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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 19972000
Commission File No. 000-22490
LANDAIR SERVICES, INC.FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEETennessee 62-1120025
(State or other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization) Identification No.)
430 AIRPORT ROAD
GREENEVILLE, TENNESSEEAirport Road
Greeneville, Tennessee 37745
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 636-7000636-7100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK,Common Stock, $.01 PAR VALUEpar value
(Title of class)
Indicate by check mark whether the registrant: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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 30, 1998February 28, 2001 was approximately $76,100,351$578.8 million based on the
closing price of such stock on such date of $27.75.$36.938.
The number of shares outstanding of the registrant's common stock, $.01 par
value, as of January 30, 1998February 28, 2001 was 6,024,388.21,503,589.
DOCUMENTS INCORPORATED BY REFERENCE
NonePortions of the definitive proxy statement for the 2001 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, 2000.
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TABLE OF CONTENTS
Page Number
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PART I
Part I
Item 1. Business 3
Item 2. Properties 813
Item 3. Legal Proceedings 913
Item 4. Submission of Matters to a Vote of Security Holders 913
Executive Officers of the Registrant 14
Part II
Item 5. Market for Registrant's Common Stock and 1016
Related Shareholder Matters
Item 6. Selected Financial Data 1117
Item 7. Management's Discussion and Analysis of Financial 1218
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23
Item 8. Financial Statements and Supplementary Data 1723
Item 9. Changes in and Disagreements with Accountants on 1723
Accounting and Financial Disclosure
PartPART III
Item 10. Directors and Executive Officers of the Registrant 1824
Item 11. Executive Compensation 2124
Item 12. Security Ownership of Certain Beneficial 2524
Owners and Management
Item 13. Certain Relationships and Related Transactions 27
Part24
PART IV
Item 14. Exhibits, Financial Statement Schedules and 2825
Reports on Form 8-K
Signatures 2926
Index to Financial Statements and Financial Statement Schedule F-1F-2
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PART I
ITEM 1. BUSINESS
GENERAL
Landair Services, Inc.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 75 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 2000, an average shipment weighed over 700 pounds.
Forward Air has experienced rapid revenue growth from $63.6 million in 1995 to
$214.9 million in 2000, a 28% compound annual growth rate. The Company's
operating income grew from $6.4 million to $37.3 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 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.
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.
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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 high-service level
truckload carrier and contractorviable 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 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.
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COMPETITIVE ADVANTAGES
The Company believes that its competitive advantages are:
- Focus on the deferred air freight market. Forward Air focuses
on providing ground transportation services to the deferred
air freight market. The Company believes that this 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.
- 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 its customers 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 18.0% of
its operating revenue in 2000, and no single customer
accounted for more than ten percent.
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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. 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.
- 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,
and insurance, customs brokerage and terminal handling
services. These services directly benefit Forward Air's
customers, particularly air freight forwarders who cannot
justify providing time-definite servicethe 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.
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- Pursue acquisitions. The Company intends to continue to
evaluate 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 eight 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 was
incorporated in Tennessee in 1981.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 24.0
million pounds in 2000. During 2000, an average shipment weighed over 700
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 75 terminals located in the following
cities:
City Airport Served
- ---- --------------
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
Knoxville, TN...................................TYS
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
Tucson, AZ......................................TUS
Tulsa, OK.......................................TUL
Washington, DC..................................IAD
Montreal, Canada................................YUL
Ottawa, Canada..................................YOW
Toronto, Canada.................................YYZ
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Independent agents operate twelve of these locations, 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 trucking servicesservice
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 24.0 million pounds per week as shown
below:
Average Weekly
Volume in Pounds
--------------------------
(In millions)
1990...................................... 1.2
1991...................................... 1.4
1992...................................... 2.3
1993...................................... 3.8
1994...................................... 7.4
1995...................................... 8.5
1996...................................... 10.5
1997...................................... 12.4
1998...................................... 15.4
1999...................................... 19.4
2000...................................... 24.0
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CUSTOMERS AND MARKETING
The Company's customers are air freight forwarders, fullyairlines and
integrated air cargo carriers and domestic and international
airlines through its Forwardcarriers. Air operations. The Company services its air
freight forwarder, air cargo and airline customers primarily through a hub and
spoke network of 62 terminals, located at or near major airports in the United
States and Canada, and linked through a central sorting facility in Columbus,
Ohio.
Through its Truckload operations, the Company provides short- to
medium-haul delivery to the high-service segment of the general commodities
truckload market. The Truckload operations include a common carrier operation
that serves customers on an "on demand" basis and a dedicated fleet operation in
which trucks and drivers are dedicated to shippers with specific, high-service
requirements.
The Truckload and Forward Air operations constitute the business
segments of the Company. An analysis by business segment of operating revenue,
income from operations, assets, expenditures for long-lived assets and other
information as of and for the years ended December 31, 1997, 1996 and 1995 is
presented in Note 7 of the Notes to Consolidated Financial Statements beginning
on page F-20.
RECENT DEVELOPMENTS
On February 10, 1998, the Company's Board announced it had authorized
the creation of a special committee of independent directors to consider a plan
to separate the Company into two publicly-traded companies, one comprised of the
Truckload operations, and the other the Forward Air operations. There can be no
assurance as to whether any such transaction will occur or as to the timing or
terms of any such transaction. Under the plan currently being considered, the
transaction would be structured as a tax-free spin-off, subject, among other
things, to the receipt of a ruling as to tax-free status from the Internal
Revenue Service.
FORWARD AIR OPERATIONS
The Company's Forward Air operations serve the unique and growing
deferred air freight market. Unlike typical overnight letters and packages,
deferred air freight is comprised of freight and packages that will have
time-definite delivery in two to four days. Forward Air receives air
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freight from air freight forwarder, air cargo and airline customers at 62
terminal facilities and provides airport-to-airport transportation of the
freight to the terminal nearest to the freight's destination. The transportation
requirements of Forward Air are met through direct shuttles, some of which offer
overnight service, and through the Columbus central sorting facility.
The Company's freight forwarder customers vary in size from
small, independent, single facility air freight forwarderscompanies to large, international logistics
companies. Since operations were commencedcompanies, such as USF Worldwide, Associated Global Systems, Pilot Air Freight,
AIT Freight Systems and Eagle Global Logistics. Airline customers include Virgin
Atlantic, Delta, Northwest Airlines, Continental, United Airlines, British
Airways, 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, BAX Global and UPS utilize its
services to provide overflow capacity and other services.
The Company markets its services through a sales and marketing staff
located in November 1990,various regions of the average weekly volumeUnited 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 through the Internet via
www.forwardair.com.
LOGISTICS SERVICES
Customers increasingly demand more than the movement of freight carried throughfrom
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 fixed 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-
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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 that its efforts in this area will result
in both competitive service advantages and increased productivity throughout the
Forward Air network has
grownnetwork.
PURCHASED TRANSPORTATION
The Company contracts for most of its transportation services from
approximately 1.2owner-operators. 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 $91.4 million pounds to approximately 13.3 million poundsof purchased transportation in 1997. Forward Air operations accounted for approximately 55% of the Company's
1997 operating revenue. The Company's strategy in its Forward Air operations is
to capitalize on the growing market for deferred air freight from both domestic
and international air cargo customers through its unique hub-and-spoke network.
TRUCKLOAD OPERATIONS
Common Carrier Services. The Company's common carrier operations
primarily consist of short- to medium-haul shipments, typically between 250 and
700 miles. Although serving the contiguous 48 states, the Company's Truckload
operations are primarily concentrated in the eastern half of the United States,
allowing2000, the Company
purchased 70.9% from owner-operators, 2.4% from Landair Corporation and 26.7%
from other common carriers.
The Company seeks to focus on selected operating lanes. The Company's abilityestablish long-term relationships with
owner-operators to stay within these lanes allows it to maximizeassure dependable service for its customers while
minimizing such operating costs as empty miles and driver layovers. The common
carrier operations concentrate on providing a high level of consistent service
at market competitive prices with an emphasis on certain niche markets. For
example, these operations provide common carrier services to certain of the
integrated air carriersavailability, and for just-in-time manufacturers with narrow delivery
windows. The customers of the common carrier operations normally demand
scheduled pick-up and delivery and often give short notice for equipment needs.
The common carrier operations have been successful in meeting customer needs
with on-time performance in excess of 98% in its primary service area. The trend
of shippers over the past several years has been toward the use of a relatively
small number of financially stable "core carriers". The Company's strategy in
its common carrier operations is to take advantage of growth opportunities that
exist as a result of this trend. In addition, an important element in the
Company's strategy for expanding its core carrier operations lies in the
cross-utilization of its revenue equipment to satisfy peak demands in the
deferred air freight market.
Dedicated Contract Carriage Services. The Company's dedicated contract
carriage services involve management for all or a significant part of a
customer's transportation operations. Under a dedicated carriage service
agreement, the Company
typically provides drivers, equipment and maintenance,
and, in some instances, transportation management that supplements the
customer's in-house transportation department. This service allowshas consistently experienced a customer to
reduce overall transportation costs by minimizing both capital expenditures and
personnel costs.
Management believes the dedicated contract carriage operations are well
positioned to capitalize on the increasing trendlow turnover of many shippers to outsource
virtually all of their transportation
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requirements. The Company's strategy in its dedicated contract carriage
operations will be to continue to focus on expansion of services in this area,
including business with existing common carrier customers, so that the Company's
dedicated operations can ultimately manage most or all of a customer's
transportation needs on a dedicated fleet basis.
Truckload operations accounted for approximately 45% of the Company's
1997 operating revenue.
REVENUE EQUIPMENT
The Company purchases high quality tractors to help attract and retain
drivers, promote safe operations and minimize maintenance and repair costs. When
purchasing new revenue equipment, the Company typically acquires standardized
tractors and trailers manufactured to the Company's specifications.
Standardization enables the Company to simplify driver training, control the
cost of spare parts inventory and enhance its preventive maintenance program.owner-operators. The Company has
purchased most of its tractors from Freightliner
Corporation and its trailers from Great Dane Corporation. The majority of the
tractors purchased are equipped with Series 60 Detroit Diesel electronic engines
which have contributed significantly to increased fuel efficiency. It is the
Company's current practice to trade in its tractors after three or four years
and its trailers after seven years. The Company's purchase and lease agreements
for tractors generally provide for a repurchase option by the manufacturer at
predetermined prices.
As of December 31, 1997, the Company owned or leased 670 tractors and
contracted for 425 tractors from owner-operators. The average age of the
Company-operated tractor fleet was approximately 2.7 years at December 31, 1997.
As of December 31, 1997, the Company owned or leased 2,290 van trailers, of
which substantially all are 53' long and 285 include specialized roller bed
equipment required to serve air cargo industry customers. By having a majority
of the Company's trailer fleet equipped with 53' trailers, the Company is able
to provide its customers with more economy and convenience and increased driver
productivity. The average age of the trailer fleet was approximately 3.2 years
at December 31, 1997.
The Company has installed Qualcomm two-way satellite communication
systems in the majority of its tractors. The Qualcomm system provides the
Company with continuous communications capability in the event a driver
experiences a service delay or disruption. The Qualcomm system also allows the
Company to track the exact location and route of any particular shipment and
communicate instantly with drivers to improve operating efficiencies.
EMPLOYEES AND OWNER-OPERATOR DRIVERS
As of December 31, 1997, the Company employed approximately 2,000
persons. None of the Company's employees are covered by a collective bargaining
agreement. The Company considers its employee relations to be good.
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The Company recognizes that its professional driver workforce is one of
its most valuable assets. Drivers are selected by the Company in accordance withestablished guidelines relating to safety records, driving experience and
personal evaluations. Overevaluations that it uses to select its owner-operators. To enhance the
past several years,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 has introduced several
driver retention programs including the creation ofcompetes with
integrated air cargo carriers and airlines. The Company's competition ranges
from small operators that compete within a pay package that more
fairly compensates drivers for the work associatedlimited geographic area to companies
with their job. The pay
package includes extra pay items in addition to the drivers' mileage-based pay.
The expensesubstantially greater financial and cost of driver retentionother resources and recruitment has increased in recent
years. Recruitment is difficult due to Company standards and an industry
shortage of qualified drivers. See "Safety".larger freight
capacity. The Company also recognizesfaces 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 selection processcharge 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
owner-operators is equally as important as for Company drivers.faster, more reliable service between many cities.
EMPLOYEES
As of December 31, 1997, approximately 41%2000, the Company employed 1,820 persons, 930 of
whom were freight handlers and customer service personnel. None of the tractorsCompany'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 qualified
employees are essential to support the Company's continued growth and to meet
the service requirements of its customers.
11
12
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 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 service were contractedthe
normal course of its business, most of which involve claims for personal injury,
property damage related to the Company by owner-operators. Approximately halftransportation and handling of the December 31, 1997
owner-operators were utilized in each of the Forward Air and Truckload
operations. The use of owner-operators provides the Company with marketing,
operating, safety, driver recruiting, retention and financial advantages. The
Company focuses on the special needs of owner-operators through programs
designed to reduce their operating costs. The Company plans to continue its
emphasis on recruiting owner-operators.
SAFETY
The Company has an active safety and loss prevention program and has
established a driver qualification policy. Drivers who exceed the maximum
acceptable number of accidentsfreight or traffic citations within a specified time
period are reviewed and monitored by the safety department. The driving and
employment records of drivers are verified.
During the past three years, the Company enhanced its safety program
with a series of safe driving campaigns, safety contests, quarterly driver
terminal safety meetings, and communication of safety data to drivers and
management personnel. The program is designed to heighten awareness of, and
focus attention on, safety related issues.
INSURANCE
Claims exposure in the transportation industry consists primarily of
cargo loss and damage, vehicle liability, property damage and
workers' compensation. The Company maintainsdoes not believe that any of these pending
actions, individually or in the aggregate, will have a deductible for auto liability claims, for
physical damage claims and for cargo claims.material adverse effect
on its business, financial condition or results of operations.
REGULATION
The Company, alsothrough its Forward Air, Inc. subsidiary, is responsible for
a significant deductible for workers' compensation claims.licensed
property broker holding authority issued by the Federal Motor Carrier Safety
Administration ("FMCSA") at Docket No. MC-249708. The Company, maintains
insurance with independent insurance carriers that provide certain coverage for
claims in excessthrough its FAF,
Inc. subsidiary, is an interstate motor carrier licensed by the FMCSA 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 deductible amounts. Management believes thatthe requirements of the Federal Aviation
Act by the Economic Aviation Regulations promulgated thereunder. In addition,
the Company's insurance coverage is reasonable.
