air network.
In 1994, the Company identified the need for a comprehensive electronic
freight shipment information system that could serve the needs of the Company as
well as its customers. Accordingly, the Company began development of a freight
order entry, tracking and billing system. The Company began to implement Phase I
of the system in 1997 and completed installation of Phase I in the first quarter
of 1998. As part of Phase I, the Company implemented a real-time, dedicated
communications network to link all of its terminals, customer service and
administrative locations. The system permits the Company to track and trace a
shipment from initial entry through the transportation process to the point of
delivery. The Company can access daily financial information covering the entire
network, a particular terminal, a particular customer or a given shipment.
The Company has also begun development of its Air Cargo Services or
"ACS" system. ACS is designed to seamlessly integrate all of the participants in
a shipment, including shippers, air freight forwarders and other service
providers. The system is based on Internet technology. Its functions will
include:
- shipment data capture;
- transportation service scheduling;
- on-line status tracking;
- service rating;
- consolidated billing;
- EDI communications;
- report generating; and
- customer access to shipment analysis reporting.
ACS will allow all of these functions to be viewed in real-time. Web
hosting services, integrated with ACS functions, will allow air freight
forwarders to use the Company's technology and information systems to help them
compete more effectively with integrated air cargo carriers. The Company is
completing field testing of the initial ACS system to a core group of air
freight forwarder and airline customers. The production ACS system is now being
marketed to air freight forwarder and airline customers. Full implementation of
ACS is scheduled to be completed within the next two years.
The ACS system and the Company's other major information systems are
being developed through Logistics Technology, Inc. ("Logistics Technology"), a
subsidiary of the Company that
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provides Internet services and technology support for Forward Air and other
companies. John H. Traendly, Vice President, Information Systems of the Company,
is the President and Chief Executive Officer of Logistics Technology. The
Company owns 94% of Logistics Technology and Mr. Traendly owns 6%. Mr. Traendly
has options to purchase from the Company additional shares of the common stock
of Logistics Technology.
PURCHASED TRANSPORTATION
The Company contracts for most of its transportation services from
owner-operators. These contracts can generally be terminated by either party
upon 30 days notice. The owner- operators own, operate and maintain their own
vehicles and employ their own drivers. The Company also purchases transportation
from Landair Corporation and from other truckload carriers to handle overflow
volume. Of the $74.8 million of purchased transportation in 1999, the Company
purchased 70.2% from owner-operators, 4.4% from Landair Corporation and 25.4%
from other common carriers.
The Company establishes long-term relationships with owner-operators to
assure dependable service and availability, and the Company has consistently
experienced a low turnover of owner-operators during the past five years. The
Company has established guidelines relating to safety records, driving
experience and personal evaluations that it uses to select its owner- operators.
To enhance the Company's relationship with the owner-operators, it pays per mile
rates above prevailing market rates and offers each driver a consistent work
schedule, typically to the same destination.
COMPETITION
The air freight transportation industry is highly competitive and very
fragmented. The Company's competitors include regional trucking companies that
specialize in handling deferred air freight and regional and national
less-than-truckload carriers. To a lesser extent, the Company competes with
integrated air cargo carriers and airlines. The Company's competition ranges
from small operators that compete within a limited geographic area to companies
with substantially greater financial and other resources and larger freight
capacity. The Company also faces competition from its air freight forwarder
customers who decide to establish their own networks to transport deferred air
freight. The Company believes competition is based on service, primarily on-time
delivery and reliability, as well as rates. The Company believes it offers its
services at rates that are substantially below the charge to transport the same
shipment to the same destination by air. The Company believes it has an
advantage over less-than-truckload carriers based upon its reputation for
faster, more reliable service between many cities.
EMPLOYEES
As of December 31, 1999, the Company employed 1,475 persons, 861 of whom
were freight handlers and customer service personnel. None of the Company's
employees is covered by a collective bargaining agreement. The Company
recognizes that its workforce, including its freight handlers, is one of its
most valuable assets. The recruitment, training and retention of
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qualified employees are essential to support the Company's continued growth and
to meet the service requirements of its customers.
RISK MANAGEMENT AND LITIGATION
Under Department of Transportation regulations, the Company may be
liable for property damage or personal injuries caused by owner-operators while
they are transporting freight on its behalf. The Company currently maintains
liability insurance that it believes is adequate. The Company is self-insured
for property damage to its own equipment. The Company believes that its
insurance coverage is sufficient to adequately protect it from significant
claims.
From time to time, the Company is a party to litigation arising in the
normal course of its business, most of which involve claims for personal injury,
property damage related to the transportation and handling of freight or
workers' compensation. The Company does not believe that any of these pending
actions, individually or in the aggregate, will have a material adverse effect
on its business, financial condition or results of operations.
REGULATION
The Company, through its Forward Air, Inc. subsidiary, is a licensed
property broker holding authority issued by the Federal Highway Administration
("FHWA") at Docket No. MC-249708. The Company, through its FAF, Inc.
subsidiary, is an interstate motor carrier licensed by the FHWA at Docket No.
MC-333604. The Company's air freight business is subject to regulation as an
indirect air cargo carrier under the Federal Aviation Act, although freight
brokers have been exempted from most of the requirements of the Federal Aviation
Act by the Economic Aviation Regulations promulgated thereunder. In addition,
the Company's domestic customs brokerage operations are subject to the licensing
requirements of the United States Department of the Treasury and are regulated
by the United States Customs Service. The Federal Maritime Commission regulates
the Company's ocean freight forwarding operations.
The Company believes that it is in substantial compliance with
applicable regulatory requirements relating to its operations. If the Company
does not comply with applicable laws and regulations, it could be required to
pay substantial fines and could have its licenses revoked.
The Company is also subject to federal and state environmental laws and
regulations, including those dealing with the transportation of hazardous
materials and storage of fuel. The Company believes that it is in substantial
compliance with applicable environmental laws and regulations. The Company does
not expect any material expenditures for compliance with federal, state or local
environmental laws and regulations in 2000.
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ITEM 2. PROPERTIES
PROPERTIES AND EQUIPMENT
The Company's headquarters are located in Greeneville, Tennessee. The
Company leases this building from the Greeneville-Greene County Airport
Authority. The Company's central sorting facility in Columbus, Ohio was
constructed in 1994. The Company owns its facility in Atlanta.
The Company leases 56 additional terminal facilities for terms typically
ranging from three to five years. The Company shares four of its terminals with
Landair Corporation. The Company believes that, in most of the markets it
serves, replacement space comparable to these terminal facilities is obtainable.
The Company believes that its facilities are adequate to support its current
operations. The remaining fifteen terminals are agent stations operated by
independent agents who handle freight for the Company on a commission basis.
The Company owns or leases the trailers it uses to move freight through
the Forward Air network. Substantially all of the Company's trailers are 53'
long, and many have specialized roller bed equipment required to serve air cargo
industry customers. The average age of the Company's owned trailer fleet was
approximately 1.8 years at December 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is a party to litigation arising in the
normal course of its business, most of which involve claims for personal injury
and property damage related to the transportation and handling of freight or
workers' compensation. The Company does not believe that any of these pending
actions, individually or in the aggregate, will have a material adverse effect
on its business, the financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 1999, no
matters were submitted to a vote of security holders through the solicitation of
proxies or otherwise.
14
<PAGE> 15
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General
Instruction G(3) to Form 10-K, the following information is included in Part I
of this report.
The following are the Company's executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Scott M. Niswonger (1)............ 52 Chairman of the Board and Chief Executive Officer
Bruce A. Campbell................. 48 President and Chief Operating Officer
Edward W. Cook (1)................ 41 Chief Financial Officer, Senior Vice President and
Treasurer
Richard H. Roberts (1)............ 45 Senior Vice President, General Counsel and Secretary
David E. Queen.................... 54 Senior Vice President, Operations
Michael A. Roberts................ 55 Senior Vice President, Sales and Marketing
James R. Weiland.................. 55 Senior Vice President, Sales
John H. Traendly.................. 54 Vice President, Information Systems
</TABLE>
- ----------
(1) Also serves as an executive officer of Landair Corporation.
There are no family relationships between any of the executive officers
of the Company. All officers hold office at the pleasure of the Board of
Directors.
Scott M. Niswonger is a co-founder of the Company, has served as a
director since its founding in October 1981 and as Chairman of the Board and
Chief Executive Officer since February 1988. Mr. Niswonger served as President
of the Company from October 1981 until August 1998. He also serves as a director
of Landair Corporation and on the Regional Advisory Board of First Tennessee
Bank National Association.
Bruce A. Campbell has served as Chief Operating Officer of the Company
since April 1990, a director since April 1993 and President since August 1998.
Mr. Campbell served as Executive Vice President of the Company from April 1990
until August 1998. Prior to joining the Company, Mr. Campbell served as Vice
President of Ryder-Temperature Controlled Carriage in Nashville, Tennessee from
September 1985 until December 1989.
Edward W. Cook has served the Company as Chief Financial Officer, Senior
Vice President and director of the Company since September 1994 and as Treasurer
since May 1995. Prior to joining the Company, Mr. Cook was employed as a
certified public accountant by Ernst & Young LLP for eleven years, most recently
as a senior manager in the Nashville, Tennessee office.
Richard H. Roberts has served as Senior Vice President and General
Counsel of the Company since July 1994 and as Secretary and a director since May
1995. Prior to joining the Company, Mr. Roberts was a partner with the Baker,
Worthington, Crossley & Stansberry law
15
<PAGE> 16
firm from January 1991 until July 1994. Mr. Roberts also serves as a director of
Landair Corporation and Miller Industries, Inc.
David E. Queen has served as Senior Vice President, Operations since
October 1997. He served as Vice President of Operations and General Manager from
November 1987 until October 1997. From December 1984 to November 1987, Mr. Queen
was Manager of the Columbus, Ohio hub for The Flying Tiger Line.
Michael A. Roberts has served as Senior Vice President, Sales and
Marketing of the Company since April 1990. He served as Vice President of
Marketing from November 1987 until April 1990. Mr. Roberts served as a
consultant to the Company from 1982 to 1987.
James R. Weiland has served as Senior Vice President, Sales since
October 1997. He served as Vice President, Sales from November 1990 until
October 1997. From May 1984 to October 1990, Mr. Weiland served the Company in
various capacities, including Regional Operations Manager and Director of Sales
and Marketing.
