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 SeptemberJune 30, 20202021
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, 2020August 5, 2021 was 27,507,750.27,100,389.
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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 | |
(Dollars in thousands, except share and per share amounts) | |
(Unaudited) | |
Condensed Consolidated Balance Sheets | | Condensed Consolidated Balance Sheets |
(unaudited and in thousands, except share and per share amounts) | | (unaudited and in thousands, except share and per share amounts) |
| | | September 30, 2020 | | December 31, 2019 | | June 30, 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 | $ | 50,844 | | | $ | 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 $2,187 in 2021 and $2,273 in 2020 | | Accounts receivable, less allowance of $2,187 in 2021 and $2,273 in 2020 | 209,187 | | | 156,490 | |
Other receivables | | Other receivables | 16,999 | | | 0 | |
Other current assets | Other current assets | 22,062 | | | 20,403 | | Other current assets | 19,982 | | | 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 | 297,012 | | | 245,896 | |
| Property and equipment | Property and equipment | 379,306 | | | 373,571 | | Property and equipment | 383,155 | | | 380,519 | |
Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | 189,042 | | | 180,815 | | Less accumulated depreciation and amortization | 196,168 | | | 190,652 | |
Total property and equipment, net | Total property and equipment, net | 190,264 | | | 192,756 | | Total property and equipment, net | 186,987 | | | 189,867 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 115,551 | | | 105,170 | | Operating lease right-of-use assets | 148,651 | | | 123,338 | |
Goodwill and other acquired intangibles: | | | | |
| Goodwill | Goodwill | 240,933 | | | 215,699 | | Goodwill | 254,993 | | | 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 $100,018 in 2021 and $93,009 in 2020 | | Other acquired intangibles, net of accumulated amortization of $100,018 in 2021 and $93,009 in 2020 | 145,813 | | | 145,032 | |
| Other assets | Other assets | 43,266 | | | 39,374 | | Other assets | 48,385 | | | 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 | $ | 1,081,841 | | | $ | 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 | $ | 43,655 | | | $ | 38,371 | |
Accrued expenses | Accrued expenses | 52,454 | | | 44,154 | | Accrued expenses | 70,894 | | | 51,264 | |
Other current liabilities | Other current liabilities | 4,277 | | | 5,318 | | Other current liabilities | 6,813 | | | 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 | 1,867 | | | 1,801 | |
Current portion of operating lease obligations | 40,258 | | | 35,886 | | |
Current portion of operating lease liabilities | | Current portion of operating lease liabilities | 46,042 | | | 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 | 169,271 | | | 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 | 161,729 | | | 117,408 | |
Operating lease liabilities, less current portion | | Operating lease liabilities, less current portion | 103,280 | | | 80,346 | |
Other long-term liabilities | Other long-term liabilities | 61,536 | | | 56,448 | | Other long-term liabilities | 55,741 | | | 54,129 | |
Deferred income taxes | Deferred income taxes | 45,532 | | | 41,214 | | Deferred income taxes | 41,471 | | | 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 - 27,120,389 in 2021 and 27,316,434 in 2020 | | Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding shares - 27,120,389 in 2021 and 27,316,434 in 2020 | 271 | | | 273 | |
Additional paid-in capital | Additional paid-in capital | 237,497 | | | 226,869 | | Additional paid-in capital | 252,466 | | | 242,916 | |
Retained earnings | Retained earnings | 314,426 | | | 350,034 | | Retained earnings | 297,612 | | | 304,140 | |
Total shareholders’ equity | Total shareholders’ equity | 552,196 | | | 577,182 | | Total shareholders’ equity | 550,349 | | | 547,329 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 1,048,210 | | | $ | 990,878 | | Total liabilities and shareholders’ equity | $ | 1,081,841 | | | $ | 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.
| Forward Air Corporation | Forward Air Corporation | Forward Air Corporation |
Consolidated Statements of Comprehensive Income | |
(Dollars in thousands, except share and per share amounts) | |
(Unaudited) | |
Condensed Consolidated Statements of Comprehensive Income | | Condensed Consolidated Statements of Comprehensive Income |
(unaudited and in thousands, except per share amounts) | | (unaudited and in thousands, except per share amounts) |
| | | Three months ended | | Nine months ended | | Three Months Ended |
| | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | | June 30, 2021 | | June 30, 2020 |
| Operating revenue | $ | 331,997 | | | $ | 313,683 | | | $ | 919,232 | | | $ | 895,531 | | |
Operating revenues | | Operating revenues | $ | 420,671 | | | $ | 281,678 | |
| Operating expenses: | Operating expenses: | | | | | Operating expenses: | | |
Purchased transportation | Purchased transportation | 173,054 | | | 150,296 | | | 465,721 | | | 426,283 | | Purchased transportation | 215,217 | | | 142,069 | |
Salaries, wages and employee benefits | Salaries, wages and employee benefits | 66,927 | | | 68,532 | | | 200,258 | | | 192,330 | | Salaries, wages and employee benefits | 84,641 | | | 63,772 | |
Operating leases | Operating leases | 17,327 | | | 15,860 | | | 52,598 | | | 46,861 | | Operating leases | 20,370 | | | 17,387 | |
Depreciation and amortization | Depreciation and amortization | 9,172 | | | 9,016 | | | 27,919 | | | 27,531 | | Depreciation and amortization | 9,414 | | | 9,413 | |
Insurance and claims | Insurance and claims | 8,671 | | | 9,532 | | | 26,437 | | | 29,276 | | Insurance and claims | 10,891 | | | 7,722 | |
Fuel expense | Fuel expense | 2,715 | | | 4,637 | | | 9,247 | | | 13,219 | | Fuel expense | 4,059 | | | 2,519 | |
Other operating expenses | Other operating expenses | 30,621 | | | 26,624 | | | 83,854 | | | 78,071 | | Other operating expenses | 33,955 | | | 24,882 | |
| Total operating expenses | Total operating expenses | 308,487 | | | 284,497 | | | 866,034 | | | 813,571 | | Total operating expenses | 378,547 | | | 267,764 | |
Income from continuing operations | Income from continuing operations | 23,510 | | | 29,186 | | | 53,198 | | | 81,960 | | Income from continuing operations | 42,124 | | | 13,914 | |
| Other expense: | Other expense: | | | | | Other expense: | | |
Interest expense | Interest expense | (1,304) | | | (761) | | | (3,355) | | | (1,917) | | Interest expense | (1,323) | | | (1,198) | |
Other, net | 0 | | | 1 | | | 0 | | | (1) | | |
| Total other expense | Total other expense | (1,304) | | | (760) | | | (3,355) | | | (1,918) | | Total other expense | (1,323) | | | (1,198) | |
Income before income taxes | Income before income taxes | 22,206 | | | 28,426 | | | 49,843 | | | 80,042 | | Income before income taxes | 40,801 | | | 12,716 | |
Income tax expense | Income tax expense | 5,214 | | | 7,372 | | | 12,209 | | | 20,055 | | Income tax expense | 10,124 | | | 3,491 | |
Net income from continuing operations | Net income from continuing operations | 16,992 | | | 21,054 | | | 37,634 | | | 59,987 | | Net income from continuing operations | 30,677 | | | 9,225 | |
(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 | 0 | | | (6,071) | |
Net income and comprehensive income | Net income and comprehensive income | $ | 16,647 | | | $ | 22,195 | | | $ | 28,176 | | | $ | 62,932 | | Net income and comprehensive income | $ | 30,677 | | | $ | 3,154 | |
| 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 | $ | 1.12 | | | $ | 0.33 | |
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 | | | (0.22) | |
Net income per basic share | | Net income per basic share | $ | 1.12 | | | $ | 0.11 | |
| 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 | $ | 1.11 | | | $ | 0.33 | |
Discontinued operations | (0.01) | | | 0.04 | | | (0.34) | | | 0.10 | | |
Net income per share | $ | 0.60 | | | $ | 0.78 | | | $ | 1.01 | | | $ | 2.19 | | |
Discontinued operation | | Discontinued operation | 0 | | | (0.22) | |
Net income per diluted share | | Net income per diluted share | $ | 1.11 | | | $ | 0.11 | |
| | Dividends per share: | $ | 0.18 | | | $ | 0.18 | | | $ | 0.54 | | | $ | 0.54 | | |
Dividends per share | | Dividends per share | $ | 0.21 | | | $ | 0.18 | |
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 Comprehensive Income |
(unaudited and in thousands, except per share amounts) |
|
| Six Months Ended |
| June 30, 2021 | | June 30, 2020 |
Operating revenues | $ | 782,873 | | | $ | 587,235 | |
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Operating expenses: | | | |
Purchased transportation | 399,825 | | | 292,667 | |
Salaries, wages and employee benefits | 159,538 | | | 133,331 | |
Operating leases | 39,537 | | | 35,271 | |
Depreciation and amortization | 18,651 | | | 18,747 | |
Insurance and claims | 20,632 | | | 17,766 | |
Fuel expense | 7,761 | | | 6,532 | |
Other operating expenses | 72,081 | | | 53,234 | |
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Total operating expenses | 718,025 | | | 557,548 | |
Income from continuing operations | 64,848 | | | 29,687 | |
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Other expense: | | | |
Interest expense | (2,488) | | | (2,051) | |
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Total other expense | (2,488) | | | (2,051) | |
Income before income taxes | 62,360 | | | 27,636 | |
Income tax expense | 14,969 | | | 6,995 | |
Net income from continuing operations | 47,391 | | | 20,641 | |
Loss from discontinued operation, net of tax | (5,533) | | | (9,112) | |
Net income and comprehensive income | $ | 41,858 | | | $ | 11,529 | |
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Basic net income (loss) per share | | | |
Continuing operations | $ | 1.72 | | | $ | 0.72 | |
Discontinued operation | (0.20) | | | (0.31) | |
Net income per basic share | $ | 1.52 | | | $ | 0.41 | |
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Diluted net income (loss) per share | | | |
Continuing operations | $ | 1.71 | | | $ | 0.72 | |
Discontinued operation | (0.20) | | | (0.32) | |
Net income per diluted share | $ | 1.51 | | | $ | 0.40 | |
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Dividends per share | $ | 0.42 | | | $ | 0.36 | |
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 | |
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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 Cash Flows |
(unaudited and in thousands) |
|
| |
| Six Months Ended |
| June 30, 2021 | | June 30, 2020 |
| |
Operating activities: | | | |
Net income from continuing operations | $ | 47,391 | | | $ | 20,641 | |
Adjustments to reconcile net income of continuing operations to net cash provided by operating activities of continuing operations | | | |
Depreciation and amortization | 18,651 | | | 18,747 | |
| | | |
Change in fair value of earn-out liability | (385) | | | (2,702) | |
Share-based compensation expense | 5,578 | | | 5,507 | |
Provision for revenue adjustments | 3,525 | | | 1,787 | |
Deferred income tax (benefit) expense | (572) | | | 4,668 | |
Other | 189 | | | 697 | |
Changes in operating assets and liabilities, net of effects from the purchase of acquired businesses: | | | |
Accounts receivable | (51,018) | | | 2,979 | |
Other receivables | (13,491) | | | 0 | |
Other current and noncurrent assets | 6,746 | | | (29) | |
Accounts payable and accrued expenses | 23,047 | | | 7,634 | |
Net cash provided by operating activities of continuing operations | 39,661 | | | 59,929 | |
| | | |
Investing activities: | | | |
Proceeds from sale of property and equipment | 1,314 | | | 988 | |
Purchases of property and equipment | (8,575) | | | (14,214) | |
Purchase of a business, net of cash acquired | (22,543) | | | (55,931) | |
Net cash used in investing activities of continuing operations | (29,804) | | | (69,157) | |
| | | |
Financing activities: | | | |
Repayments of finance lease obligations | (954) | | | (676) | |
Proceeds from revolving credit facility | 45,000 | | | 65,000 | |
Payment of earn-out liability | 0 | | | (5,284) | |
Proceeds from issuance of common stock upon stock option exercises | 3,570 | | | 0 | |
Payments of dividends to stockholders | (11,565) | | | (10,087) | |
Repurchases and retirement of common stock | (33,992) | | | (15,259) | |
Proceeds from common stock issued under employee stock purchase plan | 388 | | | 294 | |
Payment of minimum tax withholdings on share-based awards | (2,832) | | | (3,286) | |
Contributions from (distributions to) subsidiary held for sale | 1,118 | | | (5,307) | |
Net cash provided by financing activities from continuing operations | 733 | | | 25,395 | |
Net increase in cash and cash equivalents of continuing operations | 10,590 | | | 16,167 | |
| | | |
Cash from discontinued operation: | | | |
Net cash used in operating activities of discontinued operation | (6,902) | | | (4,672) | |
Net cash provided by (used in) investing activities of discontinued operation | 8,020 | | | (635) | |
Net cash (used in) provided by financing activities of discontinued operation | (1,118) | | | 5,307 | |
Net increase in cash and cash equivalents | 10,590 | | | 16,167 | |
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 increase in cash and cash equivalents | 10,590 | | | 16,167 | |
Less: cash at end of period of discontinued operation | 0 | | | 0 | |
Cash and cash equivalents at end of period of continuing operations | $ | 50,844 | | | $ | 80,916 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
The accompanying notes are an integral part of the financial statements. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forward Air Corporation |
Condensed Consolidated Statements of Shareholders’ Equity |
(unaudited and 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 | |
Net income | — | | | — | | | — | | | 30,677 | | | 30,677 | |
Stock options exercised | 26 | | | — | | | 1,416 | | | — | | | 1,416 | |
Common stock issued under employee stock purchase plan | 5 | | | — | | | 388 | | | — | | | 388 | |
Share-based compensation expense | — | | | — | | | 2,981 | | | — | | | 2,981 | |
Payment of dividends to shareholders | — | | | — | | | 3 | | | (5,771) | | | (5,768) | |
Payment of minimum tax withholdings on share-based awards | (1) | | | — | | | — | | | (82) | | | (82) | |
Repurchases and retirement of common stock | (252) | | | (2) | | | — | | | (23,992) | | | (23,994) | |
Issuance of share-based awards | 24 | | | — | | | — | | | — | | | — | |
Balance at June 30, 2021 | 27,120 | | | $ | 271 | | | $ | 252,466 | | | $ | 297,612 | | | $ | 550,349 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
Net income | — | | | — | | | — | | | 3,155 | | | 3,155 | |
Common stock issued under employee stock purchase plan | 7 | | | — | | | 295 | | | — | | | 295 | |
Share-based compensation expense | — | | | — | | | 2,654 | | | — | | | 2,654 | |
Payment of dividends to shareholders | — | | | — | | | 3 | | | (5,042) | | | (5,039) | |
Payment of minimum tax withholdings on share-based awards | (13) | | | — | | | — | | | (613) | | | (613) | |
Issuance of share-based awards | 56 | | | — | | | (1) | | | — | | | (1) | |
Balance at June 30, 2020 | 27,729 | | | $ | 277 | | | $ | 233,086 | | | $ | 332,929 | | | $ | 566,292 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
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 Condensed Consolidated Statements of Comprehensive Income for all period presented. In addition, the assets and liabilities were presented as held for sale in the Condensed 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, bills of lading (“BOLs”) 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
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
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 and Intermodal, which is consistent with the way the CODM reviews operating resultssix months ended June 30, 2021 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 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. The Company concluded there were no indicators of impairment during the three months ended June 30, 2021. As of June 30, 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 effect 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 three and six
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
June 30, 2021
months ended June 30, 2021, the Company recognized $241 and $412, respectively, 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 June 30, 2021, the Company recorded a receivable in the amount of $13,491 in “Other receivables” in the Condensed Consolidated Balance Sheets for the reimbursement due to the Company.
