UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2020March 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-22490
FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)
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| | Tennessee | | | 62-1120025 |
(State or other jurisdiction of incorporation) | | (I.R.S. Employer Identification No.) |
1915 Snapps Ferry Road | Building N | Greeneville | TN | | 37745 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (423) 636-7000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.01 par value | | FWRD | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | x | Accelerated filer | ¨ | Non-accelerated filer | ¨ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of October 27, 2020April 30, 2021 was 27,507,750.27,317,840.
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Table of Contents |
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Forward Air Corporation |
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Part I. | Financial Information | |
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Item 1. | Financial Statements (Unaudited) | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Part II. | Other Information | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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Part I. | Financial Information |
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Item 1. | Financial Statements (Unaudited). |
| Forward Air Corporation | Forward Air Corporation | Forward Air Corporation |
Consolidated Balance Sheets | |
Condensed Consolidated Balance Sheets | | Condensed Consolidated Balance Sheets |
(Dollars in thousands, except share and per share amounts) | (Dollars in thousands, except share and per share amounts) | (Dollars in thousands, except share and per share amounts) |
(Unaudited) | (Unaudited) | (Unaudited) |
| | September 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
Assets | Assets | | | | Assets | | | |
Current assets: | Current assets: | | | | Current assets: | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 42,990 | | | $ | 64,749 | | Cash and cash equivalents | $ | 24,396 | | | $ | 40,254 | |
Accounts receivable, less allowance of $2,448 in 2020 and $2,053 in 2019 | 153,070 | | | 136,214 | | |
Accounts receivable, less allowance of $2,071 in 2021 and $2,273 in 2020 | | Accounts receivable, less allowance of $2,071 in 2021 and $2,273 in 2020 | 186,504 | | | 156,490 | |
Other receivables | | Other receivables | 16,847 | | | 0 | |
Other current assets | Other current assets | 22,062 | | | 20,403 | | Other current assets | 20,239 | | | 28,150 | |
Current assets held for sale | Current assets held for sale | 16,925 | | | 14,952 | | Current assets held for sale | 0 | | | 21,002 | |
Total current assets | Total current assets | 235,047 | | | 236,318 | | Total current assets | 247,986 | | | 245,896 | |
| Property and equipment | Property and equipment | 379,306 | | | 373,571 | | Property and equipment | 379,566 | | | 380,519 | |
Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | 189,042 | | | 180,815 | | Less accumulated depreciation and amortization | 192,622 | | | 190,652 | |
Total property and equipment, net | Total property and equipment, net | 190,264 | | | 192,756 | | Total property and equipment, net | 186,944 | | | 189,867 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 115,551 | | | 105,170 | | Operating lease right-of-use assets | 130,859 | | | 123,338 | |
Goodwill and other acquired intangibles: | | | | |
| Goodwill | Goodwill | 240,933 | | | 215,699 | | Goodwill | 250,736 | | | 244,982 | |
Other acquired intangibles, net of accumulated amortization of $89,540 in 2020 and $79,250 in 2019 | 145,086 | | | 124,857 | | |
Total goodwill and other acquired intangibles, net | 386,019 | | | 340,556 | | |
Other acquired intangibles, net of accumulated amortization of $96,451 in 2021 and $93,009 in 2020 | | Other acquired intangibles, net of accumulated amortization of $96,451 in 2021 and $93,009 in 2020 | 147,668 | | | 145,032 | |
| Other assets | Other assets | 43,266 | | | 39,374 | | Other assets | 51,708 | | | 45,181 | |
Noncurrent assets held for sale | Noncurrent assets held for sale | 78,063 | | | 76,704 | | Noncurrent assets held for sale | 0 | | | 53,097 | |
Total assets | Total assets | $ | 1,048,210 | | | $ | 990,878 | | Total assets | $ | 1,015,901 | | | $ | 1,047,393 | |
| | Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | | | Liabilities and Shareholders’ Equity | | |
Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
Accounts payable | Accounts payable | $ | 32,581 | | | $ | 25,411 | | Accounts payable | $ | 40,676 | | | $ | 38,371 | |
Accrued expenses | Accrued expenses | 52,454 | | | 44,154 | | Accrued expenses | 74,625 | | | 51,264 | |
Other current liabilities | Other current liabilities | 4,277 | | | 5,318 | | Other current liabilities | 6,817 | | | 10,580 | |
Current portion of debt and finance lease obligations | Current portion of debt and finance lease obligations | 1,557 | | | 1,421 | | Current portion of debt and finance lease obligations | 1,908 | | | 1,801 | |
Current portion of operating lease obligations | 40,258 | | | 35,886 | | |
Current portion of operating lease liabilities | | Current portion of operating lease liabilities | 45,107 | | | 43,680 | |
Current liabilities held for sale | Current liabilities held for sale | 26,006 | | | 24,974 | | Current liabilities held for sale | 0 | | | 25,924 | |
Total current liabilities | Total current liabilities | 157,133 | | | 137,164 | | Total current liabilities | 169,133 | | | 171,620 | |
| Debt and finance lease obligations, less current portion | 116,583 | | | 72,249 | | |
Operating lease obligations, less current portion | 76,003 | | | 69,678 | | |
Long-term debt and finance lease obligations, less current portion and debt issuance costs | | Long-term debt and finance lease obligations, less current portion and debt issuance costs | 117,156 | | | 117,408 | |
Operating lease liabilities, less current portion | | Operating lease liabilities, less current portion | 86,212 | | | 80,346 | |
Other long-term liabilities | Other long-term liabilities | 61,536 | | | 56,448 | | Other long-term liabilities | 57,131 | | | 54,129 | |
Deferred income taxes | Deferred income taxes | 45,532 | | | 41,214 | | Deferred income taxes | 41,538 | | | 41,986 | |
Noncurrent liabilities held for sale | Noncurrent liabilities held for sale | 39,227 | | | 36,943 | | Noncurrent liabilities held for sale | 0 | | | 34,575 | |
| Shareholders’ equity: | Shareholders’ equity: | | | | Shareholders’ equity: | | | |
Preferred stock | 0 | | | 0 | | |
Common stock, $0.01 par value: Authorized shares - 50,000,000, Issued and outstanding shares - 27,258,493 in 2020 and 27,850,233 in 2019 | 273 | | | 279 | | |
Preferred stock, $0.01 par value: Authorized shares - 5,000,000; 0 shares issued or outstanding in 2021 and 2020 | | Preferred stock, $0.01 par value: Authorized shares - 5,000,000; 0 shares issued or outstanding in 2021 and 2020 | 0 | | | 0 | |
Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding shares - 27,318,501 in 2021 and 27,316,434 in 2020 | | Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding shares - 27,318,501 in 2021 and 27,316,434 in 2020 | 273 | | | 273 | |
Additional paid-in capital | Additional paid-in capital | 237,497 | | | 226,869 | | Additional paid-in capital | 247,678 | | | 242,916 | |
Retained earnings | Retained earnings | 314,426 | | | 350,034 | | Retained earnings | 296,780 | | | 304,140 | |
Total shareholders’ equity | Total shareholders’ equity | 552,196 | | | 577,182 | | Total shareholders’ equity | 544,731 | | | 547,329 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 1,048,210 | | | $ | 990,878 | | Total liabilities and shareholders’ equity | $ | 1,015,901 | | | $ | 1,047,393 | |
| The accompanying notes are an integral part of the financial statements. | |
The accompanying notes are an integral part of the condensed consolidated financial statements. | | The accompanying notes are an integral part of the condensed consolidated financial statements. |
| Forward Air Corporation | Forward Air Corporation | Forward Air Corporation |
Consolidated Statements of Comprehensive Income | |
Condensed Consolidated Statements of Comprehensive Income | | Condensed Consolidated Statements of Comprehensive Income |
(Dollars in thousands, except share and per share amounts) | (Dollars in thousands, except share and per share amounts) | (Dollars in thousands, except share and per share amounts) |
(Unaudited) | (Unaudited) | (Unaudited) |
| | | Three months ended | | Nine months ended | | Three Months Ended | |
| | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | | March 31, 2021 | | March 31, 2020 | |
| Operating revenue | Operating revenue | $ | 331,997 | | | $ | 313,683 | | | $ | 919,232 | | | $ | 895,531 | | Operating revenue | $ | 362,202 | | | $ | 305,557 | | |
| Operating expenses: | Operating expenses: | | | | | Operating expenses: | | | |
Purchased transportation | Purchased transportation | 173,054 | | | 150,296 | | | 465,721 | | | 426,283 | | Purchased transportation | 184,608 | | | 150,598 | | |
Salaries, wages and employee benefits | Salaries, wages and employee benefits | 66,927 | | | 68,532 | | | 200,258 | | | 192,330 | | Salaries, wages and employee benefits | 74,897 | | | 69,559 | | |
Operating leases | Operating leases | 17,327 | | | 15,860 | | | 52,598 | | | 46,861 | | Operating leases | 19,167 | | | 17,884 | | |
Depreciation and amortization | Depreciation and amortization | 9,172 | | | 9,016 | | | 27,919 | | | 27,531 | | Depreciation and amortization | 9,237 | | | 9,334 | | |
Insurance and claims | Insurance and claims | 8,671 | | | 9,532 | | | 26,437 | | | 29,276 | | Insurance and claims | 9,741 | | | 10,044 | | |
Fuel expense | Fuel expense | 2,715 | | | 4,637 | | | 9,247 | | | 13,219 | | Fuel expense | 3,702 | | | 4,013 | | |
Other operating expenses | Other operating expenses | 30,621 | | | 26,624 | | | 83,854 | | | 78,071 | | Other operating expenses | 38,126 | | | 28,353 | | |
| Total operating expenses | Total operating expenses | 308,487 | | | 284,497 | | | 866,034 | | | 813,571 | | Total operating expenses | 339,478 | | | 289,785 | | |
Income from continuing operations | Income from continuing operations | 23,510 | | | 29,186 | | | 53,198 | | | 81,960 | | Income from continuing operations | 22,724 | | | 15,772 | | |
| Other expense: | Other expense: | | | | | Other expense: | | | |
Interest expense | Interest expense | (1,304) | | | (761) | | | (3,355) | | | (1,917) | | Interest expense | (1,165) | | | (853) | | |
Other, net | 0 | | | 1 | | | 0 | | | (1) | | |
| Total other expense | Total other expense | (1,304) | | | (760) | | | (3,355) | | | (1,918) | | Total other expense | (1,165) | | | (853) | | |
Income before income taxes | Income before income taxes | 22,206 | | | 28,426 | | | 49,843 | | | 80,042 | | Income before income taxes | 21,559 | | | 14,919 | | |
Income tax expense | Income tax expense | 5,214 | | | 7,372 | | | 12,209 | | | 20,055 | | Income tax expense | 4,845 | | | 3,504 | | |
Net income from continuing operations | Net income from continuing operations | 16,992 | | | 21,054 | | | 37,634 | | | 59,987 | | Net income from continuing operations | 16,714 | | | 11,415 | | |
(Loss) income from discontinued operations, net of tax | (345) | | | 1,141 | | | (9,458) | | | 2,945 | | |
Loss from discontinued operation, net of tax | | Loss from discontinued operation, net of tax | (5,533) | | | (3,040) | | |
Net income and comprehensive income | Net income and comprehensive income | $ | 16,647 | | | $ | 22,195 | | | $ | 28,176 | | | $ | 62,932 | | Net income and comprehensive income | $ | 11,181 | | | $ | 8,375 | | |
| Basic net income (loss) per share: | | |
Basic net income (loss) per share | | Basic net income (loss) per share | | |
Continuing operations | Continuing operations | $ | 0.61 | | | $ | 0.74 | | | $ | 1.35 | | | $ | 2.10 | | Continuing operations | $ | 0.61 | | | $ | 0.41 | | |
Discontinued operations | (0.01) | | | 0.04 | | | (0.34) | | | 0.10 | | |
Net income per share | $ | 0.60 | | | $ | 0.78 | | | $ | 1.01 | | | $ | 2.20 | | |
Discontinued operation | | Discontinued operation | (0.20) | | | (0.11) | | |
Net income per share1 | | Net income per share1 | $ | 0.40 | | | $ | 0.30 | | |
| Diluted net income (loss) per share: | | |
Diluted net income (loss) per share | | Diluted net income (loss) per share | | |
Continuing operations | Continuing operations | $ | 0.61 | | | $ | 0.74 | | | $ | 1.35 | | | $ | 2.09 | | Continuing operations | $ | 0.60 | | | $ | 0.41 | | |
Discontinued operations | (0.01) | | | 0.04 | | | (0.34) | | | 0.10 | | |
Discontinued operation | | Discontinued operation | (0.20) | | | (0.11) | | |
Net income per share | Net income per share | $ | 0.60 | | | $ | 0.78 | | | $ | 1.01 | | | $ | 2.19 | | Net income per share | $ | 0.40 | | | $ | 0.30 | | |
| | Dividends per share: | $ | 0.18 | | | $ | 0.18 | | | $ | 0.54 | | | $ | 0.54 | | |
Dividends per share | | Dividends per share | $ | 0.21 | | | $ | 0.18 | | |
1Rounding may impact summation of amounts.
The accompanying notes are an integral part of the condensed consolidated financial statements.
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Forward Air Corporation |
Consolidated Statements of Cash Flows |
(In thousands) |
(Unaudited) |
| |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
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Operating activities: | | | |
Net income from continuing operations | $ | 37,634 | | | $ | 59,987 | |
Adjustments to reconcile net income of continuing operations to net cash provided by operating activities of continuing operations | | | |
Depreciation and amortization | 27,919 | | | 27,531 | |
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Change in fair value of earn-out liability | (2,209) | | | 890 | |
Share-based compensation | 7,852 | | | 8,536 | |
Loss on disposal of property and equipment, net | 108 | | | 781 | |
Provision for loss on receivables | 606 | | | 819 | |
Provision for revenue adjustments | 2,972 | | | 2,239 | |
Deferred income tax expense | 4,317 | | | 5,881 | |
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Changes in operating assets and liabilities | | | |
Accounts receivable | (20,436) | | | (3,778) | |
Prepaid expenses and other current assets | (173) | | | (4,380) | |
Income taxes | 1,426 | | | (2,557) | |
Accounts payable and accrued expenses | 20,477 | | | 11,876 | |
Net cash provided by operating activities of continuing operations | 80,493 | | | 107,825 | |
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Investing activities: | | | |
Proceeds from disposal of property and equipment | 1,415 | | | 1,693 | |
Purchases of property and equipment | (16,439) | | | (23,240) | |
Acquisition of business, net of cash acquired | (55,931) | | | (39,000) | |
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Net cash used in investing activities of continuing operations | (70,955) | | | (60,547) | |
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Financing activities: | | | |
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Payments of finance lease obligations | (529) | | | (528) | |
Proceeds from senior credit facility | 65,000 | | | 20,000 | |
Payments on senior credit facility | (20,000) | | | 0 | |
Payments on earn-out liability | (5,284) | | | 0 | |
Proceeds from exercise of stock options | 1,901 | | | 2,063 | |
Payments of cash dividends | (15,090) | | | (15,421) | |
Repurchase of common stock (repurchase program) | (45,248) | | | (47,906) | |
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Proceeds from common stock issued under employee stock purchase plan | 294 | | | 261 | |
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Cash settlement of share-based awards for tax withholdings | (3,444) | | | (3,032) | |
(Distributions to) contributions from subsidiary held for sale | (8,897) | | | 6,452 | |
Net cash used in financing activities from continuing operations | (31,297) | | | (38,111) | |
Net (decrease) increase in cash of continuing operations | (21,759) | | | 9,167 | |
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Cash from discontinued operations: | | | |
Cash (used in) provided by operating activities of discontinued operations, net | (8,090) | | | 9,906 | |
Cash used in investing activities of discontinued operations, net | (807) | | | (3,454) | |
Cash provided by (used in) financing activities of discontinued operations, net | 8,897 | | | (6,452) | |
Net (decrease) increase in cash | (21,759) | | | 9,167 | |
Cash at beginning of period of continuing operations | 64,749 | | | 25,657 | |
Cash at beginning of period of discontinued operations/held for sale | 0 | | | 0 | |
Net (decrease) increase in cash | (21,759) | | | 9,167 | |
Less: cash at end of period of discontinued operations/held for sale | 0 | | | 0 | |
Cash at end of period of continuing operations | $ | 42,990 | | | $ | 34,824 | |
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Forward Air Corporation |
Condensed Consolidated Statements of Cash Flows |
(In thousands) |
(Unaudited) |
| |
| Three Months Ended |
| March 31, 2021 | | March 31, 2020 |
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Operating activities: | | | |
Net income from continuing operations | $ | 16,714 | | | $ | 11,415 | |
Adjustments to reconcile net income of continuing operations to net cash provided by operating activities of continuing operations | | | |
Depreciation and amortization | 9,237 | | | 9,334 | |
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Change in fair value of earn-out liability | (48) | | | (594) | |
Share-based compensation expense | 2,597 | | | 3,078 | |
Provision for revenue adjustments | 1,777 | | | 1,042 | |
Deferred income tax expense | (505) | | | 1,225 | |
Other | 92 | | | (265) | |
Changes in operating assets and liabilities, net of effects from the purchase of businesses: | | | |
Accounts receivable | (28,023) | | | 3,040 | |
Other receivables | (13,339) | | | 0 | |
Other current and noncurrent assets | 7,085 | | | 2,776 | |
Accounts payable and accrued expenses | 21,326 | | | (223) | |
Net cash provided by operating activities of continuing operations | 16,913 | | | 30,828 | |
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Investing activities: | | | |
Proceeds from sale of property and equipment | 665 | | | 720 | |
Purchases of property and equipment | (2,695) | | | (2,651) | |
Purchase of a business, net of cash acquired | (15,000) | | | (55,931) | |
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Net cash used in investing activities of continuing operations | (17,030) | | | (57,862) | |
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Financing activities: | | | |
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Repayments of finance lease obligations | (467) | | | (336) | |
Proceeds from revolving credit facility | 0 | | | 65,000 | |
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Proceeds from issuance of common stock upon stock option exercises | 2,147 | | | 0 | |
Payments of dividends to stockholders | (5,797) | | | (5,050) | |
Repurchases of common stock | (9,998) | | | (15,259) | |
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Payment of minimum tax withholdings on share-based awards | (2,744) | | | (2,672) | |
Contributions from (distributions to) subsidiary held for sale | 1,118 | | | (2,153) | |
Net cash (used in) provided by financing activities from continuing operations | (15,741) | | | 39,530 | |
Net (decrease) increase in cash and cash equivalents of continuing operations | (15,858) | | | 12,496 | |
| | | |
Cash from discontinued operation: | | | |
Net cash used in operating activities of discontinued operation | (6,902) | | | (1,662) | |
Net cash provided by (used in) investing activities of discontinued operation | 8,020 | | | (491) | |
Net cash (used in) provided by financing activities of discontinued operation | (1,118) | | | 2,153 | |
Net (decrease) increase in cash and cash equivalents | (15,858) | | | 12,496 | |
Cash and cash equivalents at beginning of period of continuing operations | 40,254 | | | 64,749 | |
Cash at beginning of period of discontinued operation | 0 | | | 0 | |
Net (decrease) increase in cash and cash equivalents | (15,858) | | | 12,496 | |
Less: cash at end of period of discontinued operation | 0 | | | 0 | |
Cash and cash equivalents at end of period of continuing operations | $ | 24,396 | | | $ | 77,245 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
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Forward Air Corporation |
Consolidated Statements of Shareholders' Equity |
(In thousands) |
(Unaudited) |
| | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Total Shareholders' Equity |
| Shares | | Amount | | | |
Balance at December 31, 2019 | 27,850 | | | $ | 279 | | | $ | 226,869 | | | $ | 350,034 | | | $ | 577,182 | |
Net income and comprehensive income | — | | | — | | | — | | | 8,375 | | | 8,375 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Share-based compensation | — | | | — | | | 3,266 | | | — | | | 3,266 | |
Dividends ($0.18 per share) | — | | | — | | | 2 | | | (5,052) | | | (5,050) | |
Cash settlement of share-based awards for tax withholdings | (42) | | | — | | | — | | | (2,672) | | | (2,672) | |
Share repurchases | (268) | | | (3) | | | — | | | (15,256) | | | (15,259) | |
Vesting of previously non-vested shares | 139 | | | 1 | | | (2) | | | — | | | (1) | |
| | | | | | | | | |
Balance at March 31, 2020 | 27,679 | | | $ | 277 | | | $ | 230,135 | | | $ | 335,429 | | | $ | 565,841 | |
Net income and comprehensive income | — | | | — | | | — | | | 3,155 | | | 3,155 | |
| | | | | | | | | |
| | | | | | | | | |
Common stock issued under employee stock purchase plan | 7 | | | — | | | 295 | | | — | | | 295 | |
Share-based compensation | — | | | — | | | 2,654 | | | — | | | 2,654 | |
Dividends ($0.18 per share) | — | | | — | | | 3 | | | (5,042) | | | (5,039) | |
Cash settlement of share-based awards for tax withholdings | (13) | | | — | | | — | | | (613) | | | (613) | |
| | | | | | | | | |
Vesting of previously non-vested shares | 56 | | | — | | | (1) | | | — | | | (1) | |
| | | | | | | | | |
Balance at June 30, 2020 | 27,729 | | | $ | 277 | | | $ | 233,086 | | | $ | 332,929 | | | $ | 566,292 | |
Net income and comprehensive income | — | | | — | | | — | | | 16,647 | | | 16,647 | |
| | | | | | | | | |
Exercise of stock options | 42 | | | 1 | | | 1,901 | | | — | | | 1,902 | |
| | | | | | | | | |
Share-based compensation | — | | | — | | | 2,507 | | | — | | | 2,507 | |
Dividends ($0.18 per share) | — | | | — | | | 3 | | | (5,008) | | | (5,005) | |
Cash settlement of share-based awards for tax withholdings | (3) | | | — | | | — | | | (158) | | | (158) | |
Share repurchases | (519) | | | (5) | | | — | | | (29,984) | | | (29,989) | |
Vesting of previously non-vested shares | 9 | | | — | | | — | | | — | | | — | |
| | | | | | | | | |
Balance at September 30, 2020 | 27,258 | | | 273 | | | 237,497 | | | 314,426 | | | 552,196 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
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Forward Air Corporation |
Condensed Consolidated Statements of Shareholders’ Equity |
(In thousands) |
| | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Total Shareholders’ Equity |
| Shares | | Amount | | | |
Balance at December 31, 2020 | 27,316 | | | $ | 273 | | | $ | 242,916 | | | $ | 304,140 | | | $ | 547,329 | |
Net income | — | | | — | | | — | | | 11,181 | | | 11,181 | |
| | | | | | | | | |
Stock options exercised | 40 | | | — | | | 2,147 | | | — | | | 2,147 | |
| | | | | | | | | |
Share-based compensation expense | — | | | — | | | 2,613 | | | — | | | 2,613 | |
Payment of dividends to shareholders | — | | | — | | | 3 | | | (5,800) | | | (5,797) | |
Payment of minimum tax withholdings on share-based awards | (35) | | | — | | | — | | | (2,744) | | | (2,744) | |
Repurchases and retirement of common stock | (114) | | | (1) | | | — | | | (9,997) | | | (9,998) | |
Issuance of share-based awards | 111 | | | 1 | | | (1) | | | — | | | 0 | |
| | | | | | | | | |
Balance at March 31, 2021 | 27,318 | | | $ | 273 | | | $ | 247,678 | | | $ | 296,780 | | | $ | 544,731 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forward Air Corporation |
Consolidated Statements of Shareholders' Equity, continued |
(In thousands, except share data) |
| | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Total Shareholders' Equity |
| Shares | | Amount | | | |
Balance at December 31, 2018 | 28,535 | | | $ | 285 | | | $ | 210,296 | | | $ | 342,663 | | | $ | 553,244 | |
Net income and comprehensive income | — | | | — | | | — | | | 18,407 | | | 18,407 | |
Other | — | | | 2 | | | — | | | — | | | 2 | |
Exercise of stock options | 18 | | | — | | | 830 | | | — | | | 830 | |
| | | | | | | | | |
Share-based compensation | — | | | — | | | 3,047 | | | — | | | 3,047 | |
Dividends ($0.18 per share) | — | | | — | | | 1 | | | (5,190) | | | (5,189) | |
Cash settlement of share-based awards for tax withholdings | (44) | | | (1) | | | — | | | (2,720) | | | (2,721) | |
Share repurchases | (230) | | | (2) | | | — | | | (14,179) | | | (14,181) | |
Vesting of previously non-vested shares | 136 | | | — | | | — | | | — | | | — | |
| | | | | | | | | |
Balance at March 31, 2019 | 28,415 | | | $ | 284 | | | $ | 214,174 | | | $ | 338,981 | | | $ | 553,439 | |
Net income and comprehensive income | — | | | — | | | — | | | 22,330 | | | 22,330 | |
Other | — | | | — | | | (2) | | | (2) | | | (4) | |
Exercise of stock options | 10 | | | — | | | 448 | | | — | | | 448 | |
Common stock issued under employee stock purchase plan | 5 | | | — | | | 261 | | | — | | | 261 | |
Share-based compensation | — | | | — | | | 3,197 | | | — | | | 3,197 | |
Dividends ($0.18 per share) | — | | | — | | | 2 | | | (5,146) | | | (5,144) | |
Cash settlement of share-based awards for tax withholdings | (1) | | | — | | | — | | | (49) | | | (49) | |
Share repurchases | (407) | | | (4) | | | — | | | (24,432) | | | (24,436) | |
Vesting of previously non-vested shares | 18 | | | — | | | — | | | — | | | — | |
| | | | | | | | | |
Balance at June 30, 2019 | 28,040 | | | $ | 280 | | | $ | 218,080 | | | $ | 331,682 | | | $ | 550,042 | |
Net income and comprehensive income | — | | | — | | | — | | | 22,195 | | | 22,195 | |
| | | | | | | | | |
Exercise of stock options | 17 | | | — | | | 785 | | | — | | | 785 | |
| | | | | | | | | |
Share-based compensation | — | | | — | | | 2,762 | | | — | | | 2,762 | |
Dividends ($0.18 per share) | — | | | — | | | 2 | | | (5,090) | | | (5,088) | |
Cash settlement of share-based awards for tax withholdings | (4) | | | — | | | — | | | (262) | | | (262) | |
Share repurchases | (152) | | | (1) | | | — | | | (9,288) | | | (9,289) | |
Vesting of previously non-vested shares | 14 | | | — | | | — | | | — | | | — | |
| | | | | | | | | |
Balance at September 30, 2019 | 27,915 | | | 279 | | | 221,629 | | | 339,237 | | | 561,145 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
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The accompanying notes are an integral part of the financial statements. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Total Shareholders’ Equity |
| Shares | | Amount | | | |
Balance at December 31, 2019 | 27,850 | | | $ | 279 | | | $ | 226,869 | | | $ | 350,034 | | | $ | 577,182 | |
Net income | — | | | — | | | — | | | 8,375 | | | 8,375 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Share-based compensation expense | — | | | — | | | 3,266 | | | — | | | 3,266 | |
Payment of dividends to shareholders | — | | | — | | | 2 | | | (5,052) | | | (5,050) | |
Payment of minimum tax withholdings on share-based awards | (42) | | | — | | | — | | | (2,672) | | | (2,672) | |
Repurchases and retirement of common stock | (268) | | | (3) | | | — | | | (15,256) | | | (15,259) | |
Issuance of share-based awards | 139 | | | 1 | | | (2) | | | — | | | (1) | |
| | | | | | | | | |
Balance at March 31, 2020 | 27,679 | | | $ | 277 | | | $ | 230,135 | | | $ | 335,429 | | | $ | 565,841 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
1. Description of Business and Basis of Presentation
Basis of Presentation and Principles of Consolidation
Forward Air Corporation ("and its subsidiaries (“Forward Air” or the Company", "We", "Our"“Company”) is a leading asset-light freight and logistics company. Prior to the Company’s Board of Directors’ (the "Board") approval of a strategy to divest the Company's Pool Distribution business (“Pool”), its services were classified into 3 principal reportable segments: Expedited Freight, Intermodal and Pool. As a result of the decision to divest Pool, whichThe Company has been classified as a discontinued operation, the Company now has 2 principal reportable segments: Expedited Freight and Intermodal (see Note 14, Segment Reporting). See Note 4, Discontinued OperationsIntermodal. The Company conducts business in the United States and Held for Sale, for additional information regarding the decision to divest Pool.Canada.