REGULATION
Prior to December 29, 1995, the Company's operations in interstate
commerce were regulated by the Interstate Commerce Commission ("ICC"). Effective
December 29, 1995,
6
7
President Clinton signed into law the Interstate Commerce Commission Termination
Act of 1995 which closed the ICC and transferred its remaining responsibilities
to a new Surface Transportation Board and the Federal Highway Administration. In
addition, interstate motor carrierdomestic customs brokerage operations are subject to safetythe licensing
requirements prescribedof the United States Department of the Treasury and are regulated
by the Department of Transportation. Such matters as weight and
dimension of equipment are also subject to federal and state regulations.United States Customs Service. The Federal Maritime Commission regulates
the Company's ocean freight forwarding operations.
The Company is subject to various federal, state and local environmental laws and
regulations. Management believes that the Companyit is in substantial compliance with
applicable regulatory requirements relating to its operations. Failure ofIf the Company
todoes not comply with the applicable laws and regulations, it could result inbe required to
pay substantial fines or revocation of the Company's operating permits.and could have its licenses revoked.
The Company has aboveground fuel storage tanks at its Atlanta, Georgia;
Indianapolis, Indiana and Memphis, Tennessee facilities and underground fuel
storage tanks at its Columbus, Ohio facility. Such storage tanks areis also subject to
various federal and state environmental laws and
regulations. Managementregulations, including those dealing with the transportation of hazardous
materials and storage of fuel. The Company believes that the Companyit is in substantial
compliance with applicable environmental laws and regulations. NoThe Company does
not expect any material increase for expenditures for compliance with federal, state andor local
environmental laws and regulations is
anticipated in 1998.
COMPETITION AND INDUSTRY TRENDS
The Company competes with regional, inter-regional and national
truckload carriers and, to a lesser extent, with less-than-truckload carriers,
railroads and overnight delivery companies. Many of the Company's competitors
have greater financial resources, more equipment or larger freight capacity than
the Company. Service and price are the principal means of competition in the
transportation industry.
Management believes the market for its Forward Air operations will be
less affected by competition than will most other segments of the transportation
industry because of its unique network. The transportation of air freight
requires significant capital assets, including a fleet of dependable equipment,
a large centrally located sorting facility, an extensive communication system, a
skilled workforce and a large sales operation. In order to effectively compete,
any new entrant would have to be able to immediately develop a comparable
network which would require it to dedicate a full complement of equipment and
establish multiple terminals in order to demonstrate the ability to handle a
large number of shipments destined for many geographically diverse locations and
to meet critical delivery deadlines.
The Company's principal competitive strength is its ability to
consistently provide reliable service at a competitive price. Many of the
Company's customers are high volume shippers which require a flexible and
dependable motor carrier service tailored to their specific needs, including
pick-up and delivery within specified time frames.
During 1997, one customer of the Truckload operations, Federal Express
Corporation, accounted for more than 10% (approximately $27.0 million) of the
Company's consolidated
72001.
12
8
operating revenue. No single customer accounted for more than 10% of the
Company's operating revenue in 1996 and 1995.
SEASONALITY
In the trucking industry, revenue and operating results generally
reflect a seasonal pattern as customers reduce shipments during and after the
winter holiday season and during the summer months. Additionally, the volume of
shipments is often affected by weather variations. The Company's operating
expenses also have historically been higher in the winter months, due primarily
to decreased fuel efficiency and increased maintenance costs of revenue
equipment in colder weather.13
ITEM 2. PROPERTIES
PROPERTIES AND EQUIPMENT
The Company's headquarters comprised of 37,500 square feet, are located in Greeneville, Tennessee and are leasedTennessee. The
Company leases this building from the Greeneville-Greene County Airport
Authority under a lease expiring in 2006.Authority. The headquarters lease
is at a rate management believes is favorable. The Company leases, under a
capital lease agreement, a 100-door cross dock hubCompany's central sorting facility constructed in 1994 in Columbus, Ohio fromwas
constructed in 1994. During the Directorthird quarter of Development of2000, the State of Ohio. A
substantial portion ofCompany entered into
a ten-year lease with the cost of constructing the 83,800Rickenbacker Port Authority for a 50,000 square foot
Columbus
facility shared by the Forward Air and Truckload operations was funded by the
State of Ohio through the sale of $6.3 million of revenue bonds. The Company is
responsible for all taxes, assessments and other costs of ownership under the
lease agreement. Certain terms of the lease include restrictionsbuilding on the payment
of dividends andRickenbacker Airport in Columbus near the maintenance of certain levels of net worth and other
financial ratios. After the bonds are paid in full, the Company will have an
option to purchase the terminal for a nominal amount.hub. The Company owns
a 46,000 square foot 68-door cross dock terminal facility in Atlanta, Georgia, which houses both the Atlanta Truckload and
Forward Air operations. The Company also acquired 27.3 acres of land in Mosheim,
Tennessee in 1997 on which it is constructing a facility for its Truckload
operations.Atlanta.
The Company leases a 15,200 square foot facility for its Truckload and
Forward Air operations in Indianapolis, Indiana and leases two separate
facilities for its Memphis, Tennessee Forward Air and Truckload operations which
total approximately 19,875 square feet.
The Company leases 4961 additional terminal facilities for its Forward
Air operations, which areterms
typically leased on a short-term (threeranging from three to five year)
basis. Managementyears. The Company shares its Indianapolis
terminal with Landair Corporation. The Company believes that, in most of the
markets it serves, replacement space comparable to these terminal facilities is
readily obtainable, if necessary. Managementobtainable. The Company believes that its facilities are adequate to support its
current operations. The balance of the
Forward Airremaining twelve terminals are agent stations leased and operated
by independent agents who generally handle freight for the Company's freightCompany on a commission basis.
8
9The 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 2.9 years at December 31, 2000.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
The Company is, fromFrom 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 incurred in connection withrelated to the transportation and handling of freight.
Management believesfreight or
workers' compensation. The Company does not believe that noneany of these pending
actions, individually or in the aggregate, will have a material adverse effect
on theits business, financial condition or results of operations of the Company.operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 1997,2000,
no matters were submitted to a vote of security holders through the solicitation
of proxies or otherwise.
913
1014
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:
Name Age Position
------------------- --------- ---------------------------------------
Scott M. Niswonger (1)................... 53 Chairman of the Board and Chief Executive Officer
Bruce A. Campbell........................ 49 President and Chief Operating Officer
Edward W. Cook........................... 42 Chief Financial Officer, Senior Vice President and
Treasurer
David E. Queen........................... 55 Senior Vice President, Operations
Michael A. Roberts....................... 56 Senior Vice President, Marketing
Richard H. Roberts (1)................... 46 Senior Vice President, General Counsel and Secretary
James R. Weiland......................... 56 Senior Vice President, Sales
- ---------------
(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. Mr. Campbell also serves as a director of
Greene County Bancshares.
Edward W. Cook has served the Company as Chief Financial Officer,
Senior Vice President and director 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.
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.
14
15
Michael A. Roberts has served as Senior Vice President, 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.
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 firm from January 1991 until July 1994.
Mr. Roberts also serves as a director of Landair Corporation and Miller
Industries, Inc.
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.
15
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The Company's$.01 par value common stock of the Company (the "Common Stock")
trades on The Nasdaq National Market tier of The Nasdaq Stock MarketMarket(R) under
the symbol "LAND"."FWRD." The following table sets forth the high and low salessale prices
for the Company's common stockCommon Stock as reported by The Nasdaq StockNational Market for each full
quarterly period within the two most recent fiscal years. All prices have been
restated to reflect a three-for-two stock split distributed in January 2000.
1997 High Low
----
---- ---
1999
First Quarter.................................. $12.00Quarter........................................$10.50 $ 9.756.17
Second Quarter................................. $14.75 $11.00Quarter.......................................$19.17 $ 8.67
Third Quarter.................................. $22.00 $14.375Quarter........................................$22.00 $13.00
Fourth Quarter................................. $30.00 $19.50
1996 .......................................Quarter.......................................$29.50 $13.58
2000 High Low
---- ---- ---
First Quarter.................................. $16.50 $12.50Quarter........................................$33.50 $19.31
Second Quarter................................. $16.25 $13.25Quarter.......................................$41.00 $20.00
Third Quarter.................................. $16.50 $10.00Quarter........................................$48.25 $33.63
Fourth Quarter................................. $11.75 Quarter.......................................$ 6.5047.75 $27.75
There were approximately 1,2003,700 shareholders of record (including
brokerage firms and other nominees) of the Company's common stockCommon Stock as of January
30, 1998.December 31, 2000.
The Company has not paid cash dividends on its common stockCommon 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.
1016
1117
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.
YEAR ENDED DECEMBERYear ended December 31
------------------------------------------------------------
1997-----------------------------------------------------------------------------------
2000 1999 1998 1997(4) 1996
1995 1994 1993
-------- --------- ------- -------- ---------------------- ------------- -------------- -------------- -------------
(In thousands, except per share data)
STATEMENTS OF INCOME STATEMENT DATA: (1), (2)
Operating revenue $190,402 $157,098 $148,083 $135,032 $95,281$214,907 $170,843 $130,438 $105,140 $ 80,737
Income from operations 16,803 9,341 10,501 8,164 4,30937,301 26,444 16,011 13,064 8,516
Operating ratiomargin (3) 91.2% 94.1% 92.9% 94.0% 95.5%
Net income 8,594 3,979 4,517 4,017 1,963
Net income17.4% 15.5% 12.3% 12.4% 10.5%
Income from continuing operations 23,445 16,040 9,189 7,444 4,884
Income from continuing operations
per share - basic (4) 1.44 0.67 0.77 0.70share: (5)
Basic 1.11 0.80 0.49 Net income per share - diluted (4) 1.39 0.66 0.75 0.66 0.460.42 0.27
Diluted 1.05 0.76 0.48 0.40 0.27
Cash dividends declared per
common share (5) -- -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets $118,331 $99,074of continuing operations $115,968 $ 98,27979,617 $ 78,044 $49,02756,808 $ 39,965 $ 31,887
Long-term obligations of continuing
operations, net of current portion 22,405 27,094 35,855 28,305 12,0247,232 4,754 20,126 8,254 7,323
Shareholders' equity (6) 83,453 54,952 19,071 50,460 41,264 36,644 31,778 27,295
(1) Results for 1994 and 1993 lack comparability to other periods because (i)
1994 includedReflects the Truckload Business as a charge relating to the sale and winding downdiscontinued operation.
(2) Includes certain allocations of the
Company's refrigerated trucking operations of $805,000, and (ii) 1993
included special management bonuses of $1.7 million. In addition, 1994
results consist of 53 weeks of operations while 1997, 1996, 1995 and 1993
results consist of approximately 52 weeks of operations.
(2) Net income and net income per share for 1993 reflect pro forma income tax
provisions as ifcorporate administrative expenses by
the Company previously an S Corporation prior(see Note 1 of Notes to its
initial public offering of common stock in November 1993, had been subject
to income taxes for all of 1993. Historical net income for 1993 was $2.2
million.Consolidated Financial Statements).
(3) Operating expensesIncome from operations as a percentage of operating revenue.
(4) TheDuring 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 amounts priorshare.
(5) Restated to 1997 have been restated to comply
with Statementreflect 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
Financial Accounting Standards No. 128, Earnings Per
Share. For further discussion$44.3 million of net income per share and the adoptionassets of Statement 128, see Notes 1 and 4 of the Notes to Consolidated Financial
Statements included elsewhere herein.
11Landair Corporation.
17
1218
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.
YEAR ENDED DECEMBER\
Year Ended December 31
-------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------
2000 1999 1998
---------------- ---------------- ---------------
Operating revenue 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation 32.1 32.8 36.142.5 43.8 43.2
Salaries, wages and employee benefits 28.4 27.6 25.4
Fuel and fuel taxes 6.1 6.9 6.022.0 22.4 23.9
Operating leases 4.7 5.2 5.3
Depreciation and amortization 5.9 6.7 5.92.7 2.9 3.3
Insurance and claims 5.0 5.3 4.8
Operating leases 3.4 3.8 4.01.7 1.2 1.8
Other operating expenses 10.3 11.0 10.7
-------------------------------------9.0 9.0 10.2
---------------- ---------------- ---------------
Total operating expenses 91.2 94.1 92.9
-------------------------------------82.6 84.5 87.7
---------------- ---------------- ---------------
Income from operations 8.8 5.9 7.117.4 15.5 12.3
---------------- ---------------- ---------------
Interest expense (1.4) (1.8) (2.0)-- (0.5) (0.9)
Other income, (expense), net 0.3 0.2 --
-- 0.2
----------------------------------------------------- ---------------- ---------------
Income from continuing operations before
income taxes 7.4 4.1 5.317.7 15.2 11.4
Income taxes 2.9 1.6 2.2
-------------------------------------
Net income 4.5% 2.5% 3.1%
=====================================6.8 5.8 4.4
---------------- ---------------- ---------------
Income from continuing operations 10.9% 9.4% 7.0%
================ ================ ===============
RESULTS OF OPERATIONSYear Ended December 31, 2000 Compared to Year Ended December 31, 1999
Operating revenue increased by $44.1 million, or 25.8%, to $214.9
million for 1997 increased to a record $190.4 million
compared to $157.12000 from $170.8 million in 19961999. This increase resulted primarily
from increased volume from domestic and $148.1 million in 1995. The increases ininternational air cargo customers, an
increased number of operating revenue for 1997terminals and 1996 were 21.2%direct shuttles, and 6.1%, respectively.enhanced
logistics services.
18
19
Purchased transportation was 32.1%42.5% of operating revenue in 19972000 compared
to 32.8%43.8% in 1996 and 36.1% in 1995.1999. The decrease in purchased transportation was primarily
attributable to operating efficiencies resulting from increased volumes of
freight transported through the Forward Air network.
Salaries, wages and employee benefits were 22.0% of operating revenue in
2000 compared to 22.4% in 1999. The decrease in salaries, wages and employee
benefits as a percentage of operating revenue between these years was due primarily attributable to a reduction inoperating
efficiencies resulting from increased volumes of freight transported through the
ratioForward Air network.
Operating leases, the largest component of owner-operators to Company
drivers during 1997 and 1996. During 1997, 1996 and 1995, approximately 41.0%,
42.0% and 46.0% of the Company's average tractors in servicewhich is terminal rent, were
contracted
through owner-operators.
Salaries, wages and benefits were 28.4%4.7% of operating revenue in 19972000 compared to 27.6%5.2% in 1996 and 25.4% in 1995. The increase as a percentage of
operating revenue in 1997 and 1996 were due primarily to higher cargo handling
wages and terminal managers' salaries required to operate additional terminals
and greater operating volumes in the Company's Forward Air operations combined
with an increase in the ratio of Company drivers to owner-operators.
12
13
Fuel and fuel taxes were 6.1% of operating revenue in 1997 compared to
6.9% in 1996 and 6.0% in 1995. The decrease in fuel and fuel taxes as a
percentage of operating revenue during 1997 resulted from a lower average fuel
price per gallon coupled with improvements in the average miles per gallon and
average revenue per loaded mile of the Company-operated tractor fleet. The
increase in fuel and fuel taxes as a percentage of operating revenue during 1996
was primarily attributed to an increase in fuel prices and an increase in the
ratio of Company drivers to owner-operators. Approximately 60.0% of the increase
in fuel prices during 1996 was passed on to customers in the form of a fuel
surcharge.
