UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
Commission File No. 000-22490
FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1120025
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
430 AIRPORT ROAD
GREENEVILLE, TENNESSEE 37745
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 636-7100
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 [ ]
The number of shares outstanding of the registrant's common stock, $.01 par
value, as of April 30, 2001 was 21,533,923.
TABLE OF CONTENTS
FORWARD AIR CORPORATION
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Income -
Three months ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements -
March 31, 2001 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosure of Market Risk 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities and Use of Proceeds 13
ITEM 3. Defaults Upon Senior Securities 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Forward Air Corporation
Condensed Consolidated Balance Sheets
March 31, December 31,
2001 2000
----------------------
(Unaudited) (Note 1)
(In thousands, except
share data)
ASSETS
Current assets:
Cash and cash equivalents $ 22,109 $ 15,589
Accounts receivable, less allowance of $1,044 in 2001 and
$1,184 in 2000 32,028 33,617
Other current assets 3,688 5,719
----------------------
Total current assets 57,825 54,925
Property and equipment 65,145 64,120
Less accumulated depreciation and amortization (20,043) (19,059)
----------------------
45,102 45,061
Other assets 18,573 15,982
----------------------
Total assets $ 121,500 $ 115,968
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,602 $ 9,730
Accrued expenses 10,878 8,425
Current portion of long-term debt 501 532
Current portion of capital lease obligations 450 446
----------------------
Total current liabilities 18,431 19,133
Long-term debt, less current portion 780 2,784
Capital lease obligations, less current portion 4,377 4,448
Deferred income taxes 6,724 6,150
Shareholders' equity:
Preferred stock -- --
Common stock, $.01 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 21,533,932 in 2001 and
21,311,799 in 2000 215 213
Additional paid-in capital 42,146 40,578
Retained earnings 48,827 42,662
----------------------
Total shareholders' equity 91,188 83,453
----------------------
Total liabilities and shareholders' equity $ 121,500 $ 115,968
======================
See notes to condensed consolidated financial statements.
3
Forward Air Corporation
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended
------------------
March 31, March 31,
2001 2000
---------------------
(In thousands, except
per share data)
Operating revenue $60,723 $ 49,407
Operating expenses:
Purchased transportation 26,031 21,196
Salaries, wages and employee benefits 14,168 11,434
Operating leases 2,631 2,569
Depreciation and amortization 1,799 1,373
Insurance and claims 1,267 806
Other operating expenses 5,031 4,658
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50,927 42,036
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Income from operations 9,796 7,371
Other income (expense):
Interest expense -- (83)
Other, net 194 141
---------------------
194 58
---------------------
Income before income taxes 9,990 7,429
Income taxes 3,825 2,840
---------------------
Net income $ 6,165 $ 4,589
=====================
Income per share:
Basic $ 0.29 $ 0.22
=====================
Diluted $ 0.28 $ 0.21
=====================
See notes to condensed consolidated financial statements.
4
Forward Air Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
-----------------------
March 31, March 31,
2001 2000
-----------------------
(In thousands)
Cash provided by operations $ 11,600 $ 6,199
Investing activities:
Proceeds from disposal of property and equipment 325 27
Purchases of property and equipment (1,756) (1,461)
Acquisition of business (2,691) --
Other (94) 25
-----------------------
Net cash used in investing activities (4,216) (1,409)
Financing activities:
Payments of long-term debt (2,035) (1,171)
Payments of capital lease obligations (67) (121)
Proceeds from exercise of stock options 1,238 630
-----------------------
Net cash used in financing activities (864) (662)
-----------------------
Increase in cash and cash equivalents $ 6,520 $ 4,128
=======================
See notes to condensed consolidated financial statements.
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2001
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with 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
footnotes required by 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. Operating results for the three month period ended March 31, 2001
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Forward Air
Corporation Annual Report on Form 10-K for the year ended December 31, 2000.
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date, but does not include all of the financial
information and footnotes required by generally accepted accounting principles
for complete financial statements.