Through theThe Expedited Freight segment the Company operates a comprehensive national network to provide expedited regional, inter-regional and national less-than-truckload ("LTL"(“LTL”) services. Expedited Freight offers customers local pick-up and delivery and other services including final mile, truckload, shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling.
The Company's Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and container freight station ("CFS"Container Freight Station (“CFS”) warehouse and handling services. Today, Intermodal operates primarily in the Midwest and Southeast, with a smaller operational presence in the Southwest United States.
The condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position, results of operations, and cash flows at the dates and for the periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Results for interim periods are not necessarily indicative of the results for the year.
The Board approved a strategy to divest the Pool which has been classified as a discontinued operation, providesDistribution business (“Pool”) on April 23, 2020, and the sale of Pool was completed on February 12, 2021. Pool provided high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. Pool offersoffered this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States.
The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Company’s operating results are subject to seasonal trends (as described in the Company's 2019 Form 10-K) when measured on a quarterly basis; therefore operating results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. For further information, refer to the consolidated financial statements and notes thereto included in the Forward Air Corporation Annual Report on Form 10-K for the year ended December 31, 2019.
The accompanying unaudited consolidated financial statements of the Company include Forward Air Corporation and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior period financial information to conform to the current year presentation.
Discontinued Operations
On April 23, 2020, the Board approved a strategy to divest Pool within the next year and accordingly, has been classified as assets held for sale as of September 30, 2020 and for all prior periods presented. Pool assets and liabilities are reflected as “Assets and liabilities held for sale” on the Consolidated Balance Sheets in this report. In addition, the results of operations for Pool have been presented as a discontinued operation in this report as discontinued operations. Amountsour Consolidated Statements of Comprehensive Income for all period presented. In addition, the assets and liabilities were presented as held for sale in the Consolidated Balance Sheets for the prior period. Unless otherwise noted, amounts, percentages and discussion for all periods discussed below reflect the results of operations, financial condition and cash flows from Forward Air’sour continuing operations, unless otherwise noted. See Note 4, operations.
Discontinued Operations
2. Revenue Recognition
Revenue is recognized when the Company satisfies the performance obligation by the delivery of a shipment in accordance with contractual agreements, bill of lading (“BOL”) and Heldgeneral tariff provisions. The amount of revenue recognized is measured as the consideration the Company expects to receive in exchange for Salethose services pursuant to a contract with a customer. A contract exists once the Company enters into a contractual agreement with a customer. The Company does not recognize revenue in cases where collectibility is not probable, and defers recognition until collection is probable or payment is received.
.
The Company generates revenue from the delivery of a shipment and the completion of related services. Revenue for the delivery of a shipment is recorded over time to coincide with when customers simultaneously receive and consume the benefits of the delivery services. Accordingly, revenue billed to a customer for the transportation of freight are recognized over the transit period as the performance obligation to the customer is satisfied. The Company determines the transit period for a shipment based on the pick-up date and the delivery date, which may be estimated if delivery has not occurred as of a reporting period. The determination of the transit period and how much of it has been completed as of a given reporting date may require the Company to make judgments that impact the timing of revenue recognized. For delivery of shipments with a pick-up date in one reporting period and a delivery date in another reporting period, the Company recognizes revenue based on relative transit time in each reporting period. A portion of the total revenue to be billed to the customer after completion of a delivery is
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
Userecognized in each reporting period based on the percentage of Estimates
The preparationtotal transit time that has been completed at the end of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
In particular, management has made estimates and assumptionsapplicable reporting period. Upon delivery of a shipment or related service, customers are billed according to the impact of the novel coronavirus ("COVID-19") on its business. The current environment resulting from COVID-19 is unprecedented and comes with a great deal of uncertainty as discussed further throughout this document.
2. Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which replaces the incurred loss methodology previously employed to measure credit losses for most financial assets and requires the use of a forward-looking expected loss model. Under current accounting guidance, credit losses are recognized when it is probable a loss has been incurred. The updated guidance will require financial assets to be measured at amortized costs less a reserve, equal to the net amount expected to be collected. This standard is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard as of January 1, 2020, which resulted in the Company revising its allowance for doubtful accounts policy on a prospective basis. The adoption of this standard did not have a material impact on the Company's financial statements.
The Company has a broad range of customers, including freight forwarders, third-party logistics (“3PL”) companies, passenger and cargo airlines, steamship lines, and retailers, located across a diverse geography. In addition, the Company does not have a significant concentration of credit risk; no single customer accounts for more than 10% of its consolidated revenue. In circumstances in which the Company is aware of a specific customer’s inability to meet its financial obligations to the Company (for example, bankruptcy filings, accounts turned over for collection, or litigation), the Company records a specific reserve for these bad debts against amounts due, in order to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes a general reserve based on a percentage of revenue to ensure accounts receivables are properly recorded at the net amount expected to be collected. Management evaluates the collectability of its accounts receivables at least quarterly and sets the reserve based on historical and current collection history and reasonable and supportable forecasts about any expected changes to our collection experience in the future due to changing economic conditions. If circumstances change (i.e., the Company experiences higher than expected defaults or an unexpected material adverse change in a customer’s ability to meet its financial obligations to the Company), the estimates of the recoverability of amounts due to the Company could be changed by a material amount. Accounts are written off after all means of collection, including legal action, have been exhausted.
3. Revenue
The Company's revenue is generated from providing transportation and related services to customers in accordance with contractual agreements, bill of lading ("BOL") contracts and general tariff provisions.applicable payment terms. Related services are a separate performance obligation and include accessorial charges such as terminal handling, storage, equipment rentals and customs brokerage. These services are distinct and are accounted for as separate performance obligations. Generally, the Company's performance obligations begin when a customer's BOL is received and are satisfied when the delivery of a shipment and related services are completed. The Company generally recognizes revenue for its services over time to coincide with when its customers simultaneously receive and consume the benefits of these services. Performance obligations are short-term with transit days typically less than a week. Upon delivery of a shipment or related service, customers are billed and remit payment according to payment terms.
Excluding Pool,Revenue is classified based on the Company'sline of business as the Company believes this best depicts the nature, timing and amount of revenue from contracts with customersand cash flows. For all lines of business, the Company records revenue on a gross basis as it is disclosed within 2 reportable segments: Expedited Freightthe principal in the transaction as the Company has discretion to determine the amount of consideration. Additionally, the Company has the discretion to select drivers and Intermodal. This is consistent with disclosuresother vendors for the services provided to customers. These factors, discretion in earnings releasesthe amount of consideration and annual reportsthe selection of drivers and with the information regularly reviewed by the Chief Operating Decision Maker ("CODM") for evaluating financial performance. See additional discussion in Note 14, Segment Reporting.other vendors, support revenue recognized on a gross basis.
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
4.3. Discontinued OperationsOperation and Held for Sale
OnAs previously disclosed, on April 23, 2020, the Board approvedCompany made a strategydecision to divest of Pool. The Pool withinbusiness met the next year. Accordingly,criteria for held for sale classification. As a result, the assets and liabilities of Pool has been classified aswere presented separately under the captions “Current assets held for sale as of September 30, 2020 andsale”, “Noncurrent assets held for all prior periods presented. Pool assets and liabilities are reflected as “Assets andsale”, “Current liabilities held for sale” onand “Noncurrent liabilities held for sale” in the Condensed Consolidated Balance Sheets in this report. In addition, the resultsas of operations for Pool have been presented in this report as discontinued operations.
Upon meeting the assets held for sale criteria and during its annual goodwill impairment analysis, the Company evaluated whether Pool's estimated fair value, less costs to sell, exceeded the carrying value of its assets and liabilities. As a result of that assessment, we determined that the fair value of Pool exceeded its carrying value by approximately 5%. In addition, during the three months ended September 30, 2020, no indicators of goodwill impairment were identified, and the Company believes the fair value of Pool exceeds its carrying value.
December 31, 2020. The results of Pool were previously includedreclassified to “Loss from discontinued operation, net of tax” in its own segment. The Company will continue to have 2 reporting segments: Expedited Freightthe Condensed Consolidated Statements of Comprehensive Income for three months ended March 31, 2021 and Intermodal, which is consistent with the way the CODM reviews operating results and makes resource decisions (See Note 14, Segment Reporting).2020. Certain corporate overhead and other costs previously allocated to Pool for segment reporting purposes did not qualify for classification within discontinued operationsoperation and have been reallocated to continuing operations. These costs have beenwere reclassified to the eliminations and other column in the segment reconciliation that appears in Note 14,13, Segment Reporting.
Sale of Pool
On February 12, 2021, the Company completed the sale of the Pool business for $8,000 in cash and up to a $12,000 earn-out based on earnings before interest, taxes, depreciation and amortization. The sale agreement for Pool included an earn-out based on the achievement of certain earnings before interest, taxes, depreciation and amortization attainment over an eleven-month period, beginning February 1, 2021. The Company will receive payment for the amount earned in the first quarter of 2022, and if elected, the buyer may defer the payment of up to half of the amount earned to first quarter of 2023. The preliminary estimated fair value of the earn-out asset on the date of sale was $6,967. The fair value was based on the estimated eleven-month period of the earnings before interest, taxes, depreciation and amortization and was calculated using a Monte Carlo simulation model.
The weighted-average assumptions under the Monte Carlo simulation model were as follows:
| | | | | |
| February 12, 2021 |
Counterparty credit spread | 1.2% |
Earnings before interest, taxes, depreciation and amortization discount rate | 15.0% |
Asset volatility | 55.0% |
Subsequent to the date of sale, the Company will recognize any increases in the carrying value of the earn-out asset when the change is realized and will evaluate the earn-out asset for impairment at each reporting period. As of March 31, 2021, the Company recorded $3,508 in “Other receivables” and $3,459 in “Other assets” in the Condensed Consolidated Balance Sheets.
Transition Services Agreement
On February 12, 2021, the Company entered into a Transition Services Agreement (“TSA”) with TOG FAS Holdings LLC, the buyer of the Pool business. Under the TSA, the Company performs certain services on an interim basis in order to facilitate the orderly transition of the Pool business. The effective date of the TSA was February 12, 2021 and will remain in effective until the date all services have been completed, but no more than six months following effective date. The TSA provides the right to extend the term of the TSA with no limit on the number of the mutually agreed upon extensions. In exchange for the services performed by the Company under the TSA, the Company receives a monthly service charge. For the
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
three months ended March 31, 2021, the Company recorded $171 of the fee received, in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income, for the services performed under the TSA.
Additionally, under the TSA, the Company remits payments to outside vendors on behalf of TOG FAS Holdings LLC for expenses incurred by the Pool business up to a limit of $18,000. The Company is reimbursed by TOG FAS Holdings LLC within 60 days from the end of the month in which the payment is remitted. As of March 31, 2021, the Company recorded a receivable in the amount of $13,339 in “Other receivables” in the Condensed Consolidated Balance Sheets for the reimbursement due to the Company.
Summarized Held for Sale and Discontinued OperationsOperation Financial Information
The following table provides a reconciliationA summary of the carrying amountsresults of major classesoperations classified as a discontinued operation, net of assets and liabilities which are included in assets and liabilities held for saletax, in the accompanyingCondensed Consolidated Balance SheetsStatements of Comprehensive Income for the three months ended March 31, 2021 and 2020 is as of each of the periods presented below:follows:
| | | | | | | | | | | |
|
|
|
|
| September 30, 2020 | | December 31, 2019 |
Assets | | | |
Current assets: | | | |
| | | |
Accounts receivable, less allowance of $108 in 2020 and $49 in 2019 | $ | 16,164 | | | $ | 13,983 | |
Other current assets | 761 | | | 969 | |
| | | |
Total current assets held for sale | $ | 16,925 | | | $ | 14,952 | |
| | | |
Property and equipment | $ | 51,199 | | | $ | 53,166 | |
Less accumulated depreciation and amortization | 31,480 | | | 32,891 | |
Total property and equipment, net | 19,719 | | | 20,275 | |
Operating lease right-of-use assets | 47,568 | | | 46,487 | |
Goodwill and other acquired intangibles: | | | |
Goodwill | 5,406 | | | 5,406 | |
Other acquired intangibles, net of accumulated amortization of $12,679 in 2020 and $12,359 in 2019 | 2,621 | | | 2,941 | |
Total goodwill and other acquired intangibles, net | 8,027 | | | 8,347 | |
Other assets | 2,749 | | | 1,595 | |
Total noncurrent assets held for sale | $ | 78,063 | | | $ | 76,704 | |
| | | |
| | | |
Liabilities | | | |
Current liabilities: | | | |
Accounts payable | $ | 3,501 | | | $ | 4,575 | |
Accrued expenses | 5,720 | | | 5,668 | |
Other current liabilities | 0 | | | 2 | |
| | | |
Current portion of operating lease obligations | 16,785 | | | 14,729 | |
Total current liabilities held for sale | $ | 26,006 | | | $ | 24,974 | |
| | | |
| | | |
Operating lease obligations, less current portion | $ | 30,851 | | | $ | 31,847 | |
Other long-term liabilities | 4,192 | | | 2,368 | |
Deferred income taxes | 4,184 | | | 2,728 | |
Total noncurrent liabilities held for sale | $ | 39,227 | | | $ | 36,943 | |
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|
| Three Months Ended | | |
| March 31, 2021 | | March 31, 2020 | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
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| | | | | | | |
Operating revenue | $ | 17,087 | | | $ | 36,952 | | | | | |
| | | | | | | |
Operating expenses: | | | | | | | |
Purchased transportation | 4,290 | | | 9,536 | | | | | |
Salaries, wages and employee benefits | 9,674 | | | 17,113 | | | | | |
Operating leases | 2,907 | | | 5,680 | | | | | |
Depreciation and amortization | 0 | | | 1,295 | | | | | |
Insurance and claims | 929 | | | 1,726 | | | | | |
Fuel expense | 644 | | | 1,327 | | | | | |
Other operating expenses | 2,087 | | | 4,345 | | | | | |
Total operating expenses | 20,531 | | | 41,022 | | | | | |
Loss from discontinued operation | (3,444) | | | (4,070) | | | | | |
Loss on sale of business | (2,860) | | | 0 | | | | | |
Loss from discontinued operation before income taxes | (6,304) | | | (4,070) | | | | | |
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| | | | | | | |
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Income tax benefit | (771) | | | (1,030) | | | | | |
| | | | | | | |
Loss from discontinued operation, net of tax | $ | (5,533) | | | $ | (3,040) | | | | | |
| | | | | | | |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
The following table summarizes the results of operations classified as discontinued operations, net of tax, in the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019:
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|
|
|
|
| Three months ended | | Nine months ended |
| September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| | | | | | | |
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Operating revenue | $ | 37,521 | | | $ | 47,980 | | | $ | 88,447 | | | $ | 133,359 | |
| | | | | | | |
Operating expenses: | | | | | | | |
Purchased transportation | 8,700 | | | 13,310 | | | 21,383 | | | 36,461 | |
Salaries, wages and employee benefits | 17,012 | | | 18,727 | | | 42,519 | | | 51,569 | |
Operating leases | 5,304 | | | 4,661 | | | 15,950 | | | 13,159 | |
Depreciation and amortization | 0 | | | 1,512 | | | 1,657 | | | 4,505 | |
Insurance and claims | 1,525 | | | 1,398 | | | 4,538 | | | 4,254 | |
Fuel expense | 1,045 | | | 1,468 | | | 2,785 | | | 4,423 | |
Other operating expenses | 4,467 | | | 5,401 | | | 12,309 | | | 14,975 | |
| | | | | | | |
Total operating expenses | 38,053 | | | 46,477 | | | 101,141 | | | 129,346 | |
(Loss) income from discontinued operations before income taxes | (532) | | | 1,503 | | | (12,694) | | | 4,013 | |
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Income tax (benefit) expense | (187) | | | 362 | | | (3,236) | | | 1,068 | |
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(Loss) income from discontinued operations, net of tax | $ | (345) | | | $ | 1,141 | | | $ | (9,458) | | | $ | 2,945 | |
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5.4. Acquisitions and Long-Lived Assets
Expedited Freight AcquisitionsAcquisition
As part of the Company'sCompany’s strategy to expand final mile pickup and delivery operations, in January 2020, the Company acquired certain assets and liabilities of Linn Star Holdings, Inc., Linn Star Transfer, Inc. and Linn Star Logistics, LLC (collectively, “Linn Star”) for $57,239. This acquisition increased the Company's Final Mile capabilities with an additional 20 locations. In addition, in April 2019, the Company acquired certain assets and liabilities of FSA Network, Inc., doing business as FSA Logistix (“FSA”), for $27,000 and a potential earnoutearn-out of up to $15,000. Both transactions were funded using cash flows from operations. The assets, liabilities, and operating results of these acquisitions have beenpurchase agreement for FSA included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the Expedited Freight reportable segment.
The FSA acquisition agreement provides the sellers an earnout opportunity ofearn-out up to $15,000 based on the achievement of certain revenue milestones over two2 one-year periods, beginning May 1, 2019. UponThe estimated fair value of the earn-out liability on the date of acquisition was $11,803. The fair value was based on the estimated two-year performance of the acquired customer revenue and was calculated using a Monte Carlo simulation model. The fair value of the earn-out liability was adjusted at each reporting period based on changes in the expected cash flows and related assumptions used in the Monte Carlo simulation model. During the three months ended March 31, 2021 and 2020, the fair value of the earn-out changed by ($48) and ($594), respectively, and the change in fair value was recorded in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income. The first one-year period ended in the second quarter of 2020 and the Company paid $5,284 based on the terms of the purchase agreement. The second one-year period will end in the second quarter of 2021. As of March 31, 2021 and December 31, 2020, the fair value of the earn-out liability was $11,803$6,817 and $6,865, respectively, which was reflected in “Other current liabilities” in the Condensed Consolidated Balance Sheets.
Intermodal Acquisition
In February 2021, the Company acquired certain assets and liabilities of Proficient Transport Incorporated and Proficient Trucking, Inc. (together “Proficient Transport”) for $15,000 and a potential earn-out up to $2,000. Proficient Transport is an intermodal drayage company headquartered in Chicago, Illinois. The acquisition of Proficient Transport supports the Company’s strategic growth plan by expanding the intermodal footprint in Georgia, Illinois, North Carolina, and Texas, and introduces a new location in Ohio. The acquisition was financed by cash flows from operations. The results of Proficient Transport have been included in other currentthe Company’s Condensed Consolidated Financial Statements as of and long-term liabilitiesfrom the date of acquisition. The associated goodwill has been included in the opening consolidated balance sheet. Company’s Intermodal reportable segment.
The purchase agreement for Proficient Transport included an earn-out up to $2,000 based on the achievement of certain revenue milestones over a one-year period, beginning March 1, 2021. The estimated fair value of the earn-out liability on the date of acquisition was classified as level 3 of the fair value hierarchy as defined in the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“the FASB Codification”) and the value was determined based on estimated revenues and the probability of achieving them.$815. The fair value was based on the two-yearestimated one-year performance of FSA'sthe acquired customer revenue and was estimatedcalculated using a Monte Carlo simulation.simulation model. The weighted-average assumptions under the Monte Carlo simulation model were as follows:
| | | | | |
| February 28, 2021 |
Risk-free rate | 0.1% |
Revenue discount rate | 8.8% |
Revenue volatility | 27.3% |
As of March 31, 2021, the fair value of the earn-out liability was $815, which was reflected in “Other current liabilities” in the Condensed Consolidated Balance Sheets.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021
Fair Value of Assets Acquired and Liabilities Assumed
Assets acquired and liabilities assumed as of the acquisition date are presented in the following table:
| | | | | |
| Proficient Transport |
| February 28, 2021 |
Tangible assets: | |
| |
Accounts receivable, net | $ | 3,865 | |
| |
| |
Property and equipment | 140 | |
Other assets | 10 | |
| |
| |
Total tangible assets | 4,015 | |
Intangible assets: | |
Customer relationships | 6,060 | |
Non-compete agreements | 18 | |
| |
Goodwill | 5,754 | |
Total intangible assets | 11,832 | |
Total assets acquired | 15,847 | |
| |
Liabilities assumed: | |
Current liabilities | 32 | |
| |
| |
| |
| |
Total liabilities assumed | 32 | |
Net assets acquired | $ | 15,815 | |
The fair value of the assets acquired and liabilities assumed are preliminary based on the information available as of the acquisition date through the date of this filing.
The weighted-average useful life of acquired intangible assets as of the acquisition date are summarized in the following table:
| | | | | |
| Weighted-Average Useful Lives |
Customer relationships | 8 years |
Non-compete agreements | 1 year |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021
5. Goodwill and Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill during the three months ended March 31, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Expedited Freight | | Intermodal | | Consolidated |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Balance as of December 31, 2020 | $ | 165,268 | | | $ | 79,714 | | | $ | 244,982 | |
Acquisition | 0 | | | 5,754 | | | 5,754 | |
Balance as of March 31, 2021 | $ | 165,268 | | | $ | 85,468 | | | $ | 250,736 | |
Goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The Company conducts its annual impairment analyses as of June 30 each year. Based on the current macroeconomic conditions, the Company assessed its goodwill and other intangible assets for indications of impairment as of March 31, 2021 and concluded there were no indicators of impairment during the three months ended March 31, 2021.
Other Intangible Assets
Changes in the carrying amount of acquired intangible assets during the three months ended March 31, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Carrying Amount |
| | Customer Relationships1 | | Non-Compete Agreements | | Trade Names | | Total |
Balance as of December 31, 2020 | | $ | 228,416 | | | $ | 8,125 | | | $ | 1,500 | | | $ | 238,041 | |
Acquisition | | 6,060 | | | 18 | | | 0 | | | 6,078 | |
Balance as of March 31, 2021 | | $ | 234,476 | | | $ | 8,143 | | | $ | 1,500 | | | $ | 244,119 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accumulated Amortization |
| | Customer Relationships1 | | Non-Compete Agreements | | Trade Names | | Total |
Balance as of December 31, 2020 | | $ | 85,930 | | | $ | 5,579 | | | $ | 1,500 | | | $ | 93,009 | |
Amortization expense | | 3,104 | | | 338 | | | 0 | | | 3,442 | |
Balance as of March 31, 2021 | | $ | 89,034 | | | $ | 5,917 | | | $ | 1,500 | | | $ | 96,451 | |
1Carrying value as of March 31, 2021 and December 31, 2020 is inclusive of $16,501 of accumulated impairment.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
The initial weighted average assumptions used in the Monte Carlo simulation are summarized in the following table:
| | | | | | | | | | | | | | | | | |
| FSA Earn-out |
| April 21, 2019 | | December 31, 2019 | | September 30, 2020 |
Risk-free rate | 2.9% | | 2.2% | | 2.0% |
Revenue discount rate | 4.4% | | 4.4% | | 3.2% |
Revenue volatility | 3.0% | | 5.0% | | 7.0% |
In June 2020, the
6. Stock Incentive Plans
The Company paid the first period earn-out payment of $5,284; the second and final payment is expected to be paid in the second quarter of 2021. Duringrecorded shared-based compensation expense as follows for the three months ended September 30,March 31, 2021 and 2020 the earn-out fair value increased $493 to $4,277, which is classified as a current liability. The change in fair value is included in other operating expenses and is based on changes in expected cash flows and expected new business wins.(in thousands):
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2021 | | March 31, 2020 |
Salaries, wages and employee benefits - continuing operations | $ | 2,269 | | | $ | 2,817 | |
Salaries, wages and employee benefits - discontinued operation | 16 | | 188 |
Total share-based compensation expense | $ | 2,285 | | | $ | 3,005 | |
Intermodal AcquisitionsStock Incentive Plan
In May 2016, the Company adopted the 2016 Omnibus Incentive Compensation Plan (the “Omnibus Plan”) for the issuance of up to 2,000 common shares. As of March 31, 2021, approximately 793 shares remain available for grant under the Omnibus Plan.