Summarized Discontinued Operation Financial Information
A summary of the results of operations classified as a discontinued operation, net of tax, in the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
| Three Months Ended | | Six Months Ended |
| June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 |
Operating revenues | $ | 0 | | | $ | 13,974 | | | $ | 17,087 | | | $ | 50,926 | |
| | | | | | | |
Operating expenses: | | | | | | | |
Purchased transportation | 0 | | | 3,147 | | | 4,290 | | | 12,683 | |
Salaries, wages and employee benefits | 0 | | | 8,394 | | | 9,674 | | | 25,507 | |
Operating leases | 0 | | | 4,966 | | | 2,907 | | | 10,646 | |
Depreciation and amortization | 0 | | | 362 | | | 0 | | | 1,657 | |
Insurance and claims | 0 | | | 1,287 | | | 929 | | | 3,013 | |
Fuel expense | 0 | | | 413 | | | 644 | | | 1,740 | |
Other operating expenses | 0 | | | 3,495 | | | 2,087 | | | 7,841 | |
Total operating expenses | 0 | | | 22,064 | | | 20,531 | | | 63,087 | |
Loss from discontinued operation | 0 | | | (8,090) | | | (3,444) | | | (12,161) | |
Loss on sale of business | 0 | | | 0 | | | (2,860) | | | 0 | |
Loss from discontinued operation before income taxes | 0 | | | (8,090) | | | (6,304) | | | (12,161) | |
Income tax benefit | 0 | | | (2,019) | | | (771) | | | (3,049) | |
Loss from discontinued operation, net of tax | $ | 0 | | | $ | (6,071) | | | $ | (5,533) | | | $ | (9,112) | |
| | | | | | | |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
Summarized Held for Sale and Discontinued Operations Financial Information
The following table provides a reconciliation of the carrying amounts of major classes of assets and liabilities which are included in assets and liabilities held for sale in the accompanying Consolidated Balance Sheets as of each of the periods presented below:
| | | | | | | | | | | |
|
|
|
|
| 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 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
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:
| | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
| Three months ended | | Nine months ended |
| September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
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 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Income tax (benefit) expense | (187) | | | 362 | | | (3,236) | | | 1,068 | |
| | | | | | | |
(Loss) income from discontinued operations, net of tax | $ | (345) | | | $ | 1,141 | | | $ | (9,458) | | | $ | 2,945 | |
| | | | | | | |
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 and six months ended June 30, 2021, the fair value of the earn-out changed by ($4) and ($52), respectively, and the change in fair value was recorded in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income. During the three and six months ended June 30, 2020, the fair value of the earn-out changed by ($2,108) and ($2,702), 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 ended in the second quarter of 2021 and the Company will remit payment in the third quarter of 2021 based on the terms of purchase agreement. As of June 30, 2021 and December 31, 2020, the fair value of the earn-out liability was $11,803$6,813 and $6,865, respectively, which was reflected in “Other current liabilities” in the Condensed Consolidated Balance Sheets.
In May 2021, the Company acquired certain assets and liabilities of J&P Hall Express Delivery (“J&P”) for $7,543. J&P is headquartered in Atlanta, Georgia with a second terminal in Albany, Georgia. The acquisition of J&P supports the Company’s strategic growth plan by expanding pickup and delivery, less than truckload, truckload, less than container load, container freight station warehousing, and airport transfer services across the Southeastern United States. The acquisition was financed by cash flow from operations. The results of J&P 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 Expedited Freight reportable segment.
Intermodal Acquisition
In February 2021, the Company acquired certain assets and liabilities of Proficient Transport Incorporated and Proficient Trucking, Inc. (together “Proficient Transport”) for $15,510 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 the Company’s Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the 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.$829. The fair value was based on the two-yearestimated one-year performance of FSA'sthe acquired customer revenue and was calculated using the option pricing method. The weighted-average assumptions used to calculate the estimated using a Monte Carlo simulation.fair value of the earn-out under the option pricing method were as follows:
| | | | | | | | | | | |
| February 28, 2021 | | June 30, 2021 |
Risk-free rate | 0.1% | | 0.1% |
Revenue discount rate | 8.3% | | 8.3% |
Revenue volatility | 27.3% | | 19.7% |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
June 30, 2021
During both the three and six months ended June 30, 2021, the fair value of the earn-out changed by ($333) and the change in the fair value was recorded in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income. As of June 30, 2021, the fair value of the earn-out liability was $496, which was reflected in “Other current liabilities” in the Condensed Consolidated Balance Sheets.
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 | | J&P |
| February 28, 2021 | | May 30, 2021 |
Tangible assets: | | | |
Accounts receivable | $ | 4,171 | | | $ | 1,686 | |
| | | |
Prepaid expenses and other current assets | 0 | | | 32 | |
Property and equipment | 140 | | | 934 | |
Other assets | 24 | | | 3 | |
| | | |
| | | |
Total tangible assets | 4,335 | | | 2,655 | |
Intangible assets: | | | |
Customer relationships | 6,060 | | | 1,580 | |
Non-compete agreements | 18 | | | 132 | |
| | | |
Goodwill | 6,249 | | | 3,762 | |
Total intangible assets | 12,327 | | | 5,474 | |
Total assets acquired | 16,662 | | | 8,129 | |
| | | |
Liabilities assumed: | | | |
Current liabilities | 323 | | | 586 | |
| | | |
| | | |
| | | |
| | | |
Total liabilities assumed | 323 | | | 586 | |
Net assets acquired | $ | 16,339 | | | $ | 7,543 | |
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 |
| Proficient Transport | | J&P |
Customer relationships | 8 years | | 12 years |
Non-compete agreements | 1 year | | 5 years |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
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 Company paid the first period earn-out payment of $5,284; the second
5. Goodwill and final payment is expected to be paid in the second quarter of 2021. During the three months ended September 30, 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.Other Intangible Assets
Intermodal AcquisitionsGoodwill
As partChanges in the carrying amount of goodwill during the Company's strategy to expandsix months ended June 30, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | |
| Expedited Freight | | Intermodal | | Consolidated |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Balance as of December 31, 2020 | $ | 165,268 | | | $ | 79,714 | | | $ | 244,982 | |
Acquisitions | 3,762 | | | 6,249 | | | 10,011 | |
Balance as of June 30, 2021 | $ | 169,030 | | | $ | 85,963 | | | $ | 254,993 | |
Goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The Company conducts its Intermodal operations, in July 2019,annual impairment analyses as of June 30 each year. Based on the current macroeconomic conditions, the Company acquired certainassessed its goodwill and other intangible assets and liabilitiesfor indications of O.S.T. Logistics, Inc. and O.S.T. Trucking Co., Inc. (together referred toimpairment as “OST”) for $12,000. OST is a drayage company and expandedof June 30, 2021. The Company concluded there were no indicators of impairment during 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 includedsix months ended June 30, 2021.
Other Intangible Assets
Changes in the Company's consolidated financial statements fromcarrying amount of acquired intangible assets during the date of acquisition and have been included in the Intermodal reportable segment.six months ended June 30, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
Acquisitions | | 7,640 | | | 150 | | | 0 | | | 7,790 | |
Balance as of June 30, 2021 | | $ | 236,056 | | | $ | 8,275 | | | $ | 1,500 | | | $ | 245,831 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | 6,344 | | | 665 | | | 0 | | | 7,009 | |
Balance as of June 30, 2021 | | $ | 92,274 | | | $ | 6,244 | | | $ | 1,500 | | | $ | 100,018 | |
1Carrying value as of June 30, 2021 and December 31, 2020 is inclusive of $16,501 of accumulated impairment.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
Allocations of Purchase Price
6. Stock Incentive Plans
Stock Incentive Plan
The following table presentsCompany recorded shared-based compensation expense as follows for the allocations of the previously discussed acquisition purchase prices to the assets acquiredthree and liabilities assumed based on their estimated fair valuessix months ended June 30, 2021 and resulting residual goodwill (in thousands):2020:
| | | | | | | | | | | |
| | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 |
Salaries, wages and employee benefits - continuing operations | $ | 2,463 | | | $ | 2,154 | | | $ | 4,732 | | | $ | 4,971 | |
Salaries, wages and employee benefits - discontinued operation | 0 | | | 222 | | 16 | | 410 |
Total share-based compensation expense | $ | 2,463 | | | $ | 2,376 | | | $ | 4,748 | | | $ | 5,381 | |
The above purchase price allocation for Linn Star is preliminary asIn May 2016, the Company is still inadopted the process2016 Omnibus Incentive Compensation Plan (the “Omnibus Plan”) for the issuance of finalizingup to 2,000 of common shares to employees. As of June 30, 2021, approximately 797 shares remain available for grant under the valuation of the acquired assets and liabilities assumed. The above estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the acquisition date through the date of this filing. The acquired definite-lived intangible assets have the following useful lives:
| | | | | | | | | | | |
| Useful LivesOmnibus Plan. |
| FSA | OST | Linn Star |
Non-compete agreements | 5 years | 3 years | 1 year |
Customer relationships | 15 years | 10 years | 15 years |
Stock Options
Share-based compensation expense associated with stock options is amortized ratably over the vesting period. The Company estimates the fair value of the non-compete agreementsgrants using the Black-Scholes option-pricing model.
Stock option transactions during the six months ended June 30, 2021 on a continuing operations basis were as follows:
| | | | | | | | | | | |
| Stock Options | | Weighted-Average Exercise Price |
Outstanding as of January 1, 2021 | 359 | | | $ | 55.79 | |
Granted | 39 | | | 75.05 | |
Exercised | (52) | | | 54.57 | |
Forfeited | 0 | | | 0 | |
Outstanding as of June 30, 2021 | 346 | | | $ | 58.30 | |
As of June 30, 2021, the total share-based compensation expense related to unvested stock options net yet recognized was $1,002, and customer relationships were estimated using an income approach (level 3). Under this method, an intangible asset's fair valuethe weighted-average period over which it is equalexpected 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.be recognized is approximately two years.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
GoodwillStock option transactions during the six months ended June 30, 2021 on a discontinued operation basis were as follows:
| | | | | | | | | | | |
| Stock Options | | Weighted-Average Exercise Price |
Outstanding as of January 1, 2021 | 14 | | | $ | 52.15 | |
Granted | 0 | | | 0 | |
Exercised | (14) | | | 52.15 | |
Forfeited | 0 | | | 0 | |
Outstanding as of June 30, 2021 | 0 | | | $ | 0 | |
Restricted Shares
GoodwillRestricted 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 allocated to reporting units that are expected to benefit fromamortized ratably over the business combinations generatingrequisite service period. Restricted share transactions during 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 thesix months ended June 30, 2021 on a continuing operations of the Company.basis were as follows:
| | | | | | | | | | | |
| Restricted Shares | | Weighted-Average Grant Date Fair Value |
Outstanding as of January 1, 2021 | 210 | | | $ | 62.78 | |
Granted | 108 | | | 75.28 | |
Vested | (98) | | | 61.49 | |
Forfeited | (15) | | | 69.91 | |
Outstanding as of June 30, 2021 | 205 | | | $ | 69.31 | |
In evaluating whether events or changes in circumstances indicate that an interim impairment assessment is required, management considers if there were any indicators that exist that may impairAs of June 30, 2021, the carrying value oftotal share-based compensation expense related to restricted shares not yet recognized was $11,227, and the Company’s goodwill. During the 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 believeweighted-average period over which it is more likely than not that the carrying value of any of its reporting units exceeds its fair value.expected to be recognized is approximately two years.
The following isRestricted share transactions during the six months ended June 30, 2021 on a summary of the Company's goodwilldiscontinued operation basis were as of September 30, 2020. Approximately $161,789 of goodwill is deductible for tax purposes.follows:
| | | | | | | | | | | | | | | | | |
| 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. | | | | | | | | | | | |
| Restricted Shares | | Weighted-Average Grant Date Fair Value |
Outstanding as of January 1, 2021 | 10 | | | $ | 61.25 | |
Granted | 0 | | | 0 | |
Vested | (5) | | | 60.49 | |
Forfeited | (5) | | | 61.92 | |
Outstanding as of June 30, 2021 | 0 | | | $ | 0 | |
DuringPerformance Awards
Performance awards are based on achieving certain financial targets, such as targets for earnings before interest, taxes, depreciation and amortization, and 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 impairmentsCompany’s total shareholder return as compared to the Company's long-lived assets were identified.
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 level of performance that will be achieved.
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 Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 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, 20202021
Employee Activity - Performance Sharesaward transactions during the six months ended June 30, 2021 on a continuing operations basis were as follows assuming target levels of performance:
| | | | | | | | | | | |
| Performance Awards | | Weighted-Average Grant Date Fair Value |
Outstanding as of January 1, 2021 | 65 | | | $ | 67.62 | |
Granted | 36 | | | 87.33 | |
| | | |
Earned | (11) | | | 72.30 | |
Forfeited or unearned | (11) | | | 70.22 | |
Outstanding as June 30, 2021 | 79 | | | $ | 75.61 | |
The Company annually grantsAs of June 30, 2021, the total share-based compensation expense related to unearned performance shares to key employees. Underawards not yet recognized, assuming the termsCompany’s current projected assessment of the level of 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 issuancesthat will be based on meeting three-year earnings before interest, taxes, depreciation and amortization ("EBITDA") per share targetsachieved, was $4,621, and the remaining 50% of the performance share issuances willweighted-average period over which it is expected to 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.is approximately three years.
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,As of June 30, 2021, the Company is authorized to issue up to a remaining 344330 shares of common stock to employees ofunder the Company.2005 Employee Stock Purchase Plan (the “ESPP”). 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.
The following table summarizes the Company's employeeEmployee stock purchase plan activity and related information was as follows on a continuing operations basis:
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2021 | | June 30, 2020 |
Shares purchased by participants under the ESPP | 5 | | | 6 | |
Average purchase price | $ | 68.76 | | | $ | 44.84 | |
Weighted-average fair value of each purchase right under the ESPP granted ¹ | $ | 20.99 | | | $ | 4.98 | |
Share-based compensation for ESPP shares | $ | 118 | | | $ | 30 | |
| | | |
¹ Equal to the discount from the market value of the common stock at the end of each six month purchase period. |
Employee stock purchase plan activity and related information was as follows on a discontinued operation basis:
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2021 | | June 30, 2020 |
Shares purchased by participants under the ESPP | 0 | | | 1 | |
Average purchase price | $ | 0 | | | $ | 44.84 | |
Weighted-average fair value of each purchase right under the ESPP granted ¹ | $ | 0 | | | $ | 4.98 | |
Share-based compensation for ESPP shares | $ | 0 | | | $ | 3 | |
| | | |
¹ Equal to the discount from the market value of the common stock at the end of each six month purchase period. |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
| | | | | | | | | | | |
| | | |
| 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-vestedRestricted Shares
In May 2006,Under 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, approved in May 22, 2007. The Amended Plan was then2007 and further amended in February 2013 and restated on December 17, 2008. UnderJanuary 2016, up to 360 of common shares may be issued. As of June 30, 2021, approximately 75 shares remain available for grant 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.Plan.