John H. Traendly has served as Vice President, Information Systems since
March 1998. Since July 1998, Mr. Traendly has also served as President and Chief
Executive Officer of Logistics Technology. From November 1994 to February 1998,
Mr. Traendly was Managing Director, Air, Ground, Terminals and Transportation,
Surface Movement Systems, for Federal Express Corporation. From May 1994 to
November 1994, Mr. Traendly served as a consultant for Federal Express
Corporation.
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The outstanding $.01 par value common stock of the Company (the "Common
Stock") trades on The Nasdaq National Market tier of The Nasdaq Stock Market(R)
under the symbol "FWRD." The following table sets forth the high and low sale
prices for the Common Stock as reported by The Nasdaq Nation-al Market for each
full quarterly period within the two most recent fiscal years. All prices have
been restated to reflect a two-for-one stock split distributed in March 1999 and
a three-for-two stock split distributed in January 2000.
<TABLE>
<CAPTION>
1998 High Low
---- ---- ---
<S> <C> <C>
First Quarter............................. $11.13 $ 7.46
Second Quarter............................ $12.50 $ 8.50
Third Quarter............................. $10.50 $ 4.17
Fourth Quarter........................... $ 6.96 $ 4.38
<CAPTION>
1999 High Low
---- ---- ---
First Quarter.............................. $10.50 $ 6.17
Second Quarter............................. $19.17 $ 8.67
Third Quarter.............................. $22.00 $13.00
Fourth Quarter............................. $29.50 $13.58
</TABLE>
There were approximately 2,400 shareholders of record (including
brokerage firms and other nominees) of the Common Stock as of December 31, 1999.
The Company has not paid cash dividends on its Common Stock in the two
preceding fiscal years, and it is the current intention of management to retain
earnings to finance the growth of the Company's business. Future payment of
dividends will depend upon the financial condition, results of operations,
contractual restrictions and capital requirements of the Company, as well as
other factors deemed relevant by the Board of Directors.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company.
The selected financial data should be read in conjunction with the Company's
financial statements and notes thereto, included elsewhere in this report.
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------------
1999 1998 1997(4) 1996 1995
-------- -------- -------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (1), (2)
Operating revenue $170,843 $130,438 $105,140 $80,737 $63,557
Income from operations 26,444 16,011 13,064 8,516 6,397
Operating margin (3) 15.5% 12.3% 12.4% 10.5% 10.1%
Income from continuing operations 16,040 9,189 7,444 4,884 3,580
Income from continuing operations
per share: (5)
Basic 0.80 0.49 0.42 0.27 0.21
Diluted 0.76 0.48 0.40 0.27 0.20
Cash dividends declared per
common share (5) -- -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets of continuing operations $ 79,617 $ 56,808 $ 39,965 $31,887 $22,779
Long-term obligations of continuing
operations, net of current portion 4,754 20,126 8,254 7,323 5,865
Shareholders' equity (6) 54,952 19,071 50,460 41,264 36,644
</TABLE>
(1) Reflects the Truckload Business as a discontinued operation.
(2) Includes certain allocations of corporate administrative expenses by the
Company (see Note 1 of Notes to Consolidated Financial Statements).
(3) Income from operations as a percentage of operating revenue.
(4) During the third quarter of 1997, the Company benefited from non-recurring
revenue that resulted from the UPS strike. This additional revenue, net of
variable costs and income taxes, but not allocated fixed costs, resulted in
approximately $2.3 million of additional operating revenue, $1.2 million of
income from operations and $.06 of diluted earnings per share.
(5) Restated to reflect a three-for-two stock split distributed in January 2000
and a two-for-one stock split distributed in March 1999.
(6) Shareholders' equity at December 31, 1998 reflects the Spin-off of $44.3
million of net assets of Landair Corporation.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Company provides scheduled ground transportation of cargo on a
time-definite basis. As a result of the Company's established transportation
schedule and network of terminals, its operating cost structure includes
significant fixed costs. The Company's ability to improve its operating margins
will depend on its ability to increase the volume of freight moved through its
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.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of expense
items to operating revenue for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation 43.8 43.2 43.5
Salaries, wages and employee benefits 22.4 23.9 23.6
Operating leases 5.2 5.3 5.6
Depreciation and amortization 2.9 3.3 2.8
Insurance and claims 1.2 1.8 2.0
Other operating expenses 9.0 10.2 10.1
------ ------ ------
Total operating expenses 84.5 87.7 87.6
------ ------ ------
Income from operations 15.5 12.3 12.4
------ ------ ------
Interest expense (0.5) (0.9) (0.7)
Other income (expense), net 0.2 -- (0.1)
------ ------ ------
Income from continuing operations before
income taxes 15.2 11.4 11.6
Income taxes 5.8 4.4 4.5
------ ------ ------
Income from continuing operations 9.4% 7.0% 7.1%
====== ====== ======
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Operating revenue increased by $40.4 million, or 31.0%, to $170.8 million
for 1999 from $130.4 million in 1998. This increase resulted primarily from
increased volume from domestic and international air cargo customers, increased
operating terminals and direct shuttles, and enhanced logistics services.
19
<PAGE> 20
Purchased transportation was 43.8% of operating revenue in 1999 compared
to 43.2% in 1998. This increase was primarily attributable to an increase in
revenue from exclusive use transportation services which have a higher purchased
transportation percentage than freight transported through the Forward Air
network. The increase in purchased transportation was partially offset by
operating efficiencies resulting from increased volumes of freight transported
through the Forward Air network.
Salaries, wages and employee benefits were 22.4% of operating revenue in
1999 compared to 23.9% in 1998. The decrease in salaries, wages and employee
benefits as a percentage of operating revenue was due primarily to operating
efficiencies resulting from increased volumes of freight transported through the
Forward Air network coupled with a reduction in the number of Company 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
5.2% of operating revenue in 1999 compared to 5.3% in 1998. This decrease was
attributable to increased leverage resulting from increased operating revenue.
Depreciation and amortization expense as a percentage of operating
revenue was 2.9% in 1999, compared to 3.3% in 1998. The decrease in depreciation
and amortization expense as a percentage of revenue was attributable to
increased utilization of operating equipment during 1999 as a result of
increased operating revenue.
Insurance and claims as a percentage of revenue was 1.2% of operating
revenue in 1999, compared with 1.8% in 1998. This decrease was due primarily to
a decrease in the frequency and severity of accidents and lower premium costs
during 1999.
Other operating expenses were 9.0% of operating revenue in 1999 compared
to 10.2% in 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 $10.4 million, or 65.0%, to $26.4
million for 1999 compared to $16.0 million for 1998. This increase in income
from operations is due primarily to a lower operating cost structure resulting
from an increase in operating revenue, which allowed the Company to spread the
fixed costs of its network over a larger revenue base.
Interest expense was $787,000, or 0.5%, of operating revenue in 1999,
compared to $1.2 million, or 0.9%, in 1998. The decrease in interest expense was
due to lower average net borrowing during 1999.
The combined federal and state effective tax rate for 1999 was 38.3%,
compared to a rate of 38.1% for 1998. For information concerning income taxes,
as well as information regarding differences between effective tax rates and
statutory rates, see Note 6 of the Notes to Consolidated Financial Statements.
20
<PAGE> 21
As a result of the foregoing factors, income from continuing operations
increased by $6.8 million, or 73.9%, to $16.0 million for 1999, from $9.2
million in 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Operating revenue increased by $25.3 million, or 24.1%, to $130.4 million
for 1998 from $105.1 million in 1997. This increase resulted primarily from
increased freight volume from domestic and international air cargo customers,
which was attributable in part to increased operating terminals and direct
shuttles and enhanced logistics services, which were offset in part by an
increase in the number of shipments during the UPS strike in the third quarter
of 1997.
Purchased transportation was 43.2% of operating revenue in 1998 compared
to 43.5% in 1997. This decrease was primarily attributable to operating
efficiencies resulting from increased volumes of freight transported through the
Forward Air network, coupled with an increase in logistics services revenue,
which does not involve the transportation of freight.
Salaries, wages and employee benefits were 23.9% of operating revenue in
1998 compared to 23.6% in 1997. This increase resulted primarily from additional
cargo handling wages and supervisory salaries required to operate
company-operated terminals that were added since the preceding period, coupled
with an increase in labor costs associated with the expansion of the Company's
logistics services.
Operating leases, the largest component of which is terminal rent, were
5.3% of operating revenue in 1998 compared to 5.6% in 1997. This decrease was
attributable to increased leverage resulting from increased operating revenue.
Depreciation and amortization expense as a percentage of operating
revenue was 3.3% in 1998 compared to 2.8% in 1997. This increase was
attributable to the implementation of the Company's integrated freight order
entry, tracking and billing information system during the second half of 1997,
coupled with additional operating equipment required to operate Company-
operated terminals that were added since the preceding period.
Insurance and claims as a percentage of operating revenue was 1.8% of
operating revenue in 1998, compared with 2.0% in 1997. This decrease was due
primarily to a decrease in the frequency and severity of accidents and lower
premium costs.
Other operating expenses were 10.2% of operating revenue in 1998 compared
to 10.1% in 1997. This decrease was attributable to a lower operating cost
structure as a result of increased operating revenue and a reduction in
commissions paid to agent terminals.
Income from operations increased by $2.9 million, or 22.1%, to $16.0
million in 1998 compared to $13.1 million for the same period of 1997. This
increase is primarily attributable to a lower operating cost structure resulting
from an increase in operating revenue, which allowed the Company to spread the
fixed cost of its network over a larger revenue base.
21
<PAGE> 22
Interest expense was $1.2 million, or 0.9% of operating revenue in 1998
compared to $796,000, or 0.7%, in 1997. This increase was due to higher average
net borrowing, primarily as a result of a $5.0 million capital contribution to
Landair Corporation and the settlement of intercompany balances with Landair
Corporation prior to the Spin-off.
The combined federal and state effective tax rate for 1998 was 38.1%,
compared to a rate of 38.9% for 1997. For information concerning income taxes,
as well as information regarding differences between effective tax rates and
statutory rates, see Note 6 of the Notes to Consolidated Financial Statements.
As a result of the foregoing factors, income from continuing operations
increased by $1.8 million, or 24.3%, to $9.2 million for 1998 from $7.4 million
in 1997.
Liquidity and Capital Resources
Prior to the Spin-off in September 1998, the Company operated its
business and the truckload carrier business together. As a result, the Company's
statements of cash flows for 1998 and 1997 do not reflect the cash flows of its
business as a stand-alone company.
The Company has historically financed its working capital needs,
including capital purchases, with cash flows from operations and borrowings
under its bank lines of credit. Net cash provided by operating activities
totaled approximately $20.1 million for 1999, $1.9 million for 1998 and $6.3
million in 1997.