Stock Options
Share-based compensation expense associated with stock options is amortized ratably over the requisite service period. The Company estimates the fair value of the grants using the Black-Scholes option-pricing model. Stock option transactions during the three months ended March 31, 2021 on a continuing operations basis were as follows:
| | | | | | | | | | | |
| Stock Options | | Weighted-Average Exercise Price |
Outstanding as of December 31, 2020 | 359 | | | $ | 55.79 | |
Granted | 39 | | | 75.05 | |
Exercised | (26) | | | 54.26 | |
Forfeited | 0 | | | 0 | |
Outstanding as of March 31, 2021 | 372 | | | $ | 58.06 | |
As part of March 31, 2021, the Company's strategytotal share-based compensation expense related to expand its Intermodal operations, in July 2019,unvested stock options net yet recognized was approximately $1,250, and the Company acquired certain assets and liabilities of O.S.T. Logistics, Inc. and O.S.T. Trucking Co., Inc. (together referredweighted average period over which it is expected to as “OST”) for $12,000. OSTbe recognized is a drayage company and expanded the Company's intermodal footprint on the East Coast, primarily in Baltimore, Maryland, with additional locations in Pennsylvania, Virginia, South Carolina and Georgia. This transaction was funded using cash flows from operations. The assets, liabilities, and operating results of the acquisition have been included in the Company's consolidated financial statements from the date of acquisition and have been included in the Intermodal reportable segment.approximately two years.
Stock option transactions during the three months ended March 31, 2021 on a discontinued operation basis were as follows:
| | | | | | | | | | | |
| Stock Options | | Weighted-Average Exercise Price |
Outstanding at December 31, 2020 | 14 | | | $ | 52.15 | |
Granted | 0 | | | 0 | |
Exercised | (14) | | | 52.15 | |
Forfeited | 0 | | | 0 | |
Outstanding at March 31, 2021 | 0 | | | $ | 0 | |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
Allocations of Purchase Price
The following table presents the allocations of the previously discussed acquisition purchase prices to the assets acquired and liabilities assumed based on their estimated fair values and resulting residual goodwill (in thousands):
| | | | | | | | | | | |
| | | |
| FSA | OST | Linn Star |
| April 21, 2019 | July 14, 2019 | January 12, 2020 |
Tangible assets: | | | |
Cash | $ | 202 | | $ | — | | $ | 1,308 | |
| | | |
Other receivables | 1,491 | | — | | — | |
Prepaid expenses and other current assets | — | | — | | 1,182 | |
Property and equipment | 40 | | 10,371 | | 605 | |
| | | |
Operating lease right-of-use assets | 3,209 | | 1,672 | | 10,011 | |
| | | |
Total tangible assets | 4,942 | | 12,043 | | 13,106 | |
Intangible assets: | | | |
Non-compete agreements | 900 | | 850 | | 450 | |
| | | |
Customer relationships | 17,900 | | 5,700 | | 29,800 | |
Goodwill | 19,963 | | 2,050 | | 25,234 | |
Total intangible assets | 38,763 | | 8,600 | | 55,484 | |
Total assets acquired | 43,705 | | 20,643 | | 68,590 | |
| | | |
Liabilities assumed: | | | |
Current liabilities | 8,466 | | — | | 1,340 | |
Other liabilities | 5,030 | | — | | — | |
Debt and finance lease obligations | — | | 6,971 | | — | |
Operating lease obligations | 3,209 | | 1,672 | | 10,011 | |
| | | |
Total liabilities assumed | 16,705 | | 8,643 | | 11,351 | |
Net assets acquired | $ | 27,000 | | $ | 12,000 | | $ | 57,239 | |
Restricted Shares
The above purchase price allocation for Linn StarRestricted shares are restricted from sale or transfer until vesting, and restrictions lapse in three equal installments beginning one year after the date of grant. Share-based compensation expense associated with these awards is preliminaryamortized ratably over the requisite service period. Restricted share transactions during the three months ended March 31, 2021 on a continuing operations basis were as follows:
| | | | | | | | | | | |
| Restricted Shares | | Weighted-Average Grant Date Fair Value |
Outstanding as of December 31, 2020 | 213 | | | $ | 62.78 | |
Granted | 108 | | | 75.14 | |
Vested | (96) | | | 61.38 | |
Forfeited | (11) | | | 69.13 | |
Outstanding as of March 31, 2021 | 214 | | | $ | 69.31 | |
As of March 31, 2021, the Companytotal share-based compensation expense related to the restricted shares net yet recognized was approximately $13,179, and the weighted-average period over which it is still inexpected to be recognized is approximately two years.
Restricted share transactions during the process of finalizing the valuation of the acquired assets and liabilities assumed. The above estimated fair values of assets acquired and liabilities assumedthree months ended March 31, 2021 on a discontinued operation basis were as follows:
| | | | | | | | | | | |
| Restricted Shares | | Weighted-Average Grant Date Fair Value |
Outstanding as of December 31, 2020 | 8 | | | $ | 60.83 | |
Granted | 0 | | | 0 | |
Vested | (4) | | | 61.78 | |
Forfeited | (4) | | | 61.37 | |
Outstanding as of March 31, 2021 | 0 | | | $ | 0 | |
Performance Awards
Performance awards are based on achieving certain financial targets, such as targets for earnings before interest, taxes, depreciation and amortization, and the information that was availableCompany’s total shareholder return as compared to the total shareholder return of a selected peer group, as determined by the Company’s Board of Directors. Performance targets are set at the beginning of each three-year measurement period. Share-based compensation expense associated with these awards is amortized ratably over the vesting period. Depending on the financial target, the compensation expense is based on the projected assessment of the acquisition date through the datelevel of this filing. The acquired definite-lived intangible assets have the following useful lives:
| | | | | | | | | | | |
| Useful Lives |
| FSA | OST | Linn Star |
Non-compete agreements | 5 years | 3 years | 1 year |
Customer relationships | 15 years | 10 years | 15 years |
performance that will be achieved.
The fair valuePerformance award transactions during the three months ended March 31, 2021 on a continuing operations basis were as follows assuming target levels of the non-compete agreements and customer relationships were estimated using an income approach (level 3). Under this method, an intangible asset's fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. To estimate fair value, the Company used cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset. The Company believed the level and timing of cash flows appropriately reflected market participant assumptions. Cash flows were assumed to extend through the remaining economic useful life of each class of intangible asset.
performance:
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
Goodwill | | | | | | | | | | | |
| Performance Awards | | Weighted-Average Grant Date Fair Value |
Outstanding as of December 31, 2020 | 65 | | | $ | 67.62 | |
Granted | 36 | | | 87.33 | |
| | | |
Earned | (11) | | | 92.89 | |
Forfeited | (11) | | | 70.22 | |
Outstanding as of March 31, 2021 | 79 | | | $ | 75.61 | |
GoodwillAs of March 31, 2021, the total share-based compensation expense related to unearned performance awards not yet recognized, assuming the Company's current projected assessment of the level of performance that will be achieved, was approximately $3,652, and the weighted-average period over which it is allocated to reporting units that are expected to benefit from the business combinations generating the goodwill. Excluding Pool, the Company has 4 reporting units - Expedited LTL, Truckload, Final Mile and Intermodal. As discussed in Note 4, Discontinued Operations and Held for Sale, the carrying amounts of Pool's assets and liabilities, including goodwill, are classified as held for sale in the accompanying Consolidated Balance Sheets and its operating results are not part of the continuing operations of the Company.
In evaluating whether events or changes in circumstances indicate that an interim impairment assessmentbe recognized is required, management considers if there were any indicators that exist that may impair the carrying value of the Company’s goodwill. During theapproximately three months ended September 30, 2020, no indicators of goodwill impairment were identified and an interim impairment test was not required as the Company does not believe it is more likely than not that the carrying value of any of its reporting units exceeds its fair value.
The following is a summary of the Company's goodwill as of September 30, 2020. Approximately $161,789 of goodwill is deductible for tax purposes.
| | | | | | | | | | | | | | | | | |
| Beginning balance, December 31, 2019 | | Linn Star Acquisition | | Ending balance, September 30, 2020 |
Expedited LTL | | | | | |
Goodwill | $ | 97,593 | | | $ | — | | | $ | 97,593 | |
Accumulated Impairment | — | | | — | | | — | |
| | | | | |
Truckload | | | | | |
Goodwill | 45,164 | | | — | | | 45,164 | |
Accumulated Impairment | (25,686) | | | — | | | (25,686) | |
| | | | | |
Final Mile | | | | | |
Goodwill | 19,963 | | | 25,234 | | | 45,197 | |
Accumulated Impairment | — | | | — | | | — | |
| | | | | |
Intermodal | | | | | |
Goodwill | 78,665 | | | — | | | 78,665 | |
Accumulated Impairment | — | | | — | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total | | | | | |
Goodwill | 241,385 | | | 25,234 | | | 266,619 | |
Accumulated Impairment | (25,686) | | | — | | | (25,686) | |
| $ | 215,699 | | | $ | 25,234 | | | $ | 240,933 | |
Other Long-Lived Assets
The Company tests its long-lived assets (asset groups) for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Management evaluates long-lived assets for impairment at the lowest level for which cashflows are identifiable. In general, these assets are reviewed at the reporting unit level, discussed above, by significant asset category. Examples of significant asset categories include land, buildings, tractors, trailers, other equipment, leasehold improvements, right-of-use lease assets, customer relationships, non-compete agreements, software and inventory.
During the three months ended September 30, 2020, the Company determined no indicators of an impairment existed and all of its assets were recoverable. As such, no impairments to the Company's long-lived assets were identified.years.
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
6. Share-Based Payments
The Company’s general practice has been to make a single annual grant of share-based compensation in the first quarter to key employees and to make other employee grants only in connection with new employment or promotions. Forms of share-based compensation granted to employees by the Company include stock options, non-vested shares of common stock (“non-vested shares”), and performance shares. The Company also typically makes a single annual grant of non-vested shares to non-employee directors in conjunction with the annual election of non-employee directors to the Board of Directors. Share-based compensation is based on the grant date fair value of the instrument and is recognized ratably over the requisite service period or vesting period. All share-based compensation expense is recognized in salaries, wages and employee benefits. Share-based compensation amounts below are disclosed on both a continuing and discontinuing basis.
Employee Activity - Stock Options
Stock option grants to employees generally expire seven years from the grant date and typically vest ratably over a three-year period. All forfeitures were recognized as they occurred. The Company used the Black-Scholes option-pricing model to estimate the grant-date fair value of options granted. On a continuing basis, there were no options granted during the nine months ended September 30, 2019. Further, there were no options granted to employees of the Company's discontinued operations during the nine months ended September 30, 2020 or 2019. The weighted-average fair value of options granted and assumptions used to estimate their fair value during the nine months ended September 30, 2020 were as follows (on a continuing basis):
| | | | | | | |
| Nine months ended | | |
| September 30, 2020 | | |
Expected dividend yield | 1.1 | % | | |
Expected stock price volatility | 24.1 | % | | |
Weighted average risk-free interest rate | 1.5 | % | | |
Expected life of options (years) | 5.9 | | |
Weighted average grant date fair value | $ | 15 | | | |
The following tables summarize the Company’s employee stock option activity and related information on a continuing basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2020 |
| | | | | | | Weighted- |
| | | Weighted- | | | | Average |
| | | Average | | Aggregate | | Remaining |
| | | Exercise | | Intrinsic | | Contractual |
| Options | | Price | | Value | | Term |
Outstanding at December 31, 2019 | 417 | | | $ | 53 | | | | | |
Granted | 36 | | | 66 | | | | | |
Exercised | (42) | | | 46 | | | | | |
Forfeited | (4) | | | 60 | | | | | |
Outstanding at September 30, 2020 | 407 | | | $ | 55 | | | $ | (133) | | | 3.8 |
Exercisable at September 30, 2020 | 311 | | | $ | 53 | | | $ | 682 | | | 3.4 |
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
| | | | | | | | | | | |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
Share-based compensation for options | $ | 869 | | | $ | 1,178 | |
Tax benefit for option compensation | $ | 225 | | | $ | 304 | |
Unrecognized compensation cost for options | $ | 1,065 | | | $ | 1,846 | |
Weighted average period over which unrecognized compensation will be recognized (years) | 1.4 | | |
The following tables summarize the Company’s employee stock option activity and related information on a discontinued basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2020 |
| | | | | | | Weighted- |
| | | Weighted- | | | | Average |
| | | Average | | Aggregate | | Remaining |
| | | Exercise | | Intrinsic | | Contractual |
| Options | | Price | | Value | | Term |
Outstanding at December 31, 2019 | 14 | | | $ | 52 | | | | | |
Granted | — | | | — | | | | | |
Exercised | — | | | — | | | | | |
Forfeited | — | | | — | | | | | |
Outstanding at September 30, 2020 | 14 | | | $ | 52 | | | $ | 37 | | | 3.0 |
Exercisable at September 30, 2020 | 12 | | | $ | 52 | | | $ | 41 | | | 2.9 |
| | | | | | | | | | | |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
Share-based compensation for options | $ | 16 | | | $ | 31 | |
Tax benefit for option compensation | $ | 4 | | | $ | 8 | |
Unrecognized compensation cost for options | $ | 6 | | | $ | 32 | |
Weighted average period over which unrecognized compensation will be recognized (years) | 0.4 | | |
Employee Activity - Non-vested Shares
The fair value of non-vested shares issued was estimated using the closing market prices for the business day of the grant. The share-based compensation for the non-vested shares is recognized ratably over the requisite service period or vesting period, which is a three-year period. All forfeitures were recognized as they occurred.
The following tables summarize the Company’s employee non-vested share activity and related information on a continuing basis:
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
| | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2020 |
| | | Weighted- | | |
| | | Average | | Aggregate |
| Non-vested | | Grant Date | | Grant Date |
| Shares | | Fair Value | | Fair Value |
Outstanding and non-vested at December 31, 2019 | 264 | | | $ | 58 | | | |
Granted | 114 | | | 66 | | | |
Vested | (149) | | | 57 | | | |
Forfeited | (16) | | | 62 | | | |
Outstanding and non-vested at September 30, 2020 | 213 | | | $ | 63 | | | $ | 13,409 | |
| | | | | | | | | | | |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
Share-based compensation for non-vested shares | $ | 5,416 | | | $ | 5,934 | |
Tax benefit for non-vested share compensation | $ | 1,399 | | | $ | 1,510 | |
Unrecognized compensation cost for non-vested shares | $ | 9,397 | | | $ | 10,243 | |
Weighted average period over which unrecognized compensation will be recognized (years) | 1.9 | | |
The following tables summarize the Company’s employee non-vested share activity and related information on a discontinued basis:
| | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2020 |
| | | Weighted- | | |
| | | Average | | Aggregate |
| Non-vested | | Grant Date | | Grant Date |
| Shares | | Fair Value | | Fair Value |
Outstanding and non-vested at December 31, 2019 | 13 | | | $ | 58 | | | |
Granted | 6 | | | 63 | | | |
Vested | (8) | | | 58 | | | |
Forfeited | — | | | — | | | |
Outstanding and non-vested at September 30, 2020 | 11 | | | $ | 61 | | | $ | 678 | |
| | | | | | | | | | | |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
Share-based compensation for non-vested shares | $ | 282 | | | $ | 276 | |
Tax benefit for non-vested share compensation | $ | 73 | | | $ | 71 | |
Unrecognized compensation cost for non-vested shares | $ | 471 | | | $ | 462 | |
Weighted average period over which unrecognized compensation will be recognized (years) | 1.9 | | |
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
Employee Activity - Performance Shares
The Company annually grants performance shares to key employees. Under the terms of the performance share agreements, following the end of a three-year performance period, the Company may issue to these employees a calculated number of common stock shares if certain performance targets are met. For shares granted during the three and nine months ended September 30, 2020 and 2019, 50% of the performance share issuances will be based on meeting three-year earnings before interest, taxes, depreciation and amortization ("EBITDA") per share targets and the remaining 50% of the performance share issuances will be based on the three-year performance of the Company’s total shareholder return ("TSR") as compared to the TSR of a selected peer group. All forfeitures were recognized as they occurred.
Depending upon the EBITDA per share targets met, 0% to 200% of the granted shares may ultimately be issued. For shares granted based on total shareholder return, 0% of the shares will be issued if the Company's total shareholder return outperforms 25% or less of the peer group, but 200% of the shares will be issued if the Company's total shareholder return performs better than 90% of the peer group.
The fair value of the performance shares granted based on meeting EBITDA per share targets were estimated using the closing market prices on the day of grant and the probability of meeting these targets as of the measurement date. The fair value of the performance shares granted based on the three-year performance of the Company’s total shareholder return was estimated using a Monte Carlo simulation. The following table contains the weighted-average assumptions, on both a continuing and discontinued basis, used to estimate the fair value of performance shares granted using the Monte Carlo simulation. These assumptions are subjective and changes in these assumptions can materially affect the fair value estimate.
| | | | | | | | | | | |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
Expected stock price volatility | 23.5 | % | | 23.4 | % |
Weighted average risk-free interest rate | 1.4 | % | | 2.5 | % |
The following tables summarize the Company’s employee performance share activity, assuming median share awards, and related information on a continuing basis:
| | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2020 |
| | | Weighted- | | |
| | | Average | | Aggregate |
| Performance | | Grant Date | | Grant Date |
| Shares | | Fair Value | | Fair Value |
Outstanding and non-vested at December 31, 2019 | 58 | | | $ | 62 | | | |
Granted | 38 | | | 69 | | | |
Additional shares awarded based on performance | 13 | | | 51 | | | |
Vested | (33) | | | 51 | | | |
Forfeited | (11) | | | 66 | | | |
Outstanding and non-vested at September 30, 2020 | 65 | | | $ | 68 | | | $ | 4,425 | |
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
| | | | | | | | | | | |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
Share-based compensation for performance shares | $ | 1,007 | | | $ | 767 | |
Tax benefit for performance share compensation | $ | 260 | | | $ | 198 | |
Unrecognized compensation cost for performance shares | $ | 2,466 | | | $ | 1,766 | |
Weighted average period over which unrecognized compensation will be recognized (years) | 2.1 | | |
The following tables summarize the Company’s employee performance share activity, assuming median share awards, and related information on a discontinued basis:
| | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2020 |
| | | Weighted- | | |
| | | Average | | Aggregate |
| Performance | | Grant Date | | Grant Date |
| Shares | | Fair Value | | Fair Value |
Outstanding and non-vested at December 31, 2019 | 4 | | | $ | 62 | | | |
Granted | 2 | | | 69 | | | |
Additional shares awarded based on performance | 1 | | | 51 | | | |
Vested | (2) | | | 51 | | | |
Forfeited | — | | | — | | | |
Outstanding and non-vested at September 30, 2020 | 5 | | | $ | 66 | | | $ | 275 | |
| | | | | | | | | | | |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
Share-based compensation for performance shares | $ | 62 | | | $ | 54 | |
Tax benefit for performance share compensation | $ | 16 | | | $ | 14 | |
Unrecognized compensation cost for performance shares | $ | 142 | | | $ | 118 | |
Weighted average period over which unrecognized compensation will be recognized (years) | 1.9 | | |
Employee Activity – Employee Stock Purchase Plan
Under the 2005 Employee Stock Purchase Plan (the “ESPP”), which has been approved by shareholders, the Company is authorized to issue up to a remaining 344335 shares of common stock to employees of the Company.employees. These shares may be issued at a price equal to 90% of the lesser of the market value on the first day or the last day of each six-month purchase period. Common stock purchases are paid for through periodic payroll deductions and/or up to 2 large lump sum contributions. NaN shares were issued during the three months ended March 31, 2021.
Director Restricted Shares
The following table summarizesUnder the Company's employee stock purchase activityAmended and Restated Non-Employee Director Stock Plan (the “Amended Plan”), approved in May 2007 and further amended in February 2013 and January 2016, up to 360 common shares may be issued. As of March 31, 2021, approximately 90 shares remain available for grant under the Amended Plan.
Director restricted share transactions during the three months ended March 31, 2021 were as follows:
| | | | | | | | | | | |
| Director Restricted Shares | | Weighted-Average Grant Date Fair Value |
Outstanding as of December 31, 2020 | 24 | | | $ | 43 | |
Granted | 2 | | | 93 | |
Vested | 0 | | | 0 | |
Forfeited | 0 | | | 0 | |
Outstanding as of March 31, 2021 | 26 | | | $ | 47 | |
For the three-months ended March 31, 2021 and 2020, the Company recorded $328 and $261, respectively, of share-based compensation expense associated with these grants. As of March 31, 2021, the total share-based compensation expense related information on a continuing basis:to the restricted shares net yet recognized was approximately $256.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
| | | | | | | | | | | |
| | | |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
Shares purchased by participants under plan | 6 | | | 4 | |
Average purchase price | $ | 45 | | | $ | 49 | |
Weighted-average fair value of each purchase right under the ESPP granted ¹ | $ | 5 | | | $ | 10 | |
Share-based compensation for ESPP shares | $ | 30 | | | $ | 46 | |
| | | |
¹ Equal to the discount from the market value of the common stock at the end of each six month purchase period |
The following table summarizes the Company's employee stock purchase activity and related information on a discontinued basis:
| | | | | | | | | | | |
| | | |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
Shares purchased by participants under plan | 1 | | | 1 | |
Average purchase price | $ | 45 | | | $ | 49 | |
Weighted-average fair value of each purchase right under the ESPP granted ¹ | $ | 5 | | | $ | 10 | |
Share-based compensation for ESPP shares | $ | 3 | | | $ | 6 | |
| | | |
¹ Equal to the discount from the market value of the common stock at the end of each six month purchase period |
Non-employee Director Activity - Non-vested Shares
In May 2006, the Company’s shareholders approved the Company’s 2006 Non-Employee Director Stock Plan (the “2006 Plan”). The Company’s shareholders then approved the Company’s Amended and Restated Non-Employee Director Stock Plan (the “Amended Plan”) on May 22, 2007. The Amended Plan was then further amended and restated on December 17, 2008. Under the Amended Plan, on the first business day after each Annual Meeting of Shareholders, each non-employee director will automatically be granted an award (the “Annual Grant”), in such form and size as the Board determines from year to year. Unless otherwise determined by the Board, Annual Grants will become vested and nonforfeitable on the earlier of (a) the day immediately prior to the first Annual Meeting that occurs after the Grant Date or (b) the first anniversary of the Grant Date so long as the non-employee director’s service with the Company does not earlier terminate. Each director may elect to defer receipt of the shares under a non-vested share award until the director terminates service on the Board of Directors. If a director elects to defer receipt, the Company will issue deferred stock units to the director, which do not represent actual ownership in shares and the director will not have voting rights or other incidents of ownership until the shares are issued. However, the Company will credit the director with dividend equivalent payments in the form of additional deferred stock units for each cash dividend payment made by the Company. All forfeitures were recognized as they occurred.
In May 2016, with the approval of shareholders, the Company further amended the Amended Plan to reserve for issuance an additional 160 common shares, increasing the total number of reserved common shares under the Amended Plan to 360. As of September 30, 2020, there were approximately 92 shares remaining available for grant. There were no shares granted to non-employee directors classified as discontinued operations in any period.
The following tables summarize the Company’s non-employee non-vested share activity and related information on a continuing basis:
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
| | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2020 |
| | | Weighted- | | |
| | | Average | | Aggregate |
| Non-vested | | Grant Date | | Grant Date |
| Shares | | Fair Value | | Fair Value |
Outstanding and non-vested at December 31, 2019 | 16 | | | $ | 62 | | | |
Granted | 24 | | | 43 | | | |
Vested | (16) | | | 62 | | | |
Forfeited | — | | | — | | | |
Outstanding and non-vested at September 30, 2020 | 24 | | | $ | 43 | | | $ | 1,035 | |
| | | | | | | | | | | |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
Share-based compensation for non-vested shares | $ | 766 | | | $ | 714 | |
Tax benefit for non-vested share compensation | $ | 198 | | | $ | 184 | |
Unrecognized compensation cost for non-vested shares | $ | 636 | | | $ | 554 | |
Weighted average period over which unrecognized compensation will be recognized (years) | 0.6 | | |
7. Senior Credit FacilityIndebtedness
As of both March 31, 2021 and December 31, 2020, the Company had $112,500 in borrowings outstanding under the revolving credit facility, $18,326 utilized for outstanding letters of credit and $94,174 of available borrowing capacity under the revolving credit facility. The interest rate on the outstanding borrowings under the revolving credit facility was 3.25% and 2.30% as of March 31, 2021 and March 31, 2020, respectively.
In September 2017, the Company hasentered into a 5-yearfive-year senior unsecured revolving credit facility (the “Facility”) that was entered into on September 29, 2017 and amended on April 16, 2020. The Facility haswith a maximum aggregate principal amount of $225,000,$150,000, with a sublimit of $30,000 for letters of credit and a sublimit of $30,000 for swing line loans. The maturity date of the Facility is September 29, 2022. In April 2020, the Company entered into an amendment to the Facility, which increased the maximum aggregate principal amount to $225,000. The Facility may be increased by up to $25,000 to a maximum aggregate principal amount of $250,000 pursuant to the terms of the amended credit agreement, subject to the lenders’ agreement to increase their commitments or the addition of new lenders extending such commitments. Such increases to the Facility may be in the form of additional revolving credit loans, term loans or a combination thereof, and are contingent upon there being no events of default under the Facility and satisfaction of other conditions precedent and are subject to the other limitations set forth in the credit agreement.
The Facility is scheduled to mature in September 2022 and may be used to refinance existing indebtedness of the Company and for working capital, capital expenditures and other general corporate purposes. The Facility refinanced the Company’s obligations for its unsecured credit facility under the credit agreement dated as of February 4, 2015, as amended, which was terminated as of the date of the new Facility.
UnlessUnder the Company elects otherwiseamended Facility, interest accrues on the amounts outstanding under the credit agreement, interest on borrowings under the Facility will befacility, at the Company’s option, at either (1) London Interbank Offered Rate (“LIBOR”) rate, not less than 1.00%, plus a margin ranging from 2.25% to 2.75% based on the Company’s leverage ratio, or (2) base interest rate, (whichwhich cannot be less than 3.00%) and will be. The base rate is the highest of (a)(i) the federal funds rate, (which cannot benot less than 0.00%)zero, plus 0.50%, (b)(ii) the administrative agent's prime rate and (c)(iii) the LIBOR Rate (which cannot berate, not less than 1.00%) , plus 1.00% and, in each case,, plus a margin for LIBOR Rate Loans and Letter of Credit Fees that can rangeranging from 1.25%0.25% to 1.75% with respect to the Facility depending0.75% based on the Company’s ratio of consolidated funded indebtedness to earnings before interest, taxes, depreciation and amortization, as set forthleverage ratio. Interest is payable in the credit agreement. Payments of interestarrears for each loan that is based on the LIBOR Rate are due in arrearsrate on the last day of the interest period applicable to sucheach loan, (withand interest periods of one, two or three months being available, at the Company’s option). Payments of interestis payable in arrears on loans that are not based on the LIBOR Rate are duerate on the last day of each quarter ended March 31, June 30, September 30 and December 31 of each year. All unpaid amounts of principal and interest are due at maturity.quarter.