Operating leases were 3.4%, 3.8% and 4.0% of operating revenue during
1997, 1996 and 1995, respectively, while depreciation and amortization were
5.9%, 6.7% and 5.9% during the same periods. The1999. This decrease in
operating leases as a percentage of revenue was attributable to increased
leverage resulting from increased operating revenue.
Depreciation and amortization expense as a percentage of operating
revenue during 1997 and 1996 resulted from increased
ownership, rather than leasing, of revenue equipment.was 2.7% in 2000, compared to 2.9% in 1999. The decrease in depreciation
and amortization expense as a percentage of operating revenue iswas attributable to
substantial improvements inincreased utilization of operating equipment utilization during 1997,
partially offset by2000 as a result of
increased ownership of revenue equipment. The increase in
depreciationoperating revenue.
Insurance and amortizationclaims as a percentage of operating revenue during 1996
is attributable to an increase in the ratio of Company drivers to
owner-operators and increased ownership of revenue equipment.
Insurance and claims were 5.0%was 1.7% of operating
revenue in 19972000, compared to
5.3%with 1.2% in 1996 and 4.8% in 1995. The changes1999. This increase in insurance and
claims expense during 1997 and 1996 resulted from fluctuationsas a percentage of revenue was due primarily to an increase in
the frequency and severity of accidents between years coupled with changes in claims development trends and lowerhigher premium costs.costs during 2000.
Other operating expenses were 10.3%9.0% of operating revenue in 19972000 and
1999.
Income from operations increased by $10.9 million, or 41.3%, to $37.3
million for 2000 compared to 11.0%$26.4 million for 1999. This increase in 1996 and 10.7% in 1995. The decrease in 1997 asincome
from operations is due primarily to a percentage of operating revenue is attributed to both a reducedlower operating cost structure and improvementsresulting
from an increase in utilization levelsoperating revenue, which allowed the Company to spread the
fixed costs of its network over a larger revenue base. The increase in income
from operations during 2000 was partially offset by operating losses of
approximately $1.6 million relating to the Company's Truckload
operations. Gains (losses) oninformation technology
subsidiary, LogTech Corporation. In 2001, the saleCompany plans to wind-down the
LogTech operations and begin offering its information technology services to its
existing customer base. The wind-down of revenue equipment (which are netted
against otherLogTech operations will result in an
additional estimated $350,000, or $.01 per share, of operating expenses) were $(109,000), $413,000, and $503,000losses during 1997, 1996 and 1995, respectively.the
first quarter of 2001.
Interest expense was $2.6 million$107,000 in 19972000 compared to $3.0 million$787,000, or 0.5% of
revenue, in 1996 and 1995.1999. The decrease in interest expense during 1997 iswas due to lower average net
borrowingborrowings during 2000 coupled with the period.
Other income (expense), net, includes a loss oncapitalization of interest costs
totaling $301,000 during 2000 relating to the disposaldevelopment of non-operating equipment of $276,000, $0 and $0 during 1997, 1996 and 1995,
respectively.internal-use
software.
The combined federal and state effective tax ratesrate for 1997, 1996 and
1995 were 39.0%2000 was 38.2%,
38.2% and 42.0%, respectively.compared to a rate of 38.3% for 1999. For information concerning the
provision for income taxes,
as well as information regarding differences between effective tax rates and
statutory rates, see Note 56 of the Notes to Consolidated Financial Statements.
1319
14
Forward Air Segment: Operating revenue in20
As a result of the Company's Forward Airforegoing factors, income from continuing operations
increased by $24.4 and $17.2$7.4 million, or 46.3%, to $23.4 million for 2000, from $16.0
million in 1997 and 1996, respectively,
and represented approximately 55.0% and 51.0% of the Company's operating revenue
for these periods.1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Operating revenue increasesincreased by $40.4 million, or 31.0%, to $170.8
million for 1999 from $130.4 million in the Forward Air operations1998. This increase resulted primarily
from increasing the number of operating terminals, enhancements to the
Forward Air network and greaterincreased volume from domestic and international air cargo customers. Thecustomers, an
increased number of operating terminals and direct shuttles, and enhanced
logistics services.
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 1997 is alsorevenue 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
attributedoffset 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 on October 27, 1997of certain of the air cargo operating assets
of Adams Air Cargo, Inc. Forward Air incomein 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 $4.5 and $2.1$10.4 million, in 1997 and 1996, respectively. Theor 65.0%, to $26.4
million for 1999 compared to $16.0 million for 1998. This increase in income
from operations resulted
from higher operating revenue, which was reduced in part by the incremental
costs associated with such revenue. In addition, during the third quarter of
1997, the Forward Air operations benefited from non-recurring revenue that
resulted from the United Parcel Service strike. This additional revenue, net of
variable costs, resulted in an estimated additional $1.2 million of income from
operations.
Truckload Segment: Operating revenue in the Company's Truckload
operations, including intersegment revenue, increased (decreased) by $9.6 and
$(6.0) million in 1997 and 1996, respectively. Operating revenue increases
(decreases) in the Truckload operations resultedis due primarily
from fluctuations in
equipment utilization and yield. During 1997, 1996 and 1995, the Truckload
operations utilized average tractors of 699, 695 and 685, respectively.
Truckload income from operations increased (decreased) by $2.9 and
$(3.3) million in 1997 and 1996, respectively. The increase in income from
operations in 1997 was due mainly20
21
to a lower operating cost ratiostructure resulting from an increase in equipment utilization and yield duringoperating
revenue, which allowed the year.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 coupled with the capitalization
of interest costs totaling $71,000 during 1999 relating to the development of
internal-use software.
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.
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 1996 was due primarily1998.
Liquidity and Capital Resources
Prior to a higher operating ratio
resulting from a decreasethe Spin-off in equipment utilization and yield duringSeptember 1998, the year. In
addition, during the third quarter of 1997, the Truckload operations benefited
from non-recurring revenue generated from the United Parcel Service strike. This
additional revenue, net of variable costs, resulted in an estimated additional
$200,000 of income from operations.
LIQUIDITY AND CAPITAL RESOURCES
The continued growth of the Company'sCompany operated its
business and the naturetruckload carrier business of Landair Corporation. As a result,
the Company's statement of cash flows for 1998 does not reflect the cash flows
of its operations, have required significant investment in new equipment.business on a stand-alone basis.
The Company has historically financed revenue equipmentits working capital needs,
including capital purchases, with cash flows from operations through borrowingand borrowings
under credit agreements with financial
institutions and from proceeds of the initial public offering in November 1993.
Working capital needs have generally been met with cash flows from operations
and borrowing under the Company's lineits bank lines of credit. Net cash provided by operating activities
totaled approximately $22.6, $12.5$33.8 million for 2000, $20.1 million for 1999 and $15.8$1.9
million for 1998. The increases in 1997, 1996net cash provided by operating activities in
2000 and 1995, respectively.1999 are mainly attributable to growth and improvements in results of
operations.
Net cash used in investmentinvesting activities was approximately $19.0, $6.0
and $21.5$26.9 million
in 1997, 19962000, $13.4 million in 1999 and 1995, respectively.$17.0 million in 1998. Investing activities
consisted primarily of acquisitions in 2000 and 1999 and the acquisition$5.0 million
capital contribution to Landair Corporation in 1998, along with the purchase of
additional revenueoperating equipment and
enhanced management information systems during 1997,
14
15
1996 and 1995, the acquisition of a business in 1997 and the acquisition of a
terminal facility in 1996.all three years.
Net cash provided by (used in) financing activities was approximately
$(2.9), $(10.3)$2.6 million and $8.6$14.6
million in 1997, 19962000 and 1995, respectively. These1998, respectively, compared to cash used in financing
activities of $1.2 million in 1999. Financing activities included the Company's continued
financing of additional
revenueoperating equipment based uponand working capital expenditure requirements, coupled withneeds, repayment of
long-term debt and capital leases, with cash generatedproceeds received from operations.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.
21
22
The Company expects net capital expenditures in 19982001 for revenueoperating
equipment and management information systems, excluding acquisitions, to be less
than $25$5 million. The Company expects to fund these expenditures through cash
provided by operating activities. See Note 3activities and borrowings under its credit facility.
The credit facility consists of the Notes to Consolidated
Financial Statements for more information concerning credit arrangements. At
December 31, 1997,a working capital line of credit. As
long as the Company had a line of creditcomplies with a bank in the amount of
$15.0 million, which expires in May 1999. At December 31, 1997, approximately
$4.7 million was available for borrowing underseveral financial covenants and ratios, the
credit line. At December 31,
1997, the Company also had equipment loan agreements which permit the Companyfacility permits it to borrow up to $30.0 million$20.0 million. Interest rates for
the purchase of revenue equipment. At December
31, 1997, approximately $15.9 million was available for borrowingadvances under the equipment loan agreements. Management believes that available borrowingsfacilities vary based on covenants related to total
indebtedness, cash flows, results of operations and other ratios. The facility
bears interest at LIBOR plus 1.00% to 1.90%, expires in April 2002 and is
secured by accounts receivable. The amount the Company can borrow under the line
of credit agreement, equipment loan agreements,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 installment notes for revenue equipment, and cash generated by operationsavailable lines of credit,
will be sufficient to fund itssatisfy anticipated cash needs and anticipated capital expenditures
throughfor at least 1998.
IMPACT OF INFLATION
Inflation has not hadthe next
twelve months.
On February 24, 1999, the Board of Directors approved a material effecttwo-for-one
stock split which was distributed on March 19, 1999. On January 10, 2000, the
Company's resultsBoard of operations or financial condition during the past three years. However,
inflation higher than experienced during the past three years could have an
adverse effectDirectors approved a three-for-two stock split which was distributed on
the Company's future results.
IMPACT OF YEAR 2000
Some of the Company's older computer programsJanuary 28, 2000. All share, earnings per share, dividends per share, and
systems were written
using two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognize a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has beenquarterly stock price data included herein and in the process of replacing the majority of its
key financialConsolidated Financial
Statements and operational systems as a part of upgrading its legacy systems
in the normal course of business. This replacement hasNotes thereto have been a planned approach
for the last two yearsrestated to enhance or better meet its functional business and
operational requirements. Management believes that this program will
substantially meet or address its Year 2000 issues. In addition to its
replacement program, the Company will require modifying some of its software and
hardware so that its computer systems
15
16
will function properly with respect to dates in the year 2000 and thereafter.
The estimated cost of the remaining replacement and modification for the Year
2000 issue is not considered materialgive effect to the Company's earnings or financial
position.
The Company also plans to initiate a formal communication process with
all its significant suppliers and large customers to determine the extent to
which the Company's interface systems are vulnerable to those third parties'
failure to remediate their own Year 2000 issues. There is no guarantee that the
systemsstock
splits.
Impact of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's system.
The project is estimated to be completed not later than December 31,
1998, which is prior to any anticipated impact on its operating systems. The
Company believes that with modifications to existing software and hardware and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 issue
could have a material impact on the operations of the Company.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTSRecent Accounting Pronouncements
In June 1997,1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
Statement133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133, as amended, is effective forrequired to be adopted by
the Company beginning in 1998, and establishes
standards for the reporting and display of comprehensive income and its
components. The Statement requires that all items that are income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. The Company2001. Management does not expectanticipate that the effect of adoption of the
Statement 130 to be material towill have a significant effect on the consolidated financial statements.
FORWARD-LOOKING STATEMENTSposition or results of
operations of the Company.
Forward-Looking Statements
The Company, or its executive officers and directors on behalf of the Company,
may from time to time make written or oral "forward-looking statements".statements." Written
forward-looking statements may appear in documents filed with the Securities and
Exchange Commission ("SEC"(the "Commission"), in press releases and in reports to
shareholders. Oral forward-looking statements may be made by the Company's executive
officers and directors on behalf of the Company to the press, potential
investors, securities analysts and others. The Private Securities Litigation
Reform Act of 1995 contains a safe harbor for forward-looking statements. The
Company relies on this safe harbor in making such disclosures. In connection
with this "safe harbor"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
22
23
to maintain its historical growth rate due to a decreased volume of freight
moving through the Company's network, competition, surplus inventories, inflation, the loss of
a major customer, fuel price increases, higher interest rates, the resale valueability of the Company's used equipmentinformation systems to handle
increased volume of freight moving through its network, and the availability and
compensation of qualified drivers.independent owner-operators to serve the Company's
transportation needs. The Company disclaims any intent or obligation to update
these forward-looking statements.
16
17ITEM 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted inas a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
1723
1824
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons serve asinformation required by this item with respect to directors andof the
Company is incorporated herein by reference to the Company's definitive proxy
statement for its 2001 Annual Meeting of Shareholders (the "2001 Proxy
Statement"). The 2001 Proxy Statement will be filed with the Commission not
later than 120 days subsequent to December 31, 2000.
Pursuant to Item 401(b) of Regulation S-K, the information required by
this item with respect to executive officers of the Company asis set forth in Part
I of the date hereof. There are no family relationships between any
director or executive officer.
BRUCE A. CAMPBELL Director
Greeneville, Tennessee Executive Vice President and
Chief Operating Officer
Age 46
Mr. Campbell has been Executive Vice President and Chief Operating Officer of
the Company since April 1990 and a director of the Company since April 1993.
Prior to joining the Company in 1990, Mr. Campbell served as Vice President of
Ryder-Temperature Controlled Carriage in Nashville, Tennessee from September
1985 until December 1989.
EDWARD W. COOK Director
Greeneville, Tennessee Chief Financial Officer,
Senior Vice President and Treasurer
Age 39
Mr. Cook joined the Company as Chief Financial Officer, Senior Vice President
and director in September 1994. Since May 1995, he has also served as Treasurer.
Prior to joining the Company, Mr. Cook was employed by Ernst & Young LLP for
eleven years, most recently as a senior manager in the Nashville, Tennessee
office. During the period March 1986 through February 1988, Mr. Cook served as
Controller and Assistant Secretary of Ryder-Temperature Controlled Carriage in
Nashville, Tennessee.
JAMES A. CRONIN, III Director
Aurora, Colorado Age 43
Mr. Cronin has served as director of the Company since 1993. Since June 1996,
Mr. Cronin has served as Chief Operating Officer, Executive Vice President,
Finance and director of Ascent Entertainment Group, Inc., and director of On
Command Corp., both multimedia entertainment companies. From June 1992 until
June 1996, he was a private investor. Mr. Cronin was a partner in Alfred Checchi
Associates, a private investment firm in Los Angeles, California from September
1989 to June 1992. Mr. Cronin served as President and Chief Executive Officer of
Tiger International, Inc. and The Flying Tiger Line from September 1987 to
August 1989.