Net cash used in investing activities was approximately $13.4 million in
1999, $17.0 million in 1998 and $4.8 million in 1997. Investing activities
consisted primarily of the acquisitions of Quick Delivery Service, Inc. and LTD
Air Cargo, Inc. in 1999, the $5.0 million capital contribution to Landair
Corporation in 1998 and the acquisition of the air cargo operating assets of
Adams Air Cargo, Inc. in 1997, along with the purchase of operating equipment
and management information systems during all three years.
Net cash used in financing activities was $1.2 million in 1999, compared
to cash provided by financing activities of $14.6 million in 1998 and $766,000
used in financing activities in 1997. Financing activities included the
continued financing of operating equipment and working capital needs, repayment
of long-term debt and capital leases, proceeds received from the exercise of
stock options, Common Stock issued under the Company's employee stock purchase
plan, and Common Stock issued from a public offering.
On May 4, 1999, 1.5 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.
The Company expects net capital expenditures in 2000 for operating
equipment and management information systems to be less than $10 million. The
Company expects to fund these
22
<PAGE> 23
expenditures through cash provided by operating activities and borrowings under
its credit facilities.
The credit facilities include a working capital line of credit and an
equipment financing facility. As long as the Company complies with several
financial covenants and ratios, these credit facilities permit it 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 0.80% to 1.90%, expire in December 2000 and April 2001 and are
secured by accounts receivable and most of the Company's equipment. The amount
the Company can borrow under the line of credit is reduced by the amount of any
outstanding letters of credit.
Management believes that the Company's available cash, expected cash
generated from future operations and borrowings under available lines of credit,
will be sufficient to satisfy anticipated cash needs for at least the next
twelve months.
On February 24, 1999, the Board of Directors approved a two-for-one stock
split which was distributed on March 19, 1999. Subsequent to the end of the 1999
year, the Board of Directors approved a three-for-two stock split which was
distributed on January 28, 2000. All share, earnings per share, dividends per
share, and quarterly stock price data included herein and in the Consolidated
Financial Statements and Notes thereto have been restated to give effect to the
stock splits.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company expensed approximately $75,000 during 1999 in connection with
remediating its systems. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its internal systems,
or the products and services of third parties. The Company will continue to
monitor its mission critical computer applications and those of its suppliers
and vendors throughout the Year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
Impact of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133, as amended, is required to be adopted by
the Company in 2001. Management does not anticipate that the adoption of the
Statement will have a significant effect on the financial position or results of
operations of the Company.
23
<PAGE> 24
Forward-Looking Statements
The Company, or its 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 (the "Commission"), in press releases and in reports to
shareholders. Oral forward-looking statements may be made by the Company's
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 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On May 4, 1999, the Company sold 1.5 million shares of 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.
Prior to May 4, 1999, the Company was exposed to market risk from
changes in interest rates. At December 31, 1998, the fair value of the Company's
total debt and capital lease obligations was estimated to be $25.3 million,
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements, which approximated carrying value. The Company had $6.8
million of fixed rate debt and capital lease obligations outstanding at December
31, 1998. Using a yield to maturity analysis and assuming an increase in
interest rates of 10% (from December 31, 1998), the potential decrease in fair
value of fixed rate debt and capital leases would have been $145,000.
The Company had $18.5 million of variable rate debt outstanding at
December 31, 1998. At this borrowing level, a hypothetical 10% adverse change in
interest rates on the debt would have increased interest expense and decreased
income before income taxes by approximately $123,000. This amount was determined
by considering the impact of the hypothetical interest rate increase on the
Company's borrowing cost at the December 31, 1998 borrowing level.
24
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE> 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors of the
Company is incorporated herein by reference to the Company's definitive proxy
statement for its 2000 Annual Meeting of Shareholders (the "2000 Proxy
Statement"). The 2000 Proxy Statement will be filed with the Commission not
later than 120 days subsequent to December 31, 1999.
Pursuant to Item 401(b) of Regulation S-K, the information required by
this item with respect to executive officers of the Company is set forth in Part
I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the 2000 Proxy Statement, which will be filed with the Commission
not later than 120 days subsequent to December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the 2000 Proxy Statement, which will be filed with the Commission
not later than 120 days subsequent to December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the 2000 Proxy Statement, which will be filed with the Commission
not later than 120 days subsequent to December 31, 1999.
26
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) List of Financial Statements and Financial Statement
Schedules.
The response to this portion of Item 14 is submitted as
a separate section of this report.
(a)(3) List of Exhibits.
The response to this portion of Item 14 is submitted as
a separate section of this report.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the
fourth quarter of 1999.
(c) Exhibits.
The response to this portion of Item 14 is submitted as
a separate section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as
a separate section of this report.
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Forward Air Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FORWARD AIR CORPORATION
By: /s/ Scott M. Niswonger
-------------------------------------
Scott M. Niswonger, Chairman
and Chief Executive Officer
Date: February 29, 2000
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.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
<S> <C> <C>
/s/ Scott M. Niswonger Chairman and February 29, 2000
- ----------------------------------- Chief Executive Officer
Scott M. Niswonger (Principal Executive Officer)
/s/ Edward W. Cook Chief Financial Officer, February 29, 2000
- ------------------------------------ Senior Vice President, Treasurer
Edward W. Cook and Director (Principal Financial
and Accounting Officer)
/s/ Bruce A. Campbell President, Chief Operating February 29, 2000
- ----------------------------------- Officer and Director
Bruce A. Campbell
/s/ Richard H. Roberts Senior Vice President, General February 29, 2000
- ------------------------------------ Counsel, Secretary and Director
Richard H. Roberts
/s/ James A. Cronin, III Director February 29, 2000
- ------------------------------------
James A. Cronin, III
/s/ Robert K. Gray Director February 29, 2000
- ------------------------------------
Hon. Robert K. Gray
</TABLE>
28
<PAGE> 29
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedule
Financial Statements and Supplementary Data
Certain Exhibits
Financial Statement Schedule
Year Ended December 31, 1999
Forward Air Corporation
Greeneville, Tennessee
<PAGE> 30
Forward Air Corporation
Form 10-K -- Item 8 and Item 14(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:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..........................................F-3
Consolidated Balance Sheets - December 31, 1999 and 1998...................................F-4
Consolidated Statements of Income - Years Ended December 31, 1999,
1998 and 1997...........................................................................F-6
Consolidated Statements of Shareholders' Equity - Years Ended
December 31, 1999, 1998 and 1997........................................................F-7
Consolidated Statements of Cash Flows - Years Ended December 31, 1999,
1998 and 1997...........................................................................F-8
Notes to Consolidated Financial Statements - December 31, 1999.............................F-9
The following financial statement schedule of Forward Air Corporation is
included as a separate section of this report.
Schedule II - Valuation and Qualifying Accounts............................................S-1
</TABLE>
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.
F-2
<PAGE> 31
Report of Independent Auditors
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, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 14(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 auditing standards generally accepted
in the 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, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Nashville, Tennessee
February 1, 2000
F-3
<PAGE> 32
Forward Air Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1999 1998
-----------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,989 $ 455
Accounts receivable, less allowance of $918 in
1999 and $952 in 1998 27,342 19,754
Inventories 640 389
Prepaid expenses 1,791 2,545
Deferred income taxes 652 273
-----------------------
Total current assets 36,414 23,416
Property and equipment:
Land 3,199 3,368
Buildings 6,919 6,883
Equipment 33,538 28,132
Leasehold improvements 1,372 1,003
Software costs 2,169 686
-----------------------
47,197 40,072
Accumulated depreciation and amortization 14,307 10,152
-----------------------
32,890 29,920
Goodwill and other intangibles, net 9,458 2,768
Other assets 855 704
-----------------------
Total assets $79,617 $56,808
=======================
</TABLE>
F-4
<PAGE> 33
<TABLE>
<CAPTION>
December 31
1999 1998
-----------------------
(In thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,436 $ 4,120
Accrued payroll and related items 2,798 1,769
Insurance and claims accruals 2,127 1,568
Income taxes payable 633 1,249
Other accrued expenses 2,587 2,470
Current portion of long-term debt 758 4,529
Current portion of capital lease obligations 513 676
-----------------------
Total current liabilities 16,852 16,381
Long-term debt, less current portion 835 15,403
Capital lease obligations, less current portion 3,919 4,723
Deferred income taxes 3,059 1,230
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 5,000,000
No shares issued -- --
Common stock, $.01 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 20,732,963 in
1999 and 18,881,727 in 1998 207 189
Additional paid-in capital 35,528 15,705
Retained earnings 19,217 3,177
-----------------------
Total shareholders' equity 54,952 19,071
-----------------------
Total liabilities and shareholders' equity $79,617 $56,808
=======================
</TABLE>
See accompanying notes.
F-5
<PAGE> 34
Forward Air Corporation
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Operating revenue $ 170,843 $ 130,438 $ 105,140
Operating expenses:
Purchased transportation:
Provided by non-affiliated entities 71,560 51,914 39,647
Provided by Landair Corporation 3,276 4,431 6,137
Salaries, wages and employee benefits 38,325 31,191 24,808
Operating leases 8,807 6,876 5,867
Depreciation and amortization 4,996 4,346 2,902
Insurance and claims 2,007 2,402 2,089
Other operating expenses 15,428 13,267 10,626
------------------------------------------
144,399 114,427 92,076
------------------------------------------
Income from operations 26,444 16,011 13,064
Other income (expense):
Interest expense (787) (1,206) (796)
Other, net 333 37 (84)
------------------------------------------
(454) (1,169) (880)
------------------------------------------
Income from continuing operations before
income taxes 25,990 14,842 12,184
Income taxes 9,950 5,653 4,740
------------------------------------------
Income from continuing operations 16,040 9,189 7,444
------------------------------------------
Discontinued operations:
Income from operations
(less income taxes of $-0-,
$850 and $751, respectively) -- 1,345 1,150
Loss on Spin-off (less income taxes of $-0-,
$440 and $-0-, respectively) -- (380) --
------------------------------------------
-- 965 1,150
------------------------------------------
Net income $ 16,040 $ 10,154 $ 8,594
==========================================
Income per share:
Basic:
Income from continuing operations $ .80 $ .49 $ .42
Income from discontinued operations -- .06 .06
------------------------------------------
Net income $ .80 $ .55 $ .48
==========================================
Diluted:
Income from continuing operations $ .76 $ .48 $ .40
Income from discontinued operations -- .05 .06
------------------------------------------
Net income $ .76 $ .53 $ .46
==========================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 35
Forward Air Corporation
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------- Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
---------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 5,953 $ 59 $ 26,203 $ 15,002 $ 41,264
Two-for-one stock split
declared February 1999 5,953 60 (60) -- --
Three-for-two stock split
declared January 2000 5,953 60 (60) -- --
Net income for 1997 -- -- -- 8,594 8,594
Exercise of stock options 183 2 488 -- 490
Common Stock issued under
employee stock purchase plan 31 -- 112 -- 112
---------------------------------------------------------------
Balance at December 31, 1997 18,073 181 26,683 23,596 50,460
Net income for 1998 -- -- -- 10,154 10,154
Exercise of stock options 798 8 2,402 -- 2,410
Common Stock issued under
employee stock purchase plan 11 -- 69 -- 69
Income tax benefit from stock
options exercised -- -- 232 -- 232
Spin-off of Landair Corporation -- -- (13,681) (30,573) (44,254)
---------------------------------------------------------------
Balance at December 31, 1998 18,882 189 15,705 3,177 19,071
Net income for 1999 -- -- -- 16,040 16,040
Exercise of stock options 336 3 1,328 -- 1,331
Common Stock issued under
employee stock purchase plan 15 -- 136 -- 136
Income tax benefit from stock
options exercised -- -- 341 -- 341
Net proceeds of public offering 1,500 15 18,018 -- 18,033
---------------------------------------------------------------
Balance at December 31, 1999 20,733 $ 207 $ 35,528 $ 19,217 $ 54,952
===============================================================
</TABLE>
See accompanying notes.
