Company Quick10K Filing
Quick10K
Forward Air
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$61.94 29 $1,780
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-13 Officers, Exhibits
8-K 2019-05-08 Shareholder Vote
8-K 2019-04-24 Earnings, Other Events, Exhibits
8-K 2019-02-07 Earnings, Officers, Other Events, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-10-01 Officers, Exhibits
8-K 2018-08-31 Officers, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-06-11 Officers, Exhibits
8-K 2018-05-21 Regulation FD, Exhibits
8-K 2018-05-15 Shareholder Vote
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-04-02 Regulation FD, Exhibits
8-K 2018-02-13 Earnings, Regulation FD, Exhibits
8-K 2018-02-07 Earnings, Other Events, Exhibits
8-K 2018-01-12 Officers, Exhibits
LII Lennox 10,590
DKL Delek Logistics Partners 747
ECHO Echo Global Logistics 630
CHMG Chemung Financial 232
SYN Synthetic Biologics 9
ATTU Attunity 0
CNBX Cannabics Pharmaceuticals 0
RRI GenOn Energy 0
GRWG Growgeneration 0
PARF Paradise 0
FWRD 2019-03-31
Part I. Financial Information Item 1. Financial Statements (Unaudited).
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 exhibit101q12019.htm
EX-10.2 exhibit102q12019.htm
EX-10.3 exhibit103q12019.htm
EX-10.4 exhibit104q12019.htm
EX-31.1 exhibit311q12019.htm
EX-31.2 exhibit312q12019.htm
EX-32.1 exhibit321q12019.htm
EX-32.2 exhibit322q12019.htm

Forward Air Earnings 2019-03-31

FWRD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10-qq12019.htm FORM 10-Q Q1 2019 Document

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 March 31, 2019
Commission File No. 000-22490

corplogoa24.jpg

FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)

Tennessee
 
62-1120025
(State or other jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)
1915 Snapps Ferry Road, Building N
Greeneville, Tennessee
 
37745
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (423) 636-7000
 
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 growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o

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 o No x
 
The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of April 22, 2019 was 28,695,985.



Table of Contents
 
 
 
Forward Air Corporation
 
 
 
 
 
Page
 
 
Number
Part I.
Financial Information
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II.
Other Information
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 

2



Part I.
Financial Information
 
 
Item 1.
Financial Statements (Unaudited).
Forward Air Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
42,165

 
$
25,657

Accounts receivable, less allowance of $2,721 in 2019 and $2,081 in 2018
150,623

 
156,359

Other current assets
9,283

 
19,066

Total current assets
202,071

 
201,082

 
 
 
 
Property and equipment
417,606

 
413,900

Less accumulated depreciation and amortization
210,750

 
204,005

Total property and equipment, net
206,856

 
209,895

Operating lease right-of-use assets
133,361

 

Goodwill and other acquired intangibles:
 

 
 

Goodwill
199,092

 
199,092

Other acquired intangibles, net of accumulated amortization of $83,177 in 2019 and $80,666 in 2018
111,150

 
113,661

Total goodwill and other acquired intangibles, net
310,242

 
312,753

Other assets
33,047

 
36,485

Total assets
$
885,577

 
$
760,215

 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
31,124

 
$
34,630

Accrued expenses
41,434

 
39,784

Current portion of debt and finance lease obligations
264

 
309

Current portion of operating lease obligations
43,824

 

Total current liabilities
116,646

 
74,723

 
 
 
 
Debt and finance lease obligations, less current portion
47,312

 
47,335

Operating lease obligations, less current portion
89,915

 

Other long-term liabilities
40,257

 
47,739

Deferred income taxes
38,010

 
37,174

 
 
 
 
Shareholders’ equity:
 

 
 

Preferred stock

 

Common stock, $0.01 par value: Authorized shares - 50,000,000, Issued and outstanding shares - 28,415,052 in 2019 and 28,534,935 in 2018
284

 
285

Additional paid-in capital
214,173

 
210,296

Retained earnings
338,980

 
342,663

Total shareholders’ equity
553,437

 
553,244

Total liabilities and shareholders’ equity
$
885,577

 
$
760,215

 
 
 
 
The accompanying notes are an integral part of the financial statements.

3


Forward Air Corporation
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
(Unaudited)
 
 
 
Three months ended
 
March 31,
2019
 
March 31,
2018
Operating revenue
$
321,471

 
$
302,608

 
 
 
 
Operating expenses:
 
 
 
Purchased transportation
144,014

 
139,666

Salaries, wages and employee benefits
76,362

 
69,581

Operating leases
19,173

 
17,964

Depreciation and amortization
10,827

 
10,690

Insurance and claims
9,371

 
7,153

Fuel expense
5,608

 
5,554

Other operating expenses
31,382

 
27,765

Total operating expenses
296,737

 
278,373

Income from operations
24,734

 
24,235

 
 
 
 
Other expense:
 
 
 
Interest expense
(575
)
 
(371
)
Other, net
(1
)
 

Total other expense
(576
)
 
(371
)
Income before income taxes
24,158

 
23,864

Income tax expense
5,751

 
6,123

Net income and comprehensive income
$
18,407


$
17,741

 
 
 
 
Net income per share:
 
 
 
Basic
$
0.64

 
$
0.60

Diluted
$
0.64

 
$
0.60

 
 
 
 
Dividends per share:
$
0.18

 
$
0.15


The accompanying notes are an integral part of the financial statements.

4



Forward Air Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
 
Three months ended
 
March 31,
2019
 
March 31,
2018
 
 
Operating activities:
 
 
 
Net income
$
18,407

 
$
17,741

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
10,827

 
10,690

Share-based compensation
3,047

 
2,261

(Gain) loss on disposal of property and equipment
(61
)
 
82

Provision for loss on receivables
629

 
134

Provision for revenue adjustments
540

 
817

Deferred income tax expense
836

 
3,713

Changes in operating assets and liabilities
 
 
 
Accounts receivable
4,567

 
805

Prepaid expenses and other current assets
2,699

 
2,715

Income taxes
4,631

 
1,768

Accounts payable and accrued expenses
(4,596
)
 
87

Net cash provided by operating activities
41,526

 
40,813

 
 
 
 
Investing activities:
 
 
 
Proceeds from disposal of property and equipment
407

 
644

Purchases of property and equipment
(4,090
)
 
(6,221
)
Other
(6
)
 
(91
)
Net cash used in investing activities
(3,689
)
 
(5,668
)
 
 
 
 
Financing activities:
 
 
 
Payments of finance lease obligations
(68
)
 
(74
)
Proceeds from exercise of stock options
830

 

Payments of cash dividends
(5,189
)
 
(4,413
)
Repurchase of common stock (repurchase program)
(14,181
)
 
(19,993
)
Cash settlement of share-based awards for tax withholdings
(2,721
)
 
(1,823
)
Net cash used in financing activities
(21,329
)
 
(26,303
)
Net increase in cash
16,508

 
8,842

Cash at beginning of period
25,657

 
3,893

Cash at end of period
$
42,165

 
$
12,735

 
The accompanying notes are an integral part of the financial statements.