18
19
THE HON. ROBERT K. GRAY Director
Miami, Florida Age 72
Mr. Gray has served as director of the Company since 1993. Mr. Gray is Chairman
and Chief Executive Officer of Gray and Company II, a public relations company,
a position he has held since November 1992. From 1981 to the present, Mr. Gray
has also been Chairman of Gray Investment Companies and Powerhouse Leasing Corp.
From 1991 to 1992, Mr. Gray was Chairman of Hill & Knowlton Public Affairs
Worldwide/USA and was its Chief Executive Officer from 1986 to 1991. Mr. Gray
has served as Appointment Secretary to the President and was a member of the
Eisenhower Cabinet.
SCOTT M. NISWONGER Director
Greeneville, Tennessee Chairman, President and
Chief Executive Officer
Age 50
Mr. Niswonger is a co-founder of the Company and has served as director and
President of the Company since its founding in 1981, and as Chairman of the
Board and Chief Executive Officer since February 1988. Mr. Niswonger also serves
as a director of the Regional Advisory Board of First Tennessee Bank National
Association.
DAVID E. QUEEN Senior Vice President,
Columbus, Ohio Forward Air Operations
Age 51
Mr. Queen became Senior Vice President, Forward Air Operations in October 1997
after serving as Vice President of Operations and General Manager of the Forward
Air operations from November 1987. From 1984 to 1987, Mr. Queen was Manager of
the Company's hub in Columbus, Ohio for the Flying Tigers operation.
MICHAEL A. ROBERTS Senior Vice President,
Greeneville, Tennessee Forward Air Sales and Marketing
Age 53
Mr. Roberts has been Senior Vice President, Forward Air Sales and Marketing of
the Company since April 1990 and was Vice President of Marketing from November
1987. Mr. Roberts served as a consultant to the Company from 1982 to 1987.
19
20
RICHARD H. ROBERTS Director
Greeneville, Tennessee Senior Vice President,
General Counsel and Secretary
Age 43
Mr. Roberts has served as Senior Vice President and General Counsel of the
Company since July 1994, and as Secretary and director of the Company since May
1995. Prior to joining the Company, Mr. Roberts was a partner with the Baker,
Worthington, Crossley & Stansberry law firm from January 1991, and an associate
of the firm from June 1985. Mr. Roberts has also served as a director of Miller
Industries, Inc. since April 1994.
JAMES R. WEILAND Senior Vice President,
Charlotte, North Carolina Forward Air Sales
Age 53
Mr. Weiland became Senior Vice President, Forward Air Sales in October 1997
after serving as Vice President of Forward Air Sales from November 1990. From
May 1984 to October 1990, Mr. Weiland served the Company in various capacities,
including Regional Operations Manager and Director of Sales and Marketing.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") and the disclosure requirements of Item 405 of Regulation S-K require the
directors and executive officers of the Company, and any persons who
beneficially own more than ten percent of any registered class of equity
securities of the Company, to report their ownership of such equity securities
and any subsequent changes in that ownership to the SEC, The Nasdaq Stock Market
and the Company. Based solely on a review of the written statements and copies
of such reports furnished to the Company by its executive officers and
directors, the Company believes that during fiscal 1997 all Section 16(a) filing
requirements applicable to its executive officers, directors and shareholders
were timely satisfied, except that Bruce A. Campbell inadvertently filed a late
Form 4 in connection with the sale of 2,600 shares in July 1997.
20
21this report.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid
or to be paidinformation required by the Companythis item is incorporated herein by
reference to the Chief Executive Officer and2001 Proxy Statement, which will be filed with the four other
highest paid executive officers of the Company (the "Named Executive Officers")
for the years shown in all capacities in which they served.
SUMMARY COMPENSATION TABLE
=========================================================================================================
Long-Term
Compensation
Annual Compensation Awards
----------------------------------- ------------
Other Number of
Annual Securities All Other
Fiscal Compen- Underlying Compen-
Name and Principal Position Year Salary Bonus sation Options sation(1)
- --------------------------- ----- -------- -------- ------- ---------- ---------
Scott M. Niswonger 1997 $269,377 $169,250 $ -- -- $10,600
Chairman, President and 1996 268,781 -- -- -- 16,061
Chief Executive Officer 1995 262,080 -- -- -- 16,768
Bruce A. Campbell 1997 147,100 117,075 -- 15,000 10,561
Executive Vice President and 1996 146,521 -- -- 20,000 7,356
Chief Operating Officer 1995 142,315 -- -- -- 5,302
Edward W. Cook 1997 104,300 84,975 -- 10,000 10,133
Chief Financial Officer, 1996 103,753 -- -- 10,000 8,919
Senior Vice President and 1995 100,750 -- -- -- 6,359
Treasurer
Michael A. Roberts 1997 108,200 26,018 -- 5,000 10,172
Senior Vice President, 1996 107,831 -- -- 10,000 10,004
Forward Air Sales 1995 105,000 -- -- -- 6,496
and Marketing
Richard H. Roberts 1997 90,000 89,250 -- 10,000 9,952
Senior Vice President, 1996 89,173 -- -- 10,000 10,327
General Counsel and 1995 79,892 -- -- -- 10,301
Secretary
=========================================================================================================
(1) Includes car allowance and employer matching portion of 401(k)
contributions.
21
22
FISCAL 1997 OPTION GRANTS, AGGREGATED OPTION EXERCISES AND OPTION VALUES
Options granted during the last yearCommission
not later than 120 days subsequent to the Named Executive Officers
are set forth in the following table.
OPTION GRANTS IN LAST YEAR
=====================================================================================================
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term
- ------------------------------------------------------------------------------------------------------
Percent of
Number of Total Options
Securities Granted to
Underlying Employees Exercise or
Options in Last Base Price Expiration
Name (1) Granted Year ($/Share) Date 5% 10%
- ------------------------------------------------------------------------------------------------------
Bruce A. Campbell 15,000 13.54% $10.00 01/31/07 $ 94,334 $239,061
Edward W. Cook 10,000 9.03 10.00 01/31/07 62,889 159,374
Michael A. Roberts 5,000 4.51 10.00 01/31/07 31,445 79,687
Richard H. Roberts 10,000 9.03 10.00 01/31/07 62,889 159,374
======================================================================================================
(1) Mr. Niswonger has not been granted any options for the purchase of common
stock.
The following table sets forth the year-end aggregated option exercises
by the Named Executive Officers and the fiscal year-end value of unexercised
options held by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST YEAR
AND YEAR-END OPTION VALUES
======================================================================================================
Option Exercises Number of
in Last Year Securities Underlying Value of Unexercised
--------------------- Unexercised Options In-the-Money Options
Shares at Year-End at Year-End (2)
Acquired Value -------------------------- --------------------------
Name (1) on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- -------- ----------- ------------- ----------- -------------
Bruce A. Campbell 5,000 $67,500 48,400 36,300 $732,725 $483,150
Edward W. Cook -- -- 25,000 25,000 165,313 263,438
Michael A. Roberts -- -- 23,385 17,540 354,049 242,333
Richard H. Roberts -- -- 25,000 25,000 154,063 259,688
======================================================================================================
(1) Mr. Niswonger has not been granted any options for the purchase of common
stock.
(2) Represents the closing price for the common stock on December 31, 1997 of
$24.25 less the exercise price for all outstanding exercisable and
unexercisable options for which the exercise price is less than the
December 31, 1997 closing price. Exercisable options have been held at
least one year from the date of grant.
22
23
COMPENSATION OF DIRECTORS
Employee directors of the Company do not receive additional
compensation for Board or committee service. In lieu of an annual retainer,
non-employee directors are paid a fee of $1,500 for each Board meeting and
$1,500 for each committee meeting attended, together with reasonable traveling
expenses. No additional fee is paid for committee meetings held on the same day
as Board meetings.
Each of the non-employee directors of the Company was granted upon the
effectiveness of the Company's initial public offering options to purchase
15,000 shares of the common stock pursuant to a non-qualified option agreement
at an exercise price equal to the then applicable fair market value ($14.00 per
share). In May 1995, at the Chairman's request, the Board of Directors approved,
subject to appropriate shareholder approval obtained at the May 1996 Annual
Meeting, adoption of a Non-Employee Director Stock Option Plan which provided
that the existing non-employee directors receive an option for the purchase of
7,500 shares at an exercise price equal to the closing sales price of the common
stock on May 16, 1995 ($13.625 per share). Thereafter, the Plan provides that on
the first business day following each annual meeting of shareholders (beginning
with the May 1996 Annual Meeting) each non-employee director be granted an
option for the purchase of 7,500 shares of common stock at an exercise price
equal to the closing sales price of the common stock on the date of grant.
Accordingly, on May 22, 1996 and May 21, 1997, each non-employee director
received an option to purchase 7,500 shares at an exercise price of $15.00 and
$14.00 per share, respectively. Each individual who subsequently becomes a
non-employee director shall automatically be granted an option to purchase 7,500
shares of common stock on the first business day after becoming a director.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company's Employment Agreement with Edward W. Cook expired December
31, 1997. Pursuant to the Employment Agreement, Mr. Cook's base salary was
$100,000 per annum, subject to increases approved by the Company's Board of
Directors, and Mr. Cook agreed not to engage in certain activities in
competition with the Company for a period of one year following termination of
his employment.
Upon the occurrence of a Change in Control or Potential Change in
Control (as such terms are described below) under the Company's Stock Option and
Incentive Plan, all outstanding options and any stock appreciation rights that
have been outstanding for at least six months will become fully exercisable and
vested, and the restrictions applicable to the benefits available under any
other award under the Stock Option and Incentive Plan will lapse, unless
otherwise determined by the Compensation Committee (the "Committee") of the
Board of Directors. Unless otherwise determined by the Committee at or after
grant but prior to the occurrence of any Change in Control, the value of all
vested options and other awards granted under the Stock Option and Incentive
Plan will be cashed out at the Change in Control Price upon the occurrence of a
Change in Control or Potential Change in Control. Options and other awards
granted to executive
23
24
officers, directors and other persons who are subject to Section 16 of the
Exchange Act will only be cashed out if they have been held for at least six
months and, unless otherwise determined by the Committee, the Change in Control
or Potential Change in Control was outside the control of the holder of the
option or other award.
Under the Stock Option and Incentive Plan, a "Change in Control" is
defined to include (i) any change in control that would be required to be
reported in response to any form or report to the SEC, or any stock exchange on
which the Company's shares are listed, (ii) the acquisition by any person (other
than the Company, a subsidiary of the Company or any employee benefit plan of
the Company or any of its subsidiaries) of beneficial ownership of securities of
the Company representing twenty percent or more of the combined voting power of
the Company or (iii) a change in the Board of Directors of the Company if, as a
result of such change, the persons who were the members of the Board of
Directors two years prior to such change cease to constitute at least a majority
of the members of the Board of Directors. Persons who were elected by or on the
recommendation or approval of at least three-quarters of the members of the
Board of Directors who were in office at the beginning of such period are deemed
to have been in office during such two year period for purposes of this
provision. A Change in Control is also deemed to occur if a majority of the
members of the Committee in office prior to the happening of any event
determines in its sole discretion that as a result of such event there has been
a change in control. A "Potential Change in Control" is deemed to occur upon (i)
the approval by shareholders of any agreement which, if consummated, would
result in a Change in Control, or (ii) the acquisition by any person (other than
the Company, a subsidiary of the Company or any employee benefit plan of the
Company or any of its subsidiaries) of beneficial ownership of securities of the
Company representing five percent or more of the combined voting power of the
Company's securities and the adoption by the Committee of a resolution to the
effect that a Potential Change in Control of the Company has occurred. The
"Change in Control Price" is defined as the highest price per share paid for the
common stock in any transaction reported on The Nasdaq Stock Market or any other
exchange or market that is the principal trading market for the common stock or
any other bona fide transaction related to such Change in Control or Potential
Change in Control at any time during the sixty day period prior to the Change in
Control or Potential Change in Control. In the case of incentive stock options
and stock appreciation rights related thereto, the Change in Control Price is
determined based solely on transactions reported for the date on which the
cash-out or the exercise of the stock appreciation right occurs.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Compensation Committee of the Company was
comprised of two non-employee directors, Messrs. Cronin and Gray, and Mr.
Niswonger. There were no Compensation Committee interlocks. See Item 13,
"Certain Relationships and Related Transactions".
24
252000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 30, 1998, certain
information with respectrequired by this item is incorporated herein by
reference to the common stock "beneficially owned" (i) by each of
the Named Executive Officers and (ii) by all directors and executive officers,
both individually and as a group. Except as otherwise indicated, the
shareholders listed in the table have sole voting and investment powers with
respect to the common stock owned by them.
======================================================================================
Aggregate Number Percentage of
of Shares Common Shares
Name and Address of Beneficial Owner (1) Beneficially Owned (2) Outstanding (2)
- ---------------------------------------- ---------------------- ---------------
Bruce A. Campbell 68,450 (3) 1%
Edward W. Cook 33,428 (4) *
James A. Cronin, III 26,250 (5) *
Hon. Robert K. Gray 43,850 (5) *
Scott M. Niswonger 3,229,520 (6) 54%
David E. Queen 19,740 (7) *
Michael A. Roberts 53,895 (8) *
Richard H. Roberts 32,054 (9) *
James R. Weiland 53,275(10) *
All directors and executive officers
as a group (11 persons) 3,636,248(11) 60%
========================================================================================
* Less than one percent
(1) The business address of each listed executive officer and director is
c/o Landair Services, Inc., 430 Airport Road, Greeneville, Tennessee
37745.
(2) For the purpose of determining "beneficial ownership", the rules of the
SEC require that every person who has or shares the power to vote or
dispose of shares of stock2001 Proxy Statement, which will be reported as a "beneficial owner" of all
shares as to which such power exists. As a consequence, many persons may
be deemed to be the "beneficial owners" of the same securities. The SEC
rules also require that certain shares of stock that a beneficial owner
has the right to acquire within sixty days of the date set forth above
pursuant to the exercise of stock options are deemed to be outstanding
for the purpose of calculating the percentage ownership of such owner,
but are not deemed outstanding for the purpose of calculating the
percentage ownership of any other person.
(3) Includes 63,450 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(4) Includes 1,000 shares held by Mr. Cook's spouse and 30,000 shares which
are issuable pursuant to options which are exercisable within sixty days
of the date set forth above.
25
26
(5) Includes 26,250 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(6) Includes 300 shares held by Mr. Niswonger as custodian for his grandson
and 300 shares which are held by Mr. Niswonger's spouse as custodian for
one of her children.
(7) Includes 19,365 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(8) Includes 1,185 shares held by Mr. Roberts' spouse and 32,175 shares
which are issuable pursuant to options which are exercisable within
sixty days of the date set forth above.
(9) Includes 30,000 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(10) Includes 53,275 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(11) Includes 354,215 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
Based on information provided to the Company, in addition to Mr.