F-7
<PAGE> 36
Forward Air Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-----------------------------------------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 16,040 $ 10,154 $ 8,594
Adjustments to reconcile net income to
net cash provided by operating activities:
Income from discontinued operations -- (2,075) (1,150)
Depreciation and amortization 4,996 4,346 2,902
Gain on sale of property and equipment (43) (128) --
Provision for losses on receivables 295 438 515
Provision for revenue adjustments 1,245 1,641 1,488
Deferred income taxes 1,450 1,893 1,747
Changes in operating assets and liabilities, net
of effects from acquisition of businesses:
Accounts receivable (9,128) (4,162) (5,677)
Inventories (251) (89) (88)
Prepaid expenses 754 (1,191) (644)
Accounts payable and accrued expenses 5,021 8,314 666
Income taxes (275) 203 (53)
Due to Truckload Business subsidiaries -- (17,447) (1,980)
-----------------------------------------
Net cash provided by operating activities 20,104 1,897 6,320
INVESTING ACTIVITIES
Purchases of property and equipment (7,412) (11,764) (3,602)
Proceeds from disposal of property and equipment 1,001 117 --
Acquisition of businesses (6,814) -- (1,209)
Contribution of capital to discontinued operations -- (5,000) --
Other (139) (335) (6)
-----------------------------------------
Net cash used in investing activities (13,364) (16,982) (4,817)
FINANCING ACTIVITIES
Proceeds from long-term debt -- 21,792 812
Payments of long-term debt (19,739) (8,631) (954)
Payments of capital lease obligations (967) (995) (1,226)
Proceeds from exercise of stock options 1,331 2,410 490
Proceeds from common stock issued under
employee stock purchase plan 136 69 112
Net proceeds from public offering of common stock 18,033 -- --
-----------------------------------------
Net cash provided by (used in) financing activities (1,206) 14,645 (766)
-----------------------------------------
Net increase (decrease) in cash and cash equivalents 5,534 (440) 737
Cash and cash equivalents at beginning of year 455 895 158
-----------------------------------------
Cash and cash equivalents at end of year $ 5,989 $ 455 $ 895
Non-cash transaction - Issuance of notes payable to
Quick Delivery Service, Inc. and LTD Air Cargo,
Inc. for asset acquisitions and non-compete
agreements $ 1,400 $ -- $ --
=========================================
</TABLE>
See accompanying notes.
F-8
<PAGE> 37
Forward Air Corporation
Notes to Consolidated Financial Statements
December 31, 1999
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements of the Company include
Forward Air Corporation (formerly Landair Services, Inc. until August 26, 1998)
and its subsidiaries. Significant intercompany accounts and transactions have
been eliminated in consolidation.
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 of 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 one share of the
Company's common stock held as of the record date. 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 Business have been reported as
discontinued operations for all periods presented in the accompanying
consolidated financial statements (see Note 2).
As used in the accompanying consolidated financial statements, the term "Forward
Air Business" refers to the deferred air freight operations; Landair
Corporation, or the term "Truckload Business," refers to the truckload
operations; and the "Company" refers to the entity which, prior to the Spin-off,
through its subsidiaries operated both the Forward Air Business and the
Truckload Business and which, after the Spin-off, continues to operate the
Forward Air Business.
The continuing operations of the Company included in these financial statements
include the assets and liabilities and results of operations directly related to
the Forward Air Business for all periods presented. Significant changes could
have occurred in the funding and operations of the Forward Air Business had it
been operated as an independent stand-alone entity during 1998 and 1997, which
could have had a significant impact on its financial position, results of
operations and cash flows. As a result, the financial information included in
these financial statements for 1998 and 1997 is not necessarily indicative of
the financial position and results of operations of the Forward Air Business
which might have occurred had it been a stand-alone entity throughout those
years.
F-9
<PAGE> 38
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
The Company operates a comprehensive national network for the time-definite
surface transportation of deferred freight. The Company provides its
transportation services through a network of terminals located on or near
airports in the United States and Canada. The Company's customers consist
primarily of air freight forwarders, domestic and international airlines and
integrated air cargo carriers. The Company's operations involve receiving
deferred freight shipments at its terminals and transporting them by truck to
the terminal nearest their destination.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
OPERATING REVENUE
Operating revenue and related costs are recognized as of the date shipments are
completed. No single customer accounted for more than 10% of operating revenue
from continuing operations in 1999, 1998 or 1997.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
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.
F-10
<PAGE> 39
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. 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:
<TABLE>
<S> <C>
Buildings.................................... 30-40 years
Equipment.................................... 3-10 years
Leasehold improvements....................... 1-15 years
Internal-use software costs.................. 5 years
</TABLE>
Interest payments during 1999, 1998 and 1997 were $911,000, $1.2 million and
$825,000, respectively, of which $71,000, $-0- and $-0- was capitalized. During
1999, 1998 and 1997, the Company added no equipment through capital leases.
The Company reviews its long-lived assets, including goodwill and other
intangibles, for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The measurement of possible
impairment is based upon determining whether projected undiscounted future cash
flows from the use of the asset over its remaining useful life are less than the
carrying value of the asset. As of December 31, 1999, in the opinion of
management, there has been no such impairment.
EXTERNAL-USE COMPUTER SOFTWARE COSTS
Costs related to software developed for external use are amortized using either
a revenue-based method or the straight-line method, whichever provides the
greater amortization amount. External-use computer software costs, net of
accumulated amortization, totaled $1.6 million and $235,000 at December 31, 1999
and 1998, respectively. No amortization was recorded in 1999 and 1998 since the
projects were under development throughout those periods. In years prior to
1998, the Company did not incur significant external-use software development
costs. External-use computer software costs are included in property and
equipment in the accompanying balance sheet, as the software will not be sold
outright to customers; rather, the use of the software will be sold to
customers.
RISK MANAGEMENT
The Company is self-insured for certain of its workers' compensation, property
damage, auto liability and medical benefit claims. The Company has entered into
agreements with independent insurance companies to limit its losses with respect
to these claims.
F-11
<PAGE> 40
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INCOME PER SHARE
The Company calculates income per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. Under SFAS
No. 128, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share includes any
dilutive effects of options, warrants and convertible securities, and uses the
treasury stock method in calculating dilution. All earnings 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 and a two-for-one stock
split (see Note 5).
COMPREHENSIVE INCOME
The Company had no items of other comprehensive income in 1999, 1998 and 1997
and, accordingly, comprehensive income is equivalent to net income.
EMPLOYEE STOCK OPTIONS
The Company grants options for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the grant date. The
Company accounts for employee stock option grants in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and,
accordingly, recognizes no compensation expense for the stock option grants.
COMMON EXPENSES
Prior to 1998, certain administrative expenses, consisting of payroll, legal,
accounting, rent and depreciation for shared facilities, and other common
expenses which could not be specifically identified to either the deferred air
freight operations or the truckload operations have been allocated between the
Forward Air Business and the Truckload Business based on their relative
percentages of operating revenue. In 1998, certain administrative and back
office functions continued to be shared by both the Forward Air Business and the
Truckload Business. The expenses related to these services were allocated to the
Forward Air Business and the Truckload Business in accordance with the
provisions of a Transition Services Agreement as discussed in Note 2. These
administrative expenses, which would have been incurred by the Forward Air
Business and the Truckload Business if each had been operated as an independent
stand-alone entity, totaled $2.8 million and $5.0 million for the Forward Air
Business and $3.2 million and $4.4 million for the Truckload Business for the
period January 1, 1998 through September 23, 1998 and for the year ended
December 31, 1997, respectively.
F-12
<PAGE> 41
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
Interest expense of $661,000 and $796,000 for the Forward Air Business and $1.4
million and $1.8 million for the Truckload Business for the period from January
1, 1998 through September 23, 1998 and for the year ended December 31, 1997,
respectively, has been allocated by the Company on an annual basis based upon
the pro rata share of average operating assets of the Truckload Business and the
Forward Air Business.
Management believes these allocation methods are reasonable.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued and was required to be adopted in years beginning after
June 15, 1999. In June 1999, SFAS No. 137 was issued, deferring the effective
date of SFAS No. 133 for one year. This Statement requires all derivatives to be
recorded on the balance sheet at fair value. This results in the offsetting
changes in fair values or cash flows of both the hedge and the hedged item being
recognized in earnings or other comprehensive income, as appropriate, in the
same period. Changes in fair value of derivatives not meeting the Statement's
hedge criteria are included in income. The Company expects to adopt the new
Statement as of January 1, 2001. The Company does not expect the adoption of
this Statement to have a significant effect on its results of operations or
financial position.
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.
2. DISCONTINUED OPERATIONS
As discussed in Note 1, on July 9, 1998, the Board of Directors of the Company
authorized the separation of the Company into two publicly-held corporations,
one owning and operating the Forward Air Business and the other owning and
operating the Truckload Business. The Spin-off was effected on September 23,
1998.