As of September 30, 2020, the Company had $112,500 in borrowings outstanding under the revolving credit facility, $15,367 utilized for outstanding letters of credit and $97,133 of available borrowing capacity under the revolving credit facility. The interest rate on the outstanding borrowing under the revolving credit facility was 3.27% as of September 30, 2020.
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
The Facility contains customary events of default including, among other things, payment defaults, breach of covenants, cross acceleration to material indebtedness, bankruptcy-related defaults, material judgment defaults, and the occurrence of certain change of control events. The occurrence of an event of default may result in, among other things, the termination of the Facilities, acceleration of repayment obligations and the exercise of remedies by the lenders with respect to the Company and its subsidiaries that are party to the Facility. The Facility also contains financial covenants and other covenants that, among other things, restrict the ability of the Company, and its subsidiaries, without the approval of the required lenders, to engage in certain mergers, consolidations, asset sales, dividends and stock repurchases, investments, and other transactions or to incur liens or indebtedness in excess of agreed thresholds, as set forth in the credit agreement. The Company also has to fulfill financial covenants with respect to a leverage ratio and an interest coverage ratio. As of September 30, 2020,March 31, 2021, the Company was in compliance with the aforementioned covenants.
8. Net Income Per Share
The following table sets forthIn April 2021, the computation of basic and diluted net income per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| | | | | | | |
Numerator: | | | | | | | |
Net income and comprehensive income from continuing operations | $ | 16,992 | | | $ | 21,054 | | | $ | 37,634 | | | $ | 59,987 | |
Net (loss) income and comprehensive (loss) income from discontinued operations | (345) | | | 1,141 | | | (9,458) | | | 2,945 | |
Net income attributable to Forward Air shareholders | $ | 16,647 | | | $ | 22,195 | | | $ | 28,176 | | | $ | 62,932 | |
| | | | | | | |
Income allocated to participating securities | (150) | | | (236) | | | (184) | | | (696) | |
| | | | | | | |
Numerator for basic and diluted net income per share for continuing operations | $ | 16,842 | | | $ | 20,818 | | | $ | 37,450 | | | $ | 59,291 | |
Numerator for basic and diluted net (loss) income per share for discontinued operations | $ | (345) | | | $ | 1,141 | | | $ | (9,458) | | | $ | 2,945 | |
| | | | | | | |
Denominator: | | | | | | | |
Denominator for basic income per share - weighted-average shares | 27,559 | | | 27,981 | | | 27,732 | | | 28,286 | |
Effect of dilutive stock options | 32 | | | 74 | | | 34 | | | 76 | |
Effect of dilutive performance shares | 15 | | | 27 | | | 23 | | | 31 | |
Denominator for diluted income per share - adjusted weighted-average shares | 27,606 | | | 28,082 | | | 27,789 | | | 28,393 | |
| | | | | | | |
Basic net income (loss) per share: | | | | | | | |
Continuing operations | $ | 0.61 | | | $ | 0.74 | | | $ | 1.35 | | | $ | 2.10 | |
Discontinued operations | (0.01) | | | 0.04 | | | (0.34) | | | 0.10 | |
Net income per share | $ | 0.60 | | | $ | 0.78 | | | $ | 1.01 | | | $ | 2.20 | |
| | | | | | | |
Diluted net income (loss) per share: | | | | | | | |
Continuing operations | $ | 0.61 | | | $ | 0.74 | | | $ | 1.35 | | | $ | 2.09 | |
Discontinued operations | (0.01) | | | 0.04 | | | (0.34) | | | 0.10 | |
Net income per share | $ | 0.60 | | | $ | 0.78 | | | $ | 1.01 | | | $ | 2.19 | |
Company borrowed $20,000 under the revolving credit facility.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
8. Net Income (Loss) Per Share
A reconciliation of net income attributable to Forward Air and weighted-average common shares outstanding for purposes of calculating basic and diluted net income per share during the three months ended March 31, 2021 and 2020 is as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, 2021 | | March 31, 2020 | | | | |
| | | | | | | |
Numerator: | | | | | | | |
Net income and comprehensive income from continuing operations | $ | 16,714 | | | $ | 11,415 | | | | | |
Net loss and comprehensive loss from discontinued operation | (5,533) | | | (3,040) | | | | | |
Net income attributable to Forward Air | $ | 11,181 | | | $ | 8,375 | | | | | |
| | | | | | | |
Income allocated to participating securities | (101) | | | (67) | | | | | |
| | | | | | | |
Numerator for basic and diluted net income per share for continuing operations | $ | 16,613 | | | $ | 11,348 | | | | | |
Numerator for basic and diluted net loss per share for discontinued operation | $ | (5,533) | | | $ | (3,040) | | | | | |
| | | | | | | |
Denominator: | | | | | | | |
Denominator for basic net income per share - weighted-average number of common shares outstanding | 27,361 | | | 27,846 | | | | | |
Dilutive stock options and performance share awards | 136 | | | 102 | | | | | |
Denominator for diluted net income per share - weighted-average number of common shares and common share equivalents outstanding | 27,497 | | | 27,948 | | | | | |
| | | | | | | |
Basic net income (loss) per share: | | | | | | | |
Continuing operations | $ | 0.61 | | | $ | 0.41 | | | | | |
Discontinued operation | (0.20) | | | (0.11) | | | | | |
Net income per share1 | $ | 0.40 | | | $ | 0.30 | | | | | |
| | | | | | | |
Diluted net income (loss) per share: | | | | | | | |
Continuing operations | $ | 0.60 | | | $ | 0.41 | | | | | |
Discontinued operation | (0.20) | | | (0.11) | | | | | |
Net income per share | $ | 0.40 | | | $ | 0.30 | | | | | |
1 Rounding may impact summation of amounts.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021
The number of instruments that could potentially dilute net income per basic share in the future, butshares that were not included in the computationcalculation of net income per diluted share because to do so would have been anti-dilutive for the periods presented,three months ended March 31, 2021 and 2020 are as follows:
| | | | September 30, 2020 | | September 30, 2019 | | March 31, 2021 | | March 31, 2020 |
Anti-dilutive stock options | Anti-dilutive stock options | 219 | | | 188 | | Anti-dilutive stock options | 25 | | | 203 | |
Anti-dilutive performance shares | Anti-dilutive performance shares | 31 | | | — | | Anti-dilutive performance shares | 3 | | | 24 | |
Anti-dilutive non-vested shares and deferred stock units | 100 | | | — | | |
Anti-dilutive restricted shares and deferred stock units | | Anti-dilutive restricted shares and deferred stock units | 1 | | | 75 | |
Total anti-dilutive shares | Total anti-dilutive shares | 350 | | | 188 | | Total anti-dilutive shares | 29 | | | 302 | |
9. Income Taxes
For the three months ended March 31, 2021, the Company recorded income tax expense of $4,845 and $3,504, respectively, for continuing operations. The effective tax rate of 22.5% for the three months ended March 31, 2021 varied from the statutory United States federal income tax rate of 21.0% primarily due to the effect of state income taxes, net of the federal benefit, and non-deductible executive compensation, partially offset by excess tax benefits realized on share-based awards. The effective tax rate of 23.5% for the three months ended March 31, 2020 varied from the statutory United States federal income tax rate of 21% primarily due to the effect of state income taxes, net of the federal benefit, and non-deductible executive compensation, partially offset by excess tax benefits realized on share-based awards and a refund for Tennessee tax credits.
As of both March 31, 2021 and December 31, 2020, the Company had $544 of unrecognized income tax benefits, all of which would affect the Company’s effective tax rate if recognized. The Company or oneaccrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of its subsidiaries files incomeboth March 31, 2021 and December 31, 2020, the Company had accrued interest and penalties related to unrecognized tax returns in the U.S. federal jurisdiction, various states and Canada.benefits of $168. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian examinations by tax authorities for years before 2012.2013.
ForThe sale of Pool resulted in a capital loss in the nine months ended September 30, 2020amount of $2,426. The capital loss expires in 2026. The Company concluded that it was more likely than not the capital loss carryforward will not be realized and 2019, the effective income tax rates varied from the statutory federal income tax ratetherefore, established a valuation allowance of 21.0%, primarily as$2,426 to reserve against its capital loss carryforward. The Company also maintains a resultvaluation allowance to reserve against its state net operating loss carryforwards. A valuation allowance is established when it is more likely than not that some portion or all of the effect of statedeferred tax assets will not be realized. The Company assessed the likelihood that its deferred tax assets would be recovered from estimated future taxable income taxes,and available tax planning strategies. In making this assessment, all available evidence was considered including economic climate, as well as reasonable tax planning strategies. The Company believes it is more likely than not that it will realize its remaining net deferred tax assets, net of the federal benefit, and permanent differences between book and tax net income. The combined federal and state effective tax rate for continuing operations for the nine months ended September 30, 2020 was 24.5% compared to a rate of 25.1%for the same periodvaluation allowance, in 2019. The lower tax rate for the nine months ended September 30, 2020 was primarily due to decreased stock based compensation vesting and exercises and return to provision adjustments that were recorded in the current period when compared to the same period in 2019.future years.
10. Leases
A contract is or contains a lease if the contract conveys the right to control the useFair Value of an identified asset for a period of time in exchange for consideration. An entity controls the use of the identified asset if both of the following are true: (1) the entity obtains the right to substantially all of the economic benefits from use of the identified asset and (2) the entity has the right to direct the use of the identified asset. For the three and nine months ended September 30, 2020, the Company leased facilities and equipment under operating and finance leases, which were accounted for in accordance with ASU 2016-02, Leases.Financial Instruments
The Company electedcategorizes its assets and liabilities into one of three levels based on the practical expedients as allowed perassumptions used in valuing the asset or liability. Estimates of fair value financial assets and liabilities are based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, to combine lease and non-lease components and to keep leases with an initial term of 12 months or less, afterfair value measurements are classified under the consideration of options, off the balance sheet. Additionally, variable lease and variable nonlease components were not contemplated in the calculation of the right-of-use asset and corresponding liability.following hierarchy:
For leases and subleases with terms greater than 12 months, the Company records the related right-of-use asset as the balance of the related lease liability, adjusted•Level 1 - Quoted prices in active markets for any prepaid or accrued lease payments. Unamortized initial direct costs and lease incentives were not significant as of September 30, 2020. The lease liability was recorded at the present value of the lease payments over the term. Many of the Company's leases include rental escalation clauses, renewal options and/or termination options that were contemplated in the determination of lease payments when appropriate. As of September 30, 2020, the Company was not reasonably certain of exercising any renewal options. Further, as of September 30, 2020, it was reasonably certain that all termination options would not be exercised. As such, there were no adjustments made to its right-of-use leaseidentical assets or corresponding liabilities as a result. In addition, the Company does not have any leases with residual value guarantees or material restrictions or covenants as of September 30, 2020.liabilities.
For these leases with an initial•Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of 12 monthsthe assets or less, after the consideration of options, the Company recognizes the corresponding lease expense on a straight-line basis over the lease term.liabilities.
•Level 3 - Model-derived valuations in which one or more significant inputs are unobservable.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
Operating LeasesAs previously discussed in Note 4, Acquisitions, the fair value of the earn-out liability was determined using a Monte-Carlo simulation model. The significant inputs used in the model are derived from a combination of observable and unobservable market data. Observable inputs used in the Monte Carlo simulation model include the risk-free rate and the revenue volatility while unobservable inputs used in the Monte Carlo simulation model include the revenue discount rate and the estimated revenue projections.
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2021 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Earn-out liability | | $ | 0 | | | $ | 0 | | | $ | 7,632 | | | $ | 7,632 | |
| | | | | | | | |
| | As of December 31, 2020 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Earn-out liability | | $ | 0 | | | $ | 0 | | | $ | 6,865 | | | $ | 6,865 | |
| | | | | | | | |
The Company leases someCash and cash equivalents, accounts receivable, and accounts payable are valued at their carrying amounts in the Company’s Condensed Consolidated Balance Sheets, due to the immediate or short-term maturity of its facilities under noncancelable operating leases that expire in various years through 2028. Certain leases may be renewed for periods varying from 1 to 10 years. In conjunction with the acquisition of Linn Star in January 2020, discussed further in Note 5, Acquisitions and Long-Lived Assets, the Company assumed operating facility leases that expire in various years through 2025 and had a right-of-use asset and corresponding lease liability of approximately $10,011 at acquisition.these financial instruments.
The carrying amount of long-term debt under the Company’s credit facility approximate fair value based on the borrowing rates currently available to the Company has also historically entered into or assumed through acquisition several equipment operating leases for assets including tractors, straight trucksa loan with similar terms and trailers with original lease terms between 2 and 6 years. These leases expire in various years through 2025 and certain leases may be renewed for periods varying from 1 to 3 years. The Company did not enter into any material equipment leases outside the normal course of business during the nine months ended September 30, 2020.average maturity.
As of September 30,March 31, 2021, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $6,892, compared to its carrying value of $6,652. As of December 31, 2020, the Company has certain obligationsestimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $7,009, compared to lease tractors, which will be delivered throughout 2020. These leases are expected to have termsits carrying value of approximately 3 to 4 years and are not expected to materially impact the Company's right-of-use lease assets or liabilities as of September 30, 2020.$6,811.
Finance Leases
Primarily through acquisitions, the Company assumes equipment leases that meet the criteria for classification as a finance lease with remaining lease terms between 2 and 7 years. These leases expire in various years through 2025 with no options to renew. The finance leased equipment is being amortized over the shorter of the lease term or useful life. The Company did not enter into any new finance leases during the nine months ended September 30, 2020.
11. Financial InstrumentsShareholders’ Equity
Off Balance Sheet RiskCash Dividends
AsDuring the first quarter of September 30,2021 and the fourth quarter of 2020, the Company’s Board of Directors declared and the Company had lettershas paid a quarterly cash dividend of credit outstanding totaling $15,367.$0.21 per share of common stock.
Fair ValueOn April 26, 2021, the Company's Board of Financial InstrumentsDirectors declared a quarterly cash dividend of $0.21 per common share that will be paid in second quarter of 2021.
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Accounts receivable and accounts payable: The carrying amounts reported in the balance sheet for accounts receivable and accounts payable approximate their fair value based on their short-term nature.
Revolving credit facility: The Company’s revolving credit facility bears variable interest rates plus additional basis points based upon covenants related to total indebtedness to earnings. As the revolving credit facility bears a variable interest rate, the carrying value approximates fair value.Share Repurchase Program
On July 21, 2016, the Company’s Board of Directors approved a stock repurchase program for up to 3,000 shares of the Company’s common stock (the “2016 Repurchase Plan”). On February 5, 2019, the Board of Directors canceled the Company’s 2016 Repurchase Plan and approved a revised stock repurchase plan authorizing up to 5,000 shares of the Company’s common stock (the “2019 Repurchase Plan”). The fair value estimates of earn-outs2019 Repurchase Plan expires when the shares authorized for repurchase are discussed in Note 5, Acquisitions and Long-Lived Assets.
Using interest rate quotes and discounted cash flows,exhausted or the Company estimated the fair value of its outstanding finance lease obligations as follows:
| | | | | | | | | | | | | | |
| | September 30, 2020 |
| | Carrying Value | | Fair Value |
| | | | |
Finance leases | | $ | 5,757 | | | $ | 5,827 | |
2019 Repurchase Plan is canceled.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
The carrying value
During the three months ended March 31, 2021, the Company repurchased through open market transactions 114 shares of common stock for $9,997, or $87.89 per share, and during the three months ended March 31, 2020, the Company repurchased 268 shares of common stock for $15,259, or $56.93 per share. All shares received were retired upon receipt, and the excess of the finance lease obligations are included withinpurchase price over the Equipment section of Property and equipment onpar value per share was recorded to “Retained Earnings” in the Company’sCondensed Consolidated Balance Sheets. The Company's fair value estimates for
As of March 31, 2021, the above financial instruments are classified within level 3 ofremaining shares to be repurchased under the fair value hierarchy as defined in the FASB Codification.2019 Repurchase Plan were approximately 3,254 shares.
12. Shareholders' Equity
During the fourth quarter of 2020, the Company’s Board of Directors declared a cash dividend of $0.21 per share of common stock. During each quarter of 2019 and the first, second and third quarter of 2020, the Company's Board of Directors declared a cash dividend of $0.18 per share of common stock. The Company expects to continue to pay regular quarterly cash dividends, though each subsequent quarterly dividend is subject to review and approval by the Board of Directors.
On July 21, 2016, the Company's Board of Directors approved a stock repurchase authorization for up to 3,000 shares of the Company’s common stock (the "2016 Repurchase Plan"). On February 5, 2019, the Company's Board of Directors canceled the Company’s 2016 Repurchase Plan and approved a new stock repurchase plan authorizing the repurchase of up to 5,000 shares of the Company’s common stock (the “2019 Repurchase Plan”) that shall remain in effect until such time as the shares authorized for repurchase are exhausted or the plan is canceled. The Company is not obligated to repurchase any specific number of shares and may suspend or cancel the plan at any time. The Company does not expect to repurchase any shares under this plan during the third quarter of 2020.
The following tables summarize the Company's share repurchases for the three and nine months ended September 30, 2020 and 2019 (shares and dollars in thousands, except average cost per share).
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| September 30, 2020 | | September 30, 2019 |
| Shares repurchased | Cost of shares repurchased | Average cost per share | | Shares repurchased | Cost of shares repurchased | Average cost per share |
| | | | | | | |
| | | | | | | |
2019 Repurchase Plan | 519 | | $ | 29,990 | | $ | 57.84 | | | 152 | | $ | 9,289 | | $ | 61.01 | |
Total | 519 | | $ | 29,990 | | $ | 57.84 | | | 152 | | $ | 9,289 | | $ | 61.01 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Nine months ended |
| September 30, 2020 | | September 30, 2019 |
| Shares repurchased | Cost of shares repurchased | Average cost per share | | Shares repurchased | Cost of shares repurchased | Average cost per share |
2016 Repurchase Plan | — | | $ | — | | $ | — | | | 68 | | $ | 3,850 | | $ | 56.97 | |
2019 Repurchase Plan | 787 | | 45,248 | | 57.53 | | | 721 | | 44,056 | | 61.07 | |
Total | 787 | | $ | 45,248 | | $ | 57.53 | | | 789 | | $ | 47,906 | | $ | 60.72 | |
As of September 30, 2020, 3,368 shares were available to be purchased under the 2019 Plan.
13. Commitments and Contingencies
Self-Insurance ReservesContingencies
From time to time, theThe Company is party to ordinary, routine litigationvarious legal claims and actions incidental to and arising in the normal course ofits business. The Company does not believe that anybelieves none of these pendingclaims or actions, either individually or in the aggregate, will have ais material adverse effect onto its business or financial condition,statements as a whole, including its results of operations or cash flows. and financial condition.
The primaryCompany is liable for claims in the Company’s business relaterelated to vehicle liability, workers’ compensation, property damage vehicle liability and employee medical benefits. Most of the Company’s insuranceInsurance coverage provides for self-insurance levelsthe Company with primary and excess coverage, which managementthe Company believes is sufficient to adequately protect the Company from catastrophic claims. Such
For vehicle liability, the Company retains a portion of the risk. Below is a summary of the Company’s risk retention on vehicle liability insurance coverage abovemaintained by the applicable self-insurance levels continuesCompany through $10,000:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Company Risk Retention | | Frequency | | Layer | | Policy Term |
Expedited Freight¹ | | | | | | | | |
LTL business | | $ | 3,000 | | | Occurrence/Accident² | | $0 to $3,000 | | 10/1/2020 to 10/1/2021 |
Truckload business | | $ | 2,000 | | | Occurrence/Accident² | | $0 to $2,000 | | 10/1/2020 to 10/1/2021 |
LTL and Truckload businesses | | $ | 6,000 | | | Policy Term Aggregate³ | | $3,000 to $5,000 | | 10/1/2020 to 10/1/2021 |
LTL and Truckload businesses | | $ | 5,000 | | | Policy Term Aggregate³ | | $5,000 to $10,000 | | 10/1/2020 to 10/1/2021 |
| | | | | | | | |
Intermodal | | $ | 250 | | | Occurrence/Accident² | | $0 to $250 | | 4/1/2020 to 10/1/2021 |
| | | | | | | | |
¹ Excluding the Final Mile business, which is primarily a brokered service.
² For each and every accident, the Company is responsible for damages and defense up to bethese amounts, regardless of the number of claims associated with any accident.
³ During the Policy Term, the Company is responsible for damages and defense within the stated Layer up to the stated, aggregate amount of Company Risk Retention before insurance will respond.
Also, from time to time, when brokering freight, the Company may face claims for the “negligent selection” of outside, contracted carriers that are involved in accidents, and the Company maintains third-party liability insurance coverage with a $100 deductible per occurrence for most of its brokered services. Additionally, the Company maintains workers’ compensation insurance with a self-insured retention of $500 per occurrence.
Insurance coverage in excess of the self-insured retention limit is an important part of the Company'sCompany’s risk management process.
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
In The Company believes the opinion of management, adequate provision has been maderecorded reserves are sufficient for all incurred claims up to the self-insured retention limits, including provisionan estimate for estimated claims incurred but not reported. The Company is responsible for the first $7,500 per incident until it meets the $6,000 aggregate deductible for incidents resulting in claims between $3,000 and $5,000 and the $2,500 aggregate deductible for incidents resulting in claims between $5,000 and $10,000. Due to the uncertainty ofSince the ultimate resolution of outstanding claims as well as uncertainty regarding claims incurred but not reported is uncertain, it is possible that management’s provisionthe reserves recorded for these losses could change materially in the near term. However, noan estimate can currentlycannot be made of the range of additional loss that is at least reasonably possible.
LitigationForward Air Corporation
Notes to Condensed Consolidated Financial Statements
Occasionally, the Company is a party to various legal proceedings, regulatory examinations, investigations, administrative actions, and other legal matters, arising for the most part in the ordinary course of business, incidental to its operations. The Company aggressively defends these matters and has established liability provisions that management believes are adequate to cover expected costs. The outcome of litigation and other legal matters is always uncertain. The Company believes it has valid defenses to the legal matters currently pending against it, is defending itself vigorously, and has recorded accruals determined in accordance with U.S. GAAP, where appropriate. (In making a determination regarding accruals, using available information, the Company evaluates the likelihood of an unfavorable outcome in legal or regulatory proceedings to which it is a party to and records a loss contingency when it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. These subjective determinations are based on the status of such legal or regulatory proceedings, the merits of the Company’s defenses and consultation with legal counsel. Actual outcomes of these legal and regulatory proceedings may materially differ from the current estimates. It is possible that resolution of one or more of the legal matters currently pending or threatened could result in losses material to the Company’s consolidated results of operations, liquidity or financial condition.thousands, except per share data)
(Unaudited)
March 31, 2021
14.13. Segment Reporting
The Company operates inhas 2 reportable segments based on information available tosegments: Expedited Freight and used by the CODM. This classification is consistent with how the CODM makes decisions about resource allocation and assesses the Company's performance.Intermodal. The Company evaluates thesegment performance of its segments based on income from operations. The Company’s business is conducted in the U.S. and Canada.
Expedited Freight operates a comprehensive national network to provide expedited regional, inter-regional and national LTL services and offers customers local pick-up and delivery and other services including final mile, truckload, shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling. Intermodal primarily provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads.
Except for certain insurance activity, the accounting policies of the segments are the same as those described in the summary of significant accounting policies disclosed in Note 1, Description of Business and Basis of Presentation, to the Forward Air Corporation Annual Report on Form 10-K for the year ended December 31, 2019. For workers compensation and vehicle claims, each segment is charged an insurance premium and is also charged a deductible that corresponds with each segment's individual self-retention limit. However, any losses beyond these deductibles and any loss development factors applied to outstanding claims as a result of actuary analysis are not passed to the segments, but recorded at the corporate level ("Eliminations & other").
Segment data includesresults include intersegment revenues and shared costs. Costs ofrelated to the corporate headquarters, shared services and shared assets, such as trailers, are allocated to the segmentseach segment based on usage. The cost basis of sharedShared assets are not allocated. Instead,allocated to each segment, but rather the cost basis for the majority of shared assets, such as trailers, are included inallocated to the Expedited Freight. Freight segment.
The following tables summarizeaccounting policies applied to each segment informationare the same as those described in the Summary of Significant Accounting Policies as disclosed in Note 1 to the Annual Report on Form 10-K for the year ended December 31, 2020, except for certain self-insurance loss reserves related to vehicle liability and workers’ compensation. Each segment is allocated an insurance premium and deductible that corresponds to the self-insured retention limit for that particular segment. Any self-insurance loss exposure beyond the deductible allocated to each segment is recorded in Eliminations & Other.