In May 2016, withDirector restricted share transactions during 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 Septembersix months ended June 30, 2020, there2021 were approximately 92 shares remaining available for grant. There were no shares granted to non-employee directors classified as discontinued operations in any period.follows:
| | | | | | | | | | | |
| Director Restricted Shares | | Weighted-Average Grant Date Fair Value |
Outstanding as of January 1, 2021 | 24 | | | $ | 42.88 | |
Granted | 17 | | | 93.39 | |
Vested | (26) | | | 47.12 | |
Forfeited | 0 | | | 0 | |
Outstanding as of June 30, 2021 | 15 | | | $ | 93.46 | |
The following tables summarizeFor the Company’s non-employee non-vested share activitythree and six months ended June 30, 2021, the Company recorded $400 and $728, respectively, of share-based compensation expense associated with these grants. For the three and six months ended June 30, 2020, the Company recorded $245 and $506, respectively, of share-based compensation expense associated with these grants. As of June 30, 2021, the total share-based compensation expense related information on a continuing basis:to the restricted shares net yet recognized was $1,221, and the weighted-average period over which it is expected to be recognized is approximately less than one year.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
| | | | | | | | | | | | | | | | | |
| 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 June 30, 2021, the Company had $157,500 in borrowings outstanding under the revolving credit facility, $18,326 utilized for outstanding letters of credit and $49,174 of available borrowing capacity under the revolving credit facility. As of 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% as of both June 30, 2021 and June 30, 2020.
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 the first 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 otherwise underamended Facility, interest accrues on the credit agreement, interest on borrowingsamounts outstanding under the Facility, will be 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%)0, plus 0.50%, (b)(ii) the administrative agent'sagent’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 SeptemberJune 30, 2020,2021, the Company was in compliance with the aforementioned covenants.
In July 2021, the Company entered into the second amendment to the Facility, which extended the maturity date to July 20, 2026 and changed the interest rate options available under the Facility. Under the amended Facility, interest accrues on the amounts outstanding under the Facility at the Company
8. Net Income Per Share
’s option, at either (1) Bloomberg Short-Term Bank Yield Index rate (the “BSBY Rate
”), which cannot be less than 0, plus a margin ranging from 1.25% to 1.75% based on the Company’s leverage ratio, or (2) the base rate, which cannot be less than 2.00%. The following table sets forthbase rate is the computationhighest of basic(i) the federal funds rate, which cannot be less than 0, plus 0.50%, (ii) the administrative agent’s prime rate 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 | |
(iii) the BSBY Rate, which cannot be less than 0, plus 1.00%, plus a margin ranging from 0.00% to 0.50% based on the Company’s leverage ratio. In addition, under the second amendment, the Facility may be increased by up to $75,000 to a maximum aggregate principal amount of $300,000 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.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
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 and six months ended June 30, 2021 and 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 |
| | | | | | | |
Numerator: | | | | | | | |
Net income and comprehensive income from continuing operations | $ | 30,677 | | | $ | 9,225 | | | $ | 47,391 | | | $ | 20,641 | |
Net loss and comprehensive loss from discontinued operation | 0 | | | (6,071) | | | (5,533) | | | (9,112) | |
Net income attributable to Forward Air | $ | 30,677 | | | $ | 3,154 | | | $ | 41,858 | | | $ | 11,529 | |
| | | | | | | |
Income allocated to participating securities | (256) | | | (13) | | | (363) | | | (83) | |
| | | | | | | |
Numerator for basic and diluted net income per share for continuing operations | $ | 30,421 | | | $ | 9,212 | | | $ | 47,028 | | | $ | 20,558 | |
Numerator for basic and diluted net loss per share for discontinued operation | $ | 0 | | | $ | (6,071) | | | $ | (5,533) | | | $ | (9,112) | |
| | | | | | | |
Denominator: | | | | | | | |
Denominator for basic net income per share - weighted-average number of common shares outstanding | 27,261 | | | 27,695 | | | 27,309 | | | 28,424 | |
Dilutive stock options and performance share awards | 154 | | | 31 | | | 145 | | | 67 | |
Denominator for diluted net income per share - weighted-average number of common shares and common share equivalents outstanding | 27,415 | | | 27,726 | | | 27,454 | | | 28,491 | |
| | | | | | | |
Basic net income (loss) per share: | | | | | | | |
Continuing operations | $ | 1.12 | | | $ | 0.33 | | | $ | 1.72 | | | $ | 0.72 | |
Discontinued operation | 0 | | | (0.22) | | | (0.20) | | | (0.31) | |
Net income per basic share | $ | 1.12 | | | $ | 0.11 | | | $ | 1.52 | | | $ | 0.41 | |
| | | | | | | |
Diluted net income (loss) per share: | | | | | | | |
Continuing operations | $ | 1.11 | | | $ | 0.33 | | | $ | 1.71 | | | $ | 0.72 | |
Discontinued operation | 0 | | | (0.22) | | | (0.20) | | | (0.32) | |
Net income per diluted share | $ | 1.11 | | | $ | 0.11 | | | $ | 1.51 | | | $ | 0.40 | |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
June 30, 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 and six months ended June 30, 2021 and 2020 are as follows:
| | | | Three Months Ended | | Six Months Ended |
| | September 30, 2020 | | September 30, 2019 | | June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 |
Anti-dilutive stock options | Anti-dilutive stock options | 219 | | | 188 | | Anti-dilutive stock options | 0 | | | 268 | | | 39 | | | 218 | |
Anti-dilutive performance shares | Anti-dilutive performance shares | 31 | | | — | | Anti-dilutive performance shares | 0 | | | 18 | | | 0 | | | 29 | |
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 | 0 | | | 177 | | | 15 | | | 95 | |
Total anti-dilutive shares | Total anti-dilutive shares | 350 | | | 188 | | Total anti-dilutive shares | 0 | | | 463 | | | 54 | | | 342 | |
9. Income Taxes
For the six months ended June 30, 2021 and 2020, the Company recorded income tax expense of $14,969 and $6,995, respectively, for continuing operations. The effective tax rate of 24.0% for the six months ended June 30, 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 25.3% for the six months ended June 30, 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 June 30, 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 June 30, 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
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
Operating Leases
The Company leases some 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,As previously discussed further in Note 5,4, Acquisitions, the estimated fair value of the earn-out liability was determined using either the Monte-Carlo simulation model or the option pricing method. The significant inputs used to calculate the estimated fair value are derived from a combination of observable and Long-Lived Assets,unobservable market data. Observable inputs used in either the Company assumed operating facility leases that expireMonte Carlo simulation model or the option pricing method include the risk-free rate and the revenue volatility while unobservable inputs include the revenue discount rate and the estimated revenue projections.
Assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2021 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Earn-out liability | | $ | 0 | | | $ | 0 | | | $ | 7,309 | | | $ | 7,309 | |
| | | | | | | | |
| | As of December 31, 2020 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Earn-out liability | | $ | 0 | | | $ | 0 | | | $ | 6,865 | | | $ | 6,865 | |
| | | | | | | | |
Cash and cash equivalents, accounts receivable, and accounts payable are valued at their carrying amounts in various years through 2025 and had a right-of-use asset and corresponding lease liabilitythe Company’s Condensed Consolidated Balance Sheets, due to the immediate or short-term maturity 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 SeptemberJune 30, 2021, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $6,192, compared to its carrying value of $6,168. 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 second quarter of September 30,2021, first quarter of 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 July 27, 2021, the Company's Board of Financial InstrumentsDirectors declared a quarterly cash dividend of $0.21 per common share that will be paid in third 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
(Inunaudited and in thousands, except per share data)
(Unaudited)June 30, 2021
September
During the six months ended June 30, 2021, the Company repurchased through open market transactions 366 shares of common stock for $33,992, or $92.76 per share, and during the six months ended June 30, 2020,
The carrying value 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 June 30, 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 3,002 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 its business, including claims related to vehicle liability, workers’ compensation, property damage and arising inemployee medical benefits. We accrue for the normal courseuninsured portion of business. The Company doescontingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Based on the knowledge of the facts, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not believe that any of these pending actions, individually or in the aggregate, will have a material adverse effect on its business,our condensed consolidated financial condition,statements. Moreover, the results of operations or cash flows. The primary claimscomplex legal proceedings are difficult to predict, and the Company’s view of these matters may change in the Company’s business relate to workers’ compensation, property damage, vehicle liabilityfuture as the litigation and employee medical benefits. Most of the Company’s insurancerelated events unfold.
Insurance coverage provides for self-insurance levelsthe Company with primary and excess coverage which management believes is sufficientfor claims related to adequately protectvehicle liability, workers’ compensation, property damage and employee medical benefits.
For vehicle liability, the Company from catastrophic claims. Suchretains 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. The Company believes the recorded reserves are sufficient for all incurred claims up to the self-insured retention
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
In the opinion of management, adequate provision has been made for all incurred claims up to the self-insured 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.
Litigation
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.
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. Corporate includes revenues and expenses as well as assets that are not attributable to any of the Company’s reportable segments.
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 Corporate.
Segment results from continuing operations for the three and ninesix months ended SeptemberJune 30, 2021 and 2020 and 2019:are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 |
| | Expedited Freight | | Intermodal | | | | Corporate | | Eliminations | | Consolidated - Continuing Operations |
External revenues | | $ | 351,551 | | | $ | 69,120 | | | | | $ | 0 | | | $ | — | | | $ | 420,671 | |
Intersegment revenues | | 184 | | | 13 | | | | | 0 | | | (197) | | | 0 | |
Depreciation | | 4,989 | | | 835 | | | | | 23 | | | 0 | | | 5,847 | |
Amortization | | 1,790 | | | 1,777 | | | | | 0 | | | 0 | | | 3,567 | |
Income (loss) from continuing operations | | 34,688 | | | 8,386 | | | | | (950) | | | 0 | | | 42,124 | |
Purchases of property and equipment | | 5,724 | | | 156 | | | | | 0 | | | 0 | | | 5,880 | |
| | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 |
| | Expedited Freight | | Intermodal | | | | Corporate | | Eliminations | | Consolidated - Continuing Operations |
External revenues | | $ | 235,417 | | | $ | 46,420 | | | | | $ | 0 | | | $ | — | | | $ | 281,837 | |
Intersegment revenues | | 241 | | | 8 | | | | | 0 | | | (408) | | | (159) | |
Depreciation | | 5,009 | | | 1,081 | | | | | 25 | | | 0 | | | 6,115 | |
Amortization | | 1,731 | | | 1,567 | | | | | 0 | | | 0 | | | 3,298 | |
Income (loss) from continuing operations | | 11,753 | | | 4,413 | | | | | (2,252) | | | 0 | | | 13,914 | |
Purchases of property and equipment | | 11,545 | | | 18 | | | | | 0 | | | 0 | | | 11,563 | |
| | | | | | | | | | | | |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
| | Expedited Freight | | Intermodal | | | | Corporate | | Eliminations | | Consolidated - Continuing Operations |
External revenues | | $ | 655,308 | | | $ | 127,622 | | | | | $ | 0 | | | $ | — | | | $ | 782,930 | |
Intersegment revenues | | 613 | | | 25 | | | | | 0 | | | (695) | | | (57) | |
Depreciation | | 9,982 | | | 1,634 | | | | | 26 | | | 0 | | | 11,642 | |
Amortization | | 3,595 | | | 3,414 | | | | | 0 | | | 0 | | | 7,009 | |
Income (loss) from continuing operations | | 59,218 | | | 12,895 | | | | | (7,265) | | | 0 | | | 64,848 | |
Purchases of property and equipment | | 8,136 | | | 439 | | | | | 0 | | | 0 | | | 8,575 | |
| | | | | | | | | | | | |
| | Six Months Ended June 30, 2020 |
| | Expedited Freight | | Intermodal | | | | Corporate | | Eliminations | | Consolidated - Continuing Operations |
External revenues | | $ | 488,560 | | | $ | 98,875 | | | | | $ | 0 | | | $ | — | | | $ | 587,435 | |
Intersegment revenues | | 727 | | | 13 | | | | | 0 | | | (940) | | | (200) | |
Depreciation | | 9,916 | | | 2,134 | | | | | 43 | | | 0 | | | 12,093 | |
Amortization | | 3,519 | | | 3,135 | | | | | 0 | | | 0 | | | 6,654 | |
Income (loss) from continuing operations | | 26,933 | | | 8,126 | | | | | (5,372) | | | 0 | | | 29,687 | |
Purchases of property and equipment | | 13,950 | | | 264 | | | | | 0 | | | 0 | | | 14,214 | |
| | | | | | | | | | | | |
Total Assets | | | | | | | | | | | | |
As of June 30, 2021 | | $ | 767,222 | | | $ | 209,266 | | | | | $ | 105,459 | | | $ | (106) | | | $ | 1,081,841 | |
As of December 31, 2020 | | 905,081 | | | 221,963 | | | | | 47,641 | | | (201,391) | | | 973,294 | |
A reconciliation from the segment information to the consolidated balances for revenues and total assets is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 |
Intersegment revenues - continuing operations | | $ | 0 | | | $ | (159) | | | $ | (57) | | | $ | (200) | |
Intersegment revenues - discontinued operation | | 0 | | | 159 | | | 57 | | | 200 | |
Consolidated intersegment revenues | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
Segment assets - continuing operations | | $ | 1,081,841 | | | $ | 973,294 | |
Current assets held for sale | | 0 | | | 21,002 | |
Noncurrent assets held for sale | | 0 | | | 53,097 | |
Consolidated total assets | | $ | 1,081,841 | | | $ | 1,047,393 | |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Inunaudited and in thousands, except per share data)
(Unaudited)
SeptemberJune 30, 20202021
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| | 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 | |
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| | 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 ninesix months ended SeptemberJune 30, 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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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 | |
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| | Three Months Ended | | Six Months Ended |
| | June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 |
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Expedited Freight revenues: | | | | | | | | |
Network | | $ | 210,088 | | | $ | 134,173 | | | $ | 388,715 | | | $ | 286,182 | |
Truckload | | 56,968 | | | 41,857 | | | 109,348 | | | 89,384 | |
Final Mile | | 69,883 | | | 53,427 | | | 132,139 | | | 101,229 | |
Other | | 14,796 | | | 6,201 | | | 25,719 | | | 12,492 | |
Total | | $ | 351,735 | | | $ | 235,658 | | | $ | 655,921 | | | $ | 489,287 | |
Forward Air Corporation
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
September 30, 2020
15. Subsequent Events
On October 11, 2020, the Company acquired substantially all of the assets of CLW Delivery, Inc. (“CLW”) for $5,500. This transaction was funded using cash flows from operations. CLW specializes in last mile logistics 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.