5

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019


1.    Description of Business and Basis of Presentation

Forward Air Corporation ("the Company", "We", "Our") is a leading asset-light freight and logistics company. Forward Air Corporation's services can be classified into four reportable segments: Expedited LTL, Intermodal, Truckload Premium Services ("TLS") and Pool Distribution ("Pool") (See Note 13).
 
Through the Expedited LTL segment, we operate a comprehensive national network to provide expedited regional, inter-regional and national less-than-truckload ("LTL") services. Expedited LTL offers customers local pick-up and delivery and other services including shipment consolidation and deconsolidation, warehousing, final mile solutions, customs brokerage and other handling. Because of our roots in serving the deferred air freight market, our terminal network is located at or near airports in the United States and Canada.

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 CFS warehouse and handling services. Today, Intermodal operates primarily in the Midwest and Southeast, with a smaller operational presence in the Southwest United States.

Through our TLS segment, we provide expedited truckload brokerage, dedicated fleet services, as well as high security and temperature-controlled logistics services in the United States and Canada.

In our Pool segment, we provide high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States.

The accompanying unaudited condensed 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 our 2018 Form 10-K) when measured on a quarterly basis; therefore operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, 2018.

The accompanying unaudited condensed 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.

2.    Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize a right-of-use asset with a corresponding lease liability on their balance sheet for most leases classified as operating leases under previous guidance. Lessors are required to recognize a net lease investment for most leases. Additional qualitative and quantitative disclosures are also required. The Company applied the transition requirements as of January 1, 2019, which resulted in recording right-of-use lease assets and corresponding lease liabilities of $133,361 and $133,739, respectively, as of March 31, 2019. There was no impact to the Company's Statements of Comprehensive Income or Statements of Cash Flows. In addition, comparative financial statements have not been presented as allowed per the guidance. Changes to processes and internal controls to meet the standard’s reporting and disclosure requirements have also been implemented. See Note 9, Leases, for additional discussion over this new standard, including the impact on the Company's financial statements.


6

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

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. Related services 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.

Our revenue from contracts with customers is disclosed within our four reportable segments: Expedited LTL, Intermodal, TLS and Pool. This is consistent with our disclosures in earnings releases and annual reports and with the information regularly reviewed by the chief operating decision maker for evaluating financial performance. See additional discussion in Note 13, Segment Reporting.

4.    Acquisitions and Goodwill

Intermodal Acquisitions

As part of the Company's strategy to expand its Intermodal operations, in July 2018, the Company acquired certain assets of Multi-Modal Transport Inc. ("MMT") for $3,737, and in October 2018, the Company acquired certain assets of Southwest Freight Distributors (“Southwest”) for $16,250. The MMT acquisition provides Intermodal with an expanded footprint in the Minnesota, North Dakota, South Dakota, Iowa and Wisconsin markets, and the Southwest acquisition provides an expanded footprint in Texas. Both MMT and Southwest also provide access to several strategic customer relationships.
The assets, liabilities, and operating results of these collective acquisitions have been included in the Company's consolidated financial statements from their dates of acquisition and have been included in the Intermodal reportable segment.
 
 
 
Goodwill

The Company conducted its annual impairment assessments and test of goodwill for each reporting unit as of June 30, 2018 and
no impairment charges were required at that time. Goodwill impairment exists when the estimated implied fair value of goodwill is less than its carrying value. Changes in strategy or market conditions could significantly impact these fair value estimates and require adjustments to recorded asset balances. During the three months ended March 31, 2019, no indicators of impairment were identified.

The following is a summary of the Company's goodwill as of March 31, 2019. There were no changes to goodwill during the three months ended March 31, 2019. Approximately $119,948 of goodwill is deductible for tax purposes.
 
 
March 31, 2019
Expedited LTL
 
 
Goodwill
 
$
97,593

Accumulated Impairment
 

 
 
 
Intermodal
 
 
Goodwill
 
76,615

Accumulated Impairment
 

TLS
 
 
Goodwill
 
45,164

Accumulated Impairment
 
(25,686
)
 
 
 
Pool Distribution
 
 
Goodwill
 
12,359

Accumulated Impairment
 
(6,953
)
 
 
 
 
 
 
Total
 
$
199,092


7

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

5.    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.

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.  The Company historically used the Black-Scholes option-pricing model to estimate the grant-date fair value of options granted.  The Company did not make any stock option grants in the three months ended March 31, 2019.
 
 
 
 
The following tables summarize the Company’s employee stock option activity and related information:

Three months ended March 31, 2019







Weighted-



Weighted-

Aggregate

Average



Average

Intrinsic

Remaining

Options

Exercise

Value

Contractual

(000)

Price

(000)

Term
Outstanding at December 31, 2018
538


$
51





Granted







Exercised
(18
)

46





Forfeited







Outstanding at March 31, 2019
520


$
52


$
5,031


4.5
Exercisable at March 31, 2019
308


$
46


$
4,598


3.5
 

Three months ended

March 31,
2019

March 31,
2018
Share-based compensation for options
$
439


$
342

Tax benefit for option compensation
$
105


$
88

Unrecognized compensation cost for options, net of estimated forfeitures
$
2,768


$
2,589

Weighted average period over which unrecognized compensation will be recognized (years)
1.9



 
 
 
 
 
 
 
 
 
 
 
 

8

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

Employee Activity - Non-vested Shares

Non-vested share grants to employees vest ratably over a three-year period.  The non-vested shares’ fair values were estimated using closing market prices on the day of grant. The following tables summarize the Company’s employee non-vested share activity and related information:

Three months ended March 31, 2019



Weighted-

Aggregate

Non-vested

Average

Grant Date

Shares

Grant Date

Fair Value

(000)

Fair Value

(000)
Outstanding and non-vested at December 31, 2018
315


$
55



Granted
108


59



Vested
(114
)

61



Forfeited
(2
)

54



Outstanding and non-vested at March 31, 2019
307


$
58


$
17,861


Three months ended

March 31,
2019

March 31,
2018
Share-based compensation for non-vested shares
$
2,042


$
1,399

Tax benefit for non-vested share compensation
$
486


$
360

Unrecognized compensation cost for non-vested shares, net of estimated forfeitures
$
15,251


$
11,747

Weighted average period over which unrecognized compensation will be recognized (years)
2.1



 
 
 
 
 
 
 
 
 
 
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 will issue to these employees a calculated number of common stock shares based on meeting certain performance targets. For shares granted during the three months ended March 31, 2019, 50% of the performance share issuances will be based on meeting 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 performance shares granted during the three months ended March 31, 2018 were based on achieving total shareholder return targets.

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 date of grant.