2. COMPREHENSIVE INCOME
The Company had no items of other comprehensive income in 2001 or 2000 and,
accordingly, comprehensive income is equivalent to net income.
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements (continued)
3. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Three months ended
---------------------
March 31, March 31,
2001 2000
---------------------
Numerator:
Numerator for basic and diluted income per share -
net income $ 6,165 $ 4,589
Denominator:
Denominator for basic income per share -
weighted-average shares 21,437 20,783
Effect of dilutive stock options 866 1,293
---------------------
Denominator for diluted income per share -
adjusted weighted-average shares 22,303 22,076
=====================
Basic income per share $ 0.29 $ 0.22
=====================
Diluted income per share $ 0.28 $ 0.21
=====================
4. INCOME TAXES
For the three months ended March 31, 2001 and 2000, the effective income tax
rate varied from the statutory federal income tax rate of 35% primarily as a
result of the effect of state income taxes, net of the federal benefit, and
permanent differences.
5. COMMITMENTS AND CONTINGENCIES
The primary claims in the Company's business are workers' compensation, property
damage, auto liability and medical benefits. Most of the Company's insurance
coverage provides for self-insurance levels with primary and excess coverage
which management believes is sufficient to adequately protect the Company from
catastrophic claims. In the opinion of management, adequate provision has been
made for all incurred claims up to the self-insured limits, including provision
for estimated claims incurred but not reported.
The Company estimates its self-insurance loss exposure by evaluating the merits
and circumstances surrounding individual known claims, and by performing
hindsight analysis to determine an
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements (continued)
estimate of probable losses on claims incurred but not reported. Such losses
could be realized immediately as the events underlying the claims have already
occurred as of the balance sheet dates.
Because of the uncertainty of the ultimate resolution of outstanding claims, as
well as uncertainty regarding claims incurred but not reported, it is possible
that management's provision for these losses could change materially in the near
term. However, no estimate can currently be made of the range of additional loss
that is at least reasonably possible.
6. ACQUISITION OF BUSINESS
In January 2001, the Company acquired certain assets of Expedited Delivery
Services, Inc. ("Expedited"), a deferred air freight contractor to the air cargo
industry based in Dallas, Texas. The Company paid approximately $2.7 million in
cash for certain assets of Expedited, including approximately $930,000 of
capitalized direct and/or out-of-pocket expenses related to the acquisition. The
acquisition was accounted for as a purchase and the excess cost over fair value
of the net assets acquired is being amortized on a straight-line basis over a
fifteen-year period. The allocation of the purchase price resulted in a
tentative allocation of $3.0 million to goodwill. The results of operations for
the acquired business are included in the consolidated statements of income from
the acquisition date forward.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
The Company provides scheduled ground transportation of cargo on a time-definite
basis. As a result of the Company's established transportation schedule and
network of terminals, its operating cost structure includes significant fixed
costs. The Company's ability to improve its operating margins will depend on its
ability to increase the volume of freight moving through its network.
Results of Operations
The following table shows the percentage relationship of expense items to
operating revenue for the periods indicated.
Three months ended
-----------------------
March 31, March 31,
2001 2000
-----------------------
Operating revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 42.9 42.9
Salaries, wages and employee benefits 23.3 23.1
Operating leases 4.3 5.2
Depreciation and amortization 3.0 2.8
Insurance and claims 2.1 1.6
Other operating expenses 8.3 9.5
-----------------------
83.9 85.1
Income from operations 16.1 14.9
Other income (expense):
Interest expense -- (0.2)
Other, net 0.3 0.3
-----------------------
0.3 0.1
-----------------------
Income before income taxes 16.4 15.0
Income taxes 6.2 5.7
-----------------------
Net income 10.2% 9.3%
=======================
Three Months Ended March 31, 2001 compared to Three Months Ended March 31, 2000
Operating revenue increased by $11.3 million, or 22.9%, to $60.7 million in the
first quarter of 2001 from $49.4 million in the same period of 2000. This
increase resulted primarily from increased volume from domestic and
international air cargo customers due, in part, to the
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Dedicated Transportation Services, Inc. ("DTSI") acquisition completed in
December 2000; an increase in the number of operating terminals and direct
shuttles and enhanced logistics services.