Segment results from continuing operations for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019:are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | Three Months Ended March 31, 2021 |
| | Expedited Freight | | Intermodal | | | | Eliminations & Other | | Consolidated |
External revenues | | $ | 303,531 | | | $ | 58,502 | | | | | $ | — | | | $ | 362,033 | |
Intersegment revenues | | 655 | | | 12 | | | | | (498) | | | 169 | |
Depreciation | | 4,993 | | | 799 | | | | | 3 | | | 5,795 | |
Amortization | | 1,805 | | | 1,637 | | | | | 0 | | | 3,442 | |
Income (loss) from continuing operations | | 24,530 | | | 4,509 | | | | | (6,315) | | | 22,724 | |
Purchases of property and equipment | | 2,411 | | | 284 | | | | | 0 | | | 2,695 | |
| | | | | | | | | | |
| | Three Months Ended March 31, 2020 |
| | Expedited Freight | | Intermodal | | | | Eliminations & Other | | Consolidated |
External revenues | | $ | 253,140 | | | $ | 52,455 | | | | | $ | — | | | $ | 305,595 | |
Intersegment revenues | | 485 | | | 5 | | | | | (528) | | | (38) | |
Depreciation | | 4,908 | | | 1,053 | | | | | 18 | | | 5,979 | |
Amortization | | 1,787 | | | 1,568 | | | | | 0 | | | 3,355 | |
Income (loss) from continuing operations | | 15,179 | | | 3,713 | | | | | (3,120) | | | 15,772 | |
Purchases of property and equipment | | 2,405 | | | 246 | | | | | 0 | | | 2,651 | |
| | | | | | | | | | |
Total Assets | | | | | | | | | | |
As of March 31, 2021 | | $ | 934,602 | | | $ | 204,178 | | | | | $ | (122,879) | | | $ | 1,015,901 | |
As of December 31, 2020 | | 905,081 | | | 221,963 | | | | | (153,750) | | | 973,294 | |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020March 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | Three Months Ended September 30, 2020 |
| | Expedited Freight | | Intermodal | | | | Eliminations & other | | Continuing Operations |
External revenues | | $ | 283,025 | | | $ | 48,940 | | | | | $ | 34 | | | $ | 331,999 | |
Intersegment revenues | | 489 | | | 8 | | | | | (499) | | | (2) | |
Depreciation | | 4,981 | | | 789 | | | | | 36 | | | 5,806 | |
Amortization | | 1,799 | | | 1,567 | | | | | — | | | 3,366 | |
Share-based compensation expense | | 2,208 | | | 415 | | | | | (278) | | | 2,345 | |
Interest expense | | 3 | | | 38 | | | | | 1,263 | | | 1,304 | |
Income (loss) from operations | | 23,461 | | | 4,837 | | | | | (4,788) | | | 23,510 | |
Total assets | | 882,214 | | | 217,813 | | | | | (146,805) | | | 953,222 | |
Capital expenditures | | 2,037 | | | 188 | | | | | — | | | 2,225 | |
| | | | | | | | | | |
| | Three months ended September 30, 2019 (As Adjusted) |
| | Expedited Freight | | Intermodal | | | | Eliminations & other | | Continuing Operations |
External revenues | | $ | 255,404 | | | $ | 58,317 | | | | | $ | — | | | $ | 313,721 | |
Intersegment revenues | | 711 | | | 29 | | | | | (778) | | | (38) | |
Depreciation | | 5,256 | | | 1,050 | | | | | (27) | | | 6,279 | |
Amortization | | 1,195 | | | 1,542 | | | | | — | | | 2,737 | |
Share-based compensation expense | | 1,895 | | | 340 | | | | | 392 | | | 2,627 | |
Interest expense | | 2 | | | 67 | | | | | 692 | | | 761 | |
Income (loss) from operations | | 27,131 | | | 6,900 | | | | | (4,845) | | | 29,186 | |
Total assets | | 706,632 | | | 205,444 | | | | | (25,489) | | | 886,587 | |
Capital expenditures | | 8,818 | | | 207 | | | | | — | | | 9,025 | |
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | Nine months ended September 30, 2020 |
| | Expedited Freight | | Intermodal | | | | Eliminations & other | | Continuing Operations |
External revenues | | $ | 771,585 | | | $ | 147,815 | | | | | $ | 33 | | | $ | 919,433 | |
Intersegment revenues | | 1,216 | | | 21 | | | | | (1,438) | | | (201) | |
Depreciation | | 14,897 | | | 2,923 | | | | | 79 | | | 17,899 | |
Amortization | | 5,318 | | | 4,702 | | | | | — | | | 10,020 | |
Share-based compensation expense | | 6,937 | | | 1,276 | | | | | (361) | | | 7,852 | |
Interest expense | | 9 | | | 151 | | | | | 3,195 | | | 3,355 | |
Income (loss) from operations | | 50,394 | | | 12,963 | | | | | (10,159) | | | 53,198 | |
Total assets | | 882,214 | | | 217,813 | | | | | (146,805) | | | 953,222 | |
Capital expenditures | | 15,987 | | | 452 | | | | | — | | | 16,439 | |
| | | | | | | | | | |
| | Nine months ended September 30, 2019 (As Adjusted) |
| | Expedited Freight | | Intermodal | | | | Eliminations & other | | Continuing Operations |
External revenues | | $ | 732,825 | | | $ | 162,936 | | | | | $ | — | | | $ | 895,761 | |
Intersegment revenues | | 2,230 | | | 64 | | | | | (2,524) | | | (230) | |
Depreciation | | 18,261 | | | 1,983 | | | | | (113) | | | 20,131 | |
Amortization | | 3,122 | | | 4,278 | | | | | — | | | 7,400 | |
Share-based compensation expense | | 6,454 | | | 1,313 | | | | | 769 | | | 8,536 | |
Interest expense | | 7 | | | 69 | | | | | 1,841 | | | 1,917 | |
Income (loss) from operations | | 76,222 | | | 18,326 | | | | | (12,588) | | | 81,960 | |
Total assets | | 706,632 | | | 205,444 | | | | | (25,489) | | | 886,587 | |
Capital expenditures | | 22,818 | | | 422 | | | | | — | | | 23,240 | |
The following table summarizes revenueRevenue from the definedindividual services included within the Expedited Freight revenuesegment for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019:are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
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|
| | Three months ended | | Nine months ended |
| | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
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| | | | | | | | |
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| | | | | | | | |
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| | | | | | | | |
Expedited freight revenue: | | | | | | | | |
Network revenue | | $ | 169,300 | | | $ | 169,337 | | | $ | 455,482 | | | $ | 503,178 | |
Truckload revenue | | 49,836 | | | 48,044 | | | 139,220 | | | 144,353 | |
Final mile revenue | | 56,994 | | | 31,619 | | | 158,223 | | | 66,333 | |
Other revenue | | 7,384 | | | 7,115 | | | 19,877 | | | 21,191 | |
Total revenue | | $ | 283,514 | | | $ | 256,115 | | | $ | 772,802 | | | $ | 735,055 | |
| | | | | | | | | | | | | | | | | | |
|
|
|
|
|
| | Three Months Ended | | |
| | March 31, 2021 | | March 31, 2020 | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Expedited Freight revenue: | | | | | | | | |
Network | | $ | 178,627 | | | $ | 152,009 | | | | | |
Truckload | | 52,380 | | | 47,529 | | | | | |
Final Mile | | 62,256 | | | 47,802 | | | | | |
Other | | 10,923 | | | 6,285 | | | | | |
Total | | $ | 304,186 | | | $ | 253,625 | | | | | |
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
15.14. Subsequent EventsEvent
On October 11, 2020,April 28, 2021, the Company acquired substantially allentered into an agreement to acquire certain assets and liabilities of the assets of CLWJ&P Hall Express Delivery Inc. (“CLW”J&P”) for $5,500. This transaction was funded using cash flows from operations. CLW specializes$7,400. J&P, headquartered in last mile logisticsAtlanta, Georgia with a second terminal in Albany, Georgia, offers a portfolio of transportation services including less than truckload, truckload, less than container load, container freight station warehousing, and in-home installation services for national retailers and manufacturers. The Company anticipates CLW will contribute approximately $20,000 of revenue and $1,000 of operating income on an annualized basis.
airport transfers across the Southeastern United States.
| | | | | |
Item 2. | Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
Forward Air Corporation isWe are a leading asset-light freight and logistics company. As a result ofcompany providing less-than-truckload (“LTL”), final mile truckload and intermodal drayage services across the Company’s decisionUnited States and in Canada. We offer premium services that typically require precision execution, such as expedited transit, delivery during tight time windows and special handling. We utilize an asset-light strategy to divest Pool,minimize our investments in equipment and facilities and to reduce our capital expenditures.
Our services are now classified into two reportable segments: Expedited Freight and Intermodal.
Through the Expedited Freight segment, we operate a comprehensive national network to provide expedited regional, inter-regional and national LTL services. Expedited Freight offers customers local pick-up and delivery and other services including final mile, truckload, shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling. We plan to grow our LTL and final mile geographic footprints through greenfield start-ups as well as acquisitions. Since July 2020, as part of our previously announced organic growth initiative, we now offer LTL service in Savannah, Georgia; Columbia, Missouri; and Roanoke, Virginia. With this expansion, our LTL network began its evolution toward broader market coverage beyond its legacy airport-to-airport footprint.
Our Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and container freight station ("CFS"(“CFS”) warehouse and handling services. Today, Intermodal operates primarily in the Midwest and Southeast, with smaller operational presence in Southwest and Mid-Atlantic United States. We plan to grow Intermodal’s geographic footprint through acquisitions as well as greenfield start-ups where we do not have an acceptable acquisition target. On April 16, 2020, we announced a greenfield start-up in Front Royal, Virginia, which furthered our growth objectives.
Our operations, particularly our network of hubs and terminals, represent substantial fixed costs. Consequently, our ability to increase our earnings depends in significant part on our ability to increase the amount of freight and the revenue per pound for the freight shipped through our networks and to grow other services, such as LTL pickup and delivery, final mile solutions and intermodal services, which will allow us to maintain revenue growth in challenging shipping environments. In addition, we are continuing to execute synergies across our services, particularly with service offerings in the Expedited Freight segment. Synergistic opportunities include the ability to share resources, particularly our fleet resources.
On April 23, 2020, theThe Board approved a strategy to divest the Pool withinDistribution business (“Pool”) on April 23, 2020, and the next year. As a resultsale of this decision, Forward Air reclassified Pool from continuing operations to discontinued operations in accordance with ASC 205-20.was completed on February 12, 2021. Pool providesprovided high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. Pool offersoffered this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States.
Accordingly, the results of operations for Pool hashave been reportedpresented as a discontinued operationsoperation in our Consolidated Statements of Comprehensive Income andfor all period presented. In addition, the related assets and liabilities have beenwere presented as held for sale in the Consolidated Balance Sheets. These changes have been applied to all periods presented.Sheets for the prior period. Unless otherwise noted, amounts, percentages and discussion for all periods included below reflect the results of operations, financial condition and cash flows from Forward Air’sour continuing operations. Refer to Note 4, Discontinued OperationsOperation and Held for Sale, to the Company’s consolidated financial statementsour Condensed Consolidated Financial Statements for additional information on our discontinued operations.operation.
Trends and Developments
Impact of COVID-19
Our business is highly susceptible to changes in the economic conditions. Our products and services are directly tied to the production and sale of goods and, more generally, to the North American economy. The COVID-19 was characterized as a pandemic byhas adversely impacted economic activity and conditions worldwide and created significant volatility and disruption to the World Health Organization on March 11, 2020. To help lessen itsfinancial markets. Efforts to control the spread many countries implemented travelof COVID-19 led governments and other authorities to impose restrictions and/or required companies to limit or suspendwhich resulted in business operations. These actionsclosures and disrupted supply chains worldwide. As a result, transportation and companysupply chain companies such as ours experienced slowdowns and reduced demand for our services.
Although our business and operations aroundhave returned to pre-COVID levels, the world. Although these restrictions have since lessened,situation surrounding COVID-19 remains fluid and may be further impacted by the policies of President Biden’s administration and the availability and success of a vaccine. The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition in 2021 will depend on future developments, which are highly uncertain and cannot be predicted by, including, but not limited to the duration, spread, severity and impact of the COVID-19 outbreak, the effects are still being felt. The current environment resulting from COVID-19 is unprecedented and comes with a great deal of uncertainty.
The Forward Air team is actively managing through the COVID-19 pandemic, with a paramount focus on team member and customer safety. Given our modal exposures to air freight, ocean freight and physical retail, and that much of the freight that typically moves throughoutbreak on our LTL network is not classified as “essential goods” - such as staples, consumables or consumer packaged goods,customers and suppliers and the impact of COVID-19 presents a meaningful challenge that we are addressing through our asset-light business model. In addition, declining fuel prices have resulted in decreased fuel surcharge revenue as comparedremedial actions and stimulus measures adopted by local and federal governments, and to prior periods. Despite these challenges, our networks have remained fully operational.what extent normal economic and operating conditions can resume.
We are making key investments that
In addition, although we believe will enable uswe have sufficient capital and liquidity to emerge from this episodemanage our business over the short- and long-term, our liquidity may be materially affected if conditions in the credit and financial markets deteriorate as a stronger LTL competitor (amidresult of COVID-19 including failure by us or our customers to secure any necessary financing in a potentially reduced field of service providers). Our Truckload team is becoming more integrated in our LTL operations, and our Truckload brokerage group is growing by generating opportunities amid supply chain disruptions. We are also integrating Final Mile into our LTL operations while organically growing in an environment where more heavy-bulky items are being ordered online. We are presently operating six terminals that service both our Final Mile and LTL operations and expect this number to grow in the future. In addition, our Final Mile fleet is supporting LTL operations by performing pickup and delivery services on their behalf in nine terminals. In Intermodal, we made significant cost reductions to address volume declines.
Beyond lowering our costs through our flexible business model, we are actively pursuing new revenue opportunities in line with our medium-term growth objectives. We believe that we have the most reliable networks for moving freight that is bigger-than-a-box, and we are stretching these capabilities to “essential goods,” small and midsize businesses, business-to-consumer shipments, new verticals and warehousing opportunities.timely manner.
The Company's phased reintegration back into the workplace of non-essential office employees who had been working remotely is nearing completion. Preventative measures that serve to minimize the risk of exposure to COVID-19 remain in effect, including modifying our workspace to implement physical distancing measures, and continuously reevaluating our efforts with safety as a top priority.
As discussed above, on April 23, 2020, the Company's Board approved a strategy to divest Pool within the next year. This represents a strategic shift for the Company that will have a major effect on its operations and financial results. The Company is currently exploring all options to divest of these assets, but has not entered into a material definitive agreement to sell these assets as of the date of this report. However, the Company does believe it is probable that these assets will be divested within a year of receiving this authority from the Board. As a result, the Company has reported Pool as a Discontinued Operation in this report. COVID-19’s impact on our Pool business has been significant. Reduced US demand, coupled with temporary retail mall closures, have materially reduced Pool’s revenue. We remain committed to serving our current and additional Pool customers as volumes improve while we are pursuing divestiture options for this business unit.
Despite results improving from the second quarter of 2020, year-on-year growth is expected to be negative for the remainder of 2020. Pool’s results drove a discontinued operations loss for the three and nine months ended September 30, 2020, however on a continuing operations and consolidated basis, the Company was profitable and expects to be profitable for the remainder of the year ended December 31, 2020.Intermodal Acquisition
The duration and severity of the COVID-19 pandemic are uncertain and difficult to predict. The pandemic could continue to impede global economic activity for an extended period, even as restrictions are beginning to be lifted in many jurisdictions, leading to decreased per capita income and disposable income, increased and sustained unemployment or a decline in consumer confidence, all of which could significantly reduce discretionary spending by individuals and businesses and may create a recession in the United States or globally. In these circumstances, there may be developments outside the Company’s control requiring adjustments to operating plans. As such, given the dynamic nature of this situation, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity. See Part II, Item 1A - “Risk Factors” - “The ongoing coronavirus outbreak, and measures taken in response thereto, could continue to have a material adverse effect on our business, results of operations and financial condition.”
Expedited LTL Acquisitions
As part of ourthe inorganic growth strategy, to expand our final mile pickup and delivery operations, in January 2020,February 2021, we acquired certain assets and liabilities of Linn StarProficient Transport Incorporated and Proficient Trucking, Inc. (together “Proficient Transport”) for $57.2 million. This acquisition increased our Final Mile capabilities with an additional 20 locations. In addition, in April 2019, we acquired certain assets and liabilities of FSA for $27.0 million$15,000 and a potential earn-out of up to $15.0 million based upon future revenue generation. We paid the first installment on this earn-out of $5.3 million in June 2020.$2,000. The remaining expected payment had aestimated fair value of $4.3 million asthe earn-out liability on the date of September 30, 2020. These acquisitions providedacquisition was $815. The fair value was based on the estimated one-year performance of the acquired customer revenue and was calculated using a Monte Carlo simulation model. Proficient Transport is an opportunity forintermodal drayage company headquartered in Chicago, Illinois. The acquisition of Proficient Transport will expand our Expedited Freight segment to expand its final mile service offering into additional geographic markets, form relationships withintermodal footprint in Georgia, Illinois, North Carolina, and Texas, and will introduce a new customers, and add volumes to our existing locations.
These acquisitions werelocation in Ohio. The acquisition was funded using cash flows from operations. The assets, liabilities, and operating results of these acquisitionsProficient Transport have been included in the Company's consolidated financial statementsour Condensed Consolidated Financial Statements as of and from the date of acquisition and have been assigned to the Expedited Freight reportable segment. See additional discussion in Note 5, Acquisitions and Long-Lived Assets, to our Consolidated Financial Statements.acquisition.
Intermodal AcquisitionsPool
As partOn February 12, 2021, we sold Pool for an $8,000 cash payment and up to a $12,000 earn-out based on 2021 earnings before interest, taxes, depreciation and amortization attainment, beginning February 1, 2021. The preliminary estimated fair value of our strategy to expand our Intermodal operations, in July 2019, we acquired certain assets and liabilities of OST for $12.0 million. OST is a drayage company and expanded our intermodal footprintthe earn-out on the East Coast, primarily in Baltimore, Maryland, with additional locations in Pennsylvania, Virginia, South Carolina and Georgia. This acquisition was funded using cash flows from operations and provide an opportunity for our Intermodal segment to expand into additional geographic markets and add volumes to our existing locations. The assets, liabilities, and operating results of this acquisition have been included in the Company's consolidated financial statements from the date of acquisitionsale was $6,967, and have been assigned towas calculated based on the Intermodal reportable segment. See additional discussionestimated performance of Pool using a Monte Carlo simulation model. A loss on the sale of Pool in Note 5, Acquisitions and Long-Lived Assets, to our Consolidated Financial Statements.
Environmental Protection and Community Support
At Forward Air,We embrace a comprehensive definition of sustainability that addresses Environmental, Social, and Governance factors (“ESG”). To our mission is to create long-term value foremployees, our shareholders,communities, our customers, our suppliers, and employees while having a positiveour investors, each impact on the communities in which we live and work. We strive to integrate social responsibility and environmental sustainability into every aspect of our strategy - from how we engage with employees and local communities to offering more sustainable products and services to customers. Our commitment to this mission requires us to adhere to a strong corporate governance program that includes policies and principles that integrate environmental, social and governance (“ESG”) matters into our broader risk management and strategic planning initiatives.area matters.
DuringIn 2019, theour Board amended the Corporate Governance and Nominating (“CG&N”) Committee charterCharter to reflect that the committee would review and discuss with management the Company’s (i)oversee our efforts related to environmental, social, and governance matters, and (ii) management of sustainability-related risks and opportunities. At least twice a year, the CG&N Committee is updated on each of these reviewstopics and discussions occur at least quarterly. Theprovides feedback and recommendations that it deems appropriate.
In 2020, we created and staffed the Head of Corporate Governance and Nominating Committee provides leadership andESG role to provide oversight of our ESG practices, including oversight of our policiesvision, strategic planning, performance management and programs related to environmental sustainability, healthimprovement activities. Shortly after, we initiated an ESG market analysis and safety, diversitybenchmarking exercise that explored the ESG issues that most impact transportation and inclusion,logistics industries and charitable giving.marketplaces.
To facilitate our ESG initiatives, we appointed a head of Corporate ESGWe began in the first quarter of 2020. We also have engaged a third-party2020 to conduct an ESG materiality assessment, during the first half of 2020. Our intent isstarting with a third-party stakeholder assessment that served as a basis for identifying and prioritizing ESG topics most relevant to build upon this work to developour industry, our business, and our stakeholders. The assessment’s findings yielded initial topics that we recognized as important. We followed with a more robustin-depth assessment of risks and opportunities, utilizing Sustainable Accounting Standards Board (“SASB”) standards as a guide, in order to further refine our disclosure topics and gain stakeholder alignment. This more detailed assessment yielded clarity of our ESG strategy, institutionalize processestopics and beginprioritization based on the degree of both qualitative and quantitative impact to provide more public disclosure around activitiesour business.
We identified ten ESG topic priority areas relevant to our business and performance going forward.mapped each to widely adopted ESG reporting standards as identified by SASB. Within these ten topic areas, we identified specific related risks and opportunities, and aligned on improvement activities. In first quarter of 2021, we published our first ESG report that describes our sustainability focus and plan. We are committed to making our presenceresults count across the country.country and will continue to update our future disclosures accordingly.
Environmental Protection: We have already taken a variety of steps to improve the sustainability of our operations. For example, as a partner of the U.S. Environmental Protection Agency ("EPA") SmartWay program since 2008, Forward Air has continued to adopt new environmentally safe policies and innovations to improve fuel efficiency and reduce emissions. We actively seek to utilize equipment with reduced environmental impact. We utilize trailers with light weight composites and employ trailer skirts to decrease aerodynamic drag, both of which improve fuel efficiency. We are also increasing our use of electric forklifts and transitioning to automatic transmission tractors, which will decrease our fuel consumption.
Through vendor partnerships, we are implementing new solutions to manage waste and improve recycling across our facilities. Annually, we recycle tons of dunnage and thousands of aluminum load bars. Forward Air also participates in ReCaps, providing and purchasing recycled trailer tires. We also focus on increasing our landfill diversion rate through our partnership with Waste Harmonics.
Community Support: On Veteran’s Day 2019, Forward Air launched Operation: Forward Freedom - providing support to our Veterans primarily through partnering with Hope for the Warriors. Hope for the Warriors is a nonprofit organization that is dedicated to restoring a sense of self, family and hope to United States military veterans. This is an important cause for us as many of our employees, independent contractors, customers and vendors are or have a family member who is a military veteran. During the second quarter of 2020, as part of Operation: Forward Freedom, Forward Air allocated $10 million of its cash balances to a $249 billion U.S. Government money market fund through its account at Drexel Hamilton, a service-disabled veteran-owned and operated broker-dealer founded on the principal of offering meaningful employment opportunities to disabled veterans.
In addition, we are a corporate partner of Truckers Against Trafficking, a nonprofit organization that educates, equips, empowers and mobilizes members of the trucking and busing industries to combat human trafficking. In November 2019, we also joined Women in Trucking, which is a nonprofit organization, supporting and celebrating women in the trucking industry.
Results from Operations
The following table sets forth our consolidated historical financial data from operations for the three months ended September 30,March 31, 2021 and 2020 and 2019 (in millions)thousands):
| | | Three months ended | | | | | | | | | | | | | | | | | | | | |
| | September 30, | | September 30, | | Percent | | Three Months Ended |
| | 2020 | | 2019 | | Change | | Change | | March 31, | | March 31, | | Percent |
| | (As Adjusted) | | | 2021 | | 2020 | | Change | | Change |
Operating revenue: | Operating revenue: | | | | | | | | Operating revenue: | | | | | | | |
Expedited Freight | Expedited Freight | $ | 283.5 | | | $ | 256.1 | | | $ | 27.4 | | | 10.7 | % | Expedited Freight | $ | 304,186 | | | $ | 253,625 | | | $ | 50,561 | | | 19.9 | % |
Intermodal | Intermodal | 48.9 | | | 58.3 | | | (9.4) | | | (16.1) | | Intermodal | 58,514 | | | 52,460 | | | 6,054 | | | 11.5 | |
| Eliminations and other operations | Eliminations and other operations | (0.5) | | | (0.7) | | | 0.2 | | | (28.6) | | Eliminations and other operations | (498) | | | (528) | | | 30 | | | (5.7) | |
Operating revenue | Operating revenue | 331.9 | | | 313.7 | | | 18.2 | | | 5.8 | | Operating revenue | 362,202 | | | 305,557 | | | 56,645 | | | 18.5 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Purchased transportation | Purchased transportation | 173.1 | | | 150.3 | | | 22.8 | | | 15.2 | | Purchased transportation | 184,608 | | | 150,598 | | | 34,010 | | | 22.6 | |
Salaries, wages, and employee benefits | Salaries, wages, and employee benefits | 66.9 | | | 68.5 | | | (1.6) | | | (2.3) | | Salaries, wages, and employee benefits | 74,897 | | | 69,559 | | | 5,338 | | | 7.7 | |
Operating leases | Operating leases | 17.3 | | | 15.9 | | | 1.4 | | | 8.8 | | Operating leases | 19,167 | | | 17,884 | | | 1,283 | | | 7.2 | |
Depreciation and amortization | Depreciation and amortization | 9.1 | | | 9.0 | | | 0.1 | | | 1.1 | | Depreciation and amortization | 9,237 | | | 9,334 | | | (97) | | | (1.0) | |
Insurance and claims | Insurance and claims | 8.7 | | | 9.5 | | | (0.8) | | | (8.4) | | Insurance and claims | 9,741 | | | 10,044 | | | (303) | | | (3.0) | |
Fuel expense | Fuel expense | 2.7 | | | 4.6 | | | (1.9) | | | (41.3) | | Fuel expense | 3,702 | | | 4,013 | | | (311) | | | (7.7) | |
Other operating expenses | Other operating expenses | 30.6 | | | 26.6 | | | 4.0 | | | 15.0 | | Other operating expenses | 38,126 | | | 28,353 | | | 9,773 | | | 34.5 | |
| Total operating expenses | Total operating expenses | 308.4 | | | 284.5 | | | 23.9 | | | 8.4 | | Total operating expenses | 339,478 | | | 289,785 | | | 49,693 | | | 17.1 | |
Income (loss) from continuing operations: | Income (loss) from continuing operations: | | | | | | | | Income (loss) from continuing operations: | | | | | | | |
Expedited Freight | Expedited Freight | 23.5 | | | 27.1 | | | (3.6) | | | (13.3) | | Expedited Freight | 24,530 | | | 15,179 | | | 9,351 | | | 61.6 | |
Intermodal | Intermodal | 4.8 | | | 6.9 | | | (2.1) | | | (30.4) | | Intermodal | 4,509 | | | 3,713 | | | 796 | | | 21.4 | |
| Other operations | (4.8) | | | (4.8) | | | — | | | — | | |
Other Operations | | Other Operations | (6,315) | | | (3,120) | | | (3,195) | | | 102.4 | |
Income from continuing operations | Income from continuing operations | 23.5 | | | 29.2 | | | (5.7) | | | (19.5) | | Income from continuing operations | 22,724 | | | 15,772 | | | 6,952 | | | 44.1 | |
Other expense: | Other expense: | | | | | | | | Other expense: | | | | | | | |
Interest expense | Interest expense | (1.3) | | | (0.8) | | | (0.5) | | | 62.5 | | Interest expense | (1,165) | | | (853) | | | (312) | | | 36.6 | |
| Total other expense | Total other expense | (1.3) | | | (0.8) | | | (0.5) | | | 62.5 | | Total other expense | (1,165) | | | (853) | | | (312) | | | 36.6 | |
Income from continuing operations before income taxes | Income from continuing operations before income taxes | 22.2 | | | 28.4 | | | (6.2) | | | (21.8) | | Income from continuing operations before income taxes | 21,559 | | | 14,919 | | | 6,640 | | | 44.5 | |
Income tax expense | Income tax expense | 5.2 | | | 7.3 | | | (2.1) | | | (28.8) | | Income tax expense | 4,845 | | | 3,504 | | | 1,341 | | | 38.3 | |
Net income from continuing operations | Net income from continuing operations | 17.0 | | | 21.1 | | | (4.1) | | | (19.4) | | Net income from continuing operations | 16,714 | | | 11,415 | | | 5,299 | | | 46.4 | |
(Loss) income from discontinued operations, net of tax | (0.3) | | | 1.1 | | | (1.4) | | | (127.3) | | |
Loss from discontinued operations, net of tax | | Loss from discontinued operations, net of tax | (5,533) | | | (3,040) | | | (2,493) | | | 82.0 | |
Net income and comprehensive income | Net income and comprehensive income | $ | 16.7 | | | $ | 22.2 | | | $ | (5.5) | | | (24.8) | % | Net income and comprehensive income | $ | 11,181 | | | $ | 8,375 | | | $ | 2,806 | | | 33.5 | % |
Note: Prior period balances have been adjusted to conform with the Company's revised segment reporting classification. See additional discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K and in Note 14, Segment Reporting, to our Consolidated Financial Statements.