9

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

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 weighted average assumptions used in the Monte Carlo estimate were as follows:

Three months ended

March 31,
2019

March 31,
2018
Expected stock price volatility
23.4
%

24.3
%
Weighted average risk-free interest rate
2.5
%

2.2
%

The following tables summarize the Company’s employee performance share activity, assuming median share awards, and related information:

Three months ended March 31, 2019



Weighted-

Aggregate

Performance

Average

Grant Date

Shares

Grant Date

Fair Value

(000)

Fair Value

(000)
Outstanding and non-vested at December 31, 2018
65


$
58



Granted
27


61



Additional shares awarded based on performance





Vested
(23
)

64



Forfeited





Outstanding and non-vested at March 31, 2019
69


$
62


$
4,318


Three months ended

March 31,
2019

March 31,
2018
Share-based compensation for performance shares
$
348


$
335

Tax benefit for performance share compensation
$
83


$
86

Unrecognized compensation cost for performance shares, net of estimated forfeitures
$
2,806


$
2,343

Weighted average period over which unrecognized compensation will be recognized (years)
2.3



 
 
 
 
 
 
 
 
 
 
 
 
 
 


10

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

Non-employee Director Activity - Non-vested Shares

Grants of non-vested shares to non-employee directors vest ratably over the elected term to the Board of Directors, or approximately one year.  The following tables summarize the Company’s non-employee non-vested share activity and related information:

Three months ended March 31, 2019



Weighted-

Aggregate

Non-vested

Average

Grant Date

Shares

Grant Date

Fair Value

(000)

Fair Value

(000)
Outstanding and non-vested at December 31, 2018
15


$
59



Granted





Vested





Forfeited





Outstanding and non-vested at March 31, 2019
15


$
59


$
886


Three months ended

March 31,
2019

March 31,
2018
Share-based compensation for non-vested shares
$
218


$
185

Tax benefit for non-vested share compensation
$
52


$
47

Unrecognized compensation cost for non-vested shares, net of estimated forfeitures
$
142


$
65

Weighted average period over which unrecognized compensation will be recognized (years)
0.2



 
 
 
 
 
 
 
 
 
 
6.    Senior Credit Facility

On September 29, 2017, the Company entered into a five-year senior unsecured revolving credit facility (the “Facility”) with a maximum aggregate principal amount of $150,000, with a sublimit of $30,000 for letters of credit and a sublimit of $30,000 for swing line loans. The Facility may be increased by up to $100,000 to a maximum aggregate principal amount of $250,000 pursuant to the terms of the 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.

Unless the Company elects otherwise under the credit agreement, interest on borrowings under the Facility is based on the highest of (a) the federal funds rate (not less than 0%) plus 0.5%, (b) the administrative agent's prime rate and (c) the LIBOR Rate plus 1.0%, in each case plus a margin that can range from 0.3% to 0.8% with respect to the Facility depending on the Company’s ratio of consolidated funded indebtedness to earnings before interest, taxes, depreciation and amortization, as set forth in the credit agreement. Payments of interest for each loan that is based on the LIBOR Rate are due in arrears on the last day of the interest period applicable to such loan (with interest periods of one, two or three months being available, at the Company’s option). Payments of interest on loans that are not based on the LIBOR Rate are due 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. As of March 31, 2019, we had $47,500 in borrowings outstanding under the revolving credit facility, $12,704 utilized for outstanding letters of credit and $89,796 of available borrowing capacity under the revolving credit facility.  The interest rate on the outstanding borrowing under the revolving credit facility was 3.9% as of March 31, 2019.


11

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

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. As of March 31, 2019, the Company was in compliance with the aforementioned covenants.

7.    Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share:
 
 
Three months ended
 
 
March 31,
2019
 
March 31,
2018
Numerator:
 
 
 
 
Net income and comprehensive income
 
$
18,407

 
$
17,741

Income allocated to participating securities
 
(208
)
 
(145
)
Numerator for basic and diluted income per share - net income
 
$
18,199

 
$
17,596

Denominator (in thousands):
 
 

 
 

Denominator for basic income per share - weighted-average shares
 
28,530

 
29,375

Effect of dilutive stock options
 
76

 
70

Effect of dilutive performance shares
 
42

 
35

Denominator for diluted income per share - adjusted weighted-average shares
 
28,648

 
29,480

Basic net income per share
 
$
0.64

 
$
0.60

Diluted net income per share
 
$
0.64

 
$
0.60


The number of instruments that could potentially dilute net income per basic share in the future, but that were not included in the computation of net income per diluted share because to do so would have been anti-dilutive for the periods presented, are as follows:
 
March 31, 2019
 
March 31, 2018
Anti-dilutive stock options (in thousands)
195

 
67

Anti-dilutive performance shares (in thousands)
8

 
11

Anti-dilutive non-vested shares and deferred stock units (in thousands)

 
9

Total anti-dilutive shares (in thousands)
203

 
87


8.    Income Taxes

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, various states and Canada. 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 2011.

For the three months ended March 31, 2019 and 2018, the effective income tax rates varied from the statutory federal income tax rate of 21.0%, primarily as a result of the effect of state income taxes, net of the federal benefit, and permanent differences between book and tax net income. The combined federal and state effective tax rate for the three months ended March 31, 2019 was 23.8% compared to a rate of 25.7% for the same period in 2018. The lower effective tax rate for the first quarter of 2019 is the result of increased stock based compensation vesting and exercises when compared to the same period in 2018, which was impacted by forfeited performance shares and no option activity.

12

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

9.     Leases

As of January 1, 2019, the Company adopted ASU 2016-02, Leases, which required the Company to recognize a right-of-use asset and a corresponding lease liability on its balance sheet for most leases classified as operating leases under previous guidance. The Company adopted the standard using the modified retrospective approach as of January 1, 2019 and comparative financial statements have not been presented as allowed per the guidance.

The Company elected several of the practical expedients permitted under the transition guidance within the new standard. The package of practical expedients elected allowed the Company to carryforward its conclusions over whether any existing contracts contain a lease, to carryforward historical lease classification, and to carryforward its evaluation of initial direct costs for any existing leases. In addition, the Company elected the practical expedients to combine lease and non-lease components and to keep leases with an initial term of 12 months or less, after the consideration of options, off the balance sheet. For leases with an initial term of 12 months or less, after the consideration of options, the Company recognized the corresponding lease expense on a straight-line basis over the lease term. These practical expedients have been elected for all leases and subleases and will be applied on a go-forward basis.

A contract is or contains a lease if the contract conveys the right to control the use 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 months ended March 31, 2019, the Company leased facilities and equipment under operating and finance leases.

The Company leases some of its facilities under noncancelable operating leases that expire in various years through 2026. Certain leases may be renewed for periods varying from 1 to 10 years.  The Company has entered into or assumed through acquisition several equipment operating leases for assets including tractors, straight trucks and trailers with original lease terms between 2 and 6 years.  These leases expire in various years through 2024 and may not be renewed beyond the original term.  Primarily through acquisitions, the Company assumed a few equipment leases that met the criteria for classification as a finance lease.  The finance leased equipment is being amortized over the shorter of the lease term or useful life and are not considered material to the Company's financial statements for the three months ended March 31, 2019. The Company also subleases certain facility leases to independent third parties; however, as the Company is not relieved of its primary obligation under these leases, these assets are included in the right-of-use lease assets and corresponding lease liabilities as of March 31, 2019.

For leases and subleases with terms greater than 12 months, the Company recorded the related right-of-use asset as the balance of the related lease liability, adjusted for any prepaid or accrued lease payments. Unamortized initial direct costs and lease incentives were not significant as of March 31, 2019. 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 into the determination of lease payments when appropriate. As of March 31, 2019, the Company was not reasonably certain of exercising any renewal options. Further, as of March 31, 2019, it was reasonably certain that all termination options would not be exercised. As such, there were no adjustments made to its right-of-use lease 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 March 31, 2019.