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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 Condensed 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 Condensed 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 company operations around the world. Although these restrictions have since lessened, 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 through our LTL network is not classified as “essential goods” -supply chain companies such as staples, consumables or consumer packaged goods, the impact of COVID-19 presents a meaningful challenge that we are addressing throughours experienced slowdowns and reduced demand for our asset-light business model. In addition, declining fuel prices have resulted in decreased fuel surcharge revenue as compared to prior periods. Despite these challenges, our networks have remained fully operational.
We are making key investments that we believe will enable us to emerge from this episode as a stronger LTL competitor (amid 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.services.
The Company's phased reintegration back intoAlthough our business and operations have returned to pre-COVID levels, 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 tosituation surrounding 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.
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 businessesvariants remains fluid and may createbe further impacted by the policies of President Biden’s administration, the availability and success of a recession in the United States or globally. In these circumstances, there may be developments outside the Company’s control requiring adjustmentsvaccine and vaccination rates. The extent to operating plans. As such, given the dynamic naturewhich outbreaks 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 onits variants impacts our business, results of operations and financial condition.”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, including the new variants, 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.
Expedited LTL Acquisitions
In addition, although we believe we have sufficient capital and liquidity to manage 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 result of COVID-19 including failure by us or our customers to secure any necessary financing in a timely manner.
Intermodal Acquisition
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$15,510 and a potential earn-out up to $2,000. The estimated fair value of the earn-out liability on the date of acquisition increasedwas $829. The fair value was based on the estimated one-year performance of the acquired customer revenue and was calculated using the option pricing method. Proficient Transport is an intermodal drayage company headquartered in Chicago, Illinois. The acquisition of Proficient Transport will expand our Final Mile capabilities with an additional 20 locations. intermodal footprint in Georgia, Illinois, North Carolina, and Texas, and will introduce a new location in Ohio. The acquisition was funded using cash flows from operations. The results of Proficient Transport have been included in our Condensed Consolidated Financial Statements as of and from the date of acquisition.
Expedited Freight Acquisition
In addition, in April 2019,May 2021, we acquired certain assets and liabilities of FSAJ&P Hall Express Delivery (“J&P”) for $27.0 million$7,543. J&P is headquartered in Atlanta, Georgia with a second terminal in Albany, Georgia. The acquisition of J&P supports our strategic growth plan by expanding pickup and a potential earn-out of up to $15.0 million based upon future revenue generation. We paiddelivery, less than truckload, truckload, less than container load, container freight station warehousing, and airport transfer services across the first installment on this earn-out of $5.3 million in June 2020.Southeastern United States. The remaining expected payment had a fair value of $4.3 million as of September 30, 2020. These acquisitions provided an opportunity for our Expedited Freight segment to expand its final mile service offering into additional geographic markets, form relationships with new customers, and add volumes to our existing locations.
These acquisitions were funded using cash flows from operations. 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 Expedited Freight reportable segment. See additional discussion in Note 5, Acquisitions and Long-Lived Assets, to our Consolidated Financial Statements.
Intermodal Acquisitions
As part 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 footprint on the East Coast, primarily in Baltimore, Maryland, with additional locations in Pennsylvania, Virginia, South Carolina and Georgia. This acquisition was funded using cash flowsflow from operations and provide an opportunity for our Intermodal segment to expand into additional geographic markets and add volumes to our existing locations.operations. The assets, liabilities, and operating results of this acquisitionJ&P 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 Intermodal reportable segment. See additional discussion in Note 5, Acquisitions and Long-Lived Assets, to our Consolidated Financial Statements.
Sale of Pool
On 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 estimated fair value of the earn-out on the date of sale was $6,967, and was calculated based on the estimated performance of Pool using a Monte Carlo simulation model. A loss on the sale of Pool in the amount of $2,860 was recorded in discontinued operation.
Environmental Protection and Community Support
At Forward Air, our mission is to create long-term value for our shareholders, customersWe embrace a comprehensive definition of sustainability that addresses Environmental, Social, and employees while having a positive 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 governanceGovernance factors (“ESG”) matters into. In 2019, our broader risk management and strategic planning initiatives.
During 2019, the 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)ensure Board oversight of 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 SeptemberJune 30, 2021 and 2020 (unaudited and 2019 (in millions)in thousands):
| | | Three months ended | | Three Months Ended |
| | September 30, | | September 30, | | Percent | | June 30, 2021 | | June 30, 2020 | | Change | | Percent Change |
| 2020 | | 2019 | | Change | | Change | |
| (As Adjusted) | | |
Operating revenue: | | | | | | | | |
Operating revenues: | | Operating revenues: | | | | | | | |
Expedited Freight | Expedited Freight | $ | 283.5 | | | $ | 256.1 | | | $ | 27.4 | | | 10.7 | % | Expedited Freight | $ | 351,735 | | | $ | 235,658 | | | $ | 116,077 | | | 49.3 | % |
Intermodal | Intermodal | 48.9 | | | 58.3 | | | (9.4) | | | (16.1) | | Intermodal | 69,133 | | | 46,428 | | | 22,705 | | | 48.9 | |
| Eliminations and other operations | Eliminations and other operations | (0.5) | | | (0.7) | | | 0.2 | | | (28.6) | | Eliminations and other operations | (197) | | | (408) | | | 211 | | | (51.7) | |
Operating revenue | 331.9 | | | 313.7 | | | 18.2 | | | 5.8 | | |
Operating revenues | | Operating revenues | 420,671 | | | 281,678 | | | 138,993 | | | 49.3 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Purchased transportation | Purchased transportation | 173.1 | | | 150.3 | | | 22.8 | | | 15.2 | | Purchased transportation | 215,217 | | | 142,069 | | | 73,148 | | | 51.5 | |
Salaries, wages, and employee benefits | Salaries, wages, and employee benefits | 66.9 | | | 68.5 | | | (1.6) | | | (2.3) | | Salaries, wages, and employee benefits | 84,641 | | | 63,772 | | | 20,869 | | | 32.7 | |
Operating leases | Operating leases | 17.3 | | | 15.9 | | | 1.4 | | | 8.8 | | Operating leases | 20,370 | | | 17,387 | | | 2,983 | | | 17.2 | |
Depreciation and amortization | Depreciation and amortization | 9.1 | | | 9.0 | | | 0.1 | | | 1.1 | | Depreciation and amortization | 9,414 | | | 9,413 | | | 1 | | | — | |
Insurance and claims | Insurance and claims | 8.7 | | | 9.5 | | | (0.8) | | | (8.4) | | Insurance and claims | 10,891 | | | 7,722 | | | 3,169 | | | 41.0 | |
Fuel expense | Fuel expense | 2.7 | | | 4.6 | | | (1.9) | | | (41.3) | | Fuel expense | 4,059 | | | 2,519 | | | 1,540 | | | 61.1 | |
Other operating expenses | Other operating expenses | 30.6 | | | 26.6 | | | 4.0 | | | 15.0 | | Other operating expenses | 33,955 | | | 24,882 | | | 9,073 | | | 36.5 | |
| Total operating expenses | Total operating expenses | 308.4 | | | 284.5 | | | 23.9 | | | 8.4 | | Total operating expenses | 378,547 | | | 267,764 | | | 110,783 | | | 41.4 | |
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 | 34,688 | | | 11,753 | | | 22,935 | | | 195.1 | |
Intermodal | Intermodal | 4.8 | | | 6.9 | | | (2.1) | | | (30.4) | | Intermodal | 8,386 | | | 4,413 | | | 3,973 | | | 90.0 | |
| Other operations | (4.8) | | | (4.8) | | | — | | | — | | |
Other Operations | | Other Operations | (950) | | | (2,252) | | | 1,302 | | | (57.8) | |
Income from continuing operations | Income from continuing operations | 23.5 | | | 29.2 | | | (5.7) | | | (19.5) | | Income from continuing operations | 42,124 | | | 13,914 | | | 28,210 | | | 202.7 | |
Other expense: | Other expense: | | | | | | | | Other expense: | | | | | | | |
Interest expense | Interest expense | (1.3) | | | (0.8) | | | (0.5) | | | 62.5 | | Interest expense | (1,323) | | | (1,198) | | | (125) | | | 10.4 | |
| Total other expense | Total other expense | (1.3) | | | (0.8) | | | (0.5) | | | 62.5 | | Total other expense | (1,323) | | | (1,198) | | | (125) | | | 10.4 | |
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 | 40,801 | | | 12,716 | | | 28,085 | | | 220.9 | |
Income tax expense | Income tax expense | 5.2 | | | 7.3 | | | (2.1) | | | (28.8) | | Income tax expense | 10,124 | | | 3,491 | | | 6,633 | | | 190.0 | |
Net income from continuing operations | Net income from continuing operations | 17.0 | | | 21.1 | | | (4.1) | | | (19.4) | | Net income from continuing operations | 30,677 | | | 9,225 | | | 21,452 | | | 232.5 | |
(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 | — | | | (6,071) | | | 6,071 | | | (100.0) | |
Net income and comprehensive income | Net income and comprehensive income | $ | 16.7 | | | $ | 22.2 | | | $ | (5.5) | | | (24.8) | % | Net income and comprehensive income | $ | 30,677 | | | $ | 3,154 | | | $ | 27,523 | | | 872.6 | % |
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 revenuerevenues increased $18.2 million,$138,993, or 5.8%49.3%, to $331.9 million$420,671 for the three months ended SeptemberJune 30, 20202021 compared to $313.7 million$281,678 for the three months ended SeptemberJune 30, 2019.2020. The increase was primarily driven by an increase atin our Expedited Freight segment of $27.4 million$116,077 due to increased final mile revenue as discussed in the following sections.Network, Truckload and Final Mile revenue.
Operating Expenses
Operating expenses increased $23.9 million,$110,783, or 8.4%41.4%, to $308.4 million$378,547 for the three months ended SeptemberJune 30, 20202021 compared to $284.5 million$267,764 for the three months ended SeptemberJune 30, 2019.2020. The increase was primarily driven by aan increase in purchased transportation increaseexpense of $22.8 million.$73,148 in both our Expedited Freight and Intermodal segments. Purchased transportation expense includes owner operatorsour independent contractor fleet owners and owner-operators, who lease their equipment to our motor carrier, (“Leased Capacity Providers”) 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 $28,210, or 19.5%202.7%, to $23.5 million$42,124 for the three months ended SeptemberJune 30, 20202021 compared to $29.2 million$13,914 for the three months ended SeptemberJune 30, 2019.2020. The decreaseincrease was primarily driven by decreasesan increase in income from continuing operations at our Expedited Freight segment and Intermodal segment of $3.6 million$22,935 and $2.1 million,$3,973, respectively. The results for our two reportable segments are discussed in detail in the following sections.
Interest Expense
Interest expense was $1.3 million$1,323 for the three months ended SeptemberJune 30, 20202021 compared to $0.8 million$1,198 for the three months ended SeptemberJune 30, 2019.2020. The increase in interest expense was attributable to additional outstanding borrowings onunder our revolving credit facility.facility during the second quarter of 2021. The interest rate on the outstanding borrowings under the revolving credit facility was 3.25% as of both June 30, 2021 and June 30, 2020.
Income Taxes on a Continuing Basis
The combined federal and state effective tax rate on a continuing basis for the three months ended SeptemberJune 30, 20202021 was 23.5%24.8% compared to a rate of 25.9%27.5% for the three months ended SeptemberJune 30, 2019.2020. The lower effective tax rate for the three months ended SeptemberJune 30, 20202021 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 periodsecond quarter of 2021 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 million to a $0.3 million losswas $6,071 for the three months ended SeptemberJune 30, 2020 from $1.1 million of income for the three months ended September 30, 2019. (Loss) income2020. Loss from discontinued operationsoperation includes the Company'sour Pool business and, as discussed above, Pool's operations were negativelythe Pool business was sold on February 12, 2021. For the three months ended June 30, 2020, our Pool business was adversely impacted by COVID-19 as many of itsour customers were affected by retail mall closures. As a result, there continuedclosure in response to be a declinestay-at-home orders beginning 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,March 2020.
Net Income
As a result of the foregoing factors, net income decreased by $5.5 million,increased $27,523, or 24.8%872.6%, to $16.7 million$30,677 for the three months ended SeptemberJune 30, 20202021 compared to $22.2 million$3,154 for the three months ended SeptemberJune 30, 2019.
2020.