Revenues
Operating revenue increased $18.2 million,$56,645, or 5.8%18.5%, to $331.9 million$362,202 for the three months ended September 30, 2020March 31, 2021 compared to $313.7 million$305,557 for the three months ended September 30, 2019.March 31, 2020. The increase was primarily driven by an increase atin our Expedited Freight segment of $27.4 million$50,561 due to increased final mile revenue as discussed in the following sections.Network and Final Mile revenue.
Operating Expenses
Operating expenses increased $23.9 million,$49,693, or 8.4%17.1%, to $308.4 million$339,478 for the three months ended September 30, 2020March 31, 2021 compared to $284.5 million$289,785 for the three months ended September 30, 2019.March 31, 2020. The increase was primarily driven by a purchased transportation increase of $22.8 million.$34,010 in our Expedited Freight segment. Purchased transportation includes owner operators and third party carriers. Purchased transportation expense increased due to an increase at our Expedited Freight segment. The increase was mostly due to an increase in final mile purchased transportation due to the acquisition of Linn Star.
Income from Continuing Operations and Segment Operations
Income from continuing operations decreased $5.7 million,increased $6,952, or 19.5%44.1%, to $23.5 million$22,724 for the three months ended September 30, 2020March 31, 2021 compared to $29.2 million$15,772 for the three months ended September 30, 2019.March 31, 2020. The decreaseincrease was primarily driven by decreasesincreases at our Expedited Freight segment and Intermodal segment of $3.6 million$9,351 and $2.1 million,$796, respectively. The results for our two reportable segments are discussed in detail in the following sections.
Interest Expense
Interest expense was $1.3 million$1,165 for the three months ended September 30, 2020March 31, 2021 compared to $0.8 million$853 for the three months ended September 30, 2019.March 31, 2020. The increase in interest expense was attributable to additionala higher interest rate on the outstanding borrowings onunder our revolving credit facility. The interest rate on the outstanding borrowings under the revolving credit facility was 3.25% and 2.3%, respectively, at March 31, 2021 and 2020.
Income Taxes on a Continuing Basis
The combined federal and state effective tax rate on a continuing basis for the three months ended September 30, 2020March 31, 2021 was 23.5%22.5% compared to a rate of 25.9%23.5% for the three months ended September 30, 2019.March 31, 2020. The lower effective tax rate for the three months ended September 30, 2020March 31, 2021 was primarily due to decreasedincreased vesting of restricted shares as well as exercises of stock based compensation vesting and exercises and return to provision adjustments that were recordedoptions in the current period when compared to the same period in 2019.2020.
(Loss) IncomeLoss from Discontinued Operations,Operation, net of tax
(Loss) incomeLoss from discontinued operations,operation, net of tax decreased $1.4 millionincreased $2,493 to a $0.3 million$5,533 loss for the three months ended September 30, 2020 from $1.1 million of incomeMarch 31, 2021 compared to a $3,040 loss for the three months ended September 30, 2019. (Loss) income from discontinued operations includes the Company'sMarch 31, 2020. The Pool business was sold on February 12, 2021, and as discussed above, Pool's operations were negatively impacted by COVID-19 as many of its customers were affected by retail mall closures. As a result, there continued to be a declinethe loss on sale recorded in Pool's operating revenue during the third quarter of 2020, resulting in an operating loss for Pool during the three months ended September 30, 2020.discontinued operation was $2,860.
Net Income
As a result of the foregoing factors, net income decreased by $5.5 million,increased $2,806, or 24.8%33.5%, to $16.7 million$11,181 for the three months ended September 30, 2020March 31, 2021 compared to $22.2 million$8,375 for the three months ended September 30, 2019.March 31, 2020.
Expedited Freight - Three Months Ended September 30, 2020March 31, 2021 compared to Three Months Ended September 30, 2019March 31, 2020
The following table sets forth the historical financial data of our Expedited Freight segment for the three months ended September 30, 2020March 31, 2021 and 2019 (in millions):2020:
| Expedited Freight Segment Information | Expedited Freight Segment Information | Expedited Freight Segment Information |
(In millions) | |
(In thousands) | | (In thousands) |
(Unaudited) | (Unaudited) | (Unaudited) |
| | | Three months ended | | Three Months Ended |
| | September 30, | | Percent of | | September 30, | | Percent of | | Percent | | March 31, | | Percent of | | March 31, | | Percent of | | Percent |
| | 2020 1 | | Revenue | | 2019 | | Revenue | | Change | | Change | | 2021 | | Revenue | | 2020 | | Revenue | | Change | | Change |
| (As Adjusted) | | |
Operating revenue: | Operating revenue: | | | | | | | | | | | | Operating revenue: | | | | | | | | | | | |
Network 2 | $ | 169.3 | | | 59.7 | % | | $ | 169.3 | | | 66.1 | % | | $ | — | | | — | % | |
Network1 | | Network1 | $ | 178,627 | | | 58.7 | % | | $ | 152,009 | | | 59.9 | % | | $ | 26,618 | | | 17.5 | % |
Truckload | Truckload | 49.8 | | | 17.6 | | | 48.1 | | | 18.8 | | | 1.7 | | | 3.5 | | Truckload | 52,380 | | | 17.2 | | | 47,529 | | | 18.7 | | | 4,851 | | | 10.2 | |
Final Mile | Final Mile | 57.0 | | | 20.1 | | | 31.6 | | | 12.3 | | | 25.4 | | | 80.4 | | Final Mile | 62,256 | | | 20.5 | | | 47,802 | | | 18.8 | | | 14,454 | | | 30.2 | |
Other | Other | 7.4 | | | 2.6 | | | 7.1 | | | 2.8 | | | 0.3 | | | 4.2 | | Other | 10,923 | | | 3.6 | | | 6,285 | | | 2.5 | | | 4,638 | | | 73.8 | |
Total operating revenue | Total operating revenue | 283.5 | | | 100.0 | | | 256.1 | | | 100.0 | | | 27.4 | | | 10.7 | | Total operating revenue | 304,186 | | | 100.0 | | | 253,625 | | | 100.0 | | | 50,561 | | | 19.9 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
Purchased transportation | Purchased transportation | 156.1 | | | 55.1 | | | 129.8 | | | 50.7 | | | 26.3 | | | 20.3 | | Purchased transportation | 164,364 | | | 54.0 | | | 132,790 | | | 52.4 | | | 31,574 | | | 23.8 | |
Salaries, wages and employee benefits | Salaries, wages and employee benefits | 54.1 | | | 19.1 | | | 52.2 | | | 20.4 | | | 1.9 | | | 3.6 | | Salaries, wages and employee benefits | 61,687 | | | 20.3 | | | 55,435 | | | 21.9 | | | 6,252 | | | 11.3 | |
Operating leases | Operating leases | 13.4 | | | 4.7 | | | 11.5 | | | 4.5 | | | 1.9 | | | 16.5 | | Operating leases | 14,218 | | | 4.7 | | | 13,602 | | | 5.4 | | | 616 | | | 4.5 | |
Depreciation and amortization | Depreciation and amortization | 6.8 | | | 2.4 | | | 6.5 | | | 2.5 | | | 0.3 | | | 4.6 | | Depreciation and amortization | 6,798 | | | 2.2 | | | 6,695 | | | 2.6 | | | 103 | | | 1.5 | |
Insurance and claims | Insurance and claims | 5.8 | | | 2.0 | | | 5.4 | | | 2.1 | | | 0.4 | | | 7.4 | | Insurance and claims | 7,611 | | | 2.5 | | | 6,613 | | | 2.6 | | | 998 | | | 15.1 | |
Fuel expense | Fuel expense | 1.4 | | | 0.5 | | | 2.5 | | | 1.0 | | | (1.1) | | | (44.0) | | Fuel expense | 1,993 | | | 0.7 | | | 2,144 | | | 0.8 | | | (151) | | | (7.0) | |
Other operating expenses | Other operating expenses | 22.4 | | | 7.9 | | | 21.1 | | | 8.2 | | | 1.3 | | | 6.2 | | Other operating expenses | 22,985 | | | 7.6 | | | 21,167 | | | 8.3 | | | 1,818 | | | 8.6 | |
| Total operating expenses | Total operating expenses | 260.0 | | | 91.7 | | | 229.0 | | | 89.4 | | | 31.0 | | | 13.5 | | Total operating expenses | 279,656 | | | 91.9 | | | 238,446 | | | 94.0 | | | 41,210 | | | 17.3 | |
Income from operations | Income from operations | $ | 23.5 | | | 8.3 | % | | $ | 27.1 | | | 10.6 | % | | $ | (3.6) | | | (13.3) | % | Income from operations | $ | 24,530 | | | 8.1 | % | | $ | 15,179 | | | 6.0 | % | | $ | 9,351 | | | 61.6 | % |
| 1 Includes revenues and operating expenses from the acquisition of Linn Star which was acquired in January 2020. Linn Star results are not included in the prior period. | |
2 Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial, Truckload and Final Mile revenue. | |
1Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial, Truckload and Final Mile revenue. | | 1Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial, Truckload and Final Mile revenue. |
Note: Prior period balances have been adjusted to conform with the Company's revised segment reporting classification. See additional discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K and in Note 14, Segment Reporting, to our Consolidated Financial Statements.
| Expedited Freight Operating Statistics | Expedited Freight Operating Statistics | Expedited Freight Operating Statistics |
| | | Three months ended | | |
| | September 30, | | September 30, | | Percent | | Three Months Ended |
| | 2020 | | 2019 | | Change | | March 31, | | March 31, | | Percent |
| | (As Adjusted) | | | 2021 | | 2020 | | Change |
Business days | Business days | 64 | | | 64 | | | — | % | Business days | 63 | | | 64 | | | (1.6) | % |
| Tonnage 1,2 | Tonnage 1,2 | | Tonnage 1,2 | |
Total pounds | Total pounds | 636,194 | | | 613,812 | | | 3.6 | | Total pounds | 651,339 | | | 569,956 | | | 14.3 | |
Pounds per day | Pounds per day | 9,941 | | | 9,591 | | | 3.6 | | Pounds per day | 10,339 | | | 8,906 | | | 16.1 | |
| Shipments 1,2 | Shipments 1,2 | | Shipments 1,2 | |
Total shipments | Total shipments | 1,018 | | | 977 | | | 4.2 | | Total shipments | 1,026 | | | 885 | | | 15.9 | |
Shipments per day | Shipments per day | 15.9 | | | 15.3 | | | 4.2 | | Shipments per day | 16.3 | | | 13.8 | | | 18.1 | |
| Weight per shipment | Weight per shipment | 625 | | | 628 | | | (0.5) | | Weight per shipment | 635 | | | 644 | | | (1.4) | |
| Revenue per hundredweight 3 | Revenue per hundredweight 3 | $ | 26.84 | | | $ | 27.65 | | | (2.9) | | Revenue per hundredweight 3 | $ | 27.56 | | | $ | 27.16 | | | 1.5 | |
Revenue per hundredweight, ex fuel 3 | Revenue per hundredweight, ex fuel 3 | $ | 23.41 | | | $ | 23.23 | | | 0.8 | | Revenue per hundredweight, ex fuel 3 | $ | 23.86 | | | $ | 23.09 | | | 3.3 | |
| Revenue per shipment 3 | Revenue per shipment 3 | $ | 166 | | | $ | 176 | | | (5.7) | | Revenue per shipment 3 | $ | 174 | | | $ | 172 | | | 1.2 | |
Revenue per shipment, ex fuel 3 | Revenue per shipment, ex fuel 3 | $ | 145 | | | $ | 148 | | | (2.0) | | Revenue per shipment, ex fuel 3 | $ | 151 | | | $ | 145 | | | 4.1 | |
| Network revenue from door-to-door shipments as a percentage of network revenue 3,4 | Network revenue from door-to-door shipments as a percentage of network revenue 3,4 | 51.3 | % | | 40.7 | % | | 26.0 | | Network revenue from door-to-door shipments as a percentage of network revenue 3,4 | 48.4 | % | | 44.3 | % | | 9.3 | |
Network gross margin 5 | Network gross margin 5 | 49.7 | % | | 55.6 | % | | (10.6) | % | Network gross margin 5 | 51.9 | % | | 53.4 | % | | (2.8) | % |
| 1 In thousands | 1 In thousands | 1 In thousands |
2 Excludes accessorial, Truckload and Final Mile products | 2 Excludes accessorial, Truckload and Final Mile products | 2 Excludes accessorial, Truckload and Final Mile products |
3 Includes intercompany revenue between the Network and Truckload revenue streams | 3 Includes intercompany revenue between the Network and Truckload revenue streams | 3 Includes intercompany revenue between the Network and Truckload revenue streams |
4 Door-to-door shipments include all shipments with a pickup and/or delivery | 4 Door-to-door shipments include all shipments with a pickup and/or delivery | 4 Door-to-door shipments include all shipments with a pickup and/or delivery |
5 Network revenue less Network purchased transportation as a percentage of Network revenue | 5 Network revenue less Network purchased transportation as a percentage of Network revenue | 5 Network revenue less Network purchased transportation as a percentage of Network revenue |
Revenues
Expedited Freight operating revenue increased $27.4 million,$50,561, or 10.7%19.9%, to $283.5 million$304,186 for the three months ended September 30, 2020March 31, 2021 from $256.1 million$253,625 for the three months ended September 30, 2019.March 31, 2020. The increase was attributable to increased final mileNetwork, Truckload and truckloadFinal Mile revenue. Network revenue was flatincreased due to a 3.6%14.3% increase in tonnage, a 4.2%15.9% increase in shipments and a 2.9% decrease1.5% increase in revenue per hundredweight fromas compared to the prior year.
In addition, fuel Fuel surcharge revenue decreased $4.7 million,increased $863, or 17.8%, due to declining3.7% as a result of the rising fuel prices. Truckload revenue increased by $1.7 million$4,851 primarily due to an increase in revenue per mile. Final Mile revenue increased $14,454 due to the combination of organic growth and the acquisition of CLW in October 2020. Other revenue, which includes warehousing and terminal handling, increased $0.3 million$4,638 due to the higher linehaul tonnage and shipment counts. Final mile revenue increased $25.4 million primarily due to the acquisition of Linn Star in January 2020.
Purchased Transportation
Expedited Freight purchased transportation increased $26.3 million,$31,574, or 20.3%23.8%, to $156.1 million$164,364 for the three months ended September 30, 2020March 31, 2021 from $129.8 million$132,790 for the three months ended September 30, 2019.March 31, 2020. Purchased transportation was 55.1%54.0% of Expedited Freight operating revenue for the three months ended September 30, 2020March 31, 2021 compared to 50.7%52.4% for the same period in 2019.2020. Expedited Freight purchased transportation includes owner operators and third party carriers, while Company-employed drivers are included in salaries, wages and benefits. The increase in purchased transportation as a percentage of revenue was mostly due to an increase in final mile purchased transportationprimarily due to the acquisitionmix of Linn Star.owner operators, third party carriers and Company-employed drivers.
Salaries, Wages and Employee Benefits
Expedited Freight salaries, wages and employee benefits increased $1.9 million,$6,252, or 3.6%11.3%, to $54.1 million$61,687 for the three months ended September 30, 2020March 31, 2021 from $52.2 million$55,435 for the three months ended September 30, 2019.March 31, 2020. Salaries, wages and employee benefits were 19.1%20.3% of Expedited Freight operating revenue for the three months ended September 30, 2020March 31, 2021 compared to 20.4%21.9% for the same period in 2019.2020. The increasedecrease in expensesalaries, wages and employee benefits as a percentage of revenue was primarily due a $3.8 million increase related to the acquisition of Linn Star partially offset by cost-control measures and operating efficiencies.
Operating Leases
Expedited Freight operating leases increased $1.9 million,$616, or 16.5%4.5%, to $13.4 million$14,218 for the three months ended September 30, 2020March 31, 2021 from $11.5 million$13,602 for the three months ended September 30, 2019.March 31, 2020. Operating leases were 4.7% of Expedited Freight operating revenue for the three months ended September 30, 2020March 31, 2021 compared to 4.5%5.4% for the same period in 2019.2020. The increase in expenseoperating leases was primarily due to an increase inadditional truck leases and facility leases mostly from additional facilities acquired from Linn Star.CLW.
Depreciation and Amortization
Expedited Freight depreciation and amortization increased $0.3 million,$103, or 4.6%1.5%, to $6.8 million$6,798 for the three months ended September 30, 2020March 31, 2021 from $6.5 million$6,695 for the three months ended September 30, 2019.March 31, 2020. Depreciation and amortization was 2.4%2.2% of Expedited Freight operating revenue for the three months ended September 30, 2020March 31, 2021 compared to 2.5%2.6% for the same period in 2019.2020. The increase in amortization expense was primarily due to $0.8 million of increasedthe amortization of acquired intangibles and depreciation of fixed assetsresulting from the acquisition of Linn Star partially offset by a reduction of depreciation expense of $0.5 million related to extending the useful lives of its trailers from seven to ten years due to the impact of a useful life study in the third quarter of 2019.CLW.
Insurance and Claims
Expedited Freight insurance and claims increased $0.4 million,$998, or 7.4%15.1%, to $5.8 million$7,611 for the three months ended September 30, 2020March 31, 2021 from $5.4 million$6,613 for the three months ended September 30, 2019.March 31, 2020. Insurance and claims were 2.0%2.5% of Expedited Freight operating revenue for the three months ended September 30, 2020March 31, 2021 compared to 2.1%2.6% for the same period in 2019.2020. The increase in insurance and claims expense was primarily attributable to an increase in vehicle liability claims.insurance premiums. See additionaladditional discussion over the consolidated increasechange in self-insurance reserves related to vehicle claims in the "Other operations"“Other Operation” section below.
Fuel Expense
Expedited Freight fuel expense decreased $151, or 7.0%, to $1,993 for the three months ended March 31, 2021 from $2,144 for the three months ended March 31, 2020. Fuel expense was 0.7% of Expedited Freight operating revenue for the three months ended March 31, 2021 compared to 0.8% for the same period in 2020. Expedited Freight fuel expense decreased due to a decline in our mileage and the average price of fuel in 2021.
Fuel ExpenseOther Operating Expenses
Expedited Freight fuel expense decreased $1.1 million,other operating expenses increased $1,818, or 44.0%8.6%, to $1.4 million$22,985 for the three months ended September 30, 2020March 31, 2021 from $2.5 million$21,167 for the three months ended September 30, 2019. Fuel expense was 0.5%March 31, 2020. Other operating expenses were 7.6% of Expedited Freight operating revenue for the three months ended September 30, 2020March 31, 2021 compared to 1.0%8.3% for the same period in 2019. Expedited Freight fuel expense decreased due to lower fuel prices.
Other Operating Expenses
Expedited Freight other operating expenses increased $1.3 million, or 6.2%, to $22.4 million for the three months ended September 30, 2020 from $21.1 million for the three months ended September 30, 2019. Other operating expenses were 7.9% of Expedited Freight operating revenue for the three months ended September 30, 2020 compared to 8.2% for the same period in 2019.2020. Other operating expenses included equipment maintenance, terminal and office expenses, legal and professional fees and other over-the-road costs. These expenses primarily increased due to a $2.0 million increase interminal and office expenses as well as parts costs for final mile installations. This increase was partially offset by a $0.4 million decrease from the prior period in the fair value of the earn-out liability from the FSA acquisition.
Income from Operations
Expedited Freight income from operations decreased $3.6 million,increased $9,351, or 13.3%61.6%, to $23.5 million$24,530 for the three months ended September 30, 2020March 31, 2021 compared to $27.1 million$15,179 for the three months ended September 30, 2019.March 31, 2020. Income from operations was 8.3%8.1% of Expedited Freight operating revenue for the three months ended September 30, 2020March 31, 2021 compared to 10.6%6.0% for the same period in 2019.2020. The decreaseincrease in income from operations was primarily due to loweran increase in tonnage, higher revenue per hundredweight. In addition, the decrease was due to additional costs from the acquisition of Linn Star. Margin deterioration was partially offset byhundredweight and operating efficiencies.
Intermodal - Three Months Ended September 30, 2020March 31, 2021 compared to Three Months Ended September 30, 2019March 31, 2020
The following table sets forth the historical financial data of our Intermodal segment for the three months ended September 30, 2020March 31, 2021 and 2019 (in millions):2020:
| Intermodal Segment Information | Intermodal Segment Information | Intermodal Segment Information |
(In millions) | |
(In thousands) | | (In thousands) |
(Unaudited) | (Unaudited) | (Unaudited) |
| | | Three months ended | | Three Months Ended |
| | September 30, | | Percent of | | September 30, | | Percent of | | Percent | | March 31, | | Percent of | | March 31, | | Percent of | | Percent |
| | 2020 1 | | Revenue | | 2019 | | Revenue | | Change | | Change | | 2020 1 | | Revenue | | 2020 | | Revenue | | Change | | Change |
Operating revenue | Operating revenue | $ | 48.9 | | | 100.0 | % | | $ | 58.3 | | | 100.0 | % | | $ | (9.4) | | | (16.1) | % | Operating revenue | $ | 58,514 | | | 100.0 | % | | $ | 52,460 | | | 100.0 | % | | $ | 6,054 | | | 11.5 | % |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
Purchased transportation | Purchased transportation | 17.3 | | | 35.4 | | | 21.0 | | | 36.0 | | | (3.7) | | | (17.6) | | Purchased transportation | 20,603 | | | 35.2 | | | 18,166 | | | 34.6 | | | 2,437 | | | 13.4 | |
Salaries, wages and employee benefits | Salaries, wages and employee benefits | 11.6 | | | 23.7 | | | 14.2 | | | 24.4 | | | (2.6) | | | (18.3) | | Salaries, wages and employee benefits | 14,063 | | | 24.0 | | | 12,930 | | | 24.6 | | | 1,133 | | | 8.8 | |
Operating leases | Operating leases | 3.9 | | | 8.0 | | | 4.3 | | | 7.4 | | | (0.4) | | | (9.3) | | Operating leases | 4,837 | | | 8.3 | | | 4,428 | | | 8.4 | | | 409 | | | 9.2 | |
Depreciation and amortization | Depreciation and amortization | 2.4 | | | 4.9 | | | 2.6 | | | 4.5 | | | (0.2) | | | (7.7) | | Depreciation and amortization | 2,436 | | | 4.2 | | | 2,621 | | | 5.0 | | | (185) | | | (7.1) | |
Insurance and claims | Insurance and claims | 2.1 | | | 4.3 | | | 1.8 | | | 3.1 | | | 0.3 | | | 16.7 | | Insurance and claims | 2,402 | | | 4.1 | | | 1,973 | | | 3.8 | | | 429 | | | 21.7 | |
Fuel expense | Fuel expense | 1.2 | | | 2.5 | | | 2.2 | | | 3.8 | | | (1.0) | | | (45.5) | | Fuel expense | 1,710 | | | 2.9 | | | 1,869 | | | 3.6 | | | (159) | | | (8.5) | |
Other operating expenses | Other operating expenses | 5.6 | | | 11.5 | | | 5.3 | | | 9.1 | | | 0.3 | | | 5.7 | | Other operating expenses | 7,954 | | | 13.6 | | | 6,760 | | | 12.9 | | | 1,194 | | | 17.7 | |
Total operating expenses | Total operating expenses | 44.1 | | | 90.2 | | | 51.4 | | | 88.2 | | | (7.3) | | | (14.2) | | Total operating expenses | 54,005 | | | 92.3 | | | 48,747 | | | 92.9 | | | 5,258 | | | 10.8 | |
Income from operations | Income from operations | $ | 4.8 | | | 9.8 | % | | $ | 6.9 | | | 11.8 | % | | $ | (2.1) | | | (30.4) | % | Income from operations | $ | 4,509 | | | 7.7 | % | | $ | 3,713 | | | 7.1 | % | | $ | 796 | | | 21.4 | % |
| 1 Includes revenues and operating expenses from the acquisition of OST, which was acquired in July 2019 (and is partially included in the prior period) | |
1 Includes revenues and operating expenses from the acquisition of Proficient Transport, which was acquired in February 2021. | | 1 Includes revenues and operating expenses from the acquisition of Proficient Transport, which was acquired in February 2021. |
| | | | | | | | | | | | | | | | | |
Intermodal Operating Statistics |
| |
| Three months ended |
| September 30, | | September 30, | | Percent |
| 2020 | | 2019 | | Change |
Drayage shipments | 74,506 | | | 84,230 | | | (11.5) | % |
Drayage revenue per shipment | $ | 562 | | | $ | 597 | | | (5.9) | |
Number of locations | 24 | | | 21 | | | 14.3 | % |
| | | | | | | | | | | | | | | | | |
Intermodal Operating Statistics |
| |
| Three Months Ended |
| March 31, | | March 31, | | Percent |
| 2021 | | 2020 | | Change |
Drayage shipments | 89,909 | | | 82,474 | | | 9.0 | % |
Drayage revenue per shipment | $ | 553 | | | $ | 551 | | | 0.4 | % |
Number of locations | 27 | | | 24 | | | 12.5 | % |
Revenues
Intermodal operating revenue decreased $9.4 million,increased $6,054, or 16.1%11.5%, to $48.9 million$58,514 for the three months ended September 30, 2020March 31, 2021 from $58.3 million$52,460 for the three months ended September 30, 2019.March 31, 2020. The decreaseincrease in operating revenue was primarily attributable to a 11.5% decrease9.0% increase in drayage shipments over prior year primarily due to the impact of COVID-19, discussed above.same period in 2020.