The Company did not separate lease and nonlease components of contracts for purposes of determining the right-of use lease asset and corresponding liability. Additionally, variable lease and variable nonlease components were not contemplated in the calculation of the right-of-use asset and corresponding liability. For facility leases, variable lease costs include the costs of common area maintenance, taxes, and insurance for which the Company pays its lessors an estimate that is adjusted to actual expense on a quarterly or annual basis depending on the underlying contract terms. For equipment leases, variable lease costs may include additional fees for using equipment in excess of estimated annual mileage thresholds.

In addition, the Company holds contracts with independent owner operators. These contracts explicitly identify the tractors to be operated by the independent owner operators and therefore, the Company concluded that these represent embedded leases. However, the contract compensation is variable based upon a rate per shipment and a rate per mile. As such, these amounts are excluded from the calculation of the right-of use lease asset and corresponding liability and are instead disclosed as part of variable lease costs below. Costs incurred for independent owner operators in accordance with these embedded leases are included in purchased

13

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

transportation on the Company's Statements of Comprehensive Income, totaling $73,947 for the three months ended March 31, 2019.

When available, the Company uses the rate implicit in the lease or sublease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is defined as the rate of interest that the Company would have to pay to borrow, on a collateralized basis and over a similar term, an amount equal to the lease payments in a similar economic environment. If using the Company’s incremental borrowing rate, management has elected to utilize a portfolio approach and applies the rates to a portfolio of leases with similar underlying assets and terms. Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.

The following table summarizes the Company's lease costs for the quarter ended March 31, 2019 and related information:
 
Three months ended
 
March 31, 2019
Lease cost
 
Operating lease cost
$
13,861

Short-term lease cost
2,849

Variable lease cost
77,547

Sublease income
(535
)
Total lease cost
$
93,722

 
 
Other information
 
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
13,451

Right-of-use assets obtained in exchange for new operating lease liabilities
$
146,822

Weighted-average remaining lease term - operating leases (in years)
4

Weighted-average discount rate - operating leases
4.4
%

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the balance sheet as of March 31, 2019:

Payment Due Period
Operating Leases
2019
$
37,526

2020
40,201

2021
27,619

2022
18,036

2023
12,129

Thereafter
13,948

Total minimum lease payments
149,459

Less: amount of lease payments representing interest
(15,720
)
Present value of future minimum lease payments
133,739

Less: current obligations under leases
(43,824
)
Long-term lease obligations
$
89,915



14

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

As of March 31, 2019, the Company has certain obligations to lease tractors, which will be delivered throughout the remainder of 2019. These leases are expected to have terms 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 March 31, 2019.


15

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

10.    Financial Instruments

Fair Value of Financial Instruments

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.

11.    Shareholders' Equity

During the first, second and third quarter of 2018, our Board of Directors declared a cash dividend of $0.15 per share of common stock. During the fourth quarter of 2018 and the first quarter of 2019, our 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, our Board of Directors approved a stock repurchase authorization for up to three million shares of the Company’s common stock (the "2016 Repurchase Plan"). On February 5, 2019, our Board of Directors cancelled the Company’s 2016 Repurchase Plan and approved a new stock repurchase plan authorizing up to five million 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 until earlier terminated.

The following table summarizes our share repurchases for the three months ended March 31, 2019 and 2018.

Three months ended

March 31, 2019

March 31, 2018

Shares repurchased
Cost of shares repurchased
Average cost per share

Shares repurchased
Cost of shares repurchased
Average cost per share










2016 Repurchase Plan
67,572

$
3,850

$
56.97


364,286

$
19,993

$
54.88

2019 Repurchase Plan
162,300

10,331

63.66





Total
229,872

$
14,181

$
61.69


364,286

$
19,993

$
54.88


As of March 31, 2019, 4,837,700 shares were available to be purchased under the 2019 Plan.
12.    Commitments and Contingencies

From time to time, the Company is party to ordinary, routine litigation incidental to and arising in the normal course of business.  The Company does not believe that any of these pending actions, individually or in the aggregate, will have a material adverse effect on its business, financial condition or results of operations.

The primary claims in the Company’s business relate to workers’ compensation, property damage, vehicle liability and medical benefits. Most of the Company’s insurance coverage provides for self-insurance levels with primary and excess coverage which management believes is sufficient to adequately protect the Company from catastrophic claims. In the opinion of management, adequate provision has been made for all incurred claims up to the self-insured limits, including provision for estimated claims incurred but not reported.
 
The Company estimates its self-insurance loss exposure by evaluating the merits and circumstances surrounding individual known claims and by performing hindsight and actuarial analysis to determine an estimate of probable losses on claims incurred but not reported.  Such losses should be realized immediately as the events underlying the claims have already occurred as of the balance

16

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

sheet dates.  Because of the uncertainty of the ultimate resolution of outstanding claims, as well as uncertainty regarding claims incurred but not reported, it is possible that management’s provision for these losses could change materially in the near term. However, no estimate can currently be made of the range of additional loss that is at least reasonably possible.

13.    Segment Reporting

The Company operates in four reportable segments based on information available to and used by the chief operating decision maker.  Expedited LTL operates a comprehensive national network that provides expedited regional, inter-regional and national LTL services.  The Intermodal segment primarily provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. The TLS segment provides expedited truckload brokerage, dedicated fleet services and high security and temperature-controlled logistics services. Pool Distribution provides high-frequency handling and distribution of time sensitive product to numerous destinations.

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 of the Forward Air Corporation Annual Report on Form 10-K for the year ended December 31, 2018. 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 our deductibles and any loss development factors applied to our outstanding claims as a result of actuarial analysis are not passed to the segments, but reported at the corporate level ("Eliminations & other").

Segment data includes intersegment revenues and shared costs.  Costs of the corporate headquarters, shared services and shared assets, such as trailers, are allocated to the segments based on usage. The cost basis of shared assets are not allocated. The basis for the majority of shared assets, such as trailers, are included in Expedited LTL.  The Company evaluates the performance of its segments based on income from operations.   The Company’s business is conducted in the U.S. and Canada.


17

Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
March 31, 2019

The following tables summarize segment information about results from operations and assets used by the chief operating decision maker of the Company in making decisions regarding allocation of assets and resources as of and for the three months ended March 31, 2019 and 2018.
 
