Forward Air Corp. 10-Q Summary: Period Ended June 30, 2009
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2009, and the six months ended June 30, 2009. Forward Air Corporation operates in two primary segments: Forward Air, providing time-definite surface transportation and logistics for deferred air freight, and Forward Air Solutions (FASI), providing pool distribution services. The company reported 28,970,080 shares of common stock outstanding as of July 29, 2009.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Operating Revenue | $99.7 million | $196.3 million |
| Net Income (Loss) | $2.8 million | $(0.3) million |
| Income (Loss) from Operations | $4.9 million | $(0.1) million |
| Operating Margin | 4.9% | (0.1)% |
| Net Cash Provided by Operating Activities | N/A | $21.4 million |
| Cash and Cash Equivalents | $24.1 million (as of June 30, 2009) | $24.1 million (as of June 30, 2009) |
| Total Debt (Current + Long-term) | $53.9 million | $53.9 million |
| Available Borrowing Capacity | $39.5 million | $39.5 million |
Material Changes vs. Prior Period
- Revenue Decline: Consolidated operating revenue decreased 18.0% ($21.9 million) for the quarter and 14.5% ($33.2 million) for the six months compared to the prior year. This was driven by a 22.2% decrease in tonnage and lower base revenue per pound due to the economic recession.
- Profitability Collapse: Net income dropped 76.9% for the quarter and turned to a net loss for the six-month period. Operating income fell 75.9% for the quarter and 100.3% for the six months.
- Goodwill Impairment: The company recorded a non-cash goodwill impairment charge of $7.0 million related to the FASI segment in the first quarter of 2009. This was due to the economic recession, declining market valuations, and FASI operating losses exceeding expectations.
- Fuel Impact: Net fuel surcharge revenue decreased 72.3% for the quarter and 66.2% for the six months due to lower diesel prices and reduced volumes. Conversely, fuel expense decreased 51.5% for the quarter.
- Segment Performance:
- Forward Air: Revenue decreased 24.9% for the quarter. Operating income fell 72.0% to $5.8 million.
- FASI: Revenue increased 46.5% for the quarter due to 2008 acquisitions (Pinch and Service Express), but the segment reported an operating loss of $0.9 million for the quarter and $9.7 million for the six months, largely due to the impairment charge and higher operating costs.
Guidance, Outlook, and Risks
- Outlook: Management expects FASI revenue growth to slow throughout 2009 as the anniversary dates of 2008 acquisitions are reached. The company anticipates continuing to pay regular quarterly cash dividends ($0.07 per share), subject to Board approval.
- Liquidity: The company believes cash, operating cash flows, and its $100 million senior credit facility (with $39.5 million available) are sufficient for the next 12 months. Capital expenditures of approximately $4.0 million remain for the completion of the new Dallas/Fort Worth regional hub.
- Risks: Key risks include the continuing economic recession reducing shipping volumes, pricing competition, fuel price volatility, and the inability to reduce fixed costs as rapidly as revenue declines. The company also faces uncertainty regarding workers' compensation claims and potential future impairments if market conditions worsen.
Investor Verification Checklist
- Goodwill Impairment: Verify the assumptions used in the FASI segment fair value calculation and the likelihood of further impairments given the recession.
- Tonnage Trends: Monitor the 22.2% decline in tonnage to assess if the core Forward Air business has stabilized or if volume continues to contract.
- FASI Integration: Review the integration progress of the Pinch and Service Express acquisitions, specifically regarding the high cost of contract labor and operating losses in the FASI segment.
- Debt Covenants: Confirm compliance with the senior credit facility covenants, particularly the total indebtedness to earnings ratio, given the drop in earnings.
- Capital Expenditures: Track the completion and cost of the Dallas/Fort Worth hub to ensure it aligns with the projected $4.0 million remaining spend.