Expedited Freight - Three Months Ended SeptemberJune 30, 20202021 compared to Three Months Ended SeptemberJune 30, 20192020
The following table sets forth the historical financial data of our Expedited Freight segment for the three months ended SeptemberJune 30, 20202021 and 2019 (in millions):2020:
| Expedited Freight Segment Information | Expedited Freight Segment Information | Expedited Freight Segment Information |
(In millions) | |
(Unaudited) | |
(unaudited and in thousands) | | (unaudited and in thousands) |
| | | Three months ended | | Three Months Ended |
| | September 30, | | Percent of | | September 30, | | Percent of | | Percent | | June 30, 2021 | | Percent of Revenue | | June 30, 2020 | | Percent of Revenue | | Change | | Percent Change |
| 2020 1 | | Revenue | | 2019 | | Revenue | | Change | | Change | |
| (As Adjusted) | | |
Operating revenue: | | | | | | | | | | | | |
Network 2 | $ | 169.3 | | | 59.7 | % | | $ | 169.3 | | | 66.1 | % | | $ | — | | | — | % | |
Operating revenues: | | Operating revenues: | | | | | | | | | | | |
Network1 | | Network1 | $ | 210,088 | | | 59.7 | % | | $ | 134,173 | | | 56.9 | % | | $ | 75,915 | | | 56.6 | % |
Truckload | Truckload | 49.8 | | | 17.6 | | | 48.1 | | | 18.8 | | | 1.7 | | | 3.5 | | Truckload | 56,968 | | | 16.2 | | | 41,857 | | | 17.8 | | | 15,111 | | | 36.1 | |
Final Mile | Final Mile | 57.0 | | | 20.1 | | | 31.6 | | | 12.3 | | | 25.4 | | | 80.4 | | Final Mile | 69,883 | | | 19.9 | | | 53,427 | | | 22.7 | | | 16,456 | | | 30.8 | |
Other | Other | 7.4 | | | 2.6 | | | 7.1 | | | 2.8 | | | 0.3 | | | 4.2 | | Other | 14,796 | | | 4.2 | | | 6,201 | | | 2.6 | | | 8,595 | | | 138.6 | |
Total operating revenue | 283.5 | | | 100.0 | | | 256.1 | | | 100.0 | | | 27.4 | | | 10.7 | | |
Total operating revenues | | Total operating revenues | 351,735 | | | 100.0 | | | 235,658 | | | 100.0 | | | 116,077 | | | 49.3 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
Purchased transportation | Purchased transportation | 156.1 | | | 55.1 | | | 129.8 | | | 50.7 | | | 26.3 | | | 20.3 | | Purchased transportation | 191,648 | | | 54.5 | | | 127,478 | | | 54.1 | | | 64,170 | | | 50.3 | |
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 | 67,560 | | | 19.2 | | | 50,508 | | | 21.4 | | | 17,052 | | | 33.8 | |
Operating leases | Operating leases | 13.4 | | | 4.7 | | | 11.5 | | | 4.5 | | | 1.9 | | | 16.5 | | Operating leases | 14,868 | | | 4.2 | | | 13,338 | | | 5.7 | | | 1,530 | | | 11.5 | |
Depreciation and amortization | Depreciation and amortization | 6.8 | | | 2.4 | | | 6.5 | | | 2.5 | | | 0.3 | | | 4.6 | | Depreciation and amortization | 6,779 | | | 1.9 | | | 6,740 | | | 2.9 | | | 39 | | | 0.6 | |
Insurance and claims | Insurance and claims | 5.8 | | | 2.0 | | | 5.4 | | | 2.1 | | | 0.4 | | | 7.4 | | Insurance and claims | 8,385 | | | 2.4 | | | 5,715 | | | 2.4 | | | 2,670 | | | 46.7 | |
Fuel expense | Fuel expense | 1.4 | | | 0.5 | | | 2.5 | | | 1.0 | | | (1.1) | | | (44.0) | | Fuel expense | 2,147 | | | 0.6 | | | 1,406 | | | 0.6 | | | 741 | | | 52.7 | |
Other operating expenses | Other operating expenses | 22.4 | | | 7.9 | | | 21.1 | | | 8.2 | | | 1.3 | | | 6.2 | | Other operating expenses | 25,660 | | | 7.3 | | | 18,720 | | | 7.9 | | | 6,940 | | | 37.1 | |
| Total operating expenses | Total operating expenses | 260.0 | | | 91.7 | | | 229.0 | | | 89.4 | | | 31.0 | | | 13.5 | | Total operating expenses | 317,047 | | | 90.1 | | | 223,905 | | | 95.0 | | | 93,142 | | | 41.6 | |
Income from operations | Income from operations | $ | 23.5 | | | 8.3 | % | | $ | 27.1 | | | 10.6 | % | | $ | (3.6) | | | (13.3) | % | Income from operations | $ | 34,688 | | | 9.9 | % | | $ | 11,753 | | | 5.0 | % | | $ | 22,935 | | | 195.1 | % |
| 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 | | |
| | 2020 | | 2019 | | Change | | Three Months Ended |
| | (As Adjusted) | | | June 30, 2021 | | June 30, 2020 | | Percent Change |
Business days | Business days | 64 | | | 64 | | | — | % | Business days | 64 | | | 64 | | | — | % |
| Tonnage 1,2 | Tonnage 1,2 | | Tonnage 1,2 | |
Total pounds | Total pounds | 636,194 | | | 613,812 | | | 3.6 | | Total pounds | 728,191 | | | 522,031 | | | 39.5 | |
Pounds per day | Pounds per day | 9,941 | | | 9,591 | | | 3.6 | | Pounds per day | 11,378 | | | 8,157 | | | 39.5 | |
| Shipments 1,2 | Shipments 1,2 | | Shipments 1,2 | |
Total shipments | Total shipments | 1,018 | | | 977 | | | 4.2 | | Total shipments | 1,096 | | | 963 | | | 13.8 | |
Shipments per day | Shipments per day | 15.9 | | | 15.3 | | | 4.2 | | Shipments per day | 17.1 | | | 15.0 | | | 14.0 | |
| Weight per shipment | Weight per shipment | 625 | | | 628 | | | (0.5) | | Weight per shipment | 664 | | | 542 | | | 22.5 | |
| Revenue per hundredweight 3 | Revenue per hundredweight 3 | $ | 26.84 | | | $ | 27.65 | | | (2.9) | | Revenue per hundredweight 3 | $ | 28.63 | | | $ | 26.32 | | | 8.8 | |
Revenue per hundredweight, ex fuel 3 | Revenue per hundredweight, ex fuel 3 | $ | 23.41 | | | $ | 23.23 | | | 0.8 | | Revenue per hundredweight, ex fuel 3 | $ | 24.68 | | | $ | 23.09 | | | 6.9 | |
| Revenue per shipment 3 | Revenue per shipment 3 | $ | 166 | | | $ | 176 | | | (5.7) | | Revenue per shipment 3 | $ | 191.89 | | | $ | 139.30 | | | 37.8 | |
Revenue per shipment, ex fuel 3 | Revenue per shipment, ex fuel 3 | $ | 145 | | | $ | 148 | | | (2.0) | | Revenue per shipment, ex fuel 3 | $ | 165.62 | | | $ | 121.77 | | | 36.0 | |
| 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 | 51.3 | % | | 49.9 | % | | 2.8 | |
Network gross margin 5 | 49.7 | % | | 55.6 | % | | (10.6) | % | |
| 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 | |
Operating Revenues
Expedited Freight operating revenuerevenues increased $27.4 million,$116,077, or 10.7%49.3%, to $283.5 million$351,735 for the three months ended SeptemberJune 30, 20202021 from $256.1 million$235,658 for the three months ended SeptemberJune 30, 2019.2020. The increase was attributable to increased final mileNetwork, Truckload and truckloadFinal Mile revenue. Network revenue was flatincreased due to a 3.6%39.5% increase in tonnage, a 4.2%13.8% increase in shipments and a 2.9% decrease8.8% increase in revenue per hundredweight fromas compared to the prior year.
In addition, fuel The increase in tonnage and shipments was primarily driven by the economic recovery from COVID-19, which adversely impacted the results of operations for the second quarter of 2020. Strategic pricing initiatives and freight rationalization actions contributed to the increase in the revenue per hundredweight. Fuel surcharge revenue decreased $4.7 million,increased $11,925, or 17.8%, due to declining70.6% as a result of the rise in fuel prices.prices and increased tonnage. Truckload revenue increased $15,111 primarily driven by $1.7 million primarilythe economic recovery from COVID-19, which adversely impacted the results of operations for the second quarter of 2020. Final Mile revenue increased $16,456 due to an increasethe combination of organic growth and the acquisition of CLW Delivery, Inc. (“CLW”) in revenue per mile.October 2020. Other revenue, which includes warehousing and terminal handling, increased $0.3 million$8,595 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,$64,170, or 20.3%50.3%, to $156.1 million$191,648 for the three months ended SeptemberJune 30, 20202021 from $129.8 million$127,478 for the three months ended SeptemberJune 30, 2019.2020. Purchased transportation was 55.1%54.5% of Expedited Freight operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 50.7%54.1% for the same period in 2019.2020. Expedited Freight purchased transportation includes owner operatorsLeased Capacity Providers and third party carriers, while Company-employed drivers are included in salaries, wages and employee benefits. The increase in purchased transportation as a percentage of revenuerevenues was mostly due to an increase in final mile purchased transportationprimarily due to the acquisitionchange in the mix of Linn Star.freight capacity purchased from Leased Capacity Providers, third party carriers and Company-employed drivers for Network and Truckload services. In the second quarter of 2021, we purchased 63.0%, 33.7% and 3.3% of our freight capacity from Leased Capacity Providers, third party carriers and Company-employed drivers, respectively. This compares to 68.4%, 27.3% and 4.3% in the same period in 2020.
Salaries, Wages and Employee Benefits
Expedited Freight salaries, wages and employee benefits increased $1.9 million,$17,052, or 3.6%33.8%, to $54.1 million$67,560 for the three months ended SeptemberJune 30, 20202021 from $52.2 million$50,508 for the three months ended SeptemberJune 30, 2019.2020. Salaries, wages and employee benefits were 19.1%19.2% of Expedited Freight operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 20.4%21.4% for the same period in 2019.2020. The increase in salaries, wages and employee benefits expense was primarily due a $3.8 million increase related to the acquisitionadditional employees hired in response to the increase in tonnage and shipments in the second quarter of Linn Star partially offset by cost-control2021, higher group health insurance premiums and an increased reserve for incentive compensation. Cost-control measures implemented in the prior year contributed to the decrease in salaries, wages and employee benefits expense as a percentage of operating efficiencies.revenues.
Operating Leases
Expedited Freight operating leases increased $1.9 million,$1,530, or 16.5%11.5%, to $13.4 million$14,868 for the three months ended SeptemberJune 30, 20202021 from $11.5 million$13,338 for the three months ended SeptemberJune 30, 2019.2020. Operating leases were 4.7%4.2% of Expedited Freight operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 4.5%5.7% for the same period in 2019.2020. The increase in operating leases expense was primarily due to an increasehigher facility and equipment lease expense in 2021, which is partially attributable to facility leases mostly from additional facilities acquired from Linn Star.assumed in connection with the CLW and J&P acquisitions.
Depreciation and Amortization
Expedited Freight depreciation and amortization increased $0.3 million,$39, or 4.6%0.6%, to $6.8 million$6,779 for the three months ended SeptemberJune 30, 20202021 from $6.5 million$6,740 for the three months ended SeptemberJune 30, 2019.2020. Depreciation and amortization was 2.4%1.9% of Expedited Freight operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 2.5%2.9% for the same period in 2019.2020. The increase in depreciation and amortization expense wasis primarily due to $0.8 million of increasedthe additional amortization of acquired intangibles and depreciation of fixed assetsexpense resulting from the acquisitionacquisitions 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 and J&P.
Insurance and Claims
Expedited Freight insurance and claims increased $0.4 million,$2,670, or 7.4%46.7%, to $5.8 million$8,385 for the three months ended SeptemberJune 30, 20202021 from $5.4 million$5,715 for the three months ended SeptemberJune 30, 2019.2020. Insurance and claims were 2.0%2.4% of Expedited Freight operating revenuerevenues for both the three months ended SeptemberJune 30, 2020 compared to 2.1% for the same period in 2019.2021 and 2020. The increase in insurance and claims expense was primarily attributable to an increase in vehicle insurance premiums as well as additional vehicle liability and cargo claims. See additionaladditional discussion over the consolidated increasechange in self-insurance reserves related to vehicle claims in the "Other operations"“Other Operations” section below.
Fuel Expense
Expedited Freight fuel expense decreased $1.1 million,increased $741, or 44.0%52.7%, to $1.4 million$2,147 for the three months ended SeptemberJune 30, 20202021 from $2.5 million$1,406 for the three months ended SeptemberJune 30, 2019.2020. Fuel expense was 0.5%0.6% of Expedited Freight operating revenuerevenues for both the three months ended SeptemberJune 30, 2020 compared to 1.0% for the same period in 2019.2021 and 2020. Expedited Freight fuel expense decreasedincreased due to lowerincreased mileage and the rise in the average price of fuel prices.in the second quarter of 2021.
Other Operating Expenses
Expedited Freight other operating expenses increased $1.3 million,$6,940, or 6.2%37.1%, to $22.4 million$25,660 for the three months ended SeptemberJune 30, 20202021 from $21.1 million$18,720 for the three months ended SeptemberJune 30, 2019.2020. Other operating expenses were 7.9%7.3% of Expedited Freight operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 8.2%7.9% for the same period in 2019. Other2020. The increase in other operating expenses includedwas driven by an increase in equipment maintenance costs, 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 incosts and parts costs for final mile installations. This increase was partially offset byIn the second quarter of 2020, other operating expenses included a $0.4 million decrease$2,108 gain from the prior periodchanges in the fair value of thean earn-out liability fromdue to the FSA acquisition.timing of expected new business wins. A similar gain was not recorded in the second quarter of 2021.
Income from Operations
Expedited Freight income from operations decreased $3.6 million,increased $22,935, or 13.3%195.1%, to $23.5 million$34,688 for the three months ended SeptemberJune 30, 20202021 compared to $27.1 million$11,753 for the three months ended SeptemberJune 30, 2019.2020. Income from operations was 8.3%9.9% of Expedited Freight operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 10.6%5.0% for the same period in 2019.2020. The decreaseincrease in income from operations as a percentage of operating revenues was primarily due to lowerdriven by increased revenue per hundredweight. In addition, the decrease was due to additional costs from the acquisitionhundredweight and higher number of Linn Star. Margin deterioration wasshipments combine with cost-control measures and operational efficiencies, partially offset by operating efficiencies.the change in mix of freight capacity purchased from Leased Capacity Providers, third party carriers and Company-employed drivers.
Intermodal - Three Months Ended SeptemberJune 30, 20202021 compared to Three Months Ended SeptemberJune 30, 20192020
The following table sets forth the historical financial data of our Intermodal segment for the three months ended SeptemberJune 30, 20202021 and 2019 (in millions):2020:
| Intermodal Segment Information | Intermodal Segment Information | Intermodal Segment Information |
(In millions) | |
(Unaudited) | |
(unaudited and in thousands) | | (unaudited and in thousands) |
| | | Three months ended | | Three Months Ended |
| | September 30, | | Percent of | | September 30, | | Percent of | | Percent | | June 30, 2021 | | Percent of Revenue | | June 30, 2020 | | Percent of Revenue | | Change | | Percent Change |
| 2020 1 | | Revenue | | 2019 | | Revenue | | Change | | Change | |
Operating revenue | $ | 48.9 | | | 100.0 | % | | $ | 58.3 | | | 100.0 | % | | $ | (9.4) | | | (16.1) | % | |
Operating revenues | | Operating revenues | $ | 69,133 | | | 100.0 | % | | $ | 46,428 | | | 100.0 | % | | $ | 22,705 | | | 48.9 | % |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
Purchased transportation | Purchased transportation | 17.3 | | | 35.4 | | | 21.0 | | | 36.0 | | | (3.7) | | | (17.6) | | Purchased transportation | 23,767 | | | 34.4 | | | 14,904 | | | 32.1 | | | 8,863 | | | 59.5 | |
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 | 16,230 | | | 23.5 | | | 11,728 | | | 25.3 | | | 4,502 | | | 38.4 | |
Operating leases | Operating leases | 3.9 | | | 8.0 | | | 4.3 | | | 7.4 | | | (0.4) | | | (9.3) | | Operating leases | 5,500 | | | 8.0 | | | 4,045 | | | 8.7 | | | 1,455 | | | 36.0 | |
Depreciation and amortization | Depreciation and amortization | 2.4 | | | 4.9 | | | 2.6 | | | 4.5 | | | (0.2) | | | (7.7) | | Depreciation and amortization | 2,612 | | | 3.8 | | | 2,648 | | | 5.7 | | | (36) | | | (1.4) | |
Insurance and claims | Insurance and claims | 2.1 | | | 4.3 | | | 1.8 | | | 3.1 | | | 0.3 | | | 16.7 | | Insurance and claims | 2,355 | | | 3.4 | | | 1,789 | | | 3.9 | | | 566 | | | 31.6 | |
Fuel expense | Fuel expense | 1.2 | | | 2.5 | | | 2.2 | | | 3.8 | | | (1.0) | | | (45.5) | | Fuel expense | 1,912 | | | 2.8 | | | 1,113 | | | 2.4 | | | 799 | | | 71.8 | |
Other operating expenses | Other operating expenses | 5.6 | | | 11.5 | | | 5.3 | | | 9.1 | | | 0.3 | | | 5.7 | | Other operating expenses | 8,371 | | | 12.1 | | | 5,788 | | | 12.5 | | | 2,583 | | | 44.6 | |
Total operating expenses | Total operating expenses | 44.1 | | | 90.2 | | | 51.4 | | | 88.2 | | | (7.3) | | | (14.2) | | Total operating expenses | 60,747 | | | 87.9 | | | 42,015 | | | 90.5 | | | 18,732 | | | 44.6 | |
Income from operations | Income from operations | $ | 4.8 | | | 9.8 | % | | $ | 6.9 | | | 11.8 | % | | $ | (2.1) | | | (30.4) | % | Income from operations | $ | 8,386 | | | 12.1 | % | | $ | 4,413 | | | 9.5 | % | | $ | 3,973 | | | 90.0 | % |
| 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) | |
|
| | | | | | | | | | | | | | | | | |
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 |
| June 30, 2021 | | June 30, 2020 | | Percent Change |
Drayage shipments | 96,805 | | | 68,974 | | | 40.3 | % |
Drayage revenue per shipment | $ | 618 | | | $ | 556 | | | 11.2 | % |
Number of locations | 29 | | | 24 | | | 20.8 | % |
Revenues
Intermodal operating revenue decreased $9.4 million,revenues increased $22,705, or 16.1%48.9%, to $48.9 million$69,133 for the three months ended SeptemberJune 30, 20202021 from $58.3 million$46,428 for the three months ended SeptemberJune 30, 2019.2020. The decreaseincrease in operating revenuerevenues was primarily attributable to a 11.5% decrease40.3% increase in drayage shipments over prior year primarily due to the impactsame period in 2020 and an increase in accessorial revenues. The increase in drayage shipments was driven by the combination of the economic recovery from COVID-19, discussed above.which adversely impacted the results of operations for the second quarter of 2020, and the Proficient Transport acquisition in February 2021.