 
Three months ended March 31, 2019
 
 
Expedited LTL
 
Intermodal
 
Truckload Premium
 
Pool Distribution
 
Eliminations & other
 
Consolidated
External revenues
 
$
177,355

 
$
54,097

 
$
44,923

 
$
45,096

 
$

 
$
321,471

Intersegment revenues
 
1,198

 
18

 
744

 
89

 
(2,049
)
 

Depreciation
 
4,968

 
469

 
1,564

 
1,315

 

 
8,316

Amortization
 
825

 
1,407

 
22

 
257

 

 
2,511

Share-based compensation expense
 
2,021

 
531

 
148

 
182

 
165

 
3,047

Interest expense
 

 
13

 
1

 

 
561

 
575

Income (loss) from operations
 
19,547

 
6,181

 
841

 
1,251

 
(3,086
)
 
24,734

Total assets
 
566,887

 
182,489

 
74,638

 
102,678

 
(41,115
)
 
885,577

Capital expenditures
 
2,081

 
73

 
156

 
1,780

 

 
4,090

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2018
 
 
Expedited LTL
 
Intermodal
 
Truckload Premium
 
Pool Distribution
 
Eliminations & other
 
Consolidated
External revenues
 
$
168,363

 
$
48,477

 
$
43,161

 
$
42,607

 
$

 
$
302,608

Intersegment revenues
 
1,581

 
91

 
2,933

 
64

 
(4,669
)
 

Depreciation
 
4,623

 
509

 
1,703

 
1,546

 

 
8,381

Amortization
 
905

 
1,092

 
55

 
257

 

 
2,309

Share-based compensation expense
 
1,675

 
290

 
180

 
116

 

 
2,261

Interest expense
 

 
13

 
1

 

 
357

 
371

Income (loss) from operations
 
20,773

 
3,469

 
(43
)
 
1,371

 
(1,335
)
 
24,235

Total assets
 
442,802

 
150,321

 
65,263

 
57,324

 
(25,503
)
 
690,207

Capital expenditures
 
6,058

 
81

 
4

 
78

 

 
6,221

 
 
 
 
 
 
 
 
 
 
 
 
 
14.    Subsequent Events

On April 21, 2019, the Company acquired substantially all of the assets of FSA Logistix (“FSA”) for $27,000 plus additional contingent consideration based upon future revenue generation. This transaction was funded using cash flows from operations. FSA specializes in last mile logistics for a wide range of American companies, including national retailers, manufacturers, eTailers, and third party logistics companies. FSA currently has management offices in Ft. Lauderdale, FL and Southlake, TX and has operations in the East, Midwest, Southwest and West regions. The Company anticipates FSA will contribute approximately $75,000 of revenue and $3,000 of operating income on an annualized basis.

18


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview and Executive Summary
 
Forward Air Corporation is a leading asset-light freight and logistics company. Our services are classified into four reportable segments: Expedited LTL, Intermodal, Truckload Premium Services ("TLS") and Pool Distribution ("Pool").
 
Through the Expedited LTL segment, we operate a comprehensive national network to provide expedited regional, inter-regional and national LTL services. Expedited LTL offers customers local pick-up and delivery and other services including shipment consolidation and deconsolidation, warehousing, final mile solutions, customs brokerage and other handling. Because of our roots in serving the deferred air freight market, our terminal network is located at or near airports in the United States and Canada.

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 CFS warehouse and handling services. Intermodal operates primarily in the Midwest and Southeast, with a smaller operational presence in the Southwest. 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.

Through our TLS segment, we provide expedited truckload brokerage, dedicated fleet services, as well as high security and temperature-controlled logistics services in the United States and Canada.

In our Pool Distribution segment, we provide high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States.

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 lines of businesses, such as TLS, Intermodal and Pool Distribution, which will allow us to maintain revenue growth in challenging shipping environments.

Trends and Developments

Appointment of New President and Chief Executive Officer

Effective September 1, 2018 ("Effective Date"), Thomas Schmitt was named the Company's President and Chief Executive Officer and Bruce A. Campbell, our then President and Chief Executive Officer, assumed the position of Executive Chairman. The Company's Board of Directors (the "Board") appointed Mr. Schmitt to the Board as of the Effective Date. On February 5, 2019, Mr. Campbell informed the Board of his intent to retire from his position as Executive Chairman of the Company and decision not to stand for re-election to the Board immediately preceding the Company’s 2019 annual meeting of shareholders (the “2019 Annual Meeting”) which is expected to occur on May 7, 2019. The Board and Mr. Campbell agreed that he will continue to serve the Company as a consultant for 24 months following his retirement. Following Mr. Campbell’s retirement, Mr. Schmitt is expected to become the Chairman of the Board and Craig Carlock is expected to become the Company’s Lead Independent Director, subject to their reelection to the Board at the Company’s 2019 Annual Meeting.

Intermodal Acquisitions

As part of our strategy to expand our Intermodal operations, in July 2018, we acquired certain assets of MMT for $3.7 million and in October 2018 we acquired certain assets of Southwest for $16.3 million. These acquisitions 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 these acquisitions have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the Intermodal reportable segment.

Environmental and Social Protection Efforts

Forward Air is committed to protecting the environment and we have taken a variety of steps to improve the sustainability of our operations. We are implementing new practices and technologies, improving our training, and incorporating sustainability objectives in our growth strategies. Our initiatives will be focused on reducing overall waste, electricity consumption and carbon emissions, while working to increase employee engagement and community involvement.

19



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. For example, 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 electronic 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.

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.





20


Results from Operations
The following table sets forth our consolidated historical financial data for the three months ended March 31, 2019 and 2018 (in millions):
 
Three months ended March 31
 
2019
 
2018
 
Change
 
Percent Change
Operating revenue:
 
 
 
 
 
 
 
Expedited LTL
$
178.6

 
$
169.9

 
$
8.7

 
5.1
 %
Intermodal
54.1

 
48.6

 
5.5

 
11.3

Truckload Premium Services
45.7

 
46.1

 
(0.4
)
 
(0.9
)
Pool Distribution
45.2

 
42.7

 
2.5

 
5.9

Eliminations and other operations
(2.1
)
 
(4.7
)
 
2.6

 
(55.3
)
Operating revenue
321.5

 
302.6

 
18.9

 
6.2

Operating expenses:
 
 
 
 
 
 
 
   Purchased transportation
144.0

 
139.7

 
4.3

 
3.1

   Salaries, wages, and employee benefits
76.4

 
69.6

 
6.8

 
9.8

   Operating leases
19.2

 
18.0

 
1.2

 
6.7

   Depreciation and amortization
10.8

 
10.7

 
0.1

 
0.9

   Insurance and claims
9.4

 
7.1

 
2.3

 
32.4

   Fuel expense
5.6

 
5.5

 
0.1

 
1.8

   Other operating expenses
31.4

 
27.8

 
3.6

 
12.9

      Total operating expenses
296.8

 
278.4

 
18.4

 
6.6

Income (loss) from operations:
 
 
 
 
 
 
 
Expedited LTL
19.6

 
20.8

 
(1.2
)
 
(5.8
)
Intermodal
6.2

 
3.5

 
2.7

 
77.1

Truckload Premium Services
0.9

 

 
0.9

 
100.0

Pool Distribution
1.3

 
1.4

 
(0.1
)
 
(7.1
)
Other operations
(3.3
)
 
(1.5
)
 
(1.8
)
 
120.0

Income from operations
24.7

 
24.2

 
0.5

 
2.1

Other expense:
 
 
 
 
 
 
 
   Interest expense
(0.6
)
 
(0.4
)
 
(0.2
)
 
50.0

      Total other expense
(0.6
)
 
(0.4
)
 
(0.2
)
 
50.0

Income before income taxes
24.1

 
23.8

 
0.3

 
1.3

Income tax expense
5.7

 
6.1

 
(0.4
)
 
(6.6
)
Net income and comprehensive income
$
18.4

 
$
17.7

 
$
0.7

 
4.0
 %
Revenues

During the three months ended March 31, 2019, revenue increased 6.2% compared to the year ended March 31, 2018. The revenue increase was primarily driven by increased revenue from our LTL Expedited segment of $8.7 million driven by increased network revenue, fuel surcharge revenue and final mile revenue over the prior year. The Company's other segments also had revenue growth over prior year with the exception of the TLS Segment where revenue decreased due to deliberate shedding of lower margin business.