Purchased Transportation
Intermodal purchased transportation decreased $3.7 million,increased $2,437, or 17.6%13.4%, to $17.3 million$20,603 for the three months ended September 30, 2020March 31, 2021 from $21.0 million$18,166 for the three months ended September 30, 2019.March 31, 2020. Purchased transportation was 35.4%35.2% of Intermodal operating revenue for the three months ended September 30, 2020March 31, 2021 compared to 36.0%34.6% for the same period in 2019.2020. Intermodal purchased transportation includes owner operators and third party carriers, while Company-employed drivers are included in salaries, wages and benefits. The decrease in Intermodal purchased transportation as a percentage of revenue was due to operating efficiencies.
Salaries, Wages and Employee Benefits
Intermodal salaries, wages and employee benefits decreased $2.6 million, or 18.3%, to $11.6 million for the three months ended September 30, 2020 compared to $14.2 million for the three months ended September 30, 2019. Salaries, wages and benefits were 23.7% of Intermodal operating revenue for the three months ended September 30, 2020 compared to 24.4% for the same period in 2019. The decrease in expense was primarily due to cost-control measures in response to COVID-19.
Operating Leases
Intermodal operating leases decreased $0.4 million, or 9.3%, to $3.9 million for the three months ended September 30, 2020 compared to $4.3 million for the three months ended September 30, 2019. Operating leases were 8.0% of Intermodal operating revenue for the three months ended September 30, 2020 compared to 7.4% for the same period in 2019. The increase as a percentage of revenue was due to the decreased drayage volumes over the prior year.
Depreciation and Amortization
Intermodal depreciation and amortization decreased $0.2 million, or 7.7%, to $2.4 million for the three months ended September 30, 2020 from $2.6 million for the three months ended September 30, 2019. Depreciation and amortization was 4.9% of Intermodal operating revenue for the three months ended September 30, 2020 compared to 4.5% for the same period in 2019. The decrease was primarily attributable to a decline in trailer depreciation.
Insurance and Claims
Intermodal insurance and claims increased $0.3 million, or 16.7%, to $2.1 million for the three months ended September 30, 2020 from $1.8 million for the three months ended September 30, 2019. Insurance and claims were 4.3% of Intermodal operating revenue for the three months ended September 30, 2020 and compared to 3.1% for the same period in 2019. The increase in Intermodal insurance and claims expense was primarily due to an increase in vehicle liability claims. See additional discussion over the consolidated increase in self-insurance reserves related to vehicle claims in the "Other operations" section below.
Fuel Expense
Intermodal fuel expense decreased $1.0 million, or 45.5%, to $1.2 million for the three months ended September 30, 2020 from $2.2 million for the three months ended September 30, 2019. Fuel expense was 2.5% of Intermodal operating revenue for the three months ended September 30, 2020 compared to 3.8% for the same period in 2019. Intermodal fuel expense decreased due to lower fuel prices.
Other Operating Expenses
Intermodal other operating expenses increased $0.3 million, or 5.7%, to $5.6 million for the three months ended September 30, 2020 from $5.3 million for the three months ended September 30, 2019. Other operating expenses were 11.5% of Intermodal operating revenue for the three months ended September 30, 2020 compared to 9.1% for the same period in 2019. The increase in Intermodal other operating expenses was primarily due to $0.7 million increase in per diem expenses partially offset by reductions in maintenance and travel expenses. The decrease in maintenance and travel expense were primarily due to cost-control measures in response to COVID-19.
Income from Operations
Intermodal income from operations decreased $2.1 million, or 30.4%, to $4.8 million for the three months ended September 30, 2020 compared to $6.9 million for the three months ended September 30, 2019. Income from operations was 9.8% of Intermodal operating revenue for the three months ended September 30, 2020 compared to 11.8% for the same period in 2019. The deterioration in operating income was primarily attributable to higher insurance premiums and losing leverage on fixed costs such as operating leases, depreciation and amortization due to the impact of COVID-19.
Other Operations - Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019
Other operating activity was a $4.8 million operating loss during the three months ended September 30, 2020 and a $4.8 million operating loss during the three months ended September 30, 2019. The three months ended September 30, 2020 included a litigation reserve of $2.3 million and increased self-insurance reserves for vehicle claims of $1.6 million. The increase in self-insurance reserves were primarily due to increases to our loss development factors for prior quarter claims. The remaining loss was attributable to $0.3 million in share based compensation and $0.5 million of corporate costs previously allocated to the Pool segment that are not part of the discontinued operation. These costs represent corporate costs that will remain with the Company after the Pool business is divested.
The $4.8 million operating loss for the three months ended September 30, 2019 was primarily due to a $2.5 million vehicular reserve for unfavorable development of prior quarter claims and $1.6 million in costs related to the CEO transition. The remaining loss was due to increases to our loss development factors for workers' compensation claims of $0.5 million and $0.3 million of corporate costs previously allocated to the Pool segment that are not part of the discontinued operation.
Results from Operations
The following table sets forth our consolidated historical financial data from operations for the nine months ended September 30, 2020 and 2019 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| 2020 | | 2019 | | Change | | Percent Change |
| | | (As Adjusted) | | | | |
Operating revenue: | | | | | | | |
Expedited Freight | $ | 772.8 | | | $ | 735.0 | | | $ | 37.8 | | | 5.1 | % |
Intermodal | 147.8 | | | 163.0 | | | (15.2) | | | (9.3) | |
| | | | | | | |
Eliminations and other operations | (1.4) | | | (2.5) | | | 1.1 | | | (44.0) | |
Operating revenue | 919.2 | | | 895.5 | | | 23.7 | | | 2.6 | |
Operating expenses: | | | | | | | |
Purchased transportation | 465.7 | | | 426.3 | | | 39.4 | | | 9.2 | |
Salaries, wages, and employee benefits | 200.3 | | | 192.3 | | | 8.0 | | | 4.2 | |
Operating leases | 52.6 | | | 46.8 | | | 5.8 | | | 12.4 | |
Depreciation and amortization | 27.9 | | | 27.5 | | | 0.4 | | | 1.5 | |
Insurance and claims | 26.4 | | | 29.2 | | | (2.8) | | | (9.6) | |
Fuel expense | 9.2 | | | 13.3 | | | (4.1) | | | (30.8) | |
Other operating expenses | 83.9 | | | 78.1 | | | 5.8 | | | 7.4 | |
| | | | | | | |
Total operating expenses | 866.0 | | | 813.5 | | | 52.5 | | | 6.5 | |
Income (loss) from continuing operations: | | | | | | | |
Expedited LTL | 50.4 | | | 76.2 | | | (25.8) | | | (33.9) | |
Intermodal | 12.9 | | | 18.3 | | | (5.4) | | | (29.5) | |
| | | | | | | |
Other operations | (10.1) | | | (12.6) | | | 2.5 | | | (19.8) | |
Income from continuing operations | 53.2 | | | 82.0 | | | (28.8) | | | (35.1) | |
Other expense: | | | | | | | |
Interest expense | (3.4) | | | (1.9) | | | (1.5) | | | 78.9 | |
| | | | | | | |
Total other expense | (3.4) | | | (1.9) | | | (1.5) | | | 78.9 | |
Income from continuing operations before income taxes | 49.8 | | | 80.1 | | | (30.3) | | | (37.8) | |
Income tax expense | 12.2 | | | 20.1 | | | (7.9) | | | (39.3) | |
Net income from continuing operations | 37.6 | | | 60.0 | | | (22.4) | | | (37.3) | |
(Loss) income from discontinued operations, net of tax | (9.4) | | | 2.9 | | | (12.3) | | | (424.1) | |
Net income and comprehensive income | $ | 28.2 | | | $ | 62.9 | | | $ | (34.7) | | | (55.2) | % |
Note: Prior period balances have been adjusted to conform with the Company's revised segment reporting classification. See additional discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K and in Note 14, Segment Reporting, to our Consolidated Financial Statements.
Revenues
Operating revenue increased $23.7 million, or 2.6% to $919.2 million for the nine months ended September 30, 2020 compared to $895.5 million for the nine months ended September 30, 2019. The increase was primarily driven by our Expedited Freight segment of $37.8 million driven by final mile revenue from the acquisition of FSA in April 2019 and Linn Star in January 2020. Revenue increases associated with the final mile acquisitions were partially offset by decreased volumes due to COVID-19, which impacted each of the Company's segments, as discussed in the following sections.
Operating Expenses
Operating expenses increased $52.5 million, or 6.5%, to $866.0 million for the nine months ended September 30, 2020 compared to $813.5 million for the nine months ended September 30, 2019. The increase was primarily driven by purchased transportation increases of $39.4 million and salaries, wages and employee benefits increases of $8.0 million. Purchased transportation includes owner operators and third party carriers, while Company-employed drivers are included in salaries, wages and employee benefits. Purchased transportation expense increased due to increases for the Expedited Freight segment. These increases were mostly due to an increase in final mile purchased transportation due to the acquisitions of FSA and Linn Star. Salaries, wages and employee benefits increased primarily due to additional salaries from acquisitions.
Income from Continuing Operations and Segment Operations
Income from continuing operations decreased $28.8 million, or 35.1%, to $53.2 million for the nine months ended September 30, 2020 compared to $82.0 million for the nine months ended September 30, 2019. The decrease is primarily driven by the impact of COVID-19 on the Company's volumes. The results for our two reportable segments are discussed in detail in the following sections.
Interest Expense
Interest expense was $3.4 million for the nine months ended September 30, 2020 compared to $1.9 million for the nine months ended September 30, 2019. The increase in interest expense was attributable to additional borrowings on our revolving credit facility.
Income Taxes on a Continuing Basis
The combined federal and state effective tax rate on a continuing basis for the nine months ended September 30, 2020 was 24.5% compared to a rate of 25.1% for the nine months ended September 30, 2019. The lower effective tax rate for the nine months ended September 30, 2020 was primarily due to decreased stock based compensation vesting and exercises and return to provision adjustments that were recorded in the current period when compared to the same period in 2019.
(Loss) Income from Discontinued Operations, net of tax
(Loss) income from discontinued operations, net of tax decreased $12.3 million to a $9.4 million loss for the nine months ended September 30, 2020 from $2.9 million of income for the nine months ended September 30, 2019. (Loss) income from discontinued operations includes the Company's Pool business and, as discussed above, Pool's operations were negatively impacted by COVID-19 as many of its customers were affected by retail mall closures in response to stay-at-home orders beginning in March 2020. As a result, there was a sudden and significant decline in Pool's operating revenue, resulting in an operating loss for Pool during the nine months ended September 30, 2020.
Net Income
As a result of the foregoing factors, net income decreased by $34.7 million, or 55.2%, to $28.2 million for the nine months ended September 30, 2020 compared to $62.9 million for the nine months ended September 30, 2019.
Expedited Freight - Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019
The following table sets forth the historical financial data of our Expedited Freight segment for the nine months ended September 30, 2020 and 2019 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expedited Freight Segment Information |
(In millions) |
(Unaudited) |
| | | | | | | | | | | |
| Nine months ended |
| September 30, | | Percent of | | September 30, | | Percent of | | | | Percent |
| 2020 1 | | Revenue | | 2019 | | Revenue | | Change | | Change |
| | | | | (As Adjusted) | | | | | | |
Operating revenue: | | | | | | | | | | | |
Network 2 | $ | 455.5 | | | 58.9 | % | | $ | 503.1 | | | 68.4 | % | | $ | (47.6) | | | (9.5) | % |
Truckload | 139.2 | | | 18.0 | | | 144.4 | | | 19.6 | | | (5.2) | | | (3.6) | |
Final Mile | 158.2 | | | 20.5 | | | 66.3 | | | 9.0 | | | 91.9 | | | 138.6 | |
Other | 19.9 | | | 2.6 | | | 21.2 | | | 2.9 | | | (1.3) | | | (6.1) | |
Total operating revenue | 772.8 | | | 100.0 | | | 735.0 | | | 100.0 | | | 37.8 | | | 5.1 | |
| | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | |
Purchased transportation | 416.3 | | | 53.9 | | | 370.4 | | | 50.4 | | | 45.9 | | | 12.4 | |
Salaries, wages and employee benefits | 160.0 | | | 20.7 | | | 148.9 | | | 20.3 | | | 11.1 | | | 7.5 | |
Operating leases | 40.4 | | | 5.2 | | | 34.7 | | | 4.7 | | | 5.7 | | | 16.4 | |
Depreciation and amortization | 20.2 | | | 2.6 | | | 21.4 | | | 2.9 | | | (1.2) | | | (5.6) | |
Insurance and claims | 18.1 | | | 2.3 | | | 17.0 | | | 2.3 | | | 1.1 | | | 6.5 | |
Fuel expense | 5.1 | | | 0.7 | | | 7.7 | | | 1.0 | | | (2.6) | | | (33.8) | |
Other operating expenses | 62.3 | | | 8.1 | | | 58.8 | | | 8.0 | | | 3.5 | | | 6.0 | |
| | | | | | | | | | | |
Total operating expenses | 722.4 | | | 93.5 | | | 658.9 | | | 89.6 | | | 63.5 | | | 9.6 | |
Income from operations | $ | 50.4 | | | 6.5 | % | | $ | 76.1 | | | 10.4 | % | | $ | (25.7) | | | (33.8) | % |
| | | | | | | | | | | |
1 Includes revenues and operating expenses from the acquisition of FSA and Linn Star, which were acquired in April 2019 and January 2020, respectively. FSA results are partially included in the prior period. Linn Star results are not included in the prior period. |
2 Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial, Truckload and Final Mile revenue. |
Note: Prior period balances have been adjusted to conform with the Company's revised segment reporting classification. See additional discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K and in Note 14, Segment Reporting, to our Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | |
Expedited Freight Operating Statistics |
| |
| Nine months ended |
| September 30, | | September 30, | | Percent |
| 2020 | | 2019 | | Change |
| | | (As Adjusted) | | |
Business days | 192 | | | 191 | | | 0.5 | % |
| | | | | |
Tonnage 1,2 | | | | | |
Total pounds | 1,728,181 | | | 1,837,200 | | | (5.9) | |
Pounds per day | 9,001 | | | 9,619 | | | (6.4) | |
| | | | | |
Shipments 1,2 | | | | | |
Total shipments | 2,866 | | | 2,921 | | | (1.9) | |
Shipments per day | 14.9 | | | 15.3 | | | (2.4) | |
| | | | | |
Weight per shipment | 603 | | | 629 | | | (4.1) | |
| | | | | |
Revenue per hundredweight 3 | $ | 26.79 | | | $ | 27.28 | | | (1.8) | |
Revenue per hundredweight, ex fuel 3 | 23.21 | | | 22.96 | | | 1.1 | |
| | | | | |
Revenue per shipment 3 | $ | 159 | | | 174 | | | (8.6) | |
Revenue per shipment, ex fuel 3 | 137 | | | 147 | | | (6.8) | |
| | | | | |
Network revenue from door-to-door shipments as a percentage of network revenue 3,4 | 48.6 | % | | 39.7 | % | | 22.4 | |
Network gross margin 5 | 51.2 | % | | 55.3 | % | | (7.4) | |
| | | | | |
1 In thousands |
2 Excludes accessorial, full Truckload and Final Mile products |
3 Includes intercompany revenue between the Network and Truckload revenue streams |
4 Door-to-door shipments include all shipments with a pickup and/or delivery |
5 Network revenue less Network purchased transportation as a percentage of Network revenue |
Revenues
Expedited Freight operating revenue increased $37.8 million, or 5.1%, to $772.8 million from $735.0 million for the nine months ended September 30, 2020. The increase was due to increased final mile revenue of $91.9 million, partially offset by decreases in network, truckload and other revenue. Final mile revenue increased primarily due to the acquisition of FSA in April 2019 and Linn Star in January 2020. Network revenue decreased $47.6 million due to a 5.9% decrease in tonnage, a 1.9% decrease in shipments and a 1.8% decrease in revenue per hundredweight over prior year. The decrease in tonnage and shipments was primarily due to the impact of COVID-19, discussed above. The decrease in revenue per hundredweight was due to decreased shipment size and rates. In addition, fuel surcharge revenue decreased $16.4 million, or 21.0%, due to declining fuel prices and decreased tonnage. Truckload revenue decreased by $5.2 million primarily due to a decrease in revenue per mile driven by rate pressures from both spot market and contract rate customers. Other revenue, which includes warehousing and terminal handling, decreased $1.3 million due to the lower linehaul tonnage and shipment counts
Purchased Transportation
Expedited Freight purchased transportation increased $45.9 million, or 12.4%, to $416.3 million for the nine months ended September 30, 2020 from $370.4 million for the nine months ended September 30, 2019. Purchased transportation was 53.9% of Expedited Freight operating revenue for the nine months ended September 30, 2020 compared to 50.4% for the same period in 2019. Expedited Freight purchased transportation includes owner operators and third party carriers, while Company-employed drivers are included in salaries, wages and benefits. The increase in purchased transportation as a percentage of revenue was mostly due to an increase in final mile purchased transportation due to the acquisitions of FSA and Linn Star. This increase was partially offset by a 2.1% reduction in linehaul cost per mile due to increased utilization of owner-operators and Company-employed drivers over more costly third-party transportation providers.
Salaries, Wages, and Benefits
Expedited Freight salaries, wages and employee benefits increased by $11.1 million, or 7.5%, to $160.0 million for the nine months ended September 30, 2020 from $148.9 million for the nine months ended September 30, 2019. Salaries, wages and employee benefits were 20.7% of Expedited Freight’s operating revenue for the nine months ended September 30, 2020 compared to 20.3% for the same period in 2019. The increase in expense was primarily due to a $16.1 million increase due to the acquisitions of FSA and Linn Star. An additional $2.1 million increase was primarily related to credits for group health insurance premiums received in the prior year. These increases were partially offset by cost-control measures and operating efficiencies.
Operating Leases
Expedited Freight operating leases increased $5.7 million, or 16.4%, to $40.4 million for the nine months ended September 30, 2020 from $34.7 million for the nine months ended September 30, 2019. Operating leases were 5.2% of Expedited Freight operating revenue for the nine months ended September 30, 2020 compared to 4.7% for the same period in 2019. The increase in expense was primarily due to a $5.0 million increase in facility leases mostly from additional facilities acquired from FSA and Linn Star and a $1.0 million increase in tractor rentals and leases to correspond with increased Company-employed driver usage. These increases were partially offset by a $0.4 million decrease in trailer rentals and leases, as old leases were replaced with purchased trailers.
Depreciation and Amortization
Expedited Freight depreciation and amortization decreased $1.2 million, or 5.6%, to $20.2 million for the nine months ended September 30, 2020 from $21.4 million for the nine months ended September 30, 2019. Depreciation and amortization was 2.6% of Expedited Freight operating revenue for the nine months ended September 30, 2020 compared to 2.9% for the same period in 2019. The decrease in expense was primarily due to a $3.7 million decrease in trailer depreciation for the nine months ended September 30, 2020 compared to the same period in 2019 primarily related to extending the useful lives of its trailers from seven to ten years in the third quarter of 2019. See additional discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K. This decrease was partially offset by $2.2 million of increased amortization of acquired intangibles from the acquisitions of FSA and Linn Star.
Insurance and Claims
Expedited Freight insurance and claims increased $1.1 million, or 6.5%, to $18.1 million for the nine months ended September 30, 2020 from $17.0 million for the nine months ended September 30, 2019. Insurance and claims were 2.3% of Expedited Freight operating revenue for the nine months ended September 30, 2020 compared to 2.3% for the same period in 2019. The increase in expense was primarily attributable to an increase in vehicle insurance premiums, offset by favorable claims. See additional discussion over the consolidated increase in self-insurance reserves related to vehicle claims in the "Other operations" section below.
Fuel Expense
Expedited Freight fuel expense decreased $2.6 million, or 33.8%, to $5.1 million for the nine months ended September 30, 2020 from $7.7 million for the nine months ended September 30, 2019. Fuel expense was 0.7% of Expedited Freight operating revenue for the nine months ended September 30, 2020 compared to 1.0% for the same period in 2019. Expedited Freight fuel expenses decreased due to lower fuel prices.
Other Operating Expenses
Expedited Freight other operating expenses increased $3.5 million, or 6.0%, to $62.3 million for the nine months ended September 30, 2020 from $58.8 million for the nine months ended September 30, 2019. Other operating expenses were 8.1% of Expedited Freight operating revenue for the nine months ended September 30, 2020 compared to 8.0% for the same period in 2019. Other operating expenses included equipment maintenance, terminal and office expenses, legal and professional fees and other over-the-road costs. The increase in expense was primarily attributable to a $6.1 million increase in parts costs for final mile installations and increased terminal and office expenses due to the acquisitions of FSA and Linn Star. These increases were offset by a $3.0 million decrease in the fair value of the earn-out liability from the FSA acquisition due to the timing of expected new customer wins.
Income from Operations
Expedited Freight income from operations decreased $25.7 million, or 33.8%, to $50.4 million for the nine months ended September 30, 2020 compared to $76.1 million for the nine months ended September 30, 2019. Income from operations was 6.5% of Expedited Freight operating revenue for the nine months ended September 30, 2020 compared to 10.4% for the same period in 2019. The decrease in income from operations was primarily due to lower tonnage, shipments and revenue per hundredweight due to the impact of COVID-19. In addition, the decrease was due to additional costs from the acquisitions of FSA and Linn Star, as they continue to be integrated into the Expedited Freight segment. Margin deterioration was partially offset by increased utilization of owner-operators over more costly third-party transportation providers.
Intermodal - Nine Months EndedSeptember 30, 2020 compared to Nine Months Ended September 30, 2019
The following table sets forth the historical financial data of our Intermodal segment for the nine months ended September 30, 2020 and 2019 (in millions):
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Intermodal Segment Information |
(In millions) |
(Unaudited) |
| | | | | | | | | | | |
| Nine months ended |
| September 30, | | Percent of | | September 30, | | Percent of | | | | Percent |
| 2020 1 | | Revenue | | 2019 | | Revenue | | Change | | Change |
Operating revenue | $ | 147.8 | | | 100.0 | % | | $ | 163.0 | | | 100.0 | % | | $ | (15.2) | | | (9.3) | % |
| | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | |
Purchased transportation | 50.3 | | | 34.0 | | | 57.5 | | | 35.3 | | | (7.2) | | | (12.5) | |
Salaries, wages and employee benefits | 36.3 | | | 24.6 | | | 39.4 | | | 24.2 | | | (3.1) | | | (7.9) | |
Operating leases | 12.4 | | | 8.4 | | | 12.1 | | | 7.4 | | | 0.3 | | | 2.5 | |
Depreciation and amortization | 7.6 | | | 5.1 | | | 6.3 | | | 3.9 | | | 1.3 | | | 20.6 | |
Insurance and claims | 5.8 | | | 3.9 | | | 4.9 | | | 3.0 | | | 0.9 | | | 18.4 | |
Fuel expense | 4.2 | | | 2.8 | | | 5.6 | | | 3.4 | | | (1.4) | | | (25.0) | |
Other operating expenses | 18.3 | | | 12.4 | | | 18.9 | | | 11.6 | | | (0.6) | | | (3.2) | |
Total operating expenses | 134.9 | | | 91.3 | | | 144.7 | | | 88.8 | | | (9.8) | | | (6.8) | |
Income from operations | $ | 12.9 | | | 8.7 | % | | $ | 18.3 | | | 11.2 | % | | $ | (5.4) | | | (29.5) | % |
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1 Includes revenues and operating expenses from the acquisition of OST, which was acquired in July 2019 (and is partially included in the prior period) |
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Intermodal Operating Statistics |
| |
| Nine months ended |
| September 30, | | September 30, | | Percent |
| 2020 | | 2019 | | Change |
Drayage shipments | 225,954 | | | 235,911 | | | (4.2) | % |
Drayage revenue per shipment | $ | 556 | | | $ | 598 | | | (7.0) | % |
Number of locations | 24 | | | 21 | | | 14.3 | % |
Revenues
Intermodal operating revenue decreased $15.2 million, or 9.3%, to $147.8 million for the nine months ended September 30, 2020 from $163.0 million for the same period in 2019. The decrease in operating revenue was primarily attributable to a 7.0% decrease in drayage revenue per shipment over prior year due in part to $3.1 million of lower rail storage revenue, decreased fuel surcharge revenue due to lower fuel prices and a decrease in linehaul shipments. These decreases were partially offset by a $2.1 million increase from per diem revenue.
Purchased Transportation
Intermodal purchased transportation decreased $7.2 million, or 12.5%, to $50.3 million for the nine months ended September 30, 2020 from $57.5 million for the nine months ended September 30, 2019. Purchased transportation was 34.0% of Intermodal operating revenue for the nine months ended September 30, 2020 compared to 35.3% for the same period in 2019. Intermodal purchased transportation includes owner operators and third party carriers, while Company-employed drivers are included in salaries, wages and benefits. The decrease in Intermodal purchased transportation as a percentage of revenue was primarily due to operating efficiencies.the mix of owner operators and Company-employed drivers.
Salaries, Wages and Employee Benefits
Intermodal salaries, wages and employee benefits decreased $3.1 million,increased $1,133, or 7.9%8.8%, to $36.3 million$14,063 for the ninethree months ended September 30, 2020March 31, 2021 compared to $39.4 million$12,930 for the ninethree months ended September 30, 2019.March 31, 2020. Salaries, wages and employee benefits were 24.6%24.0% of Intermodal operating revenue for the ninethree months ended September 30, 2020March 31, 2021 compared to 24.2%24.6% for the same period in 2019. The decrease in expense was primarily due to cost-control measures in response to COVID-19.2020.
Operating Leases
Intermodal operating leases increased $0.3 million,$409, or 2.5%9.2%, to $12.4 million$4,837 for the ninethree months ended September 30, 2020 from $12.1 millionMarch 31, 2021 compared to $4,428 for the ninethree months ended September 30, 2019.March 31, 2020. Operating leases were 8.4%8.3% of Intermodal operating revenue for the ninethree months ended September 30, 2020March 31, 2021 compared to 7.4%8.4% for the same period in 2019. The increase in expense was primarily due to a $0.3 million increase in facility leases mostly due to additional facilities acquired from OST.2020.