Purchased Transportation
Intermodal purchased transportation decreased $3.7 million,increased $8,863, or 17.6%59.5%, to $17.3 million$23,767 for the three months ended SeptemberJune 30, 20202021 from $21.0 million$14,904 for the three months ended SeptemberJune 30, 2019.2020. Purchased transportation was 35.4%34.4% of Intermodal operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 36.0%32.1% for the same period in 2019.2020. Intermodal purchased transportation includes owner operatorsLeased Capacity Providers and third party carriers, while Company-employed drivers are included in salaries, wages and employee benefits. The decreaseincrease in Intermodal purchased transportation as a percentage of revenuerevenues was primarily due to operating efficiencies.the change in the mix of freight capacity purchased from Leased Capacity Providers, third party carriers and Company-employed drivers.
Salaries, Wages and Employee Benefits
Intermodal salaries, wages and employee benefits decreased $2.6 million,increased $4,502, or 18.3%38.4%, to $11.6 million$16,230 for the three months ended SeptemberJune 30, 20202021 compared to $14.2 million$11,728 for the three months ended SeptemberJune 30, 2019.2020. Salaries, wages and employee benefits were 23.7%23.5% of Intermodal operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 24.4%25.3% for the same period in 2019. 2020. The decreaseincrease in salaries, wages and employee benefits expense was primarily due to cost-control measuresthe additional employees hired in response to COVID-19.the increase in shipments in the second quarter of 2021 and an increased reserve for incentive compensation. Cost-control measures implemented in the prior year contributed to the decrease in salaries, wages and employee benefits expense as a percentage of operating revenues.
Operating Leases
Intermodal operating leases decreased $0.4 million,increased $1,455, or 9.3%36.0%, to $3.9 million$5,500 for the three months ended SeptemberJune 30, 20202021 compared to $4.3 million$4,045 for the three months ended SeptemberJune 30, 2019.2020. Operating leases were 8.0% of Intermodal operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 7.4%8.7% for the same period in 2019.2020. The increase as a percentage of revenuein operating leases expense was primarily due to the decreased drayage volumes over the prior year.new trailer leases in 2021.
Depreciation and Amortization
Intermodal depreciation and amortization decreased $0.2 million,$36, or 7.7%1.4%, to $2.4 million$2,612 for the three months ended SeptemberJune 30, 20202021 from $2.6 million$2,648 for the three months ended SeptemberJune 30, 2019.2020. Depreciation and amortization was 4.9%3.8% of Intermodal operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 4.5%5.7% for the same period in 20192020. The decrease in depreciation and amortization expense was primarily attributabledue to a declinethe full depreciation of equipment obtained through acquisitions in trailer depreciation.2020, partially offset by the additional amortization expense resulting from the acquisition of Proficient Transport.
Insurance and Claims
Intermodal insurance and claims increased $0.3 million,$566, or 16.7%31.6%, to $2.1 million$2,355 for the three months ended SeptemberJune 30, 20202021 from $1.8 million$1,789 for the three months ended SeptemberJune 30, 2019.2020. Insurance and claims were 4.3%3.4% of Intermodal operating revenuerevenues for the three months ended SeptemberJune 30, 2020 and2021 compared to 3.1%3.9% for the same period in 2019. 2020. The increase in Intermodal insurance and claims expense was primarily due to an increase in vehicle liability claims.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 $1.0 million,increased $799, or 45.5%71.8%, to $1.2 million$1,912 for the three months ended SeptemberJune 30, 20202021 from $2.2 million$1,113 for the three months ended SeptemberJune 30, 2019.2020. Fuel expense was 2.5%2.8% of Intermodal operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 3.8%2.4% for the same period in 2019.2020. Intermodal fuel expense decreasedincreased due to lowerincreased mileage and the rise in the average price of fuel prices.in the second quarter of 2021.
Other Operating Expenses
Intermodal other operating expenses increased $0.3 million,$2,583, or 5.7%44.6%, to $5.6 million$8,371 for the three months ended SeptemberJune 30, 20202021 from $5.3 million$5,788 for the three months ended SeptemberJune 30, 2019.2020. Other operating expenses were 11.5%12.1% of Intermodal operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 9.1%12.5% for the same period in 2019.2020. The increase in Intermodal other operating expenses was primarily due to $0.7 million increase in per diemadditional 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.support the increased accessorial revenues noted above.
Income from Operations
Intermodal income from operations decreased $2.1 million,increased $3,973, or 30.4%90.0%, to $4.8 million$8,386 for the three months ended SeptemberJune 30, 20202021 compared to $6.9 million$4,413 for the three months ended SeptemberJune 30, 2019.2020. Income from operations was 9.8%12.1% of Intermodal operating revenuerevenues for the three months ended SeptemberJune 30, 20202021 compared to 11.8%9.5% for the same period in 2019.2020. The deteriorationincrease in income from operations as a percentage of operating incomerevenues was primarily attributable to higher insurance premiums and losingdriven by the operating leverage on fixed costs such as operating leases, depreciation and amortization due to the impact of COVID-19.amortization.
Other Operations - Three Months Ended SeptemberJune 30, 20202021 compared to Three Months Ended SeptemberJune 30, 20192020
Other operating activity was a $4.8 millionoperations included an $950 operating loss during the three months ended SeptemberJune 30, 2020 and2021 compared to a $4.8 million$2,252 operating loss during the three months ended SeptemberJune 30, 2019.2020. The three months ended September 30, 2020 included a litigation reserve of $2.3 million and increasedchange in the operating loss was driven by decreased self-insurance reserves for vehicle liability and workers’ compensation claims, of $1.6 million.partially offset by an accrual for an incentive program established in 2021 and increased reserves for group health insurance claims. The increasedecrease in the 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 basedvehicle liability and workers’ 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 ourthe favorable loss development factors for workers' compensationfactor of historical claims of $0.5 million and $0.3 million of corporate costs previously allocatedattributable to the Pool segment that aresafety measures in place. In the second quarter of 2020, severance costs in the amount of $997 were recorded in accordance with severance agreements for former employees. Similar severance costs were not partrecorded in the second quarter of the discontinued operation.2021.
Results from Operations
Results from Operations
The following table sets forth our consolidated historical financial data from operations for the ninesix months ended SeptemberJune 30, 2021 and 2020 (unaudited and 2019 (in millions)in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 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) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended |
| June 30, 2021 | | June 30, 2020 | | Change | | Percent Change |
Operating revenues: | | | | | | | |
Expedited Freight | $ | 655,921 | | | $ | 489,287 | | | $ | 166,634 | | | 34.1 | % |
Intermodal | 127,647 | | | 98,888 | | | 28,759 | | | 29.1 | |
Eliminations and other operations | (695) | | | (940) | | | 245 | | | (26.1) | |
Operating revenues | 782,873 | | | 587,235 | | | 195,638 | | | 33.3 | |
Operating expenses: | | | | | | | |
Purchased transportation | 399,825 | | | 292,667 | | | 107,158 | | | 36.6 | |
Salaries, wages, and employee benefits | 159,538 | | | 133,331 | | | 26,207 | | | 19.7 | |
Operating leases | 39,537 | | | 35,271 | | | 4,266 | | | 12.1 | |
Depreciation and amortization | 18,651 | | | 18,747 | | | (96) | | | (0.5) | |
Insurance and claims | 20,632 | | | 17,766 | | | 2,866 | | | 16.1 | |
Fuel expense | 7,761 | | | 6,532 | | | 1,229 | | | 18.8 | |
Other operating expenses | 72,081 | | | 53,234 | | | 18,847 | | | 35.4 | |
| | | | | | | |
Total operating expenses | 718,025 | | | 557,548 | | | 160,477 | | | 28.8 | |
Income (loss) from continuing operations: | | | | | | | |
Expedited Freight | 59,218 | | | 26,933 | | | 32,285 | | | 119.9 | |
Intermodal | 12,895 | | | 8,126 | | | 4,769 | | | 58.7 | |
Other Operations | (7,265) | | | (5,372) | | | (1,893) | | | 35.2 | |
Income from continuing operations | 64,848 | | | 29,687 | | | 35,161 | | | 118.4 | |
Other expense: | | | | | | | |
Interest expense | (2,488) | | | (2,051) | | | (437) | | | 21.3 | |
| | | | | | | |
Total other expense | (2,488) | | | (2,051) | | | (437) | | | 21.3 | |
Income from continuing operations before income taxes | 62,360 | | | 27,636 | | | 34,724 | | | 125.6 | |
Income tax expense | 14,969 | | | 6,995 | | | 7,974 | | | 114.0 | |
Net income from continuing operations | 47,391 | | | 20,641 | | | 26,750 | | | 129.6 | |
Loss from discontinued operation, net of tax | (5,533) | | | (9,112) | | | 3,579 | | | (39.3) | |
Net income and comprehensive income | $ | 41,858 | | | $ | 11,529 | | | $ | 30,329 | | | 263.1 | % |
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 revenuerevenues increased $23.7 million,$195,638, or 2.6%33.3% to $919.2 million$782,873 for the ninesix months ended SeptemberJune 30, 20202021 compared to $895.5 million$587,235 for the ninesix months ended SeptemberJune 30, 2019.2020. 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$166,634 due to COVID-19, which impacted each of the Company's segments, as discussed in the following sections.increased Network, Truckload and Final Mile.
Operating Expenses
Operating expenses increased $52.5 million,$160,477, or 6.5%28.8%, to $866.0 million$718,025 for the ninesix months ended SeptemberJune 30, 20202021 compared to $813.5 million$557,548 for the ninesix months ended SeptemberJune 30, 2019.2020. The increase was primarily driven by a purchased transportation increasesincrease of $39.4 million$107,158 in our Expedited Freight and salaries, wages and employee benefits increases of $8.0 million.Intermodal segments. Purchased transportation includes owner operatorsLeased Capacity Providers 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.carriers.
Income from Continuing Operations and Segment Operations
Income from continuing operations decreased $28.8 million,increased $35,161, or 35.1%118.4%, to $53.2 million$64,848 for the ninesix months ended SeptemberJune 30, 20202021 compared to $82.0 million$29,687 for the ninesix months ended SeptemberJune 30, 2019.2020. The decrease isincrease was primarily driven by the impactincreases at our Expedited Freight segment and Intermodal segment of COVID-19 on the Company's volumes.$32,285 and $4,769, respectively. The results for our two reportable segments are discussed in detail in the following sections.
Interest Expense
Interest expense was $3.4 million$2,488 for the ninesix months ended SeptemberJune 30, 20202021 compared to $1.9 million$2,051 for the ninesix months ended SeptemberJune 30, 2019.2020. The increase in interest expense was attributable to additional outstanding borrowings onunder our revolving credit facility.facility during the six months ended June 30, 2021.
Income Taxes on a Continuing Basis
The combined federal and state effective tax rate on a continuing basis for the ninesix months ended SeptemberJune 30, 20202021 was 24.5%24.0% compared to a rate of 25.1%25.3% for the ninesix months ended SeptemberJune 30, 2019.2020. The lower effective tax rate for the ninesix months ended SeptemberJune 30, 20202021 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 for the current period six months ended June 30, 2021 when compared to the same period in 2019.2020.
(Loss) IncomeLoss from Discontinued Operations,Operation, net of tax
(Loss) incomeLoss from discontinued operations, net of tax decreased $12.3 million$3,579 to a $9.4 million$5,533 loss for the ninesix months ended SeptemberJune 30, 20202021 from $2.9 million of incomea $9,112 loss for the ninesix months ended SeptemberJune 30, 2019. (Loss) income2020. Loss from discontinued operationsoperation includes the Company'sour Pool business and, as discussed above, Pool's operations were negativelythe Pool business was sold on February 12, 2021. For the six months ended June 30, 2020, our Pool business was adversely impacted by COVID-19 as many of itsour customers were affected by retail mall closuresclosure 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 decreasedincreased by $34.7 million,$30,329, or 55.2%263.1%, to $28.2 million$41,858 for the ninesix months ended SeptemberJune 30, 20202021 compared to $62.9 million$11,529 for the ninesix months ended SeptemberJune 30, 2019.2020.