F-13
<PAGE> 42
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
2. DISCONTINUED OPERATIONS (CONTINUED)
A summary of the net assets distributed to Landair Corporation on September 23,
1998 is as follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 22,754
Property and equipment, net 62,244
Other assets 39
--------
Assets of discontinued operations 85,037
--------
Current liabilities (21,009)
Long-term debt and capital lease obligations (7,972)
Deferred income taxes (11,802)
--------
Liabilities of discontinued operations (40,783)
--------
Net assets of discontinued operations $ 44,254
========
</TABLE>
Prior to the Spin-off, the Company made a $5.0 million contribution of capital
in the form of cash to Landair Corporation. In addition, Landair Corporation
contributed to the Company approximately $2.4 million of net assets related to
the Forward Air Business. The above net assets include these transactions. The
distribution of the net assets of Landair Corporation on September 23, 1998,was
charged to retained earnings, to the extent that the Company had positive
retained earnings, with the remainder to additional paid-in capital.
Summarized income statement information relating to the Truckload Business (as
reported in discontinued operations) is as follows (in thousands):
<TABLE>
<CAPTION>
1998(1) 1997
-------- --------
<S> <C> <C>
Operating revenue $ 51,543 $ 91,398
Operating expenses 48,450 87,659
-------- --------
Income from operations 3,093 3,739
Interest expense (924) (1,826)
Other income (expense) 26 (12)
-------- --------
Income before income taxes 2,195 1,901
Income taxes 850 751
-------- --------
Income from discontinued
operations $ 1,345 $ 1,150
======== ========
</TABLE>
(1) The fiscal 1998 summarized income statement information above includes the
results of operations only through the July 9, 1998 Measurement Date.
F-14
<PAGE> 43
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
2. DISCONTINUED OPERATIONS (CONTINUED)
The loss on Spin-off in the amount of $380,000 recorded in 1998 includes the net
of the after-tax income of the discontinued operations from the Measurement Date
through the date of the Spin-off of $730,000 ($1.2 million on a pre-tax basis),
and costs associated with the Spin-off of $1.1 million. The costs associated
with the Spin-off represent the cost of separating the two businesses which are
non-deductible for income tax purposes.
In connection with the Spin-off, the Company and Landair Corporation entered
into certain agreements which were effective upon the actual separation of the
two companies. The agreements were entered into to facilitate orderly changes
from an integrated transportation company to separate deferred air freight and
truckload operating companies in a way which is minimally disruptive to each
entity. Following are summaries of the principal agreements:
DISTRIBUTION AGREEMENT
The Distribution Agreement provided for, among other things, the principal
corporate transactions required to effect the Spin-off and the allocation of
certain assets and liabilities between the Company and Landair Corporation. The
Distribution Agreement provides that the Company and Landair Corporation each
have sole responsibility for claims arising out of their respective activities
after the Spin-off. It also provides that each party will indemnify the other in
the event of certain liabilities arising under the federal securities laws, and
that, for a period of three years after the Spin-off, neither the Company nor
Landair Corporation will directly solicit the employment of any employee of the
other company or its affiliates without the prior written consent of such other
company.
TRANSITION SERVICES AGREEMENT
The Transition Services Agreement describes the services which the Company and
Landair Corporation provide to each other following the Spin-off. Services
performed under the Transition Services Agreement are negotiated and paid for on
an arm's-length basis. The Company or Landair Corporation, as recipients of the
services, may terminate any or all such services at any time on thirty days'
irrevocable written notice, and the Company or Landair Corporation, as providers
of the services, may terminate any or all of the services, other than
information technology services, on three months' irrevocable notice.
Information technology services to be provided by the Company to Landair
Corporation have a thirty-six month term.
EMPLOYEE BENEFIT MATTERS AGREEMENT
The Employee Benefit Matters Agreement provides for the treatment of employee
benefit matters and other compensation arrangements for the employees of the
Company and Landair Corporation after the Spin-off. Pursuant to this agreement,
the Company is continuing sponsorship of the
F-15
<PAGE> 44
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
2. DISCONTINUED OPERATIONS (CONTINUED)
various employee benefit plans and welfare plans of the Company with respect to
employees of the Company after the Spin-off, and Landair Corporation is required
to establish such similar plans which will allow Landair Corporation to provide
to its employees after the Spin-off substantially the same benefits previously
provided to them as employees of the Company. This Employee Benefit Matters
Agreement also provided for the adjustment and conversion of the existing
non-exercisable stock options of the Company into options of Landair Corporation
for those employees that continued employment with Landair Corporation after the
Spin-off. (See Note 5).
TAX SHARING AGREEMENT
The Tax Sharing Agreement describes the responsibilities of the Company and
Landair Corporation with respect to all tax matters occurring prior to and after
the Spin-off. The Tax Sharing Agreement provides for the allocation of tax
expense, assessments, refunds and other tax benefits. The Agreement also sets
forth the responsibility for filing tax returns and provides for reasonable
cooperation in the event of any audit, litigation or other proceeding with
respect to any federal, state or local tax.
3. ACQUISITION OF BUSINESSES
In October 1999, the Company acquired certain air cargo operating assets of
Quick Delivery Service, Inc. ("Quick"), a deferred airfreight contractor to the
air cargo industry based in Mobile, Alabama and certain air cargo operating
assets of LTD Air Cargo, Inc. ("LTD"), a deferred airfreight contractor to the
air cargo industry based in Franklin, Tennessee. The Company paid approximately
$6.8 million in cash and issued notes payable totaling $1.0 million for the
above two acquisitions. The acquisitions were accounted for as purchases. The
Company also entered into non-compete agreements with the former owners of Quick
and LTD for $400,000 to be paid in installments by the Company over the terms of
the agreements. Non-compete agreements are being amortized over the terms of the
agreements. The $1.4 million owed to the former owners of Quick and LTD remains
outstanding as of December 31, 1999. Goodwill relating to the Quick and LTD
acquisitions totaled approximately $6.4 million and is being amortized on a
straight-line basis over a life of 15 years.
In October 1997, the Company acquired the air cargo operating assets of Adams
Air Cargo, Inc., a surface transportation contractor to the air cargo industry
based in Arbuckle, California. The Company paid approximately $1.2 million in
cash, issued a note payable of $1.8 million, and assumed debt and capital lease
obligations of $1.0 million and $1.6 million, respectively. The acquisition was
accounted for as a purchase. Accordingly, the purchase price was allocated on
the basis of the estimated fair value of the net assets acquired, resulting in
goodwill of
F-16
<PAGE> 45
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
3. ACQUISITION OF BUSINESSES (CONTINUED)
approximately $2.9 million. The goodwill is being amortized on a straight-line
basis over a life of 20 years.
The results of operations for the acquired businesses are included in the
consolidated statements of income from the respective acquisition dates forward.
Goodwill and other intangible assets totaled $9.8 million and $2.9 million at
December 31, 1999 and 1998, respectively. Accumulated amortization of goodwill
and other intangible assets totaled approximately $300,000 and $160,000 at each
year end, respectively.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
1999 1998
------------------------
(In thousands)
<S> <C> <C>
Line of credit $ -- $ --
Installment Equipment Loan Agreements -- 18,540
Other notes payable, including interest ranging from
6.9% to 7.9% 1,593 1,392
------------------------
1,593 19,932
Less current portion 758 4,529
------------------------
$ 835 $15,403
========================
</TABLE>
Effective with the Spin-off of Landair Corporation on September 23, 1998, the
Company entered into a $20.0 million working capital line of credit facility
with a Tennessee bank which expires in April 2001. Interest rates for advances
under the facility vary from LIBOR plus 1.0% to 1.9% based upon covenants
related to total indebtedness, cash flows, results of operations and other
ratios (6.8% at December 31, 1999). Advances are collateralized primarily by
accounts receivable. The agreement contains, among other things, restrictions
that do not allow the payment of dividends, and requires the maintenance of
certain levels of net worth and other financial ratios. At December 31, 1999,
the Company had no borrowings outstanding under the line and had utilized $3.6
million of availability for outstanding letters of credit.
The Company has equipment loan agreements (the "Equipment Loan Agreements") with
two Tennessee banks which permit the Company to borrow up to $25.0 million for
the purchase of
F-17
<PAGE> 46
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
operating equipment. Interest rates for advances under the facilities vary from
LIBOR plus .8% to 1.9% based upon covenants related to total indebtedness, cash
flows, results of operations and other ratios (6.6% to 7.7% at December 31,
1999). The advances are collateralized by equipment purchased with the proceeds
from the Equipment Loan Agreements, and contain restrictions and covenants
similar to the line of credit agreement described above. At December 31, 1999,
the Company had no borrowings under the Equipment Loan Agreements.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 758
2001 483
2002 352
-------
$ 1,593
=======
</TABLE>
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 $.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 Splits -- On January 10, 2000, the Board of Directors approved a
three-for-two split of the common shares which was distributed on January 28,
2000 to shareholders of record as of January 21, 2000. 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
these splits 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 splits.
Employee Stock Option and Incentive Plan -- The Company follows Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations in accounting for its employee stock options. Under
Opinion No. 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
At December 31, 1998 and 1997, the Company had reserved 3.0 million shares of
common stock under a Stock Option and Incentive Plan. In February 1999, the
Company reserved an additional 1.5 million common shares under the 1999 Stock
Option and Incentive Plan, resulting in a total
F-18
<PAGE> 47
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
5. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
of 4.5 million shares being reserved at December 31, 1999. Options issued under
the Plans have eight to ten year terms and vest over a four to five year period.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, Accounting for Stock Based Compensation, which also requires that
the information be determined as if the Company has accounted for its stock
options granted subsequent to December 31, 1994 under the fair value method of
that Statement. 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 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.2%, 4.7% and 5.8%; dividend ratio of zero; volatility
factors of the expected market price of the common stock of 0.7, 0.5 and 0.5;
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.
For purposes of pro forma disclosures, the estimated fair value of the stock
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma net income $ 14,946 $ 9,839 $ 7,981
Pro forma net income per share:
Basic $ .74 $ .53 $ .45
Diluted $ .71 $ .51 $ .43
</TABLE>
F-19
<PAGE> 48
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
5. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
A summary of the Company's employee stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
------- --------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 1,146 $4 1,813 $4 1,725 $4
Granted/converted 888 7 254 5 333 4
Exercised (336) 4 (708) 2 (183) 3
Forfeited (16) 4 (213) 4 (62) 5
------ -- ------ -- ------ --
Outstanding - end of year 1,682 $6 1,146 $4 1,813 $4
====== == ====== == ====== ==
Exercisable at end of year 490 $4 607 $4 804 $4
------ -- ------ -- ------ --
Options available for
grant 557 314 354
====== ====== ======
Weighted-average fair
value of options
granted during the year $ 5.24 $ 3.37 $ 2.05
====== ====== ======
</TABLE>
Exercise prices for options outstanding, as of December 31, 1999 ranged from
$2.67 to $18.50.