Depreciation and Amortization
Intermodal depreciation and amortization increased $1.3 million,decreased $185, or 20.6%7.1%, to $7.6 million$2,436 for the ninethree months ended September 30, 2020March 31, 2021 from $6.3 million$2,621 for the ninethree months ended September 30, 2019.March 31, 2020. Depreciation and amortization was 5.1%4.2% of Intermodal operating revenue for the ninethree months ended September 30, 2020March 31, 2021 compared to 3.9%5.0% for the same period in 20192020. The increase in depreciation and amortizationdecrease was due to a $0.9 million increase in depreciation of equipment partlyprimarily due to the full depreciation in 2021 of equipment acquired from OST. The increase was also attributable toobtained through a $0.4 million increase in amortization of acquired intangibles.prior year acquisition.
Insurance and Claims
Intermodal insurance and claims increased $0.9 million,$429, or 18.4%21.7%, to $5.8 million$2,402 for the ninethree months ended September 30, 2020March 31, 2021 from $4.9 million$1,973 for the ninethree months ended September 30, 2019.March 31, 2020. Insurance and claims were 3.9%4.1% of Intermodal operating revenue for the ninethree months ended September 30, 2020March 31, 2021 and compared to 3.0%3.8% for the same period in 2019. 2020. The increase in Intermodal insurance and claims expense was primarily due to an increase in vehicle insurance premiums. See additional discussiondiscussion over the consolidated increasechange in self-insurance reserves related to vehicle claims in the "Other operations"“Other Operations” section below.
Fuel Expense
Intermodal fuel expense decreased $1.4 million,$159, or 25.0%8.5%, to $4.2 million$1,710 for the ninethree months ended September 30, 2020March 31, 2021 from $5.6 million$1,869 for the ninethree months ended September 30, 2019.March 31, 2020. Fuel expense was 2.8%2.9% of Intermodal operating revenue for the ninethree months ended September 30, 2020March 31, 2021 compared to 3.4%3.6% for the same period in 2019.2020. Intermodal fuel expense decreased due to lowera decline in our mileage and the average price of fuel prices.in 2021.
Other Operating Expenses
Intermodal other operating expenses increased $1,194, or 17.7%, to $7,954 for the three months ended March 31, 2021 from $6,760 for the three months ended March 31, 2020. Other operating expenses were 13.6% of Intermodal operating revenue for the three months ended March 31, 2021 compared to 12.9% for the same period in 2020. The increase in Intermodal other operating expenses was primarily due to additional rail storage expenses and professional fees related to the acquisition of Proficient Transport.
Other Operating Expenses
Intermodal other operating expenses decreased $0.6 million, or 3.2%, to $18.3 million for the nine months ended September 30, 2020 compared to $18.9 million for the nine months ended September 30, 2019. Other operating expenses were 12.4% of Intermodal operating revenue for the nine months ended September 30, 2020 compared to 11.6% from the same period in 2019. The decrease in Intermodal other operating expenses was primarily due to strong cost controls.
Income from Operations
Intermodal income from operations decreased by $5.4 million,increased $796, or 29.5%21.4%, to $12.9 million$4,509 for the ninethree months ended September 30, 2020March 31, 2021 compared to $18.3 million$3,713 for the ninethree months ended September 30, 2019.March 31, 2020. Income from operations was 8.7%7.7% of Intermodal operating revenue for the ninethree months ended September 30, 2020March 31, 2021 compared to 11.2%7.1% for the same period in 2019. The deterioration2020. Increase in the operating income was primarily attributable to losing leverage on fixed costs such as salaries, wages and benefits, operating leases, depreciation and amortization and insurance due to the impact of COVID-19.amortization.
Other Operations - NineThree Months Ended September 30, 2020March 31, 2021 compared to NineThree Months Ended September 30, 2019March 31, 2020
Other operating activity was a $10.1 million$6,315 operating loss during the ninethree months ended September 30, 2020 andMarch 31, 2021 compared to a $12.6 million$3,120 operating loss during the ninethree months ended September 30, 2019. The nineMarch 31, 2020. Operating expenses for the three months ended September 30, 2020March 31, 2021 included increased professional fees related to cybersecurity and shareholder engagement activities of $6,955, partially offset by decreased self-insurance reserves for vehicle liability claims and workers' compensationself-insurance reserves for group health insurance claims of $4.2 million$2,210 and $1.1 million,$1,177, respectively. These increases were primarily due to increases to our loss development factors for prior quarter claims. The remaining loss was primarily attributable to a $2.3 million litigation reserve, severance of $1.0 million, $0.7 milliondecrease in share based compensation and $0.8 million of corporate costs previously allocated to the Pool segment that are not part of the discontinued operation. These costs represent corporate costs that will remain with the Company after the Pool business is divested.
The $12.6 million operating loss for the nine months ended September 30, 2019 was primarily due to increased self-insurance reserves for vehicle and workers' compensationliability claims of $7.8 million and $0.7 million, respectively. The increase in vehicle liability reserves was primarily due to a $6.5 million vehicle claim reserve for unfavorablethe favorable loss development factor of second quarter 2019historical claims. The remaining loss was attributed to $1.8 million in costs related to the CEO transition, including retention shares, and $1.1 million of corporate costs previously allocated to the Pool segment that are not part of the discontinued operation.
Critical Accounting Policies
Our unaudited consolidatedThe discussion and analysis of our financial statementscondition and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with United StatesU.S. generally accepted accounting principles (“GAAP”).principles. The preparation of these financial statements in accordance with GAAP requires our management to make estimates and assumptions that affect the reported amounts reported inof assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates estimates, including those related to allowance for doubtful accounts and revenue adjustments, deferred income taxes and uncertain tax positions, goodwill, other intangible and long-lived assets, and self-insurance loss reserves. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the unaudited consolidated financial statements and accompanying notes. The Company’scircumstances. Actual results may differ from those estimates under different assumptions or conditions. A description of critical accounting policies have not changed from those described underand related judgments and estimates that affect the caption “Discussionpreparation of Critical Accounting Policies”our Consolidated Financial Statements is set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K withfor the exception of the presentation of Pool's assets and liabilities as held for sale in the Consolidated Balance Sheets and Pool's results of operations presented as discontinued operations in the Consolidated Statements of Comprehensive Income. For further discussion on for sale and discontinued operations, see “Note 4, Discontinued Operations and Held for Sale.year-ended December 31, 2020.
Impact of Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which replaces the incurred loss methodology previously employed to measure credit losses for most financial assets and requires the use of a forward-looking expected loss model. Under current accounting guidance, credit losses are recognized when it is probable a loss has been incurred. The updated guidance will require financial assets to be measured at amortized costs less a reserve, equal to the net amount expected to be collected. This standard is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard as of January 1, 2020, which resulted in the Company revising its allowance for doubtful accounts policy on a prospective basis. The adoption of this standard did not have a material impact on the Company's financial statements. See Note 2, Recent Accounting Pronouncements, for additional discussion over this new standard.
Liquidity and Capital Resources
We have historically financed our working capital needs, including capital expenditures, with cash flows from operations and borrowings under our bank lines of credit. To improverevolving credit facility. We believe that borrowings under our revolving credit facility, together with available cash and internally generated funds, will be sufficient to support our working capital, capital expenditures and debt service requirements for the foreseeable future. In April 2021, we borrowed $20,000 under the revolving credit facility to provide financial flexibility.
We use LIBOR as a reference rate in our revolving credit facility to calculate interest due to our lender. In the event the LIBOR is no longer published, we have amended our revolving credit facility to include provisions to address establishing a replacement benchmark rate.
We are in compliance with our financial flexibility, we executed a $75.0 million amendment to increase this line on April 16, 2020 to $225.0 million. However, we continue to generate strong cash flows, and as a result, paid down $20.0 million on ourconvents contained in the revolving credit facility on September 21, 2020.and expect to maintain such compliance. In addthe event that we encounter difficulties, our historical relationships with our lenders has been strong and we anticipate their continued long-term support of our business. Refer to Note 7, ition, we deferred payroll and federal and state income tax payments as allowed by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which resulted in an approximately $5 million cash flow benefitIndebtedness, to our Condensed Consolidated Financial Statements for the second quarter of 2020 and is expected to result in an approximately $8 million cash flow benefit for 2020. This includes cash flow benefits for the Company as a whole, including cash flows related to discontinued operations. Note that payroll taxes may be deferred for all of 2020, while federal and state income tax payments were only permitted to be deferred for the second quarter of 2020 and were due and payable on or before July 15, 2020. In addition, we took advantage of employee retention credits as allowed by the CARES Act of $0.8 million, which primarily benefitedadditional information regarding our discontinued operations in the second quarter of 2020. At this time, the Company does not expect any liquidity issues or inability in meeting its financial obligations.revolving credit facility.
As of September 30, 2020, the Company had $43.0 million in cash, which is approximately two times its target cash levels. As a result, we do not believe we have had significant limitations on accessing capital despite the current environment. Further, the Company is in compliance with all debt covenants as of September 30, 2020. In addition, the Company’s accounts receivables are stable and there are no known collection issues from its key customers as of September 30, 2020. There are also no customer or vendor concentration risks for which the loss of the applicable relationship would have a significant impact to the Company's cash flows from operations. See additional discussion in Item 1A, Risk Factors.
Nine Months Ended September 30, 2020 Cash Flows compared to Nine Months Ended September 30, 2019 Cash Flows
Continuing Operations
Net cash provided by continuing operating activities was approximately $80.5 million$16,913 for the ninethree months ended September 30, 2020March 31, 2021 compared to approximately $107.8 million$30,828 for the ninethree months ended September 30, 2019.March 31, 2020. The $27.3 million decrease in the net cash provided by continuing operating activities was mainly attributableprimarily due to the increase in the other receivable balance. The other receivable balance changed as a result of the Transition Services Agreement entered into with the buyer of the Pool business. Under the Transition Services Agreement, we remit payments to outside vendors on behalf of the buyer for expenses incurred by the Pool business, up to a $27.6 million decreaselimit of $18,000, and we are reimbursed by the buyer within 60 days from the end of the month in continuing net earnings after considerationwhich the payment is remitted.
Net cash used in continuing investing activities was approximately $71.0 million$17,030 for the ninethree months ended September 30, 2020March 31, 2021 compared to approximately $60.5 million during$57,862 for the ninethree months ended September 30, 2019. Continuing investing activities during the nine months ended September 30, 2020 included the acquisition of Linn Star for $55.9 million. Continuing investing activitiesMarch 31, 2020. Capital expenditures for the ninefirst three months ended September 30, 2019 included the acquisitions of FSA for $27.0 million2021 were approximately $2,695 and OST for $12.0 million. In addition, the nine months ended September 30, 2020 included net capital expenditures of $15.0 million, of which approximately $9.8 millionprimarily related to an organic investment to expand the capacity of the Company'sour national hub in Columbus, Ohio (CMH), whichOhio. Capital expenditures for the Company announced on July 27, 2020. The ninefirst three months ended September 30, 2019 included net capital expenditures of $21.5 million2020 were approximately $2,651 and primarily were for new trailers, information technology and facility equipment. The proceeds from disposal of property and equipment duringequipment. Continuing investing activities for the ninefirst three months ended September 30,of 2021 included the acquisition of Proficient Transport for $15,000 while continuing investing activities for the first three months of 2020 included the acquisition of Linn Star Holdings, Inc., Linn Star Transfer, Inc. and 2019 were primarily from sales of older tractors and trailers.Linn Star Logistics, LLC for $55,931.
Net cash used in continuing financing activities was approximately $31.3 million$15,741 for the ninethree months ended September 30, 2020March 31, 2021 compared to net cash provided by continuing financing activities was approximately $39,530 for the three months ended March 31, 2020. The change in the net cash used in continuing financing activities of $38.1 million for the nine months ended September 30, 2019. The $6.8 million increase in cash used in continuing financing activities was attributableprimarily due to a $20.0 million repayment onproceeds from the revolving credit facility, a $15.3 million increase in distributions to a subsidiary held for sale (Pool), the $5.3 million payment on the FSA earn-out and a $0.6 million decrease in proceeds from share-based award activity. The increases in cash used were partially offset by a $45.0 million increase in borrowings on the revolving credit facility and a $2.7 million decrease in the repurchaseincreased repurchases of common stock.stock during the first three months of 2020.
Discontinued OperationsOperation
Net cash used in discontinued operating activities was approximately $8.1 million$6,902 for the ninethree months ended September 30, 2020March 31, 2021 compared to approximately $1,662 for the three months ended March 31, 2020. The decrease in net cash provided by discontinued operating activities was approximately $9.9 million for the nine months ended September 30, 2019. The $18.0 million decreaseused in cash provided by discontinued operating activities was primarily attributablerelated to a decrease in discontinued net earningsincome after consideration of non-cash items.
Net cash provided by discontinued investing activities was approximately $8,020 for the three months ended March 31, 2021 compared to net cash used in discontinued investing activities was approximately $0.8 million$491 for the ninethree months ended September 30, 2020 comparedMarch 31, 2020. The change in the net cash provided by discontinued investing activities was due to approximately $3.5 million during the nine months ended September 30, 2019. The $2.7 million decrease in
Net cash used in discontinued operationsfinancing activities was due to changes in net capital expenditures primarilyapproximately $1,118 for trailers and facility equipment. Proceeds from disposal of property and equipment during the ninethree months ended September 30, 2020 and 2019 were primarily from sales of older tractors and trailers.
NetMarch 31, 2021 compared to net cash provided by discontinued financing activities was approximately $8.9 million$2,153 for the ninethree months ended September 30, 2020 compared toMarch 31, 2020. The change in the net cash used in discontinued financing activities of $6.5 million for the nine months ended September 30, 2019. The $15.3 million increase in cash provided by discontinued financing activities was attributabledue to decreased contributions from the parent as discussed above.
Credit Facility
See Note 7, Senior Credit Facility, to our Consolidated Financial Statements for a discussion of the senior credit facility.parent.
Share RepurchasesRepurchase Program
See Note 12, Shareholders' Equity, to our Consolidated Financial Statements for a discussionDuring the three months ended March 31, 2021 and 2020, we repurchased 113,756 and 268,027 shares of our common stock, respectively, for approximately $9,998 and $15,259, respectively, through open market transactions. All shares received were retired upon receipt, and the excess of the purchase price over the par value per share repurchases and dividends during the period.was recorded to “Retained Earnings” in our Condensed Consolidated Balance Sheets.
Forward-Looking Statements
This report contains “forward-looking statements,” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements other than historical information or statements of current condition and relate to future events or our future financial performance. In this Form 10-Q, forward-looking statements include, but are not limited to, any statements regarding the impact of the COVID-19 pandemic on our business, results of operations and financial condition, including the impacts on our LTL Intermodal and PoolIntermodal businesses, our ability to emerge as a stronger LTL competitor, our pursuit of new revenue opportunities and steps to bolster our liquidity; any projections of earnings, revenues, dividends, or other financial items or methods of interpretation or measurement; any statements of plans, strategies, and objectives of management for future operations, including, without limitation, future plans foroperations; any statements regarding the divestitureestimated earn-out from the sale of our Pool business; any statements regarding future performance; any statements regarding future insurance, claims and litigation and any associated estimates or projections; any statements concerning proposed or intended new services or developments and related integration costs; any statements regarding intended expansion through acquisition or greenfield start-ups; any statements regarding future economic conditions or performance based on our business strategy, including acquisitions; any statements related to our ESG and sustainability initiatives and operations; any statements regarding certain tax and accounting matters, including the impact on our financial statements; and any statements of belief and any statements of assumptions underlying any of the foregoing. Some forward-looking statements may be identified by use of such terms as “believes,” “anticipates,” “intends,” “plans,” “estimates,” “projects” or “expects.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed
or implied by such forward-looking statements. The following is a list of factors, among others, that could cause actual results to differ materially from those contemplated by the forward-looking statements: economic factors such as recessions, inflation, higher interest rates and downturns in customer business cycles, the impact of the COVID-19 pandemic on our business, results of operations and financial condition, the creditworthiness of our customers and their ability to pay for services rendered, more limited liquidity than expected which limits our ability to make key investments, the availability and compensation of qualified independent owner-operators and freight handlers as well as contracted, third-party carriers needed to serve our customers’ transportation needs, the inability of our information systems to handle an increased volume of freight moving through our network, changes in fuel prices, our inability to maintain our historical growth rate because of a decreased volume of freight or decreased average revenue per pound of freight moving through our network, loss of a major customer, increasing competition and pricing pressure, our ability to secure terminal facilities in desirable locations at reasonable rates, our inability to successfully integrate acquisitions, claims for property damage, personal injuries or workers’ compensation, enforcement of and changes in governmental regulations, environmental and tax matters, insurance matters, the handling of hazardous materials, the outcome and impact of the 2020 presidential election and the risks described in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. As a result of the foregoing, no assurance can be given as to future financial condition, cash flows or results of operations. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Our exposureFor quantitative and qualitative disclosures about market risks, see "Quantitative and Qualitative Disclosures about Market Risk" in Item 7A of Part II of our Annual Report on Form 10-K for the year-ended December 31, 2020. As of the first quarter 2021, there has been no material changes in our exposures to market risk related to our outstanding debt is not significant and has not changed materially from the information provided in our 2019 Form 10-K.risk.
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Item 4. | Controls and Procedures. |
Disclosure Controls and Procedures
We maintain controls and procedures designed to ensure that we are able to collect the information required to be disclosed in the reports we file with the Securities and Exchange Commission (“SEC”), and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by management, with the participation of the Chief Executive Officer, and Chief Financial Officer,who was also serving as the Company’s principal financial officer as of such date, the Chief Executive Officer and Chief Financial Officer believebelieves that these controls and procedures are effective to ensure that we are able to collect, process and disclose the information we are required to disclose in the reports we file with the SEC within the required time periods.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in connection with the evaluation described above that occurred during the three months ended September 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. | Other Information |
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Item 1. | Legal Proceedings. |
From time to time, we are a party to ordinary, routine litigation incidental to and arising in the normal course of our business, most of which involve claims for personal injury and property damage related to the transportation and handling of freight, or workers’ compensation. We do not believe that any of these pending actions, individually or in the aggregate, will have a material adverse effect on our business, financial condition or results of operations.
Our business faces many risks and uncertainties that we cannot control. The risk factors described in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, as revised below, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with the SEC, in connection with evaluating the Company, our business, and the forward-looking statements contained in this Quarterly Report on Form 10-Q. Other risks that we do not presently know about or that we presently believe are not material could also adversely affect us.
The risk factor described below updates the risk factors disclosed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, to include additional information.
The ongoing coronavirus outbreak, and measures taken in response thereto, could continue to have a material adverse effect on our business, results of operations and financial condition.
Our business is highly susceptible to changes in economic conditions. Our products and services are directly tied to the production and sale of goods and, more generally, to the North American economy. The COVID-19 pandemic has adversely impacted economic activity and conditions worldwide and created significant volatility and disruption to financial markets. Efforts to control the spread of COVID-19 have led governments and other authorities to impose restrictions which have resulted in business closures and disrupted supply chains worldwide. As a result, transportation and supply chain companies such as ours have experienced slowdowns and reduced demand, and could continue to further negatively impact our business.
Furthermore, quarantines, shelter in place orders, labor shortages due to illness and otherwise, business and facility closures or other disruptions to our operations, or our customers’ operations, have also adversely impacted demand for our services and our ability to provide services to our customers. We have seen deterioration in volumes across all of our segments given that the freight we move is typically not considered “essential” under current regulatory orders. Further or extended stay at home orders
or closures could have a material negative impact on our revenues and earnings. If demand for our services increases and we are unable to hire qualified personnel due to labor shortages and other impacts of the COVID-19 outbreak, we would be unable to fulfill the increased demand for our services which could negatively impact our ability to increase revenue, cause harm to our reputation and have a material adverse impact on our operating results.
The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity and impact of the COVID-19 outbreak, the effects of the outbreak on our customers and suppliers and the remedial actions and stimulus measures adopted by local and federal governments, and to what extent normal economic and operating conditions can resume. In particular, the continued spread of COVID-19 and efforts to contain the virus could:
•continue to impact customer demand of the Company’s transportation services;
•cause the Company to experience an increase in costs as a result of the Company’s emergency measures, delayed payments from customers and uncollectable accounts;
•cause delays and disruptions in the supply chain resulting in disruptions in the commercial operation dates of certain projects; and
•cause other unpredictable events.
In addition, our results of operations may be materially affected by conditions in the credit and financial markets. Global credit and financial markets have experienced extreme volatility and disruptions as a result of COVID-19 including diminished liquidity and credit availability. Failure by us or our customers to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon current or expected investments. In the event of a prolonged significant economic downturn which has a material negative impact on our earnings and free cash flow, we may not be able to comply with our financial covenant in our global revolving credit facility which, in the absence of a bank waiver, would negatively impact our ability to borrow under that facility and our liquidity position.
The situation surrounding COVID-19 remains fluid and may be further impacted by the outcome of the 2020 presidential election. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future, and the potential for a material impact on the Company’s results of operations, financial condition, and liquidity increases the longer the virus impacts activity levels in the United States and globally. For this reason, we cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity. The extent to which the COVID-19 pandemic may impact the Company’s business, operating results, financial condition, or liquidity will depend on future developments, including the duration of the outbreak, travel restrictions, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the disease.
We periodically evaluate factors including, but not limited to, macroeconomic conditions, changes in our industry and the markets in which we operate and our market capitalization, as well as our reporting units’ expected future financial performance for purposes of evaluating asset impairments, including goodwill. We believe that the impact of COVID-19 will negatively affect certain key assumptions used in our analysis; however, we will need to assess the severity and nature of the long-term impacts to determine if we may be required to record charges for asset impairments in the future. At this time, it remains uncertain whether and to what extent we will need to record charges for impairments as a result of the recent and ongoing COVID-19 outbreak.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Issuer Purchases of Equity Securities
Information regarding repurchasesThe table below sets forth information with respect to purchases of our sharescommon stock made by or on behalf of us during the third quarter of 2020 is as follows:three months ended March 31, 2021:
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Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
July 1-31 2020 | | — | | | $ | — | | | — | | | 3,886,950 | |
August 1-31, 2020 | | 320,291 | | | 57.51 | | | 320,291 | | | 3,566,659 | |
September 1-30, 2020 | | 198,208 | | | 58.57 | | | 198,208 | | | 3,368,451 | |
Total | | 518,499 | | | $ | 57.94 | | | 518,499 | | | 3,368,451 | |
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(1) On February 5, 2019, the Board of Directors canceled the Company’s remaining 2016 share repurchase authorization and approved a share repurchase authorization for up to 5.0 million shares of the Company’s common shares that shall remain in effect until such time as the shares authorized for repurchase are exhausted or until earlier terminated. |
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Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1 | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs1 |
January 1, 2021 through January 31, 2021 | | — | | | $ | — | | | — | | | 3,368,451 | |
February 1, 2021 through February 28, 2021 | | 13,000 | | | 87.00 | | | 13,000 | | | 3,355,451 | |
March 1, 2021 through March 31, 2021 | | 100,756 | | | 88.00 | | | 100,756 | | | 3,254,695 | |
Total | | 113,756 | | | $ | 87.89 | | | 113,756 | | | 3,254,695 | |
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1On February 5, 2019, our Board of Directors approved the 2019 Repurchase Plan authorizing up to 5.0 million shares of our common stock. The 2019 Share Repurchase Plan expires when the shares authorized for repurchase are exhausted or the 2019 Repurchase Plan is canceled. |
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Item 3. | Defaults Upon Senior Securities. |
Not applicable.
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Item 4. | Mine Safety Disclosures. |
Not applicable.
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Item 5. | Item 5. Other Information. |
On July 28, 2020, the CompanyApril 5, 2021, we entered into an amended and restated consulting agreementAdvisory Agreement with MatthewMichael J. Jewell,Morris, one of itsour former executive officers, effective July 1, 2020April 5, 2021 through October 5, 2021 unless terminated earlier. During the transition to a new Chief Financial Officer, we engaged Mr. Morris in an advisory capacity given his experience and expiring December 31, 2020 unless earlier terminated (the “Consulting Agreement”). The Consulting Agreement amended and restated, in its entirety, a consulting agreement between Mr. Jewell andexpertise pertaining to us. Under the Company dated June 14, 2020. The Consulting Agreement is automatically renewed for successive 30-day periods unless (i) either party provides written notice of non-renewal at least five days prior to the end of the expiring term or (ii) the Consulting Agreement has been earlier terminated. Pursuant to the ConsultingAdvisory Agreement, Mr. JewellMorris will provide certain consulting services to both management and the Company andBoard of Directors as may be requested from time to time by the current Chief Executive Officer. Mr. Morris will receive a fixed monthly fee of $20,000. Additionally, the Company$10,000, which will pay Mr. Jewell an acquisition fee relatingbe reduced to completed acquisitions on which Mr. Jewell advised the Company in accordance with the terms and conditions set forth$5,000 per month in the Consulting Agreement. Mr. Jewell will continue to be subject to the restrictive covenants set forth in his existing Participation and Restrictive Covenants Agreement, dated May 31, 2019, until the later of (i) June 30, 2021 or (ii) six monthsmonth immediately following the endcommencement date of employment of the consulting period. Pursuant to the Consulting Agreement, the time period for Mr. Jewell to exercise his vested stock options shall extend to the earlier of (i) the termination of the Consulting Agreement or (ii) the original term of each vested stock option as provided in the applicable stock option agreement; provided, however, that in no event will the exercise period for any vested stock option expire prior to September 28, 2020.new Chief Financial Officer.
In accordance with SEC Release No. 33-8212, ExhibitsExhibit 32.1 and 32.2 areis to be treated as “accompanying” this report rather than “filed” as part of the report.
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10.1 | | |
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32.1 | | |
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101.INS | | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
101.SCH | | XBRL Taxonomy Extension Schema |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | | XBRL Taxonomy Extension Label Linkbase |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
104 | | Cover Page Interactive File (formatted in Inline XBRL and contained in Exhibit 101). |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | Forward Air Corporation |
Date: October 30, 2020May 3, 2021 | By: | /s/ Michael J. MorrisThomas Schmitt |
| | Michael J. MorrisThomas Schmitt President and Chief FinancialExecutive Officer (Principal Executive Officer and TreasurerDuly Authorized Officer) |
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| | Forward Air Corporation |
Date: May 3, 2021 | By: | /s/ Rebecca J. Garbrick |
| | Rebecca J. Garbrick Vice President, Chief Accounting Officer and Controller (Principal FinancialAccounting Officer and Duly Authorized Officer) |