Niswonger, the Company believes the following table sets forth the beneficial
owners of five percent or more of the outstanding common stock at December 31,
1997.
=======================================================================================
Percentage of
Amount and Nature Common Stock
of Outstanding at
Name and Address of Beneficial Owner Beneficial Ownership December 31, 1997
- ------------------------------------ -------------------- -----------------
Princeton Services, Inc. (1) 527,500 8.8%
Wellington Management Company, LLP (2) 435,600 7.3%
=======================================================================================
(1) According to the Schedule 13G dated January 29, 1998 jointly filed with the SEC by Princeton Services, Inc. ("PSI"), Fund Asset Management,
L.P. (d/b/a Fund Asset Management) ("FAM") and Merrill Lynch Special
Value Fund, Inc. ("the Fund"), each located at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536, neither entity had sole voting power
over the shares, each had shared voting power over the shares, neither
had sole dispositive power over the shares and each had shared
dispositive power over the shares. PSI disclaimed beneficial ownership
of the shares. PSI is a corporate managing general partner of FAM and
Merrill Lynch Asset Management, L.P. ("MLAM"). MLAM and FAM, both
investment advisers registered under Section 203 of the Investment
Advisers Act of 1940, may be deemedCommission
not later than 120 days subsequent to be beneficial owners of certain
of the shares by virtue of acting
26
27
as investment advisers to one or more investment companies registered
under Section 8 of the Investment Company Act of 1940 and to private
accounts. The Fund, as a registered investment company advised by FAM,
was beneficial owner of more than five percent of the shares.
(2) According to the Schedule 13G dated January 14, 1998 filed with the SEC
by Wellington Management Company, LLP ("WMC"), 75 State Street, Boston,
Massachusetts 02109, WMC, in its capacity as investment adviser under
Section 203 of the Investment Advisers Act of 1940, beneficially owned
shares which were held of record by clients of WMC. As to such shares,
WMC had, through its wholly owned subsidiary and bank as defined in
Section 3(a)(6) of the Exchange Act, Wellington Trust Company, NA, no
sole power to vote or direct any shares, shared power to vote or direct
261,000 shares, no power to dispose of or to direct disposition of any
shares and shared power to dispose of or direct disposition of 435,600
shares.December 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incurred $280,000 in rent expense in 1997 for an aircraft
leased from Sky Night, L.L.C.,information required by this item is incorporated herein by
reference to the 2001 Proxy Statement, which is owned by Mr. Niswonger. The Company and
its subsidiaries had no further transactions in which any director or executive
officer, or any member ofwill be filed with the immediate family of any director or executive
officer, had a material direct interest reportable under applicable rules of the
SEC.
27Commission
not later than 120 days subsequent to December 31, 2000.
24
2825
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 reportsThe Company filed a report on Form 8-K duringon December
13, 2000 in connection with the fourth quarterDecember 3, 2000
purchase by Forward Air, Inc. of the year ended December 31, 1997.assets of DTSI,
Inc. from SouthTrust Bank.
(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.
2825
2926
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Landair Services, Inc.Forward Air Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LANDAIR SERVICES, INC.FORWARD AIR CORPORATION
By: /s/ Scott M. Niswonger
-----------------------------------------------------------------------------
Scott M. Niswonger, Chairman President
and Chief Executive Officer
Date: February 26, 1998March 30, 2001
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.
Name Capacity DateNAME CAPACITY DATE
/s/ Scott M. Niswonger Chairman President and February 26, 1998March 30, 2001
- -------------------------------------------------------------------- Chief Executive Officer
Scott M. Niswonger (Principal Executive Officer)
/s/ Edward W. Cook Chief Financial Officer, February 26, 1998March 30, 2001
- -------------------------------------------------------------------- Senior Vice President, Treasurer
Edward W. Cook and Director (Principal Financial
and Accounting Officer)
/s/ Bruce A. Campbell Executive Vice President, February 26, 1998
- ------------------------------- Chief Operating March 30, 2001
- ------------------------------------- Officer and Director
Bruce A. Campbell and Director
/s/ Richard H. Roberts Senior Vice President, General February 26, 1998March 30, 2001
- -------------------------------------------------------------------- Counsel, Secretary and Director
Richard H. Roberts
/s/ James A. Cronin, III Director February 26, 1998March 30, 2001
- --------------------------------------------------------------------
James A. Cronin, III
/s/ Robert K. Gray Director February 26, 1998March 30, 2001
- --------------------------------------------------------------------
Hon. Robert K. Gray
/s/ Ray A. Mundy Director March 30, 2001
- -------------------------------------
Ray A. Mundy
2926
3027
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, 1997
Landair Services, Inc.2000
Forward Air Corporation
Greeneville, Tennessee
31
Landair Services, Inc.28
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 Landair Services, Inc.Forward Air Corporation are
included as a separate section of this report:
Page No.
--------
Report of Ernst & Young LLP, Independent Auditors............................F-3Auditors............................................................F-3
Consolidated Balance Sheets - December 31, 19972000 and 1996.....................F-41999.....................................................F-4
Consolidated Statements of Income - Years Ended December 31, 1997,
19962000,
1999 and 1995.............................................................F-61998.............................................................................................F-6
Consolidated Statements of Shareholders' Equity - Years Ended
December 31, 1997, 19962000, 1999 and 1995..........................................F-71998..........................................................................F-7
Consolidated Statements of Cash Flows - Years Ended December 31, 1997,
19962000,
1999 and 1995.............................................................F-81998.............................................................................................F-8
Notes to Consolidated Financial Statements - December 31, 1997...............F-92000..............................................F-10
The following financial statement schedule of Landair Services, Inc.Forward Air Corporation is
included as a separate section of this report.
Schedule II - Valuation and Qualifying Accounts..............................S-1Accounts..............................................................S-1
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
3229
Report of Independent Auditors
The Board of Directors and Shareholders
Landair Services, Inc.Forward Air Corporation
We have audited the accompanying consolidated balance sheets of Landair
Services, Inc.Forward Air
Corporation as of December 31, 19972000 and 1996,1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997.2000. 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
auditing
standards.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 Landair Services,
Inc.Forward Air
Corporation at December 31, 19972000 and 1996,1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997,2000, in conformity with accounting principles generally accepted
accounting principles.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.
ERNSTErnst & YOUNGYoung LLP
Nashville, Tennessee
January 30, 1998February 7, 2001
F-3
33
Landair Services, Inc.30
Forward Air Corporation
Consolidated Balance Sheets
December 31
1997 1996
---------------------2000 1999
----------------------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 68615,589 $ 285,989
Accounts receivable, less allowanceallowances of $928$1,184 in
19972000 and $415$918 in 1996 28,771 23,6711999 33,617 27,342
Income taxes receivable 1,926 --
Inventories 721 552439 640
Prepaid expenses 3,915 2,8682,398 1,791
Deferred income taxes 1,736 1,085
---------------------956 652
----------------------------
Total current assets 35,829 28,20454,925 36,414
Property and equipment:
Land 3,4773,199 3,199
Buildings 7,167 6,298
Revenue equipment 88,600 75,578
Other equipment 15,073 11,4809,936 6,919
Equipment 42,636 33,890
Leasehold improvements 813 890
---------------------
115,130 97,4451,642 1,372
Software development in progress 6,707 1,817
----------------------------
64,120 47,197
Accumulated depreciation and amortization 35,933 27,166
---------------------
79,197 70,27919,059 14,307
----------------------------
45,061 32,890
Goodwill and other intangibles, net 15,083 9,458
Other assets 3,305 591
---------------------899 855
----------------------------
Total assets $118,331 $99,074
=====================$ 115,968 $ 79,617
============================
F-4
3431
December 31
1997 1996
---------------------2000 1999
--------- ---------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,1269,730 $ 3,9247,436
Accrued payroll and related items 3,394 1,6772,215 2,798
Insurance and claims accruals 6,871 4,4352,354 2,127
Income taxes payable 194 168-- 633
Other accrued expenses 3,271 2,7123,856 2,587
Current portion of long-term debt 11,120 7,701532 758
Current portion of capital lease obligations 3,924 1,797
---------------------446 513
----------------------------
Total current liabilities 33,900 22,41419,133 16,852
Long-term debt, less current portion 16,347 18,3462,784 835
Capital lease obligations, less current portion 6,058 8,7484,448 3,919
Deferred income taxes 11,566 8,3026,150 3,059
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 - 20,000,00050,000,000
Issued and outstanding shares - 6,024,38821,311,799 in
19972000 and 5,952,88020,732,963 in 1996 60 601999 213 207
Additional paid-in capital 26,804 26,20240,578 35,528
Retained earnings 23,596 15,002
---------------------42,662 19,217
----------------------------
Total shareholders' equity 50,460 41,264
---------------------83,453 54,952
----------------------------
Total liabilities and shareholders' equity $118,331 $99,074
=====================$ 115,968 $ 79,617
============================
See accompanying notes.
F-5
35
Landair Services, Inc.32
Forward Air Corporation
Consolidated Statements of Income
Year ended December 31
1997 1996 1995
------------------------------------2000 1999 1998
----------------------------------------------------
(In thousands, except per share data)
Operating revenue $190,402 $157,098 $148,083$ 214,907 $ 170,843 $ 130,438
Operating expenses:
Purchased transportation 61,118 51,393 53,48891,421 74,836 56,345
Salaries, wages and employee benefits 53,951 43,355 37,774
Fuel and fuel taxes 11,690 10,837 8,94147,253 38,325 31,191
Operating leases 10,059 8,807 6,876
Depreciation and amortization 11,210 10,523 8,6875,783 4,996 4,346
Insurance and claims 9,483 8,381 7,040
Operating leases 6,541 5,950 5,8593,639 2,007 2,402
Other operating expenses 19,606 17,318 15,793
---------------------------------
173,599 147,757 137,582
---------------------------------19,451 15,428 13,267
----------------------------------------------------
177,606 144,399 114,427
----------------------------------------------------
Income from operations 16,803 9,341 10,50137,301 26,444 16,011
Other income (expense):
Interest expense (2,622) (2,964) (3,020)(107) (787) (1,206)
Other, net (96) 61 309
---------------------------------
(2,718) (2,903) (2,711)
---------------------------------773 333 37
----------------------------------------------------
666 (454) (1,169)
----------------------------------------------------
Income from continuing operations before
income taxes 14,085 6,438 7,79037,967 25,990 14,842
Income taxes 5,491 2,459 3,273
---------------------------------14,522 9,950 5,653
----------------------------------------------------
Income from continuing operations 23,445 16,040 9,189
----------------------------------------------------
Discontinued operations:
Income from operations (less income taxes of $850) -- -- 1,345
Loss on Spin-off (less income taxes of $440) -- -- (380)
----------------------------------------------------
-- -- 965
----------------------------------------------------
Net income $ 8,59423,445 $ 3,97916,040 $ 4,517
=================================10,154
====================================================
Income per share:
Basic:
Income from continuing operations $ 1.11 $ .80 $ .49
Income from discontinued operations -- -- .06
----------------------------------------------------
Net income per share:
Basic $ 1.441.11 $ 0.67.80 $ 0.77
Diluted.55
====================================================
Diluted:
Income from continuing operations $ 1.391.05 $ 0.66.76 $ 0.75
Weighted average shares outstanding:
Basic 5,968 5,928 5,850
Diluted 6,177 6,049 6,027.48
Income from discontinued operations -- -- .05
----------------------------------------------------
Net income $ 1.05 $ .76 $ .53
====================================================
See accompanying notes.
F-6
36
Landair Services, Inc.33
Forward Air Corporation
Consolidated Statements of Shareholders' Equity
Common Stock Additional Total
------------------------------------------- Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
----------------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Balance at December 31, 1994 5,8111997 18,073 $ 58181 $ 25,21426,683 $ 6,50623,596 $ 31,77850,460
Net income for 19951998 -- -- -- 4,517 4,51710,154 10,154
Exercise of stock options 53 1 348798 8 2,402 -- 349
------------------------------------------------------------------------------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, 1995 5,864 59 25,562 11,023 36,6441998 18,882 189 15,705 3,177 19,071
Net income for 19961999 -- -- -- 3,979 3,97916,040 16,040
Exercise of stock options 83 1 580336 3 1,328 -- 5811,331
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
Net income for 2000 -- -- -- 23,445 23,445
Exercise of stock options 573 6 2,611 -- 2,617
Common stock issued under
employee stock purchase plan 6 -- 60177 -- 60
------------------------------------------------------------------------------177
Income tax benefit from stock
options exercised -- -- 2,262 -- 2,262
----------------------------------------------------------------
Balance at December 31, 1996 5,953 60 26,202 15,002 41,264
Net income for 1997 -- -- -- 8,594 8,594
Exercise of stock options 61 -- 490 -- 490
Common stock issued under
employee stock purchase plan 10 -- 112 -- 112
------------------------------------------------------------------------------
Balance at December 31, 1997 6,0242000 21,312 $ 60213 $ 26,80440,578 $ 23,59642,662 $ 50,460
==============================================================================83,453
================================================================
See accompanying notes.