Operating Expenses
Operating expenses increased $18.4 million primarily driven by salaries, wages and employee benefits increases of $6.8 million and purchased transportation increases of $4.3 million. Salaries, wages and employee benefits increased primarily due to increased Company-employed drivers and personnel needs to support the additional volumes. Purchased transportation increased primarily due to increased volumes partly offset by increased utilization of owner-operators during the first quarter of 2019 instead of more costly third-party transportation providers.

21


Operating Income and Segment Operations

Operating income increased $0.5 million, or 2.1%, from 2018 to $24.7 million for the year ended March 31, 2019. The results for our four reportable segments are discussed in detail in the following sections.

Interest Expense

Interest expense was $0.6 million for the three months ended March 31, 2019 compared to $0.4 million for the same period of 2018. The increase in interest expense was attributable to additional borrowings on our revolving credit facility.

Income Taxes

The combined federal and state effective tax rate for the first quarter of 2019 was 23.8% compared to a rate of 25.7% for the same period in 2018. The lower effective tax rate for the first quarter of 2019 is the result of increased stock based compensation vesting and exercises when compared to the same period in 2018, which was impacted by forfeited performance shares and no option activity.

22


Expedited LTL - Three Months Ended March 31, 2019 compared to Three Months Ended March 31, 2018

The following table sets forth the historical financial data of our Expedited LTL segment for the three months ended March 31, 2019 and 2018 (in millions):
Expedited LTL Segment Information
(In millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
March 31,
 
Percent of
 
March 31,
 
Percent of
 
 
 
Percent
 
2019
 
Revenue
 
2018
 
Revenue
 
Change
 
Change
Operating revenue
$
178.6

 
100.0
%
 
$
169.9

 
100.0
%
 
$
8.7

 
5.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Purchased transportation
79.6

 
44.6

 
78.4

 
46.2

 
1.2

 
1.5

Salaries, wages and employee benefits
41.1

 
23.0

 
37.7

 
22.2

 
3.4

 
9.0

Operating leases
10.9

 
6.1

 
9.9

 
5.8

 
1.0

 
10.1

Depreciation and amortization
5.8

 
3.2

 
5.5

 
3.2

 
0.3

 
5.5

Insurance and claims
3.9

 
2.2

 
3.2

 
1.9

 
0.7

 
21.9

Fuel expense
1.8

 
1.0

 
1.3

 
0.8

 
0.5

 
38.5

Other operating expenses
15.9

 
8.9

 
13.1

 
7.7

 
2.8

 
21.4

Total operating expenses
159.0

 
89.0

 
149.1

 
87.8

 
9.9

 
6.6

Income from operations
$
19.6

 
11.0
%
 
$
20.8

 
12.2
%
 
$
(1.2
)
 
(5.8
)%
Expedited LTL Operating Statistics
 
 
 
 
 
 
 
Three months ended
 
March 31,
 
March 31,
 
Percent
 
2019
 
2018
 
Change
 
 
 
 
 
 
Business days
63

 
64

 
(1.6
)%
 
 
 
 
 
 
Tonnage
 
 
 
 
 
    Total pounds ¹
596,640

 
608,822

 
(2.0
)
    Pounds per day ¹
9,470

 
9,513

 
(0.5
)
 
 
 
 
 
 
Shipments
 
 
 
 
 
    Total shipments ¹
929.6

 
970.8

 
(4.2
)
    Shipments per day ¹
14.8

 
15.2

 
(2.6
)
 
 
 
 
 
 
Weight per shipment
642

 
627

 
2.4

 
 
 
 
 
 
Revenue per hundredweight
$
26.78

 
$
25.27

 
6.0

Revenue per hundredweight, ex fuel
22.74

 
21.75

 
4.6

 
 
 
 
 
 
Revenue per shipment
$
174

 
$
161

 
8.1

Revenue per shipment, ex fuel
148

 
139

 
6.5

 
 
 
 
 
 
Network revenue from door-to-door shipments as a percentage of network revenue 2,3
38.3
%
 
34.1
%
 
12.3
 %
 
 
 
 
 
 
¹ In thousands
 
 
 
 
 
2 Door-to-door shipments include all shipments with a pickup and/or delivery
3 Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial and final mile revenue


23


Revenues
Expedited LTL operating revenue increased $8.7 million, or 5.1%, to $178.6 million from $169.9 million, accounting for 55.5% of consolidated operating revenue for the three months ended March 31, 2019 compared to 56.2% for the same period in 2018. This increase was due to increased network revenue and final mile revenue over the prior year. Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial and final mile revenue. Network revenue, excluding fuel increased $2.8 million due to a 4.6% increase in revenue per hundredweight, ex fuel, partly offset by a 2.0% decrease in tonnage compared to prior year. The increase in revenue per hundredweight was primarily due to rate increases and higher pickup and delivery revenue. The decrease in tonnage was due to one less business day and lower volumes from traditional linehaul. In addition, fuel surcharge revenue increased $2.6 million largely due to rate increases to our fuel surcharges, and final mile revenue increased $2.7 million primarily due to the addition of new service locations following business wins. The remaining increase is due to other terminal based revenue, which includes warehousing and terminal handling.
Purchased Transportation
Expedited LTL purchased transportation increased by $1.2 million, or 1.5%, to $79.6 million for the three months ended March 31, 2019 from $78.4 million for the three months ended March 31, 2018. As a percentage of segment operating revenue, Expedited LTL purchased transportation was 44.6% during the three months ended March 31, 2019 compared to 46.2% for the same period in 2018. The decrease in purchased transportation as a percentage of revenue is mostly due to an increased utilization of owner-operators and Company-employed drivers over more costly third party transportation providers. Company-employed driver pay is included in the salaries, wages and benefits line item.
Salaries, Wages, and Benefits
Expedited LTL salaries, wages and employee benefits increased $3.4 million, or 9.0%, to $41.1 million in the first quarter of 2019 from $37.7 million for the same period in 2018.  Salaries, wages and employee benefits were 23.0% of Expedited LTL’s operating revenue in the first quarter of 2019 compared to 22.2% for the same period of 2018.  The increase in salaries, wages and employee benefits as a percentage of revenue was primarily attributable to a 0.8% increase as a percentage of revenue in Company-employed drivers to service linehaul and local pickup and delivery services.
Operating Leases
Expedited LTL operating leases increased $1.0 million, or 10.1%, to $10.9 million for the three months ended March 31, 2019 from $9.9 million for the same period in 2018.  Operating leases were 6.1% of Expedited LTL operating revenue for the three months ended March 31, 2019 compared to 5.8% for the same period of 2018. The increase in cost is primarily due to a $0.9 million increase in tractor rentals and leases to correspond with the increase in Company-employed driver usage mentioned above.
Depreciation and Amortization
Expedited LTL depreciation and amortization increased $0.3 million, or 5.5%, to $5.8 million in the first quarter of 2019 from $5.5 million in the same period of 2018.  Depreciation and amortization expense as a percentage of Expedited LTL operating revenue was 3.2% in the first quarter of 2019 and 2018.  The increase was due to the purchase of new trailers since the first quarter of 2018 partly offset by lower tractor depreciation, as we utilized leased tractors mentioned above.
Insurance and Claims
Expedited LTL insurance and claims expense increased $0.7 million, or 21.9%, to $3.9 million for the three months ended March 31, 2019 from $3.2 million for the same period of 2018.  Insurance and claims was 2.2% of operating revenue for the three months ended March 31, 2019 compared to 1.9% in the same period of 2018. The increase was attributable to an increase in vehicle claim reserves and cargo claims and claims related fees. See additional discussion over the consolidated increase in self-insurance reserves related to vehicle claims in the "Other operations" section below.
Fuel Expense
Expedited LTL fuel expense increased $0.5 million, or 38.5%, to $1.8 million for the first quarter of 2019 from $1.3 million in the same period of 2018.  Fuel expenses were 1.0% of Expedited LTL operating revenue in the first quarter of 2019 compared to 0.8% in the same period of 2018.  Expedited LTL fuel expenses increased due to higher Company-employed driver miles.