Under the provisions of the Company's stock option plan, options to purchase
shares of the Company's common stock that were exercisable at the time of the
Spin-off, and that were held by those employees who terminated employment with
the Company and became employees of Landair Corporation upon the Spin-off, were
canceled if not exercised prior to such employees' termination of employment
with the Company. Accordingly, employees that were leaving the Company and
continuing as employees of Landair Corporation exercised 297,000 vested options
during 1998 prior to the Spin-off. Unexercisable options held by employees of
the Company who remained or became employees of Landair Corporation upon
consummation of the Spin-off which totaled 153,000 were converted into options
to purchase Landair Corporation common stock under Landair Corporation's Stock
Option and Incentive Plan. Such conversion was on the basis of a formula
designed to preserve the fair market value of such converted options on the date
of the Spin-off. All options held by employees of the Company who remained or
became employees of the Company upon consummation of the Spin-off were adjusted
on the basis of a formula designed to preserve the fair market value of such
options on the date of the Spin-off. The adjustment of these options resulted in
the grant of options to purchase 225,000 additional shares during the year ended
December 31, 1998.
Non-Employee Director Options -- In May 1999, August 1998 and May 1997, options
to purchase 22,500, 56,250 and 56,250 shares of common stock, respectively, were
granted to the non-employee directors of the Company at option prices of $17.83,
$6.13 and $3.73 per share,
F-20
<PAGE> 49
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
5. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
respectively. All options held by directors of the Company were adjusted on the
basis of a formula designed to preserve the fair market value of such options on
the date of the Spin-off.
The options have terms of ten years and are exercisable in installments which
vest over two-year periods from the date of grant. At December 31, 1999, 247,500
options are outstanding and will expire in May 2005 through May 2009, 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.
Employee Stock Purchase Plan -- The Company implemented an employee stock
purchase plan effective January 1, 1996 at which time participating employees
became entitled to purchase common stock through payroll deduction of up to 10%
of the employee's annual compensation. The issue price of the common stock is
equal to the lesser of (1) 85% of market price on the first trading day of the
semi-annual option period or (2) 85% of market price on the last trading day of
the semi-annual option period. The Company has reserved 900,000 shares of common
stock for issuance pursuant to the plan. At December 31, 1999, approximately
75,000 shares had been issued under the Plan.
F-21
<PAGE> 50
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
5. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
Earnings Per Share -- The following table sets forth the computation of basic
and diluted income per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted income per share:
Income from continuing operations $ 16,040 $ 9,189 $ 7,444
Income from discontinued operations -- 965 1,150
---------------------------------------------
Net income $ 16,040 $ 10,154 $ 8,594
=============================================
Denominator:
Denominator for basic income per share-
weighted-average shares 20,072 18,589 17,904
Effect of dilutive stock options 1,110 681 627
---------------------------------------------
Denominator for diluted income per share-
adjusted weighted-average shares 21,182 19,270 18,531
=============================================
Income per share - basic:
Income from continuing operations $ .80 $ .49 $ .42
Income from discontinued operations -- .06 .06
---------------------------------------------
Net income $ .80 $ .55 $ .48
=============================================
Income per share - diluted:
Income from continuing operations $ .76 $ .48 $ .40
Income from discontinued operations -- .05 .06
---------------------------------------------
Net income $ .76 $ .53 $ .46
=============================================
</TABLE>
F-22
<PAGE> 51
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
The Company and Landair Corporation entered into a Tax Sharing Agreement in
connection with the Spin-off (see Note 2).
The provision for income taxes from continuing operations consists of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $7,509 $3,246 $2,368
State 991 514 625
------------------------------------
8,500 3,760 2,993
Deferred:
Federal 1,382 1,807 1,510
State 68 86 237
------------------------------------
1,450 1,893 1,747
------------------------------------
$9,950 $5,653 $4,740
====================================
</TABLE>
The historical income tax expense differs from the amounts computed by applying
the federal statutory rate of 35% to income before income taxes as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------
(In thousands)
<S> <C> <C> <C>
Tax expense at the statutory rate $9,097 $5,195 $4,142
State income taxes, net of federal benefit 688 397 547
Meals and entertainment 165 61 51
------------------------------------
$9,950 $5,653 $4,740
====================================
</TABLE>
F-23
<PAGE> 52
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
December 31
1999 1998
-------------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accrued expenses $ 973 $ 713
Allowance for doubtful accounts 345 358
Capital lease -- 198
-------------------------
Total deferred tax assets 1,318 1,269
Deferred tax liabilities:
Tax over book depreciation 2,180 1,346
Prepaid expenses deductible when paid 476 586
Capital lease 332 --
Other 737 294
-------------------------
Total deferred tax liabilities 3,725 2,226
-------------------------
Net deferred tax liabilities $(2,407) $ (957)
=========================
</TABLE>
The balance sheet classification of deferred income taxes is as follows:
<TABLE>
<CAPTION>
December 31
1999 1998
-------------------------
(In thousands)
<S> <C> <C>
Current assets $ 652 $ 273
Noncurrent assets (liabilities) (3,059) (1,230)
-------------------------
$(2,407) $ (957)
=========================
</TABLE>
Total income tax payments, net of refunds, during fiscal 1999, 1998 and 1997
were $8.1 million, $3.4 million and $3.0 million, respectively.
F-24
<PAGE> 53
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
7. LEASES
The Company has a capital lease agreement (with a bargain purchase option)
extending to 2008 with the Director of Development of the State of Ohio for a
terminal facility located in Columbus, Ohio. The amounts due under the lease
have been included in capital lease obligations. The Company is responsible for
all taxes, assessments and other costs of ownership under the lease agreement.
The lease also requires, among other things, restrictions on the payment of
dividends and the maintenance of certain levels of net worth and other financial
ratios. The assets are being amortized over the estimated useful lives of the
assets under the assumption that the bargain purchase option will be exercised.
The Company leases certain equipment under capital leases. These equipment
leases expire in various years through 2001.
Property and equipment include the following amounts for leases that have been
capitalized:
<TABLE>
<CAPTION>
December 31
1999 1998
-----------------------
(In thousands)
<S> <C> <C>
Land $2,605 $2,605
Buildings 3,675 3,675
Equipment 2,702 3,611
-----------------------
8,982 9,891
Less accumulated amortization 2,602 1,995
-----------------------
$6,380 $7,896
=======================
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense.
The Company also leases certain facilities and equipment under noncancellable
operating leases that expire in various years through 2008. Certain of these
leases may be renewed for periods varying from one to ten years. Landair
Corporation shares certain facilities leased by the Company, and has been
allocated a portion of the rent expense related thereto (see Note 1 Common
Expenses). As discussed below, the Company entered into lease or sublease
agreements with Landair Corporation related to certain facilities on or prior to
the date of the Spin-off. Sublease rental income was $773,000, $653,000 and
$554,000 in 1999, 1998 and 1997, respectively, and was included in operating
revenue in the accompanying consolidated statements of income.
Included in operating leases is an aircraft leased under a dry lease arrangement
from a limited liability corporation owned by the Company's Chairman and Chief
Executive Officer which expired in July 1999. Under the terms of the lease
agreement, the Company paid the limited
F-25
<PAGE> 54
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
7. LEASES (CONTINUED)
liability corporation $700 per hour of usage subject to a 400 hour per year
minimum usage guarantee. The total net amount of rent expense for this lease was
$107,000, $423,000 and $280,000 in 1999, 1998 and 1997, respectively. Upon
expiration of the lease agreement, the Company commenced chartering the aircraft
on an as-needed hourly basis. The air charter expense in 1999 totaled $106,000.
On or prior to the date of the Spin-off, the Company entered into subleases with
Landair Corporation pursuant to which the Company is subleasing to Landair
Corporation (i) a portion of its terminal facility in Atlanta, Georgia; (ii) a
portion of its terminal facility in Chicago, Illinois; (iii) a portion of its
terminal facility in Detroit, Michigan; and (iv) a portion of the headquarters
of the Company in Greeneville, Tennessee that is leased from the
Greeneville-Greene County Airport Authority. The Company subleases the terminal
facilities to Landair Corporation for consideration based upon the cost of such
facilities to the Company and an agreed-upon percentage of usage. The Company
subleases a portion of Landair Corporation's facility in Indianapolis for
consideration based upon an agreed-upon percentage of usage. The Company expects
to receive aggregate future minimum rental payments under noncancelable
subleases of approximately $442,000.
Future minimum rental payments under capital leases and noncancellable operating
leases with initial terms of one year or more consisted of the following at
December 31, 1999:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------------------------
(In thousands)
<S> <C> <C>
Fiscal Year
2000 $ 838 $ 9,259
2001 747 7,547
2002 701 5,433
2003 710 4,179
2004 720 2,832
Thereafter 2,422 2,256
----- --------
Total minimum lease payments 6,138 $ 31,506
========
Amounts representing interest 1,706
-----
Present value of net minimum lease payments
(including current portion of $513) $ 4,432
=======
</TABLE>
F-26
<PAGE> 55
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
8. TRANSACTIONS WITH LANDAIR CORPORATION
The Company and Landair Corporation routinely engage in operating transactions
as Landair Corporation hauls a portion of the deferred air freight shipments for
the Company which are in excess of the Company's scheduled capacity. The cost of
the shipments is shown separately in the accompanying statements of income as
purchased transportation provided by Landair Corporation.
In accordance with the terms included in the Transition Services Agreement,
subsequent to the Spin-off in 1998 the Company provided accounts payable,
payroll, human resources, employee benefit plan administration, owner-operator
settlement, central purchasing, accounting and legal, general administrative,
and information technology services to Landair Corporation. The Company charged
Landair Corporation $2.4 million and $797,000, respectively, during the year
ended December 31, 1999 and the period September 24, 1998 through December 31,
1998 for these services. In addition, Landair Corporation provided the Company
safety, licensing, permitting and fuel tax, recruiting and retention, and driver
training center services subsequent to the Spin-off in 1998. Landair Corporation
charged the Company $455,000 and $193,000, respectively, during the year ended
December 31, 1999 and the period September 24, 1998 through December 31, 1998
for these services.