F-7
37
Landair Services, Inc.34
Forward Air Corporation
Consolidated Statements of Cash Flows
Year ended December 31
1997 1996 1995
-----------------------------------2000 1999 1998
----------------------------------------------------
(In thousands)
OPERATING ACTIVITIES
Net income $ 8,59423,445 $ 3,97916,040 $ 4,51710,154
Adjustments to reconcile net income to
net cash provided by operating activities:
Income from discontinued operations -- -- (2,075)
Depreciation and amortization 11,210 10,523 8,6875,783 4,996 4,346
(Gain) loss on sale of property and equipment 385 (413) (503)33 (43) (128)
Provision for losses on receivables 603 540 445433 295 438
Provision for revenue adjustments 1,258 1,245 1,641
Deferred income taxes 2,613 1,747 2,8002,787 1,450 1,893
Changes in operating assets and liabilities,
net of effects from acquisition of business:businesses:
Accounts receivable (5,703) (6,423) (86)(2,410) (9,128) (4,162)
Inventories (169) (192) (29)201 (251) (89)
Prepaid expenses (909) (151) (1,483)
Income taxes 26 875 (425)(607) 754 (1,191)
Accounts payable and accrued expenses 5,914 2,037 1,843
-----------------------------------3,207 5,021 8,314
Income taxes (297) (275) 203
Due to Truckload Business subsidiaries -- -- (17,447)
----------------------------------------------------
Net cash provided by operating activities 22,564 12,522 15,76633,833 20,104 1,897
INVESTING ACTIVITIES
Purchases of property and equipment (19,074) (8,763) (24,670)
Acquisition of business (1,209) -- --(16,547) (7,412) (11,764)
Proceeds from disposal of property and equipment 1,259 2,913 3,062494 1,001 117
Acquisition of businesses (10,711) (6,814) --
Contribution of capital to discontinued operations -- -- (5,000)
Other (11) (192) 75
-----------------------------------(87) (139) (335)
----------------------------------------------------
Net cash used in investing activities (19,035) (6,042) (21,533)(26,851) (13,364) (16,982)
FINANCING ACTIVITIES
Proceeds from long-term debt 6,782 2,734 16,9401,853 -- 21,792
Payments of long-term debt (8,129) (11,875) (7,546)(1,479) (19,739) (8,631)
Payments of capital lease obligations (2,126) (1,786) (1,109)(550) (967) (995)
Proceeds from exercise of stock options 490 581 3492,617 1,331 2,410
Proceeds from common stock issued under
employee stock purchase plan 112 60177 136 69
Net proceeds from public offering of common stock -- -----------------------------------18,033 --
----------------------------------------------------
Net cash provided by (used in) financing activities (2,871) (10,286) 8,634
-----------------------------------2,618 (1,206) 14,645
----------------------------------------------------
Net increase (decrease) in cash and cash equivalents 658 (3,806) 2,8679,600 5,534 (440)
Cash and cash equivalents at beginning of year 28 3,834 967
-----------------------------------5,989 455 895
----------------------------------------------------
Cash and cash equivalents at end of year $ 68615,589 $ 285,989 $ 3,834
===================================455
====================================================
F-8
35
Forward Air Corporation
Consolidated Statements of Cash Flows (continued)
Year ended December 31
2000 1999 1998
-----------------------------------------
(In thousands)
Non-cash transactions:
Issuance of note payable to DTSI for non-compete
agreement $ 1,349 $ -- $ --
=========================================
Capital lease obligation to Rickenbacker
Port Authority $ 1,011 $ -- $ --
=========================================
Issuance of notes payable to Quick Delivery Service,
Inc. and LTD Air Cargo, Inc. for asset acquisitions
and non-compete agreements $ -- $ 1,400 $ --
=========================================
See accompanying notes.
F-8F-9
38
Landair Services, Inc.36
Forward Air Corporation
Notes to Consolidated Financial Statements
December 31, 19972000
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Company include
Forward Air Corporation and its subsidiaries, all of which are wholly owned.subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation.
BUSINESS SEGMENTS
Effective December 31, 1997,On July 9, 1998 (the "Measurement Date"), the Board of Directors of the Company
adopted Statementauthorized the separation of Financial
Accounting Standards No. 131, Disclosures about Segmentsthe 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 an Enterprise and
Related Information. Statement 131 superseded Statement No. 14, Financial
Reporting for Segmentsthe Company of all of the outstanding shares of common stock of
a Business Enterprise. Statement 131 establishes
standardsnew truckload holding company (formerly "the Truckload Business"), 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 wayCompany's common stock held as of the record
date. Subsequent to the Spin-off, the Company has continued as the legal entity
that public business enterprises report information aboutowns and operates the deferred air freight operations through its operating
segments in annual financial statementssubsidiaries and requiresLandair Corporation is the legal entity that those
enterprises report selected information about operating segments in interim
financial reports. Statement 131 also establishes standards for related
disclosures about productsowns and services, geographic areas and major customers.
The adoptionoperates
the truckload operations. As a result of Statement 131 did not affectthe Spin-off, the results of operations
or financial
position, but did affectand cash flows of the disclosure of segment information. Segment
informationTruckload Business have been reported as discontinued
operations for all periods has been 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 conformthe deferred air freight operations; Landair
Corporation, or the term "Truckload Business," refers to Statement 131
requirements. See Note 7.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 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.
F-10
37
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted accounting principlesin the United States 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.
OWNERSHIP
Scott M. Niswonger (Chairman, President and Chief Executive Officer) was the
majority owner of the Company's common stock during all periods presented.
OPERATING REVENUE
Operating revenue and related costs are recognized as of the date shipments are
completed. F-9
39
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)No single customer accounted for more than 10% of operating revenue
from continuing operations in 2000, 1999 or 1998.
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 revenue equipment are
stated at the lower of cost or market utilizing the FIFO (first-in, first-out)
method of determining cost.
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:
Buildings 30-40 years
Revenue equipment 3-7 years
Other equipment 3-10 years
Leasehold improvements
Buildings................................... 30-40 years
Equipment................................... 3-10 years
Leasehold improvements...................... 1-15 years
Interest payments during 1997, 1996 and 1995 were $2,631,000, $3,011,000 and
$2,981,000, respectively. No interest was capitalized during the three years
ended December 31, 1997. During 1997, 1996 and 1995, the
The Company added to
revenuereviews its long-lived assets, including goodwill and other
equipment $1,563,000, $2,417,000 and $2,682,000intangibles, for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The measurement of capital
leases, respectively.
INSURANCE AND CLAIMS ACCRUALS
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 believespossible
impairment 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.
F-10based upon determining whether
F-11
40
Landair Services, Inc.38
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
NETprojected 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, 2000, in the opinion of management, there has been no such
impairment.
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.
INCOME PER SHARE
In 1997, theThe Company calculates income per share in accordance with Statement of
Financial Accounting Standards Board issued Statement(SFAS) No. 128, Earnings Per Share. StatementUnder SFAS
No. 128, replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludesexclude any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully 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 amounts for all periodsdata
included in the consolidated financial statements and notes thereto have been
presented and restated to conformgive effect to Statement 128 requirements.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 2000, 1999 and 1998
and, accordingly, comprehensive income is equivalent to net income.
EMPLOYEE STOCK OPTIONS
The Company grants options for a fixed number of shares to employees and outside
directors 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 the Spin-off, certain administrative and back office functions were
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
F-12
39
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
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 for the Forward Air Business and $3.2 million for
the Truckload Business for the period January 1, 1998 through September 23,
1998.
Interest expense of $661,000 for the Forward Air Business and $1.4 million for
the Truckload Business for the period from January 1, 1998 through September 23,
1998 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 1997,1998, 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 Financial Accounting Standards Board issuedeffective
date of SFAS No. 133 for one year. This Statement No. 130,
Reporting Comprehensive Income. The Statement is effective forrequires all derivatives to be
recorded on the Company
beginningbalance sheet at fair value. This results in 1998,the offsetting
changes in fair values or cash flows of both the hedge and establishes standards for the reporting and display ofhedged item being
recognized in earnings or other comprehensive income, and its components. The Statement requires that all items
that are income be reportedas appropriate, in a financial statement that is displayed with the
same prominenceperiod. Changes in fair value of derivatives not meeting the Statement's
hedge criteria are included in income. The Company adopted the new Statement as
other financial statements.of January 1, 2001. The Company does not expect the effect of adoption of this Statement
130 to be material to the consolidatedhave a significant effect on its results of operations or financial statements.position.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial statements
to conform to the 19972000 presentation. These reclassifications had no effect on
net income.
F-11income 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
41
Landair Services, Inc.40
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
2. DISCONTINUED OPERATIONS (CONTINUED)
Summarized income statement information relating to the Truckload Business (as
reported in discontinued operations) is as follows (in thousands):
1998(1)
--------
Operating revenue $ 51,543
Operating expenses 48,450
--------
Income from operations 3,093
Interest expense (924)
Other income 26
--------
Income before income taxes 2,195
Income taxes 850
--------
Income from discontinued operations $ 1,345
========
(1) The fiscal 1998 summarized income statement information above includes
the results of operations only through the July 9, 1998 Measurement
Date.
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.
F-14
41
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
2. DISCONTINUED OPERATIONS (CONTINUED)
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 provided 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 continued sponsorship of the various employee benefit plans and
welfare plans of the Company with respect to employees of the Company after the
Spin-off, and Landair Corporation established such similar plans 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 BUSINESS
On October 27, 1997,BUSINESSES
In December 2000, the Company acquired the air cargo operating assets of Adams Air Cargo,Dedicated Transportation
Services, Inc. ("DTSI"), a surface transportationdeferred air freight contractor to the air cargo
industry based in Arbuckle,Santa Ana, California. The Company paid approximately $1,209,000$10.7
million in cash issued a note payablefor certain assets of $1,800,000,DTSI (including approximately $700,000 of
capitalized direct and/or out-of-pocket expenses related to
F-15
42
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
3. ACQUISITION OF BUSINESSES (CONTINUED)
the acquisition), which included accounts receivable, net of estimated costs to
collect such receivables, in the amount of approximately $5.4 million. As of
December 31, 2000, the Company has collected approximately $1.3 million in DTSI
accounts receivable and assumed debt and
capital lease obligations of $967,000 and $1,563,000, respectively.the remaining $4.1 million is included in accounts
receivable in the accompanying balance sheet. The acquisition was accounted for
as a purchase. Accordingly,purchase and the purchase price was
allocated on the basis of the estimatedexcess cost over fair value of the net assets acquired resultingis
being amortized on a straight-line basis over a fifteen-year period. The
allocation of the purchase price resulted in goodwilla tentative allocation of $5.1
million to goodwill. This allocation may change upon the completion of the
collection of DTSI accounts receivable. The Company also entered into
non-compete agreements with the former owners of DTSI, which provide for a
total of $500,000 to be paid annually by the Company over a three-year period.
Non-compete agreements are being amortized over the terms of the agreements.
In October 1999, the Company acquired certain air cargo operating assets of
Quick Delivery Service, Inc. ("Quick"), a deferred air freight contractor to
the air cargo industry based in Mobile, Alabama and certain air cargo operating
assets of LTD Air Cargo, Inc. ("LTD"), a deferred air freight contractor to the
air cargo industry based in Franklin, Tennessee. The Company paid approximately
$2,764,000.$6.8 million in cash and issued notes payable totaling $1.0 million for the
above two acquisitions. The goodwillacquisitions were accounted for as purchases. The
Company also entered into non-compete agreements with the former owners of
Quick and LTD for a total of $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. 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 20fifteen years. Accumulated
amortization of the goodwill totaled $23,000 at December 31, 1997.
The results of operations for the acquired business werebusinesses are included in the
consolidated statementstatements of income from the respective acquisition datedates
forward.
Pro forma resultsGoodwill and other intangible assets totaled $16.2 million and $9.8 million at
December 31, 2000 and 1999, respectively. Accumulated amortization of operations for 1997goodwill
and 1996 would not differ materially fromother intangible assets totaled approximately $1.1 million and $300,000 at
each year end, respectively. The net present value of payments required under
the Company's
historical results.
3.non-compete agreements are included as obligations in long-term debt (see
Note 4).
F-16
43
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT
Long-term debt consists of the following:
December 31
1997 1996
--------------------2000 1999
------ ------
(In thousands)
Line of credit $1,853 $ 2,163 $ 1,508
Installment Equipment Loan Agreements 13,457 11,387
Installment notes payable with a finance company--
Non-compete obligations 1,463 400
Other, principally 7.0% due through 1999, including interest at the 30-day
commercial paper rate plus 1.8% (7.6% and 7.8% at
December 31, 1997 and 1996, respectively) and interest
ranging from 6.7% to 7.3%, collateralized by revenue
equipment 7,823 12,025
Other notes payable, including interest ranging from
6.9% to 7.9% 4,024 1,127
--------------------
27,467 26,0472003 -- 1,193
------ ------
3,316 1,593
Less current portion 11,120 7,701
--------------------
$16,347 $18,346
====================532 758
------ ------
$2,784 $ 835
====== ======
F-12
42
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT (CONTINUED)
TheEffective with the Spin-off, the Company hasentered into a $15$20.0 million working
capital line of credit agreementfacility with a Tennessee bank which expires in May 1999. Advances outstandingApril
2002. Interest rates for advances under the line bear interest at
the bank's base rate lessfacility vary from LIBOR plus 1.0%
(7.5%to 1.9% based upon covenants related to total indebtedness, cash flows, results
of operations and 7.3%other ratios (7.8% and 6.8% at December 31, 19972000 and 1996,1999,
respectively) and. 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, 1997,2000, the Company had $2,163,000$1.9
million outstanding under the line and had utilized $8,104,000$4.3 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 $30 million for the
purchase of revenue equipment. Advances outstanding under the Equipment Loan
Agreements bear interest at the 30-day LIBOR rate plus 1.0% to 1.6% (6.7% to
7.3% and 6.4% to 7.0% at December 31, 1997 and 1996, respectively). The advances
are collateralized by revenue 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, 1997, the Company had
additional borrowing capacity available of $15,893,000 under the Equipment Loan
Agreements.
Revenue equipment collateralizing these agreements has a carrying value of
approximately $27,678,000 and $27,221,000 at December 31, 1997 and 1996,
respectively.
Maturities of long-term debt are as follows (in thousands):
2001 $ 532
2002 2,314
2003 470
------
$3,316
======
Interest payments during 2000, 1999 and 1998 $11,120
1999 9,439
2000 3,282
2001 1,474
2002 755
Thereafter 1,397
-------
$27,467
=======
4.were $409,000, $911,000 and $1.2
million, respectively, of which $301,000, $71,000 and $-0- was capitalized.
5. SHAREHOLDERS' EQUITY AND STOCK OPTIONS
Preferred Stock -- The Board of Directors is authorized to issue, at its
discretion, up to 5,000,0005.0 million 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.
F-13F-17
43
Landair Services, Inc.44
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
4.5. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
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 has elected to followfollows Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under Statement No. 123, Accounting for Stock-Based Compensation,
requires use of option valuation models that were not developed for use in
valuing 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, 1997, 1996 and 1995,1998, the Company had reserved 1,000,0003.0 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 of 4.5 million shares being reserved
at December 31, 2000 and 1999. Options issued under the PlanPlans 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 StatementSFAS No. 123, Accounting for Stock Based Compensation, which also requires
that the information be determined as if the Company has accounted for its employee and non-employee director
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 1997, 19962000, 1999 and 1995,1998, respectively: risk-free
interest rates of 5.8%6.5%, 6.4%5.2% and 5.5%4.7%; dividend ratio of zero; volatility
factors of the expected market price of the Company's common stock of .5;0.7, 0.7 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 employee and non-employee director 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 employee
and non-employee director stock options.
F-14F-18
44
Landair Services, Inc.45
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
4.5. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the employee
and non-employee directorstock
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except per share data):
1997 1996 1995
------ ------ ------2000 1999 1998
---------- ---------- ---------
Pro forma net income $7,980 $3,506 $4,464$ 22,463 $ 14,946 $ 9,839
Pro forma net income per share:
Basic $ 1.341.07 $ 0.59.74 $ 0.76.53
Diluted $ 1.291.01 $ 0.58.71 $ 0.74.51
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect is not fully reflected above.
