Forward Air Corporation — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed February 24, 2012. The filing is an annual report, not a standalone fourth-quarter filing. Forward Air provides time-definite ground transportation and logistics; Forward Air Solutions (FASI) provides regional pool distribution.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $536.4 million | $483.9 million |
| Operating income | $77.1 million | $53.7 million |
| Operating margin | 14.4% | 11.1% |
| Net income | $47.2 million | $32.0 million |
| Diluted EPS | $1.60 | $1.10 |
| Cash from operations | $77.0 million | $54.0 million |
| Capital expenditures | $21.2 million | $15.1 million |
- Fourth-quarter 2011 revenue was $148.3 million, operating income $23.6 million, net income $14.4 million and diluted EPS $0.50.
- Cash and cash equivalents were $58.8 million at year-end, compared with $74.5 million a year earlier. Current assets were $139.7 million and current liabilities $33.9 million.
- No balance was outstanding under the $100 million credit facility at year-end; capital lease obligations totaled $0.9 million. The company repaid $50 million on its credit line during 2011.
- In February 2012, the company replaced the facility with a five-year, $150 million unsecured credit facility maturing in February 2017. The filing states liquidity is expected to cover anticipated needs for at least 12 months.
- 2011 cash uses included $26.1 million of share repurchases and $8.2 million of dividends. The annual dividend declared was $0.28 per share.
Changes versus 2010
- Revenue rose 10.8%, operating income 43.6% and net income 47.5%. Higher freight volumes, increased net fuel surcharge revenue and rate increases drove the improvement; operating leverage also benefited results.
- Forward Air revenue rose 12.5% to $464.5 million and operating income increased 41.9% to $76.5 million. Network tonnage increased 4.9%; base revenue per pound, excluding fuel surcharge and Complete revenue, increased 2.5%.
- FASI revenue increased 1.0% to $73.2 million. Operating results improved from a $0.2 million loss to $0.6 million income, aided by better business mix, cost controls and lower cargo claims. Revenue from a customer discontinued in 2010 was about $5.4 million lower in 2011, mostly offset by new business and fuel surcharges.
- Net fuel surcharge revenue increased 49.3% year over year as fuel prices and shipping activity rose. Purchased transportation remained 41.6% of consolidated revenue.
Outlook, risks and unusual items
- The filing gives no quantified 2012 revenue or earnings guidance. Management describes growth priorities including increasing business from existing and new customers, expanding logistics and pool distribution, improving network efficiency, integrating facilities and evaluating acquisitions.
- Key risks include economic downturns, freight volume and yield declines, intense price competition, fuel-price and surcharge volatility, customer losses, fixed network costs, availability and cost of owner-operators and freight handlers, insurance claims, regulation, and information-system disruption or security breaches.
- FASI customer concentration is notable: four customers generated approximately 77.9% of FASI revenue, although none exceeded 10% of consolidated revenue. FASI goodwill was $5.4 million; impairment tests in 2011 identified no charge, but the filing warns that delayed diversification or growth could lead to impairment.
- Self-insurance reserves and claims involve estimation uncertainty. The company reported $11.2 million of self-insurance reserves and stated the potential range of additional loss could not be estimated clearly. Routine litigation was not expected to have a material adverse effect.
- Management expected additional state tax settlements of approximately $0.2–$0.3 million. Year-end contractual obligations included $15.2 million of equipment purchase commitments due in 2012 and $78.7 million of operating lease payments over future periods.
- The 2011 effective tax rate was 38.4%; certain federal tax credits had expired and were unavailable in 2012 unless extended. No goodwill impairment was recorded in 2011; a $7.0 million FASI goodwill impairment had been recorded in 2009.
- Independent auditor Ernst & Young issued an unqualified opinion on the financial statements and internal control over financial reporting. Management reported effective disclosure controls and financial-reporting controls.
Investor verification points
- Confirm the sustainability of 2011’s volume, pricing and margin gains, particularly as fuel surcharges and purchased transportation costs change.
- Track FASI customer concentration, new-customer wins, operating profitability and assumptions supporting its goodwill valuation.
- Review cash conversion, working-capital needs, equipment spending and the terms and covenant headroom of the February 2012 credit facility.
- Monitor self-insurance claim development, tax disputes and settlement payments, and the company’s continued dividend and repurchase decisions.