In connection with the Spin-off, the Company settled all intercompany balances
for cash in 1998. At December 31, 1999 and 1998, accounts payable included
$707,000 and $687,000, respectively, of amounts due to Landair Corporation
related to services covered under the Transition Services Agreement and various
other transactions between both entities.
As discussed in Note 7, the Company subleases a portion of certain facilities to
Landair Corporation.
9. COMMITMENTS AND CONTINGENCIES
The primary claims in the Company's business are workers' compensation, property
damage, auto 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.
F-27
<PAGE> 56
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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 one year 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% to 10% of their annual compensation. Employer contributions
are made at 25% during 1999, 1998 and 1997 of the employee's contribution up to
a maximum of 6% during 1999 and 4% during 1998 and 1997 of total annual
compensation. Employer contributions vest 20% after two years of service and
continue vesting 20% per year until fully vested. The Company's matching
contribution included in income from continuing operations for 1999, 1998 and
1997 was approximately $146,000, $71,000 and $69,000, respectively. In
connection with the Spin-off, the account balances of Truckload employees were
transferred to a Landair Corporation plan in a trust-to-trust transfer during
1999.
11. FINANCIAL INSTRUMENTS
Off Balance Sheet Risk
At December 31, 1999, the Company had letters of credit outstanding totaling
$3.6 million, all of which guarantee obligations carried on the balance sheet.
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.
F-28
<PAGE> 57
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
11. FINANCIAL INSTRUMENTS (CONTINUED)
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Accounts receivable and accounts payable: The carrying amounts reported
in the balance sheet for accounts receivable and accounts payable
approximate their fair value.
Long-and short-term debt: The carrying amounts of the Company's
borrowings under its revolving credit arrangement approximate fair
value. The fair value of the Company's long-term debt and 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.
F-29
<PAGE> 58
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999
-----------------------------------------------------
March 31 June 30 September 30 December 31
-----------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenue $37,728 $40,781 $42,599 $49,735
Income from operations 5,475 5,939 6,560 8,470
Income from continuing operations 3,100 3,550 4,006 5,384
Net income 3,100 3,550 4,006 5,384
Net income per share:
Basic $ .16 $ .18 $ .19 $ .26
Diluted $ .16 $ .17 $ .18 $ .25
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------------------
March 31 June 30 September 30 December 31
-----------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenue $28,850 $30,739 $33,354 $37,495
Income from operations 2,785 3,709 4,212 5,305
Income from continuing operations 1,565 2,167 2,468 2,989
Income from discontinued operations 676 289 -- --
Net income 2,241 2,456 2,468 2,989
Income per share:
Basic:
Income from continuing
operations $ .09 $ .11 $ .13 $ .16
Income from discontinued
operations $ .04 $ .02 $ -- $ --
Net income $ .13 $ .13 $ .13 $ .16
Diluted:
Income from continuing
operations $ .08 $ .11 $ .13 $ .16
Income from discontinued
operations $ .04 $ .01 $ -- $ --
Net income $ .12 $ .12 $ .13 $ .16
</TABLE>
F-30
<PAGE> 59
Forward Air Corporation
Schedule II -- Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- --------------------------------------------------------------------------------------------------------------
Additions
----------------------
(1) (2)
Charged Charged
Balance at to Costs to Other Balance at
Beginning and Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
- --------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful accounts $ 577 $ 295 $ -- $ 277(2) $595
Allowance for revenue adjustments(1) 375 1,245 -- 1,297(3) 323
----------------------------------------------------------------
952 1,540 -- 1,574 918
Year ended December 31, 1998:
Allowance for doubtful accounts $ 440 $ 438 $ -- $ 301(2) $577
Allowance for revenue adjustments(1) 313 1,641 -- 1,579(3) 375
----------------------------------------------------------------
753 2,079 -- 1,880 952
Year ended December 31, 1997:
Allowance for doubtful accounts $ 187 $ 515 $ -- $ 262(2) $440
Allowance for revenue adjustments(1) 150 1,488 -- 1,325(3) 313
----------------------------------------------------------------
337 2,003 -- 1,587 753
</TABLE>
(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.
S-1
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. in
Exhibit No. Under Document Where
Item 601 of Incorporated by
Regulation S-K Reference
-------------- ---------
<S> <C>
2.1(g) - Distribution Agreement between the 2.1
Registrant and Landair Corporation
3.1(j) - Restated Charter of the registrant 3
3.2(g) - Bylaws of the registrant, as amended 3.1
4.1(b) - Form of Landair Services, Inc. Common 4.1
Stock Certificate
4.2(g) - Form of Forward Air Corporation 4.1
Common Stock Certificate
4.3(j) - Rights Agreement, dated May 18, 1999, 4
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)
10.1(f) - Registrant's Restated Employee Stock 10
Purchase Plan
10.2(e) - Registrant's Amended and Restated 10.1
Stock Option and Incentive Plan
10.3(b) - Lease Agreement, dated July 27, 1981, 10.18
between the Greeneville-Greene County
Airport Authority and General Aviation
of Tennessee, Inc., as assumed by the
registrant by agreement, dated May 10,
1988
10.4(b) - Assignment, Assumption and Release 10.19
Agreement, dated May 10, 1988,
between Greeneville-Greene County
Airport, General Aviation, Inc., and
the registrant
</TABLE>
<PAGE> 61
<TABLE>
<S> <C>
10.5(g) - Air Carrier Certificate, effective 10.4
September 9, 1993, reissued September
21, 1998
10.6(c) - Lease between the Director of 10.24
Development of the State of Ohio and
the registrant dated as of October 1, 1993
10.7(e) - Registrant's Non-Employee Director 10.2
Stock Option Plan
10.8(g) - Transition Services Agreement between the 10.1
registrant and Landair Corporation
10.9(g) - Employee Benefit Matters Agreement 10.2
between the registrant and Landair Corporation
10.10(g) - Tax Sharing Agreement between the registrant 10.3
and Landair Corporation
10.11(g) - Amended and Restated Loan and Security 10.5
Agreement, dated as of September 10, 1998,
between First Tennessee Bank National
Association and the registrant
10.12(g) - $20.0 million Amended and Restated Master 10.6
Secured Promissory Note (Line of Credit),
dated as of September 10, 1998, to First
Tennessee Bank National Association
10.13(g) - $15.0 million Amended and Restated 10.7
Secured Promissory Note (Equipment
Loan), dated as of September 10, 1998,
to First Tennessee Bank National Association
10.14(g) - Security Agreement, dated August 11, 1998, 10.8
between SunTrust Bank, Nashville, N.A.
and FAF, Inc.
10.15(g) - $8,022,000 Promissory Note, dated 10.9
August 11, 1998, to SunTrust Bank,
Nashville, N.A.
10.16(h) - Employment Agreement between the registrant 10.16
and Bruce A. Campbell
</TABLE>
<PAGE> 62
<TABLE>
<S> <C>
10.17(i) - 1999 Stock Option and Incentive Plan 10.1
10.18(i) - Loan and Security Agreement ($10.0 million 10.2
Line of Credit), dated as of January 13, 1999
among SunTrust Bank, Nashville, N.A. and
the registrant, FAF, Inc. and Forward Air,
Inc. (Certain exhibits to this document are
omitted from this filing but the registrant
will furnish supplemental copies of the
omitted materials to the Commission
upon request.)
10.19(a) - Cash Incentive Plan --
21.1(a) - Subsidiaries of the registrant --
23.1(a) - Consent of Ernst & Young LLP --
27.1(a) - Financial Data Schedule - Period Ended --
December 31, 1999 (Electronic Filing Only)
27.2(a) - Financial Data Schedule (Restated) - Period --
Ended December 31, 1998 (Electronic Filing
Only)
27.3(a) - Financial Data Schedule (Restated) - Period --
Ended December 31, 1997 (Electronic Filing
Only)
</TABLE>
(a) Filed herewith.
(b) Filed as an exhibit to the registrant's Registration Statement
of Form S-1, filed with the Commission on September 27, 1993.
(c) Filed as an exhibit to the registrant's Annual Report on Form
10-K for the fiscal year ended December 25, 1993, filed with the Commission on
March 25, 1994.
(d) Filed as an exhibit to the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, filed with the Commission on
March 31, 1995.
(e) Filed as an exhibit to the registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1995, filed with the Commission on
August 14, 1995.
(f) Filed as an exhibit to the registrant's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1995, filed with the
Commission on November 14, 1995.
<PAGE> 63
(g) Filed as an exhibit to the registrant's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1998, filed with the
Commission on November 16, 1998.
(h) Filed as an exhibit to the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1998, filed with the Commission on
March 11, 1999.
(i) Filed as an exhibit to the registrant's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1999, filed with the Commission on
May 17, 1999.
(j) Filed as an exhibit to the registrant's Current Report on Form
8-K filed with the Commission on May 28, 1999.
<PAGE> 1
EXHIBIT 10.19(a)
FORWARD AIR CORPORATION
CASH INCENTIVE PLAN
SECTION 1. PLAN ESTABLISHMENT AND PURPOSE
1.1 Establishment. Forward Air Corporation, a Tennessee corporation (the
"Company"), hereby establishes an annual/quarterly compensation program
for selected key employees, which shall be known as the Forward Air
Corporation Cash Incentive Plan (the "Plan").
1.2 Purpose. The purpose of the Plan is to enhance the likelihood that the
Company will be able to maximize the success and profitability of the
Company by providing significant incentive opportunities to selected
key employees. It is also intended to assist in the attraction and
retention of key members of management and to further link executive
and Company interests and objectives.
SECTION 2. DEFINITIONS
2.1 Definitions. Whenever used herein, the following terms shall have their
respective meanings set forth below:
(a) Administrator means the Executive Committee of the Board of
Directors of Forward Air Corporation; provided, however,
administration of the Plan shall be consistent with the terms
hereof including, without limitation, the overview and
approval of the Compensation Committee of the Board of
Directors, as provided in Section 3.
(b) Company means Forward Air Corporation, and any subsidiaries.
(c) Disability shall have the same meaning as provided in a
long-term disability plan maintained by the Company if, at any
time during the period that this Plan is in operation, the
Company adopts a long-term disability plan. In the event of a
dispute, the determination of Disability shall be made by the
Administrator. Disability shall mean a physical or mental
condition which, in the judgment of the Administrator,
permanently prevents a Participant from performing his usual
duties for the Company or such other position or job which the
Company makes available to him and for which the Participant
is qualified by reason of his education, training and
experience. In making its determination the Administrator may,
but is not required to, rely on advice of a physician
competent in the area to which such Disability relates. The
Administrator may make the determination in its sole
discretion and any decision of the Administrator will be
binding on all parties.