A summary of the Company's employee stock option activity and related
information for the years ended December 31 follows:
1997 1996 1995
---- ---- ----
OPTIONS WEIGHTED-AVERAGE2000 1999 1998
---------------------- ---------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Weighted-AverageExercise Options Weighted-AverageExercise Options Exercise
(000) EXERCISE PRICE (000) Exercise Price (000) ExercisePrice (000) Price
------- ---------------- ------- ---------------- ------- ------------------------- ------ --------- ------ ---------
Outstanding - beginning
of year 5751,682 $ 12 421 $ 9 507 $ 9
Granted 1116 1,146 $4 1,813 $4
Granted/converted 198 27 888 7 254 5
Exercised (573) 5 (336) 4 (708) 2
Forfeited (43) 11 285 14 -- --
Exercised (61) 8 (83) 7 (53) 7
Forfeited (21) 14 (48) 11 (33) 10(16) 4 (213) 4
------ ---- ------ --- ----- ----- ------ --
Outstanding - end of year 6041,264 $ 12 575 $12 421 $ 9 1,682 $6 1,146 $4
====== ==== ====== === ===== ===== ====== ==
Exercisable at end of year 268357 $ 11 199 $10 185 $ 95 490 $4 607 $4
====== ==== ====== === ===== ===== ====== ==
Options available for
grant 118 209 445402 557 314
====== ====== =====
Weighted-average fair
value of options
granted during the year $6.14 $6.00$19.69 $ --5.24 $3.37
====== ====== ===========
Exercise prices for options outstanding as of December 31, 1997, 1996 and 19952000 ranged from
$5.00$2.67 to $25.625.$37.41.
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
F-19
46
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
5. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
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 July 2000, May 1997, 19962000, May 1999 and 1995,August
1998, options to purchase 7,500, 15,000, 22,500 and 30,00056,250 shares of common
stock, respectively, were granted to the non-employee directors of the Company
at option prices of $14.00, $15.00$36.38, $33.75, $17.83 and $13.625$6.13 per share, respectively.
F-15
45
Landair Services, Inc.
NotesAll options held by directors of the Company as of the Spin-off were adjusted
on the basis of a formula designed to Consolidated Financial Statements (continued)
4. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)preserve the fair market value of such
options on the date of the Spin-off.
The options have terms of five to ten years and are exercisable in installments which
vest over two-year periods from the date of grant. At December 31, 1997,
75,0002000,
270,000 options are outstanding and will expire on September 1, 1998in May 2005 through May
1, 2007,July 2010,
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 enrollmentoption period or (2) 85% of market price on the last trading day of
the semi-annual enrollmentoption period. The Company has reserved 300,000900,000 shares of
common stock for issuance pursuant to the plan. At December 31, 1997,2000,
approximately 16,00081,000 shares had been issued under the Plan.
F-20
47
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 earningsincome per share (in thousands, except per share data):
1997 1996 1995
------ ------ ------2000 1999 1998
------- ------- -------
Numerator:
Numerator for basic and diluted earningsincome per share - netshare:
Income from continuing operations $23,445 $16,040 $ 9,189
Income from discontinued operations -- -- 965
------- ------- -------
Net income $8,594 $3,979 $4,517
==============================$23,445 $16,040 $10,154
======= ======= =======
Denominator:
Denominator for basic earningsincome per share-
weighted-average shares 5,968 5,928 5,85021,074 20,072 18,589
Effect of dilutive stock options 209 121 177
------------------------------1,161 1,110 681
------- ------- -------
Denominator for diluted earningsincome per share-
adjusted weighted-average shares 6,177 6,049 6,027
==============================
Basic net income22,235 21,182 19,270
======= ======= =======
Income per share - basic:
Income from continuing operations $ 1.441.11 $ 0.67.80 $ 0.77
==============================
Diluted net.49
Income from discontinued operations -- -- .06
------- ------- -------
Net income $ 1.11 $ .80 $ .55
======= ======= =======
Income per share - diluted:
Income from continuing operations $ 1.391.05 $ 0.66.76 $ 0.75
==============================
Securities that could potentially dilute basic
net.48
Income from discontinued operations -- -- .05
------- ------- -------
Net income per share in the future that
were not included in the computation of
diluted net income per share because to do
so would have been antidilutive for the
periods presented 19 451 249
==============================$ 1.05 $ .76 $ .53
======= ======= =======
F-16F-21
46
Landair Services, Inc.48
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
5.6. 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:
1997 1996 1995
--------------------------------------2000 1999 1998
------- ------ ------
(In thousands)
Current:
Federal $2,274 $ 536 $ 275$10,392 $7,509 $3,246
State 604 176 198
--------------------------------------
2,878 712 4731,343 991 514
------- ------ ------
11,735 8,500 3,760
Deferred:
Federal 2,258 1,538 2,4512,592 1,382 1,807
State 355 209 349
--------------------------------------
2,613 1,747 2,800
--------------------------------------
$5,491 $2,459 $3,273
======================================195 68 86
------- ------ ------
2,787 1,450 1,893
------- ------ ------
$14,522 $9,950 $5,653
======= ====== ======
The historical income tax expense differs from the amounts computed by applying
the federal statutory rate of 34%35% to income before income taxes as follows:
1997 1996 1995
------------------------------2000 1999 1998
-------- ------ ------
(In thousands)
Tax expense at the statutory rate $4,788 $2,189 $2,649$ 13,288 $9,097 $5,195
State income taxes, net of federal benefit 633 177 2301,000 688 397
Meals and entertainment 70 93 316
Other357 165 61
Tax-exempt interest income (123) -- --
78
------------------------------
$5,491 $2,459 $3,273
==============================-------- ------ ------
$ 14,522 $9,950 $5,653
======== ====== ======
F-17F-22
47
Landair Services, Inc.49
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
5.6. 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:
December 31
1997 1996
--------------------2000 1999
------- -------
(In thousands)
Deferred tax assets:
Accrued expenses $ 1,177 $ 973
Allowance for doubtful accounts 372 345
Capital lease 59 --
------- -------
Total deferred tax assets 1,608 1,318
Deferred tax liabilities:
Tax over book depreciation $12,233 $10,8203,195 2,180
Research and development expenses 2,567 --
Prepaid expenses deductible when paid 1,420 1,048523 476
Capital lease -- 332
Other 353 349
--------------------517 737
------- -------
Total deferred tax liabilities 14,006 12,217
Deferred tax assets:
Accrued expenses 2,816 1,981
Alternative minimum tax 1,020 1,708
Net operating loss carryforward -- 1,134
Allowance for doubtful accounts 340 152
Other -- 25
--------------------
Total deferred tax assets 4,176 5,000
--------------------6,802 3,725
------- -------
Net deferred tax liabilities $ 9,830 $ 7,217
====================$(5,194) $(2,407)
======= =======
Management believes that the deferred tax assets will ultimately be realized.
Management's conclusion is based on future taxable income that will result from
the reversal of the existing temporary differences. Additionally, management
expects future taxable income from operations, exclusive of the reversal of
temporary differences.
The balance sheet classification of deferred income taxes is as follows:
December 31
1997 1996
--------------------2000 1999
------- -------
(In thousands)
Current assets $(1,736) $(1,085)$ 956 $ 652
Noncurrent liabilities 11,566 8,302
--------------------
$ 9,830 $ 7,217
====================assets (liabilities) (6,150) (3,059)
------- -------
$(5,194) $(2,407)
======= =======
Total income tax payments, net of refunds, during fiscal 1997, 19962000, 1999 and 19951998
were $2,852,000, $(162,000)$12.3 million, $8.1 million and $898,000,$3.4 million, respectively.
F-18F-23
48
Landair Services, Inc.50
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
6.7. LEASES
During October 1993,In September 2000, the Company entered into an agreement with the Rickenbacker
Port Authority ("Rickenbacker") to lease a building located near the Company's
Columbus hub facility in Columbus, Ohio. At the inception of the lease, the
Company made a $2.0 million payment to Rickenbacker. The lease agreement has a
ten year initial term, with two five-year renewal options. The present value of
the future minimum lease payments of $1.0 million (at December 31, 2000) is
included in capital lease obligations in the accompanying consolidated balance
sheet. The leased building was recorded in property and equipment at $3.0
million (which represents the present value of minimum lease payments,
including the $2.0 million initial payment, as it is less than the fair value
at the inception date). The building is being depreciated over the initial
lease term, which is less than the estimated useful life of the building.
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 the construction of a
terminal facility located in Columbus, Ohio. To fund
the construction of the new facility, the State of Ohio sold revenue bonds in
the amount of $6,280,000. 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 revenue and other equipment under capital leases. These equipment
leases expire in various years through 2001. Certain of the revenue
equipment leases contain guarantees of residual values which have been included
in minimum lease payments.
Property and equipment include the following amounts for leases that have been
capitalized:
December 31
1997 1996
--------------------2000 1999
------- ------
(In thousands)
Land $ 2,605 $ 2,605
Building$2,605
Buildings 6,687 3,675
3,675
Revenue equipment 6,659 5,465
Other equipment 2,417 2,417
--------------------
15,356 14,162Equipment 2,472 2,702
------- ------
11,764 8,982
Less accumulated amortization 3,569 2,561
--------------------
$11,787 $11,601
====================3,074 2,602
------- ------
$ 8,690 $6,380
======= ======
Amortization of leased assets is included in depreciation and amortization
expense.
The Company also leases certain facilities and revenue equipment under noncancelablenoncancellable
operating leases that expire in various years through 2006.2008. Certain of these
leases may be renewed for periods varying
F-24
51
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
7. LEASES (CONTINUED)
from one to ten years. IncludedLandair 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
$465,000, $773,000 and $653,000 in 2000, 1999 and 1998, respectively, and was
included in operating leases is a terminal facility leased from a company
wholly-owned byrevenue in the Company's majority shareholder which expired in January 1997
and the lease was not renewed. Also includedaccompanying consolidated statements of
income.
Included in operating leases is an aircraft leased under a dry lease
agreement,arrangement from a limited liability corporation owned by the Company's
majority shareholderChairman and Chief Executive Officer which expiresexpired in July 1998 and may be renewed for an additional
F-19
49
Landair Services, Inc.
Notes1999. Under the
terms of the lease agreement, the Company paid the limited liability
corporation $700 per hour of usage subject to Consolidated Financial Statements (continued)
6. LEASES (CONTINUED)
onea 400 hour per year period.minimum usage
guarantee. The total net amount of rent expense for these leasesthis lease was $280,000, $180,000$107,000 and
$84,000$423,000 in 1997, 19961999 and 1995,1998, respectively. Upon expiration of the lease
agreement, the Company commenced chartering the aircraft on an as-needed hourly
basis. The air charter expense totaled $185,000 and $106,000 in 2000 and 1999,
respectively. In addition, during 2000, the Company paid salaries and benefits
of $130,000 for two pilots of the limited liability corporation.
On or prior to the date of the Spin-off, the Company entered into subleases
with Landair Corporation pursuant to which the Company sublet 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 $950,000.
F-25
52
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
7. LEASES (CONTINUED)
Future minimum rental payments under capital leases and noncancelablenoncancellable
operating leases with initial or remaining terms in excess of one year or more
consisted of the following at December 31, 1997:2000:
Capital Operating
Fiscal Year Leases Leases
----------------------------
Fiscal Year- ----------- ------ ---------
(In thousands)
-----------
19982001 $ 4,544775 $ 6,206
1999 1,422 4,292
2000 1,311 2,338
2001 899 9229,646
2002 731 252775 6,809
2003 775 4,638
2004 775 2,718
2005 775 768
Thereafter 3,846 179
-------2,414 29
------ -------
Total minimum lease payments 12,753 $14,1896,289 $24,608
=======
Amounts representing interest (2,771)
-------1,395
------
Present value of net minimum lease payments
(including current portion of $3,924) $ 9,982
=======$446) $4,894
======
7. BUSINESS SEGMENTS
DESCRIPTION OF THE TYPES OF SERVICES FROM WHICH EACH REPORTABLE SEGMENT DERIVES
ITS REVENUE8. TRANSACTIONS WITH LANDAIR CORPORATION
The TruckloadCompany 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. During
2000, 1999 and 1998, Landair Corporation provided $2.1 million, $3.3 million
and $4.4 million, respectively, of transportation services for the Company
which were included in the accompanying statements of income in purchased
transportation.
In accordance with the terms included in the Transition Services Agreement,
subsequent to the Spin-off 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 $1.5 million, $2.4 million and $797,000, respectively,
during the years ended December 31, 2000 and 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. Landair Corporation charged the Company $230,000, $455,000 and
$193,000, respectively, during the years ended December 31, 2000 and 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 as of September 23, 1998. At December 31, 2000, accounts receivable
included $315,000 of amounts
F-26
53
Forward Air operating divisions constitute the operating
segments of the Company.
The Forward Air operations provide scheduled trucking services to air freight
forwarders, fully integrated air cargo carriers and domestic and international
airlines. The Forward Air operation services its air freight forwarders, air
cargo and airline customers primarily through a hub and spoke network of
terminals located at or near major airports in the United States and Canada and
linked through a central sorting facility in Columbus, Ohio.
The Truckload operations provide short- to medium-haul delivery to the
high-service segment of the general commodities truckload market. The Truckload
operation includes a common carrier
F-20
50
Landair Services, Inc.Corporation
Notes to Consolidated Financial Statements (continued)
7. BUSINESS SEGMENTS8. TRANSACTIONS WITH LANDAIR CORPORATION (CONTINUED)
operation that serves customers on an "on demand" basisdue from Landair Corporation related to services covered under the Transition
Services Agreement and a dedicated fleet
operation in which trucksvarious other transactions between both entities. At
December 31, 1999, accounts payable included $707,000 of amounts due to Landair
Corporation related to services covered under the Transition Services Agreement
and drivers are dedicated to shippers with specific,
high-service requirements.
MEASUREMENT OF SEGMENT INCOME FROM OPERATIONS AND SEGMENT ASSETS
The accounting policies of the reportable segments are the same as those
describedvarious transactions between both entities.
As discussed in Note 1. The7, the Company evaluates performance and allocates resources
based on operating income. The Company does not allocate interest expensesubleases a portion of certain facilities
to reportable segments.
Intersegment revenue is accounted for at rates comparable to unaffiliated
customers.
FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS
The Company's reportable segments are strategic business units that offer
different services. The reportable segments are each managed separately because
they provide different services with different operating processes and marketing
strategies.