Expedited Freight - NineSix Months Ended SeptemberJune 30, 20202021 compared to NineSix Months Ended SeptemberJune 30, 20192020
The following table sets forth the historical financial data of our Expedited Freight segment for the ninesix months ended SeptemberJune 30, 20202021 and 2019 (in millions):2020:
| Expedited Freight Segment Information | Expedited Freight Segment Information | Expedited Freight Segment Information |
(In millions) | |
(Unaudited) | |
(unaudited and in thousands) | | (unaudited and in thousands) |
| | | Nine months ended | | Six Months Ended |
| | September 30, | | Percent of | | September 30, | | Percent of | | Percent | | June 30, 2021 | | Percent of Revenue | | June 30, 2020 | | Percent of Revenue | | Change | | Percent Change |
| 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) | % | |
Operating revenues: | | Operating revenues: | | | | | | | | | | | |
Network 1 | | Network 1 | $ | 388,715 | | | 59.3 | % | | $ | 286,182 | | | 58.5 | % | | $ | 102,533 | | | 35.8 | % |
Truckload | Truckload | 139.2 | | | 18.0 | | | 144.4 | | | 19.6 | | | (5.2) | | | (3.6) | | Truckload | 109,348 | | | 16.7 | | | 89,384 | | | 18.3 | | | 19,964 | | | 22.3 | |
Final Mile | Final Mile | 158.2 | | | 20.5 | | | 66.3 | | | 9.0 | | | 91.9 | | | 138.6 | | Final Mile | 132,139 | | | 20.1 | | | 101,229 | | | 20.7 | | | 30,910 | | | 30.5 | |
Other | Other | 19.9 | | | 2.6 | | | 21.2 | | | 2.9 | | | (1.3) | | | (6.1) | | Other | 25,719 | | | 3.9 | | | 12,492 | | | 2.6 | | | 13,227 | | | 105.9 | |
Total operating revenue | 772.8 | | | 100.0 | | | 735.0 | | | 100.0 | | | 37.8 | | | 5.1 | | |
Total operating revenues | | Total operating revenues | 655,921 | | | 100.0 | | | 489,287 | | | 100.0 | | | 166,634 | | | 34.1 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
Purchased transportation | Purchased transportation | 416.3 | | | 53.9 | | | 370.4 | | | 50.4 | | | 45.9 | | | 12.4 | | Purchased transportation | 356,012 | | | 54.3 | | | 260,268 | | | 53.2 | | | 95,744 | | | 36.8 | |
Salaries, wages and employee benefits | Salaries, wages and employee benefits | 160.0 | | | 20.7 | | | 148.9 | | | 20.3 | | | 11.1 | | | 7.5 | | Salaries, wages and employee benefits | 129,247 | | | 19.7 | | | 105,943 | | | 21.7 | | | 23,304 | | | 22.0 | |
Operating leases | Operating leases | 40.4 | | | 5.2 | | | 34.7 | | | 4.7 | | | 5.7 | | | 16.4 | | Operating leases | 29,086 | | | 4.4 | | | 26,940 | | | 5.5 | | | 2,146 | | | 8.0 | |
Depreciation and amortization | Depreciation and amortization | 20.2 | | | 2.6 | | | 21.4 | | | 2.9 | | | (1.2) | | | (5.6) | | Depreciation and amortization | 13,577 | | | 2.1 | | | 13,435 | | | 2.7 | | | 142 | | | 1.1 | |
Insurance and claims | Insurance and claims | 18.1 | | | 2.3 | | | 17.0 | | | 2.3 | | | 1.1 | | | 6.5 | | Insurance and claims | 15,996 | | | 2.4 | | | 12,328 | | | 2.5 | | | 3,668 | | | 29.8 | |
Fuel expense | Fuel expense | 5.1 | | | 0.7 | | | 7.7 | | | 1.0 | | | (2.6) | | | (33.8) | | Fuel expense | 4,140 | | | 0.6 | | | 3,550 | | | 0.7 | | | 590 | | | 16.6 | |
Other operating expenses | Other operating expenses | 62.3 | | | 8.1 | | | 58.8 | | | 8.0 | | | 3.5 | | | 6.0 | | Other operating expenses | 48,645 | | | 7.4 | | | 39,890 | | | 8.2 | | | 8,755 | | | 21.9 | |
| Total operating expenses | Total operating expenses | 722.4 | | | 93.5 | | | 658.9 | | | 89.6 | | | 63.5 | | | 9.6 | | Total operating expenses | 596,703 | | | 91.0 | | | 462,354 | | | 94.5 | | | 134,349 | | | 29.1 | |
Income from operations | Income from operations | $ | 50.4 | | | 6.5 | % | | $ | 76.1 | | | 10.4 | % | | $ | (25.7) | | | (33.8) | % | Income from operations | $ | 59,218 | | | 9.0 | % | | $ | 26,933 | | | 5.5 | % | | $ | 32,285 | | | 119.9 | % |
| 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. | |
1 Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial, Truckload and Final Mile revenue. | | 1 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 |
| | | | | | | | | | | | | | | | | |
Expedited Freight Operating Statistics |
| |
| Six Months Ended |
| June 30, 2021 | | June 30, 2020 | | Percent Change |
Business days | 127 | | | 128 | | | (0.8) | % |
| | | | | |
Tonnage 1,2 | | | | | |
Total pounds | 1,379,530 | | | 1,091,987 | | | 26.3 | |
Pounds per day | 10,862 | | | 8,531 | | | 27.3 | |
| | | | | |
Shipments 1,2 | | | | | |
Total shipments | 2,122 | | | 1,849 | | | 14.8 | |
Shipments per day | 16.7 | | | 14.4 | | | 15.7 | |
| | | | | |
Weight per shipment | 650 | | | 591 | | | 10.0 | |
| | | | | |
Revenue per hundredweight 3 | $ | 28.12 | | | $ | 26.76 | | | 5.1 | |
Revenue per hundredweight, ex fuel 3 | $ | 24.29 | | | $ | 23.09 | | | 5.2 | |
| | | | | |
Revenue per shipment 3 | $ | 183.39 | | | $ | 154.81 | | | 18.5 | |
Revenue per shipment, ex fuel 3 | $ | 158.47 | | | $ | 133.11 | | | 19.1 | |
| | | | | |
Network revenue from door-to-door shipments as a percentage of network revenue 3,4 | 50.0 | % | | 46.9 | % | | 6.6 | |
| | | | | |
1 In thousands |
2 Excludes accessorial, 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 |
Operating Revenues
Expedited Freight operating revenuerevenues increased $37.8 million,$166,634, or 5.1%34.1%, to $772.8 million from $735.0 million$655,921 for the ninesix months ended SeptemberJune 30, 2021 from $489,287 for the six months ended June 30, 2020. The increase was dueattributable to increased final mile revenue of $91.9 million, partially offset by decreases in network, truckloadNetwork, Truckload and otherFinal Mile 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 millionincreased due to a 5.9% decrease26.3% increase in tonnage, a 1.9% decrease14.8% increase in shipments and a 1.8% decrease10.0% increase in revenue per hundredweight overas compared to the prior year. The decreaseincrease in tonnage and shipments was primarily driven by the economic recovery from COVID-19, which adversely impacted the results of operations for the sixmonths ended June 30, 2020. Strategic pricing initiatives and freight rationalization actions contributed to the increase in the revenue per hundredweight. Fuel surcharge revenue increased $12,788, or 31.9% as a result of the rise in fuel prices and increased tonnage. Truckload revenue increased $19,964 primarily driven by the economic recovery from COVID-19, which adversely impacted the results of operations for the sixmonths ended June 30, 2020. Final Mile revenue increased $30,910 due to the impactcombination of COVID-19, discussed above. The decreaseorganic growth and the acquisition of CLW Delivery, Inc. (“CLW”) 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.October 2020. Other revenue, which includes warehousing and terminal handling, decreased $1.3 millionincreased $13,227 due to the lowerhigher linehaul tonnage and shipment countscounts.
Purchased Transportation
Expedited Freight purchased transportation increased $45.9 million,$95,744, or 12.4%36.8%, to $416.3 million$356,012 for the ninesix months ended SeptemberJune 30, 20202021 from $370.4 million$260,268 for the ninesix months ended SeptemberJune 30, 2019.2020. Purchased transportation was 53.9%54.3% of Expedited Freight operating revenue for the ninesix months ended SeptemberJune 30, 20202021 compared to 50.4%53.2% for the same period in 2019.2020. Expedited Freight purchased transportation includes owner operatorsLeased Capacity Providers and third party carriers, while Company-employed drivers are included in salaries, wages and employee benefits. The increase in purchased transportation as a percentage of revenuerevenues was mostly due to an increase in final mile purchased transportationprimarily due to the acquisitionschange in the mix 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-operatorsfreight capacity purchased from Leased Capacity Providers, third party carriers and Company-employed drivers over more costly third-party transportation providers.for Network and Truckload services. For the six months ended June 30, 2021, we purchased 63.8%, 32.6% and 3.6% of our freight capacity from Leased Capacity Providers, third party carriers and Company-employed drivers, respectively. This compares to 70.4%, 24.8% and 4.8% in the same period in 2020.
Salaries, Wages, and Employee Benefits
Expedited Freight salaries, wages and employee benefits increased by $11.1 million,$23,304, or 7.5%22.0%, to $160.0 million$129,247 for the ninesix months ended SeptemberJune 30, 20202021 from $148.9 million$105,943 for the ninesix months ended SeptemberJune 30, 2019.2020. Salaries, wages and employee benefits were 20.7%19.7% of Expedited Freight’sFreight operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 20.3%21.7% for the same period in 2019. 2020. The increase in salaries, wages and employee benefits expense was primarily due to a $16.1 million increase duethe additional employees hired in response to the acquisitions of FSAincrease in tonnage and Linn Star. An additional $2.1 million increase was primarily related to credits forshipments in 2021, higher group health insurance premiums receivedand an increased reserve for incentive compensation. Cost-control measures implemented in the prior year. These increases were partially offset by cost-control measuresyear contributed to the decrease in salaries, wages and employee benefits expense as a percentage of operating efficiencies.revenues.
Operating Leases
Expedited Freight operating leases increased $5.7 million,$2,146, or 16.4%8.0%, to $40.4 million$29,086 for the ninesix months ended SeptemberJune 30, 20202021 from $34.7 million$26,940 for the ninesix months ended SeptemberJune 30, 2019.2020. Operating leases were 5.2%4.4% of Expedited Freight operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 4.7%5.5% for the same period in 2019.2020. The increase in operating leases expense was primarily due to a $5.0 million increasehigher facility and equipment lease expense in 2021, which is partially attributable to facility leases mostly from additional facilities acquired from FSAassumed in connection with the CLW 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.J&P acquisitions.
Depreciation and Amortization
Expedited Freight depreciation and amortization decreased $1.2 million,increased $142, or 5.6%1.1%, to $20.2 million$13,577 for the ninesix months ended SeptemberJune 30, 20202021 from $21.4 million$13,435 for the ninesix months ended SeptemberJune 30, 2019.2020. Depreciation and amortization was 2.6%2.1% of Expedited Freight operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 2.9%2.7% for the same period in 2019.2020. The decreaseincrease in depreciation and amortization expense wasis 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 intangiblesexpense resulting from the acquisitions of FSACLW and Linn Star.J&P.
Insurance and Claims
Expedited Freight insurance and claims increased $1.1 million,$3,668, or 6.5%29.8%, to $18.1 million$15,996 for the ninesix months ended SeptemberJune 30, 20202021 from $17.0 million$12,328 for the ninesix months ended SeptemberJune 30, 2019.2020. Insurance and claims were 2.3%2.4% of Expedited Freight operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 2.3%2.5% for the same period in 2019. The2020. The increase in insurance and claims expense was primarily attributable to an increase in vehicle insurance premiums offset by favorableas well as additional vehicle liability and cargo claims. See additionaladditional discussion over the consolidated increasechange in self-insurance reserves related to vehicle claims in the "Other operations"“Other Operations” section below.
Fuel Expense
Expedited Freight fuel expense decreased $2.6 million,increased $590, or 33.8%16.6%, to $5.1 million$4,140 for the ninesix months ended SeptemberJune 30, 20202021 from $7.7 million$3,550 for the ninesix months ended SeptemberJune 30, 2019.2020. Fuel expense was 0.7%0.6% of Expedited Freight operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 1.0%0.7% for the same period in 2019.2020. Expedited Freight fuel expenses decreasedexpense increased due to lowerincreased mileage and the rise in the average price of fuel prices.for the six months ended June 30, 2021.
Other Operating Expenses
Expedited Freight other operating expenses increased $3.5 million,$8,755, or 6.0%21.9%, to $62.3 million$48,645 for the ninesix months ended SeptemberJune 30, 20202021 from $58.8 million$39,890 for the ninesix months ended SeptemberJune 30, 2019.2020. Other operating expenses were 8.1%7.4% of Expedited Freight operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 8.0%8.2% for the same period in 2019. Other2020. The increase in other operating expenses includedwas driven by an increase in equipment maintenance costs, 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 incosts and parts costs for final mile installations and increased terminal and officeinstallations. For the six months ended June 30, 2020, other operating expenses due to the acquisitions of FSA and Linn Star. These increases were offset byincluded a $3.0 million decrease$2,702 gain from changes in the fair value of thean earn-out liability from the FSA acquisition due to the timing of expected new customerbusiness wins. A similar gain was not recorded for the six months ended June 30, 2021.
Income from Operations
Expedited Freight income from operations decreased $25.7 million,increased $32,285, or 33.8%119.9%, to $50.4 million$59,218 for the ninesix months ended SeptemberJune 30, 20202021 compared to $76.1 million$26,933 for the ninesix months ended SeptemberJune 30, 2019.2020. Income from operations was 6.5%9.0% of Expedited Freight operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 10.4%5.5% for the same period in 2019.2020. The decreaseincrease in income from operations as a percentage of operating revenues was primarily due to lower tonnage, shipments anddriven by increased revenue per hundredweight due to the impactand higher number of COVID-19. In addition, the decrease was due to additional costs from the acquisitions of FSAshipments combine with cost-control measures and Linn Star, as they continue to be integrated into the Expedited Freight segment. Margin deterioration wasoperational efficiencies, partially offset by increased utilizationthe change in mix of owner-operators over more costly third-party transportation providers.freight capacity purchased from Leased Capacity Providers, third party carriers and Company-employed drivers.
Intermodal - NineSix Months Ended SeptemberJune 30, 20202021 compared to NineSix Months Ended SeptemberJune 30, 20192020
The following table sets forth the historical financial data of our Intermodal segment for the ninesix months ended SeptemberJune 30, 20202021 and 2019 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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) | % |
| | | | | | | | | | | |
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) |
| | | | | | | | | | | | | | | | | |
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 | % |
2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intermodal Segment Information |
(unaudited and in thousands) |
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2021 | | Percent of Revenue | | June 30, 2020 | | Percent of Revenue | | Change | | Percent Change |
Operating revenue | $ | 127,647 | | | 100.0 | % | | $ | 98,888 | | | 100.0 | % | | $ | 28,759 | | | 29.1 | % |
| | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | |
Purchased transportation | 44,370 | | | 34.8 | | | 33,070 | | | 33.4 | | | 11,300 | | | 34.2 | |
Salaries, wages and employee benefits | 30,293 | | | 23.7 | | | 24,658 | | | 24.9 | | | 5,635 | | | 22.9 | |
Operating leases | 10,337 | | | 8.1 | | | 8,473 | | | 8.6 | | | 1,864 | | | 22.0 | |
Depreciation and amortization | 5,048 | | | 4.0 | | | 5,269 | | | 5.3 | | | (221) | | | (4.2) | |
Insurance and claims | 4,757 | | | 3.7 | | | 3,762 | | | 3.8 | | | 995 | | | 26.4 | |
Fuel expense | 3,622 | | | 2.8 | | | 2,982 | | | 3.0 | | | 640 | | | 21.5 | |
Other operating expenses | 16,325 | | | 12.8 | | | 12,548 | | | 12.7 | | | 3,777 | | | 30.1 | |
Total operating expenses | 114,752 | | | 89.9 | | | 90,762 | | | 91.8 | | | 23,990 | | | 26.4 | |
Income from operations | 12,895 | | | 10.1 | % | | $ | 8,126 | | | 8.2 | % | | $ | 4,769 | | | 58.7 | % |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Intermodal Operating Statistics |
| |
| Six Months Ended |
| June 30, 2021 | | June 30, 2020 | | Percent Change |
Drayage shipments | 186,714 | | | 151,448 | | | 23.3 | % |
Drayage revenue per shipment | $ | 587 | | | $ | 553 | | | 6.1 | % |
Number of locations | 29 | | | 24 | | | 20.8 | % |
Operating Revenues
Intermodal operating revenue decreased $15.2 million,revenues increased $28,759, or 9.3%29.1%, to $147.8 million$127,647 for the ninesix months ended SeptemberJune 30, 20202021 from $163.0 million$98,888 for the same period in 2019.six months ended June 30, 2020. The decreaseincrease in operating revenuerevenues was primarily attributable to a 7.0% decrease23.3% increase in drayage revenue per shipmentshipments over prior year duethe same period in part to $3.1 million2020 and an increase in accessorial revenues. The increase in drayage shipments was driven by the combination of lower rail storage revenue, decreased fuel surcharge revenue due to lower fuel pricesthe economic recovery from COVID-19, which adversely impacted the results of operations for the six months ended June 30, 2020, and a decreasethe Proficient Transport acquisition in linehaul shipments. These decreases were partially offset by a $2.1 million increase from per diem revenue.February 2021.