<PAGE> 2
(d) Participant means any individual designated to participate in
the Plan pursuant to Subsection 4.1.
(e) Plan means the Forward Air Corporation Cash Incentive Plan.
(f) Plan Quarter means the three-month periods of January 1
through March 31, April 1 through June 30, July 1 through
September 30 and October 1 through December 31.
(g) Plan Year means the twelve month period beginning January 1
through December 31.
(h) Retirement means the voluntary termination of a Participant
who has attained age 65.
2.2 Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender, when used in the Plan, shall include the
feminine gender, the singular shall include the plural, and the plural
shall include the singular.
SECTION 3. ADMINISTRATION, NO CONTROL AND NATURE OF INTEREST
3.1 Administration. The Administrator shall have the exclusive
responsibility for the general administration of the Plan according to
the terms and provisions of the Plan and shall have all the powers
necessary to accomplish these purposes; including, but not by way of
limitation, the right, power and authority:
(a) To make rules and regulations for the administration of the
Plan;
(b) To construe all terms, provisions, conditions and limitations
of the Plan;
(c) To correct any defects, supply any omissions or reconcile any
inconsistencies that may appear in the Plan in the manner and
to the extent deemed expedient;
(d) To determine all controversies relating to the administration
of the Plan, including but not limited to, differences of
opinion which may arise between the Company or the
Administrator and the Participants;
(e) To resolve any questions necessary to promote the uniform
administration of the Plan;
All executive awards to Officers of the Company, however, are subject
to approval of the Compensation Committee of the Board of Directors. In
addition, the total annual incentive awards to be provided by the Plan
are subject to approval by the Compensation Committee.
2
<PAGE> 3
3.2 Administrator's Discretion. The Administrator, in exercising any power
or authority granted under this Plan, or in making any determination
under this Plan, shall perform or refrain from performing those acts in
his sole and absolute discretion and judgment. Any decision made by the
Administrator, or any refraining to act or any act taken by the
Administrator, in good faith shall be final and binding on all parties.
3.3 Liability and Indemnity of Administrator. The Administrator shall not
be liable for any act done or any determination made in good faith. The
Company shall, to the fullest extent permitted by law, indemnify and
hold the Administrator harmless from any and all claims, causes of
action, damages and expenses (including reasonable attorneys' fees and
expenses) incurred by the Administrator in connection with or otherwise
related to his or her service in such capacity.
3.4 No Control and Nature of Interest. The granting of rights to
Participants under the provisions of the Plan represents only a
contracted right to receive compensation. Accordingly, the Plan grants
no right to, or interest in, either express or implied, any equity
position or ownership in the Company.
SECTION 4. PARTICIPATION. Participants in the Plan shall be recommended by the
Chief Executive Officer of the Company and approved by the Administrator from
among those key employees of the Company who, in the opinion of the Chief
Executive Officer of the Company and the Administrator, are in a position to
contribute materially to the continued growth and development of the Company and
to its long term financial success. In order to qualify for a pay out of any
incentive award, the Participant must be continuously employed through the
actual date of payment.
SECTION 5. INCENTIVE AWARDS
5.1 Setting Target Incentive. Annually, the Chief Executive Officer will
recommend to the Administrator a list of Officer Participants and a
Target Incentive for each. In addition, on a quarterly basis, the Chief
Executive Officer will recommend to the Administrator a list of
non-officer Participants and a Target Incentive for each. The Target
Incentive will be calculated as a percent of each Participant's base
salary at the beginning of the Plan Year or Plan Quarterly, as
applicable. Each Target Incentive will consist of up to two components,
namely:
- A Local Goal, and/or
- A Consolidated Goal
Quarterly, the Chief Executive Officer will determine the percentage
relationship that each of the established goals will comprise of the
Target Incentive. The Administrator will review the recommendations,
will approve, modify or reject each and will notify each Participant
3
<PAGE> 4
of his or her Target Incentive for the Plan Year and the components
included in the Target Incentive. It is anticipated that the Target
Incentive will be established and communicated to the Participant no
later than the end of the first month of the Plan Year or Plan Quarter,
as applicable.
5.2 Local Goal. The Local Goal will be based upon financial objectives
relating to the performance of a terminal, division or other unit of
the Company. The Local Goal may vary from quarter to quarter and for a
given period, will be recommended by the Chief Executive Officer and
approved by the Administrator.
5.3 Consolidated Goal. The Consolidated Goal will be based upon financial
objectives relating to the performance of a division, other unit of the
Company or the Company as a whole. The Consolidated Goal may vary from
quarter to quarter and for a given period, will be recommended by the
Chief Executive Officer and approved by the Administrator.
SECTION 6. PAYMENT OF INCENTIVE AMOUNTS
6.1 Local and Consolidated Goals. At the end of each Plan Year for Officers
and Plan Quarter for all other non-officer participants, the
Administrator will review the Company's financial performance and
calculate the amount of Local and Consolidated Goal that has been
earned by each Participant. Payment for achievement of Local and
Consolidated Goals will be based upon the schedule to be developed.
6.2 Payment and Timing. All payments under the Plan will be made in cash.
Payments will be made as soon as administratively feasible following
the finalization of the Company's financial statements for the
applicable Plan Quarter, except for those individuals who are officers
of the Company who will be paid on an annual basis upon finalization of
the Company's financial statements for the entire fiscal year.
SECTION 7. EMPLOYMENT EVENTS
7.1 Termination of Employment. In the event that the Participant terminates
employment for any reason other than death, Disability or Retirement,
prior to payment of all or a portion of the Target Incentive, the
unpaid portion, if any, shall be forfeited, even if employee was
employed during the entire period for which the Target Incentive was
calculated.
7.2 Death, Disability, Retirement. In the event that the Participant
terminates employment as a result of death, Disability or Retirement,
the Participant, or the estate of the Participant, will be entitled to
a payment based upon the Goals achieved; but the payment will be
reduced by one-third for each full month, by which the Participant's
death, Disability or Retirement precedes the end of the Plan Period.
4
<PAGE> 5
SECTION 8. LIMITATION OF RIGHTS. Nothing in this Plan shall be construed:
(a) To give any Participant any right to be awarded a Target
Incentive other than at the sole discretion of the
Administrator;
(b) To limit in any way the right of the Company to terminate a
Participant's employment with the Company at any time; or
(c) To evidence any agreement or understanding, expressed or
implied, that the Company will employ a Participant in any
particular capacity or for any particular remuneration.
SECTION 9. DURATION OF PLAN. The Plan shall remain in effect indefinitely,
subject to the Company's right to terminate the Plan pursuant to the terms
hereof.
SECTION 10. AMENDMENT, MODIFICATION AND TERMINATION OF PLAN. The Company may at
any time terminate the Plan, and from time to time, may amend or modify it,
provided that no such action shall adversely affect any right or obligation with
respect to any awards therefore granted.
SECTION 11. ALIENATION. No benefit provided by this Plan shall be transferable
by the Participant except on the Participant's death, as provided in this Plan.
No right or benefit under this Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance or charge. Any attempt to
anticipate, alienate, sell, assign, pledge, encumber or charge any right or
benefit under this Plan shall be void. No right or benefit under this Plan
shall, in any manner, be liable for or subject to any debts, contracts,
liabilities or torts of the person entitled to the right or benefit. If any
Participant becomes bankrupt or attempts to anticipate, alienate, assign,
pledge, sell, encumber or charge any right or benefit under this Plan, then the
right or benefit shall, in the discretion of the Administrator, cease. In that
event, the Company may hold or apply the right or benefit, or any part of the
right or benefit, for the benefit of the Participant, his or her spouse,
children, or dependents, the beneficiary or any of them, in the manner or in the
proportion that the Administrator shall deem proper, in his sole discretion, but
is not required to do so.
SECTION 12. TAX WITHHOLDING. Payments under the Plan shall be subject to
applicable federal, state, and local tax withholding requirements.
SECTION 13. UNFUNDED PLAN. The Plan is unfunded. The Company shall not be
required to segregate any assets that may be represented by an Incentive Amount;
the Company shall not be
5
<PAGE> 6
deemed to be a trustee of any amounts to be paid to a Participant. Any liability
of the Company to pay any Participant with respect to an Incentive Amount shall
be based solely upon any contractual obligations created pursuant to the
provisions of the Plan; and no such obligation shall be deemed to be secured by
any pledge or encumbrance on any property of the Company. However, the Company
has the discretion at any time to segregate such assets that may be represented
by an Incentive Amount. The assets will at all times remain property of the
Company.
SECTION 14. SUCCESSOR COMPANY. In the event of a merger, consolidation,
combination or reorganization involving the Company and any other entity or
corporation, the Administrator shall have the discretion to terminate the Plan
as of the effective date of the merger, consolidation, combination or
reorganization.
SECTION 15. GOVERNING LAW. The Plan, and all agreements hereunder, shall be
constructed in accordance with and governed by the laws of the State of
Tennessee except to the extent superseded by federal law.
SECTION 16. EFFECTIVE DATE. The plan shall become effective as of January 1,
1999.
6
<PAGE> 1
Exhibit 21.1
FORWARD AIR CORPORATION SUBSIDIARIES
<TABLE>
<CAPTION>
State of Incorporation
----------------------
<S> <C>
FAF, Inc. Tennessee
Forward Air, Inc. Tennessee
Forward Air International Airlines, Inc. Tennessee
Forward Air Royalty Company Delaware
Forward Air Licensing Company Delaware
Logistics Technology, Inc. Tennessee
Transportation Properties, Inc. Tennessee
</TABLE>
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in: (1) the Registration Statement
(Form S-8 No. 33-77944) pertaining to the Forward Air Corporation Stock Option
and Incentive Plan and the Employee Stock Purchase Plan, (2) the Registration
Statement (Form S-8 No. 333-03891) pertaining to the Forward Air Corporation
Amended and Restated Stock Option and Incentive Plan, (3) the Registration
Statement (Form S-8 No. 333-03893) pertaining to the Forward Air Corporation
Non-Employee Director Stock Option Award and Non-Employee Director Stock Option
Plan, and (4) the Registration Statement (Form S-8 No. 333-94249) pertaining
to the Forward Air Corporation 1999 Stock Option and Incentive Plan, of our
report dated February 1, 2000, with respect to the consolidated financial
statements and schedule of Forward Air Corporation included in its Annual Report
(Form 10-K) for the year ended December 31, 1999, filed with the Securities and
Exchange Commission.
Ernst & Young LLP
Nashville, Tennessee
March 2, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FORWARD AIR CORPORATION FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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