A summary of information about the Company's operations by segment for the years
ended December 31, 1997, 1996 and 1995 is as follows (in thousands):
Truckload Forward Air Total
--------------------------------------------
1997
- ----
Operating revenue from external customers $ 85,261 $105,141 $190,402
Intersegment revenue 6,790 -- 6,790
Depreciation and amortization 8,309 2,901 11,210
Segment income from operations 3,739 13,064 16,803
Segment assets 66,923 49,672 116,595
Expenditures for long-lived assets 13,558 5,466 19,024
1996
- ----
Operating revenue from external customers $ 76,361 $ 80,737 $157,098
Intersegment revenue 6,094 -- 6,094
Depreciation and amortization 8,438 2,085 10,523
Segment income from operations 825 8,516 9,341
Segment assets 60,508 37,481 97,989
Expenditures for long-lived assets 468 5,382 5,850
1995
- ----
Operating revenue from external customers $ 84,526 $ 63,557 $148,083
Intersegment revenue 3,897 -- 3,897
Depreciation and amortization 7,205 1,482 8,687
Segment income from operations 4,105 6,396 10,501
Segment assets 70,451 26,769 97,220
Expenditures for long-lived assets 21,655 (47) 21,608
F-21
51
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
7. BUSINESS SEGMENTS (CONTINUED)
A reconciliation of reportable segment operating revenue, income from
operations, and assets to the Company's consolidated totals is as follows (in
thousands):
1997 1996 1995
-----------------------------------------
Operating revenue
-----------------
Total operating revenue for reportable
segments $ 197,192 $ 163,192 $ 151,980
Elimination of intersegment revenue (6,790) (6,094) (3,897)
-----------------------------------------
Total consolidated operating revenue $ 190,402 $ 157,098 $ 148,083
=========================================
Income from operations
----------------------
Total income from operations for
reportable segments $ 16,803 $ 9,341 $ 10,501
Other profit or loss -- -- --
-----------------------------------------
Total consolidated income from
operations $ 16,803 $ 9,341 $ 10,501
=========================================
Assets
------
Total assets for reportable segments $ 116,595 $ 97,989 $ 97,220
Other assets 1,736 1,085 1,059
-----------------------------------------
Total consolidated assets $ 118,331 $ 99,074 $ 98,279
=========================================
OTHER SIGNIFICANT ITEMS
Segment Consolidated
Totals Adjustments Totals
--------------------------------------------
1997
----
Expenditures for long-lived assets $ -- $ -- $ 19,074
Depreciation and amortization 11,210 -- 11,210
1996
----
Expenditures for long-lived assets $ -- $ -- $ 8,763
Depreciation and amortization 10,523 -- 10,523
1995
----
Expenditures for long-lived assets $ -- $ -- $ 24,670
Depreciation and amortization 8,687 -- 8,687
F-22
52
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
7. BUSINESS SEGMENTS (CONTINUED)
The reconciling item to adjust total assets is the amount of income tax
assets, which are not included in segment information.
MAJOR CUSTOMER
One customer of the Truckload segment, Federal Express Corporation, accounted
for more than 10% (approximately $27,050,000) of the Company's consolidated
operating revenue for the year ended December 31, 1997. No single customer
accounted for more than 10% of operating revenue in 1996 and 1995.
8.Corporation.
9. COMMITMENTS AND CONTINGENCIES
The Company is, from time to time, a party to litigation arisingprimary claims in the normal
course of itsCompany's business most of which involve claims for personal injury andare 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 in connection withclaims up to the transportationself-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 freight.
Management believesprobable losses on claims
incurred but not reported. Such losses could be realized immediately as the
events underlying the claims have already occurred as of the balance sheet
dates.
Because of the uncertainty of the ultimate resolution of outstanding claims, as
well as uncertainty regarding claims incurred but not reported, it is possible
that none ofmanagement's provision for these actions, individually orlosses could change materially in the
aggregate, will have a material adverse effect on the financial condition or
results of operationsnear term. However, no estimate can currently be made of the Company.
9.range of
additional loss that is at least reasonably possible.
The estimated cost to complete software development in progress at December 31,
2000 is approximately $500,000.
10. EMPLOYEE BENEFIT PLAN
Effective July 1, 1994, theThe Company adoptedhas a retirement savings plan (the "401(k) Plan"). The 401(k) Plan
is a defined contribution plan whereby employees who have completed one yearninety days
of service, a minimum of 1,000 hours of service and are age 21 or older are
eligible to participate. The 401(k) Plan allows eligible employees to make
contributions of 2% to 10%15% of their annual compensation. Employer contributions
are made at 25% during 2000, 1999 and 1998 of the employee's contribution up to
a maximum of 6% during 2000 and 1999 and 4% during 1998 of total annual
compensation.
F-27
54
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
10. EMPLOYEE BENEFIT PLAN (CONTINUED)
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 1997, 19962000, 1999 and 19951998 was approximately
$145,000, $131,000$190,000, $146,000 and $119,000,$71,000, respectively. F-23
53In connection with the Spin-off,
the account balances of Truckload employees were transferred to a Landair
Services, Inc.
Notes to Consolidated Financial Statements (continued)
10.Corporation plan in a trust-to-trust transfer during 1999.
11. FINANCIAL INSTRUMENTS
Off Balance Sheet Risk
At December 31, 1997,2000, the Company had letters of credit outstanding totaling
$8,104,000,$4.3 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.
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-24F-28
54
Landair Services, Inc.55
Forward Air Corporation
Notes to Consolidated Financial Statements (continued)
10. FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments are
as follows:
1997 1996
------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------- ---------------------------
(In thousands)
Cash and cash equivalents $ 686 $ 686 $ 28 $ 28
Accounts receivable 28,771 28,771 23,671 23,671
Accounts payable 5,126 5,126 5,525 5,525
Long-term debt and capital lease
obligations 37,449 37,449 36,592 36,592
11.12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 19972000 and 1996:1999:
1997
------------------------------------------------------------------------2000
------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------------------------------------------------------------------------- ------- ------------ -----------
(In thousands, except per share data)
Operating revenue $ 41,005 $ 45,502 $ 50,456 $ 53,439$49,407 $54,058 $53,703 $57,739
Income from operations 1,922 4,004 5,807 5,0707,371 9,766 9,758 10,406
Net income 771 1,944 3,176 2,7034,589 6,118 6,145 6,593
Net income per common share:
Basic $ 0.13.22 $ 0.33.29 $ 0.53.29 $ 0.45.31
Diluted $ 0.13.21 $ 0.32.28 $ 0.51.28 $ 0.43
1996
------------------------------------------------------------------------.30
1999
------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------------------------------------------------------------------------- ------- ------------ -----------
(In thousands, except per share data)
Operating revenue $ 36,979 $ 38,893 $ 39,295 $ 41,931$37,728 $40,781 $42,599 $49,735
Income from operations 1,666 2,703 2,126 2,8465,475 5,939 6,560 8,470
Net income 531 1,199 887 1,3623,100 3,550 4,006 5,384
Net income per common share:
Basic $ 0.09.16 $ 0.20.18 $ 0.15.19 $ 0.23.26
Diluted $ 0.09.16 $ 0.20.17 $ 0.15.18 $ 0.23.25
F-25
55
Landair13. SUBSEQUENT EVENT
In January 2001, the Company completed an asset purchase transaction in which
it acquired certain assets of Expedited Delivery Services, Inc. Notes("Expedited").
Expedited is a provider of transportation services to Consolidated Financial Statements (continued)
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
During the third quarterair cargo industry.
The aggregate consideration paid to Expedited consisted of 1997,approximately $2.0
million in cash. The acquisition will be accounted for using the Company benefited from non-recurring
revenue that resulted from the United Parcel Service strike. This additional
revenue netpurchase
method of variable costs and income taxes, but not allocated fixed costs,
resulted in an estimated additional $1.4 million of pre-tax income from
operations and $0.14 of diluted earnings per share during the quarter.
The 1996 and first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share.
F-26accounting.
F-29
56
Landair Services, Inc.Forward Air Corporation
Schedule II -- Valuation and Qualifying Accounts
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)
Year ended December 31, 1997:2000:
Allowance for doubtful accounts $ 240595 $ 603433 $ -- $ 278(1)162(2) $ 565866
Allowance for revenue adjustments 175 1,714adjustments(1) 323 1,258 -- 1,526(2) 363
---------------------------------------------------------------------
415 2,3171,263(3) 318
-----------------------------------------------------------------------------
918 1,691 -- 1,804 9281,425 1,184
Year ended December 31, 1996:1999:
Allowance for doubtful accounts $ 150577 $ 540295 $ -- $ 450(1)277(2) $ 240595
Allowance for revenue adjustments 142 1,207adjustments(1) 375 1,245 -- 1,174(2) 175
---------------------------------------------------------------------
292 1,7471,297(3) 323
-----------------------------------------------------------------------------
952 1,540 -- 1,624 4151,574 918
Year ended December 31, 1995:1998:
Allowance for doubtful accounts $ 144440 $ 445438 $ -- $ 439(1)301(2) $ 150577
Allowance for revenue adjustments 250 945adjustments(1) 313 1,641 -- 1,053(2) 142
---------------------------------------------------------------------
394 1,3901,579(3) 375
-----------------------------------------------------------------------------
753 2,079 -- 1,492 2921,880 952
(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.
(2)(3) Adjustments to billed accounts receivable.
S-1
57
EXHIBIT INDEX
Exhibit No.
inUnder Exhibit No. Under Document Wherein
Item 601 of Document Where
Regulation Incorporated by
Regulation
S-K Reference
- -------------------------- ---------------
(a)3.1 2.1(g)- Distribution between the 2.1
Registrant and Landair Corporation
3.1(j)- Restated Charter of the registrant 3.1
(a)3.2 3
3.2(g)- Bylaws of the registrant, as amended 3.2
(a)4 3.1
4.1(b)- SpecimenForm of Landair Services, Inc. Common 4.1
Stock Certificate
4.2(g)- Form of Forward Air Corporation 4.1
(e)10.1 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
(d)10.2 10.2(e)- Registrant's Amended and Restated 10.1
Stock Option and Incentive Plan
(a,h)10.3 - Form of registrant's Director Stock Option 10.3
Agreement
(a)10.4 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
(a)10.5 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
(a)10.6 - Air Carrier Certificate, effective 10.21
September 9, 1993
(b)10.7 - Lease between the Director of 10.24
Development of the State of Ohio and
the registrant dated as of October 1,
1993
58
(c)10.8 10.5(g)- $5,062,250 TermAir 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 10.2510.5
Agreement, dated as of July 13, 1994,
among Third National Bank in
Nashville, the registrant and Landair
Transport, Inc.
(c)10.9 - $5,062,250 Term Promissory Note, 10.26
dated July 13, 1994, among Third
National Bank in Nashville, the
registrant and Landair Transport, Inc.
(c)10.10 - $5,500,000 Line of Credit Loan 10.27
Agreement, dated as of October 17,
1994, amongSeptember 10, 1998,
between First Tennessee Bank National
Association and the registrant
and each of its Tennessee subsidiaries
(c)10.11 10.12(g)- $11,152,000 Equipment Loan 10.30
Agreement, dated as of October 17,
1994, among First Tennessee Bank
National Association, the registrant,
Landair Transport, Inc. and Landair
International Airlines, Inc.
(c)10.12 - First Amendment to Loan and Security 10.33
Agreements, dated as of October
20, 1994, among First Tennessee Bank
National Association, the registrant,
Landair Transport, Inc. and Landair
International Airlines, Inc.
(c)10.13 - Second Amendment to Loan and 10.35
Security Agreements, dated as of
December 23, 1994, among First
Tennessee Bank National Association,
the registrant, Landair Transport, Inc.
and Landair International Airlines, Inc.
(d,h)10.14 - Registrant's Non-Employee Director 10.2
Stock Option Plan
59
(d)10.15 - Third Amendment to Loan and Security 10.3
Agreements, dated as of May 24, 1995,
among First Tennessee Bank National
Association, the registrant, Landair
Transport, Inc. and Landair
International Airlines, Inc.
(d)10.16 - First Amendment to Line of Credit 10.4
Loan Agreement and to$20.0 million Amended and Restated Security Agreement, dated as of
May 31, 1995, among First
Tennessee Bank National Association,
the registrant, and each of its Tennessee
subsidiaries
(d)10.17 - $15,000,000 Restated, Amended and 10.5
ReplacementMaster 10.6
Secured Promissory Note (Line of Credit),
dated as of May 31, 1995,
between the registrant andSeptember 10, 1998, to First
Tennessee Bank National Association
(d)10.18 10.13(g)- $15,000,000 Restated,$15.0 million Amended and 10.6
ReplacementRestated 10.7
Secured Promissory Note (Equipment
Loan), dated as of May 31, 1995, between the
registrant andSeptember 10, 1998,
to First Tennessee Bank National Association
(d)10.19 10.14(g)- Fourth AmendmentSecurity 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 Loan and 10.7
Security Agreements, dated as of May
31, 1995, among First TennesseeSunTrust Bank,
National Association,Nashville, N.A.
10.16(h)- Employment Agreement between the registrant Landair Transport, Inc.10.16
and Landair International Airlines, Inc.
(d)10.20 Bruce A. Campbell
59
10.17(i)- Term1999 Stock Option and Incentive Plan 10.1
10.18(i)- Loan and Security Agreement 10.8
dated as of June 16, 1995, between
Third National Bank in Nashville,
the registrant and Landair Transport, Inc.
60
(d)10.21 - $4,118,700 Promissory Note, dated 10.9
July 3, 1995, between the registrant,
Landair Transport, Inc. and Third
National Bank in Nashville
(d)10.22 - First Amendment to Term Loan and 10.10
Security Agreement, dated as of June
16, 1995, among Third National Bank
in Nashville, the registrant and Landair
Transport, Inc.
(f)10.23 Second Amendment to($10.0 million 10.2
Line of Credit Loan 10.1
Agreement and to Amended and Restated Security
Agreement, dated as of January 28, 1997, among
First Tennessee Bank National Association, the
registrant, Landair Transport, Inc., Landair
International Airlines, Inc., Transportation
Properties, Inc. and Forward Air, Inc.
(f)10.24 $15,000,000 Restated, Amended and Replacement 10.2
Promissory Note (Line of Credit), dated as of January 28, 1997,13, 1999
among SunTrust Bank, Nashville, N.A. and
the registrant, Landair
Transport,FAF, Inc., Landair International Airlines,
Inc., Transportation Properties, 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 Securities and
Exchange Commission (the"Commission")
upon request.)
10.19(k)- Cash Incentive Plan 10.19
10.20(l)- First Tennessee Bank National
Association
(g)Amendment to the Transition Services 10.1
Agreement, dated as of February 4, 2000, between
the registrant and Landair Corporation
10.21(m)- Non-Qualified Stock Option Agreement dated 10.1
August 21, 2000 between the registrant and
Ray A. Mundy
21.1(a)- Subsidiaries of the registrant (g)23 --
23.1(a)- Consent of Ernst & Young LLP (g)27 - Financial Data Schedule (Electronic Filing Only)--
(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.
(b)(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.
(c)(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.
(d)(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.
61
(e)(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.
(f) 60
(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, 1997,1999, filed with the
Commission on May 14, 1997.
(g)17, 1999.
(j) Filed herewith.
(h) Management contract or compensatory plan.
as an exhibit to the registrant's Current Report on
Form 8-K filed with the Commission on May 28, 1999.
(k) Filed as an exhibit to the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999, filed with the Commission on
March 7, 2000.
(l) Filed as an exhibit to the registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2000, filed with the
Commission on May 5, 2000.
(m) Filed as an exhibit to the registrant's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2000, filed with the
Commission on November 6, 2000.