24


Other Operating Expenses
Expedited LTL other operating expenses increased $2.8 million, or 21.4%, to $15.9 million during the three months ended March 31, 2019 from $13.1 million in the same period of 2018.  Other operating expenses were 8.9% of Expedited LTL operating revenue in the first quarter of 2019 compared to 7.7% in the same period of 2018. Other operating expenses includes equipment maintenance, terminal and office expenses, legal and professional fees and other over-the-road costs. The increase in total dollars and as a percentage of revenue was primarily attributable to an increase in receivables allowance and higher legal and professional fees related to the acquisition. The increase as a percentage of revenue was also the result of the prior year including a fuel tax credit that was no longer available in 2019.
Income from Operations
Expedited LTL income from operations decreased by $1.2 million, or 5.8%, to $19.6 million for the first quarter of 2019 compared to $20.8 million for the same period in 2018.  Income from operations as a percentage of Expedited LTL operating revenue was 11.0% for the three months ended March 31, 2019 compared with 12.2% in the same period of 2018. The decrease in income from operations was due to sluggish linehaul tonnage, higher vehicle claim reserves, cargo claims, legal and professional fees and an increase in receivables allowance. These deteriorations were partly offset by increased utilization of owner-operators and Company-employed drivers.



25


Intermodal - Three Months Ended March 31, 2019 compared to Three Months Ended March 31, 2018

The following table sets forth the historical financial data of our Intermodal segment for the three months ended March 31, 2019 and 2018 (in millions):

Intermodal Segment Information
(In millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
March 31,
 
Percent of
 
March 31,
 
Percent of
 
 
 
Percent
 
2019
 
Revenue
 
2018
 
Revenue
 
Change
 
Change
Operating revenue
$
54.1

 
100.0
%
 
$
48.6

 
100.0
%
 
$
5.5

 
11.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:

 
 
 

 
 
 
 
 
 
Purchased transportation
18.4

 
34.0

 
18.7

 
38.5

 
(0.3
)
 
(1.6
)
Salaries, wages and employee benefits
12.7

 
23.5

 
10.3

 
21.2

 
2.4

 
23.3

Operating leases
3.8

 
7.0

 
4.0

 
8.2

 
(0.2
)
 
(5.0
)
Depreciation and amortization
1.9

 
3.5

 
1.6

 
3.3

 
0.3

 
18.8

Insurance and claims
1.4

 
2.6

 
1.4

 
2.9

 

 

Fuel expense
1.6

 
3.0

 
1.6

 
3.3

 

 

Other operating expenses
8.1

 
15.0

 
7.5

 
15.4

 
0.6

 
8.0

Total operating expenses
47.9

 
88.5

 
45.1

 
92.8

 
2.8

 
6.2

Income from operations
$
6.2

 
11.5
%
 
$
3.5

 
7.2
%
 
$
2.7

 
77.1
 %

Intermodal Operating Statistics
 
 
 
Three months ended
 
March 31,
 
March 31,
 
Percent
 
2019
 
2018
 
Change
Drayage shipments
75,607

 
73,671

 
2.6
%
Drayage revenue per shipment
$
625

 
$
571

 
9.5

Number of locations
21

 
19

 
10.5
%

Revenues

Intermodal operating revenue increased $5.5 million, or 11.3%, to $54.1 million for the three months ended March 31, 2019 from $48.6 million for the same period in 2018.  The increases in operating revenue were primarily attributable to the MMT and Southwest acquisitions.

Purchased Transportation

Intermodal purchased transportation decreased $0.3 million, or 1.6%, to $18.4 million for the three months ended March 31, 2019 from $18.7 million for the same period in 2018.  Intermodal purchased transportation as a percentage of revenue was 34.0% for the three months ended March 31, 2019 compared to 38.5% for the three months ended March 31, 2018.  The decrease in Intermodal purchased transportation as a percentage of revenue was attributable to increased utilization of Company-employed drivers compared to the same period in 2018 and the impact of improved pricing on intermodal shipments.


26


Salaries, Wages, and Benefits

Intermodal salaries, wages and employee benefits increased $2.4 million, or 23.3%, to $12.7 million for the three months ended March 31, 2019 compared to $10.3 million for the three months ended March 31, 2018.  As a percentage of Intermodal operating revenue, salaries, wages and benefits increased to 23.5% for the three months ended March 31, 2019 compared to 21.2% for the same period in 2018. The increase in salaries, wages and employee benefits as a percentage of revenue was attributable to higher employee incentive and share-based compensation, increased utilization of Company-employed drivers and increased administrative salaries, wages and benefits as a percentage of revenue.

Operating Leases

Intermodal operating leases decreased $0.2 million, or 5.0%, to $3.8 million for the three months ended March 31, 2019 compared to $4.0 million for the same period of 2018.  Operating leases were 7.0% of Intermodal operating revenue for the three months ended March 31, 2019 compared with 8.2% in the same period of 2018.  Operating leases decreased in total dollars and as a percentage of revenue due to decreases to trailer rental charges.

Depreciation and Amortization

Intermodal depreciation and amortization increased $0.3 million, or 18.8%, to $1.9 million for the three months ended March 31, 2019 from $1.6 million for the same period in 2018. Depreciation and amortization expense as a percentage of Intermodal operating revenue was 3.5% in the first quarter of 2019 compared to 3.3% in the same period of 2018. The increase in depreciation and amortization was due to increased amortization of acquired intangibles.

Insurance and Claims

Intermodal insurance and claims was $1.4 million for the three months ended March 31, 2019 and 2018. Intermodal insurance and claims were 2.6% of operating revenue for the three months ended March 31, 2019 compared with 2.9% for the same period in 2018. The decrease in Intermodal insurance and claims as a percentage of revenue was attributable to decreases in vehicle insurance premiums and cargo 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 was $1.6 million for the three months ended March 31, 2019 and 2018.  Fuel expenses were 3.0% of Intermodal operating revenue in the first quarter of 2019 compared with 3.3% for the same period of 2018.  Intermodal fuel expenses were flat due to increased Company-employed driver activity offset by lower fuel prices.
Other Operating Expenses
Intermodal other operating expenses increased $0.6 million, or 8.0%, to $8.1 million for the three months ended March 31, 2019 from $7.5 million for the same period in 2018.  Intermodal other operating expenses for the first quarter of 2019 were 15.0% compared to 15.4% for the same period of 2018.  The decrease in Intermodal other operating expenses as a percentage of revenue was due mostly to lower equipment maintenance.
Income from Operations
Intermodal’s income from operations increased by $2.7 million, or 77.1%, to $6.2 million for the first quarter of 2019 compared with $3.5 million for the same period in 2018.  Income from operations as a percentage of Intermodal operating revenue was 11.5% for the three months ended March 31, 2019 compared to 7.2% in the same period of 2018.  The increase in operating income in total dollars and as a percentage of revenue was primarily attributable to revenue rate increases and the acquisitions of Southwest and MMT.