Purchased Transportation
Intermodal purchased transportation decreased $7.2 million,increased $11,300, or 12.5%34.2%, to $50.3 million$44,370 for the ninesix months ended SeptemberJune 30, 20202021 from $57.5 million$33,070 for the ninesix months ended SeptemberJune 30, 2019.2020. Purchased transportation was 34.0%34.8% of Intermodal operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 35.3%33.4% for the same period in 2019.2020. Intermodal purchased transportation includes owner operatorsLeased Capacity Providers and third party carriers, while Company-employed drivers are included in salaries, wages and employee benefits. The decreaseincrease in Intermodal purchased transportation as a percentage of revenuerevenues was primarily due to operating efficiencies.the change in the mix of freight capacity purchased from Leased Capacity Providers, third party carriers and Company-employed drivers.
Salaries, Wages, and Employee Benefits
Intermodal salaries, wages and employee benefits decreased $3.1 million,increased $5,635, or 7.9%22.9%, to $36.3 million$30,293 for the ninesix months ended SeptemberJune 30, 20202021 compared to $39.4 million$24,658 for the ninesix months ended SeptemberJune 30, 2019.2020. Salaries, wages and employee benefits were 24.6%23.7% of Intermodal operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 24.2%24.9% for the same period in 2019. 2020. The decreaseincrease in salaries, wages and employee benefits expense was primarily due to cost-control measuresthe additional employees hired in response to COVID-19.the increase in shipments for the six months ended June 30, 2021 and an increased reserve for incentive compensation. Cost-control measures implemented in the prior year contributed to the decrease in salaries, wages and employee benefits expense as a percentage of operating revenues.
Operating Leases
Intermodal operating leases increased $0.3 million,$1,864, or 2.5%22.0%, to $12.4 million$10,337 for the ninesix months ended SeptemberJune 30, 20202021 from $12.1 million$8,473 for the ninesix months ended SeptemberJune 30, 2019.2020. Operating leases were 8.4%8.1% of Intermodal operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 7.4%8.6% for the same period in 2019.2020. The increase in operating leases expense was primarily due to a $0.3 million increasenew trailer leases in facility leases mostly due to additional facilities acquired from OST.2021.
Depreciation and Amortization
Intermodal depreciation and amortization increased $1.3 million,decreased $221, or 20.6%4.2%, to $7.6 million$5,048 for the ninesix months ended SeptemberJune 30, 20202021 from $6.3 million$5,269 for the ninesix months ended SeptemberJune 30, 2019.2020. Depreciation and amortization was 5.1%4.0% of Intermodal operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 3.9%5.3% for the same period in 20192020. The increasedecrease in depreciation and amortization expense was primarily due to a $0.9 million increase inthe full depreciation of equipment partly due toobtained through acquisitions in 2020, partially offset by additional amortization expense resulting from the equipment acquired from OST. The increase was also attributable to a $0.4 million increase in amortizationacquisition of acquired intangibles.Proficient Transport.
Insurance and Claims
Intermodal insurance and claims increased $0.9 million,$995, or 18.4%26.4%, to $5.8 million$4,757 for the ninesix months ended SeptemberJune 30, 20202021 from $4.9 million$3,762 for the ninesix months ended SeptemberJune 30, 2019.2020. Insurance and claims were 3.9%3.7% of Intermodal operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 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, or 25.0%, to $4.2 million for the nine months ended September 30, 2020 from $5.6 million for the nine months ended September 30, 2019. Fuel expense was 2.8% of Intermodal operating revenue for the nine months ended September 30, 2020 compared to 3.4% for the same period in 2019. Intermodal fuel expense decreased due to lower fuel prices.
Fuel Expense
Intermodal fuel expense increased $640, or 21.5%, to $3,622 for the six months ended June 30, 2021 from $2,982 for the six months ended June 30, 2020. Fuel expense was 2.8% of Intermodal operating revenues for the six months ended June 30, 2021 compared to 3.0% for the same period in 2020. Intermodal fuel expense increased due to increased mileage and the rise in the average price of fuel for the six months ended June 30, 2021.
Other Operating Expenses
Intermodal other operating expenses decreased $0.6 million,increased $3,777, or 3.2%30.1%, to $18.3 million$16,325 for the ninesix months ended SeptemberJune 30, 20202021 compared to $18.9 million$12,548 for the ninesix months ended SeptemberJune 30, 2019.2020. Other operating expenses were 12.4%12.8% of Intermodal operating revenuerevenues for the ninesix months ended SeptemberJune 30, 20202021 compared to 11.6%12.7% from the same period in 2019.2020. The decreaseincrease in Intermodal other operating expenses was primarily due to strong cost controls.additional expenses to support the increased accessorial revenues noted above.
Income from Operations
Intermodal income from operations decreasedincreased by $5.4 million,$4,769, or 29.5%58.7%, to $12.9 million$12,895 for the ninesix months ended SeptemberJune 30, 20202021 compared to $18.3 million$8,126 for the ninesix months ended SeptemberJune 30, 2019.2020. Income from operations was 8.7%10.1% of Intermodal operating revenue for the ninesix months ended SeptemberJune 30, 20202021 compared to 11.2%8.2% for the same period in 2019.2020. The deteriorationincrease in income from operations as a percentage of operating incomerevenues was primarily attributable to losingdriven by the operating 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 - NineSix Months Ended SeptemberJune 30, 20202021 compared to Nine Months Ended SeptemberJune 30, 20192020
Other operating activity was a $10.1 million$7,265 operating loss during the ninesix months ended SeptemberJune 30, 20202021 and a $12.6 million$5,372 operating loss during the ninesix months ended SeptemberJune 30, 2019.2020. The nine months ended September 30, 2020 includedchange in the operating loss was driven by increased professional fees related to cybersecurity and shareholder engagement activities and accrual for an incentive program established in 2021, partially offset by decreased self-insurance reserves for vehicle liability, workers’ compensation and workers' compensation claims of $4.2 million and $1.1 million, respectively. These increases were primarily due to increases to our loss development factors for prior quartergroup health insurance 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 liability and workers'workers’ compensation 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 2019 claims. The remaining loss was attributed to $1.8 million in costs relatedhistorical claims attributable to the CEO transition, including retention shares, and $1.1 millionsafety measures in place. For the six months ended June 30, 2020, severance costs in the amount of corporate$997 were recorded in accordance with severance agreements for former employees. Similar severance costs previously allocated towere not recorded for the Pool segment that are not part of the discontinued operation.six months ended June 30, 2021.
Critical Accounting Policies
Our unaudited consolidatedThe discussion and analysis of our financial statementscondition and results of operations are based on our Condensed 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 Condensed 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 linesrevolving 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 July 2021, we entered into the second amendment to our revolving credit facility, which extended the maturity date to July 20, 2026 and changed the interest rate options available. In connection with the second amendment, we have replaced the London Interbank Offered Rate with the Bloomberg Short-Term Bank Yield Index rate as the reference rate in our revolving credit facility to calculate interest due to our lender. Additionally, under the second amendment, the credit facility may be increased by up to $75,000 to a maximum aggregate principal amount of credit. To improve$300,000 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. As of June 30, 2021, 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$39,661 for the ninesix months ended SeptemberJune 30, 20202021 compared to approximately $107.8 million$59,929 for the ninesix months ended SeptemberJune 30, 2019.2020. The $27.3 million decrease in the net cash provided by continuing operating activities was mainly attributableprimarily due to the increase in the accounts receivable and other receivable balances. The accounts receivable balance changed due to the increase in operating revenues for the six months ended June 30, 2021. The other receivables 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 consideration of non-cash items.which the payment is remitted.
Net cash used in continuing investing activities was approximately $71.0 million$29,804 for the ninesix months ended SeptemberJune 30, 20202021 compared to approximately $60.5 million during$69,157 for the ninesix months ended SeptemberJune 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 activities2020. Capital expenditures for the ninefirst six months ended September 30, 2019 included the acquisitions of FSA for $27.0 million and OST for $12.0 million. In addition, the nine months ended September 30, 2020 included net capital expenditures of $15.0 million, of2021 were $8,575, which approximately $9.8 millionprimarily related to an organic investment to expand the capacity of the Company'sour national hub in Columbus, Ohio (CMH)Ohio. Capital expenditures for the first six months of 2020 were $14,214, which primarily related to the organic investment to expand the capacity of our national hub in Columbus, Ohio. Continuing investing activities for the first six months of 2021 included the acquisition of Proficient Transport for $15,000 and J&P Hall Express Delivery for $7,543 while continuing investing activities for the first six months of 2020 included the acquisition of Linn Star Holdings, Inc., which the Company announced on July 27, 2020. The nine months ended September 30, 2019 included net capital expenditures of $21.5 million primarilyLinn Star Transfer, Inc. and Linn Star Logistics, LLC for new trailers, information technology and facility equipment. The proceeds from disposal of property and equipment during the nine months ended September 30, 2020 and 2019 were primarily from sales of older tractors and trailers.$55,931.
Net cash used inprovided by continuing financing activities was approximately $31.3 million$733 for the ninesix months ended SeptemberJune 30, 20202021 compared to $25,395 for the six months ended June 30, 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 inprovided by continuing financing activities was attributableprimarily due to a $20.0 million repayment ondecreased proceeds from the revolving credit facility a $15.3 million increase in distributions to a subsidiary held for sale (Pool), the $5.3 million payment onfirst six months of 2021, increased repurchases and retirement of common stock for the FSA earn-out and a $0.6 million decrease in proceeds from share-based award activity. The increases in cash used werefirst six months of 2021, partially offset by a $45.0 million increase in borrowings on the revolving credit facility and a $2.7 million decrease inpayment of the repurchaseearn-out liability for the six months of common stock.2020.
Discontinued OperationsOperation
Net cash used in discontinued operating activities was approximately $8.1 million$6,902 for the ninesix months ended SeptemberJune 30, 20202021 compared to $4,672 for the six months ended June 30, 2020. The change 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 $8,020 for the six months ended June 30, 2021 compared to net cash used in discontinued investing activities was approximately $0.8 million$635 for the ninesix months ended SeptemberJune 30, 20202020. The change in the net cash provided by discontinued investing activities was due to the proceeds of $8,000 received from the sale of the Pool business for the first six months of 2021.
Net cash used in discontinued financing activities was $1,118 for the six months ended June 30, 2021 compared to approximately $3.5 million duringnet cash provided by discontinued financing activities was $5,307 for the ninesix months ended SeptemberJune 30, 2019.2020. The $2.7 million decreasechange in the net cash used in discontinued financing activities was due to decreased contributions from the parent.
Share Repurchase Program
During the six months ended June 30, 2021 and 2020, we repurchased 366 and 268 shares of our common stock, respectively, for approximately $33,992 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 was recorded to “Retained Earnings” in our Condensed Consolidated Balance Sheets.
cash used in discontinued operations was due to changes in net capital expenditures primarily for trailers and facility equipment. Proceeds from disposal of property and equipment during the nine months ended September 30, 2020 and 2019 were primarily from sales of older tractors and trailers.
Net cash provided by discontinued financing activities was approximately $8.9 million for the nine months ended September 30, 2020 compared to 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 attributable to 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.
Share Repurchases
See Note 12, Shareholders' Equity, to our Consolidated Financial Statements for a discussion of our share repurchases and dividends during the period.
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 Pool 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 the sufficiency of our credit facility; 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-operatorsLeased Capacity Providers 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 second 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, the Chief Executive Officer and Chief Financial Officer believe 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 SeptemberJune 30, 20202021 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 doaccrue for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Based on the knowledge of the facts, we believe the resolution of claims and pending litigation, taking into account existing reserves, will 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 Moreover, 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 susceptiblecomplex legal proceedings are difficult 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 servicespredict, and our ability to provide services to our customers. We have seen deterioration in volumes across allview 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 operationsthese matters 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 occurchange in the future as the litigation 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.
related events unfold.
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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 June 30, 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 |
April 1, 2021 through April 30, 2021 | | — | | | $ | — | | | — | | | 3,254,695 | |
May 1, 2021 through May 31, 2021 | | 115,625 | | | 95.15 | | | 115,625 | | | 3,139,070 | |
June 1, 2021 through June 30, 2021 | | 137,064 | | | 94.79 | | | 137,064 | | | 3,002,006 | |
Total | | 252,689 | | | $ | 94.96 | | | 252,689 | | | 3,002,006 | |
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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 Company entered into an amended and restated consulting agreement with Matthew J. Jewell, one of its former executive officers, effective July 1, 2020 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 and 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 Consulting Agreement, Mr. Jewell will provide certain consulting services to the Company and will receive a monthly fee of $20,000. Additionally, the Company will pay Mr. Jewell an acquisition fee relating to completed acquisitions on which Mr. Jewell advised the Company in accordance with the terms and conditions set forth 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 months following the end 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.Not applicable.
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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10.2 | | |
10.3 | | Second Amendment dated July 20, 2021 to Credit Agreement dated September 29, 2017 by and among Forward Air Corporation and Forward Air, Inc., as borrowers, certain subsidiaries of the borrowers as guarantors, Bank of America, N.A., as administrative agent and lender, U.S. Bank National Association, as lender and the other lenders part thereto. |
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32.2 | | |
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, 2020August 9, 2021 | By: | /s/ Michael J. MorrisThomas Schmitt |
| | MichaelThomas Schmitt President and Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer) |
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| | Forward Air Corporation |
Date: August 9, 2021 | By: | /s/ Rebecca J. MorrisGarbrick |
| | Rebecca J. Garbrick Chief Financial Officer and Treasurer (Principal Financial Officer and Duly Authorized Officer) |