27


Truckload Premium Services - Three Months Ended March 31, 2019 compared to Three Months Ended March 31, 2018

The following table sets forth our historical financial data of the Truckload Premium Services segment for the three months ended March 31, 2019 and 2018 (in millions):
Truckload Premium Services Segment Information
(In millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
March 31,
 
Percent of
 
March 31,
 
Percent of
 
 
 
Percent
 
2019
 
Revenue
 
2018
 
Revenue
 
Change
 
Change
Operating revenue
$
45.7

 
100.0
%
 
$
46.1

 
100.0
%
 
$
(0.4
)
 
(0.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:

 
 
 
 
 
 
 
 
 
 
Purchased transportation
34.5

 
75.5

 
34.8

 
75.5

 
(0.3
)
 
(0.9
)
Salaries, wages and employee benefits
4.6

 
10.1

 
5.1

 
11.1

 
(0.5
)
 
(9.8
)
Operating leases
0.1

 
0.2

 
0.2

 
0.4

 
(0.1
)
 
(50.0
)
Depreciation and amortization
1.6

 
3.5

 
1.8

 
3.9

 
(0.2
)
 
(11.1
)
Insurance and claims
1.0

 
2.2

 
1.0

 
2.2

 

 

Fuel expense
0.7

 
1.5

 
1.1

 
2.4

 
(0.4
)
 
(36.4
)
Other operating expenses
2.3

 
5.0

 
2.1

 
4.5

 
0.2

 
9.5

Total operating expenses
44.8

 
98.0

 
46.1

 
100.0

 
(1.3
)
 
(2.8
)
Income from operations
$
0.9

 
2.0
%
 
$

 
%
 
$
0.9

 
100.0
 %

Truckload Premium Services Operating Statistics
 
 
 
Three months ended
 
March 31,
 
March 31,
 
Percent
 
2019
 
2018
 
Change
 
 
 
 
 
 
Total Miles ¹
18,757

 
20,072

 
(6.6
)%
Empty Miles Percentage
7.9
%
 
9.7
%
 
(18.6
)
Tractors (avg)
306

 
335

 
(8.7
)
Miles per tractor per week 2
1,932

 
2,229

 
(13.3
)
 
 
 
 
 
 
Revenue per mile
$
2.33

 
$
2.19

 
6.4

Cost per mile
$
1.86

 
$
1.81

 
2.8
 %
 
 
 
 
 
 
¹ In thousands
 
 
 
 
 
2 Calculated using Company-employed driver and owner-operator miles


Revenues
    
TLS revenue decreased $0.4 million, or 0.9%, to $45.7 million in the first quarter of 2019 from $46.1 million in the first quarter of 2018.  TLS revenue decreased due to a 6.6% decrease in overall miles mostly offset by a 6.4% increase in average revenue per mile. The decrease in overall miles was due to deliberate shedding of lower margin business as well as reduced fleet capacity compared to the first quarter of last year. The increased revenue per mile was primarily driven by rate increases to existing customers and, to a lesser extent, the aforementioned shedding of lower margin business.


28


Purchased Transportation

TLS purchased transportation costs decreased $0.3 million, or 0.9%, to $34.5 million for the three months ended March 31, 2019 from $34.8 million for the same period in 2018. For the three months ended March 31, 2019 and 2018, purchased transportation costs represented 75.5%.  TLS purchased transportation includes owner operators and third party carriers, while Company-employed drivers are included in salaries, wages and benefits. The decrease in purchased transportation was attributable to a 3.9% decrease in miles driven by owner operators and third party carriers partly offset by a 3.6% increase in cost per mile during the three months ended March 31, 2019 compared to the same period in 2018. The decrease in purchased transportation miles was attributable to the revenue activity discussed above. The increase in cost per mile was due to higher utilization of third party carriers, which are more costly than owner operators.

Salaries, Wages, and Benefits

TLS salaries, wages and employee benefits decreased by $0.5 million, or 9.8%, to $4.6 million in the first quarter of 2019 from $5.1 million in the same period of 2018.  Salaries, wages and employee benefits were 10.1% of TLS’s operating revenue in the first quarter of 2019 compared to 11.1% for the same period in 2018.  The decrease in salaries, wages and employee benefits as a percentage of revenue was mostly attributable to a decrease in Company-employed driver pay due to a decrease in miles driven.
Operating Leases
TLS operating leases decreased $0.1 million to $0.1 million for the first quarter of 2019 from $0.2 million for the same period in 2018.  Operating leases were 0.2% of TLS operating revenue for the first quarter of 2019 compared to 0.4% for the same period in 2018. The decrease was due to a decrease in trailer rentals, as TLS utilized more purchased trailers in first quarter of 2019 compared to the same period in 2018.
Depreciation and Amortization

TLS depreciation and amortization decreased $0.2 million, or 11.1%, to $1.6 million in the first quarter of 2019 from $1.8 million for the same period in 2018.  Depreciation and amortization expense as a percentage of TLS operating revenue was 3.5% for the first quarter of 2019 compared to 3.9% for the same period in 2018.  The decrease was due to lower tractor depreciation, as older units were not replaced due to lower Company-employed driver miles.
Insurance and Claims

TLS insurance and claims expense was $1.0 million for the three months ended March 31, 2019 and 2018.  Insurance and claims were 2.2% of operating revenue for the three months ended March 31, 2019 and 2018. Lower vehicle insurance premiums and vehicle claims reserves were offset by higher cargo claims. At a consolidated level, vehicle claims reserves increased; see discussion in the "Other operations" section below.
Fuel Expense

TLS fuel expense decreased $0.4 million, or 36.4%, to $0.7 million for the first quarter of 2019 from $1.1 million for the same period in 2018. Fuel expense as a percentage of TLS operating revenue was 1.5% in the first quarter of 2019 compared to 2.4% for the same period of 2018. The decrease was attributable to a decrease in Company-employed driver miles.
Other Operating Expenses

TLS other operating expenses increased $0.2 million, or 9.5%, to $2.3 million for the three months ended March 31, 2019 from $2.1 million for the same period in 2018.  Other operating expenses were 5.0% of TLS operating revenue in the first quarter of 2019 compared to 4.5% for the same period of 2018.  Other operating expenses includes equipment maintenance, terminal and office expenses, professional fees and other costs of transiting shipments. The increase was mostly due to an increase in receivables allowance and increased spending on information technology.
Income from Operations
TLS income from operations increased to $0.9 million during the first quarter of 2019 from breakeven for the same period in 2018. The improvement in income from operations was due to rate increases and higher fuel surcharges to existing customers, and the deliberate shedding of lower margin business.

29