Purchased transportation represented 42.9% of operating revenue in the first
quarter of 2001 and 2000.
Salaries, wages and employee benefits were 23.3% of operating revenue in the
first quarter of 2001 compared to 23.1% in the same period of 2000. The increase
in salaries, wages and employee benefits as a percentage of operating revenue
was attributed primarily to the wind-down of the LogTech Corporation operations
and higher medical insurance costs in the first quarter of 2001 compared to the
same period of 2000.
Operating leases, the largest component of which is terminal rent, were 4.3% of
operating revenue in the first quarter of 2001 compared to 5.2% in the same
period of 2000. The decrease in operating leases as a percentage of operating
revenue was attributable to increased leverage resulting from increased
operating revenue coupled with a decrease in rent expense for operating
equipment during the first quarter of 2001 compared to the same period in 2000.
Depreciation and amortization expense as a percentage of operating revenue was
3.0% in the first quarter of 2001, compared to 2.8% in the same period of 2000.
The increase in depreciation and amortization expense as a percentage of revenue
was attributable to additional goodwill amortization resulting from the DTSI and
Expedited acquisitions coupled with increased ownership, rather than leasing, of
operating equipment during the first quarter of 2001 compared to the same period
in 2000. The increase was partially offset by increased utilization of operating
equipment during 2001 as compared to the same period in 2000.
Insurance and claims as a percentage of revenue were 2.1% of operating revenue
in the first quarter of 2001, compared with 1.6% in the same period of 2000. The
increase was due primarily to an increase in the frequency and severity of
accidents during the first quarter of 2001.
Other operating expenses were 8.3% of operating revenue in the first quarter of
2001 compared to 9.5% in the same period of 2000. The decrease in other
operating expenses as a percentage of operating revenue was primarily
attributable to a lower operating cost structure on a percentage of revenue
basis due to increased operating revenue.
Income from operations increased by $2.4 million, or 32.9%, to $9.8 million for
the first quarter of 2001 compared to $7.4 million for the same period in 2000.
The increase in income from operations is due primarily to a lower operating
cost structure on a percentage of revenue basis resulting from an increase in
operating revenue, which allowed the Company to spread the fixed costs of the
network over a larger revenue base.
Net interest expense was $-0- in the first quarter of 2001 compared to $83,000,
or 0.2%, for the same period in 2000. The decrease in interest expense was due
to lower average net borrowings
10
during the first quarter of 2001 compared to the prior-year period coupled with
increased capitalization of interest costs relating to the development of
internal-use software during the first quarter of 2001 compared to the same
period in 2000.
Other income, net was $194,000, or 0.3% of operating revenue, in the first
quarter of 2001, compared to $141,000, or 0.3%, for the same period in 2000. The
increase in other income was due to higher interest income as a result of higher
average cash and cash equivalent balances during the first quarter of 2001.
The combined federal and state effective tax rate for the first quarter of 2001
was 38.3% compared to a rate of 38.2% for the same period in 2000.
As a result of the foregoing factors, net income increased by $1.6 million, or
34.3%, to $6.2 million for the first quarter of 2001, compared to $4.6 million
for the same period in 2000.
Liquidity and Capital Resources
The Company has historically financed its working capital needs, including
capital purchases, with cash flows from operations and borrowings under the
Company's bank lines of credit. Net cash provided by operating activities
totaled approximately $11.6 million for the three months ended March 31, 2001,
compared with $6.2 million in the same period of 2000.
Net cash used in investing activities was approximately $4.2 million in the
three months ended March 31, 2001 compared with $1.4 million in the same period
of 2000. Investing activities consisted primarily of the Expedited acquisition
in January 2001, and the purchase of operating equipment and management
information systems during the three months ended March 31, 2001 and 2000.
Net cash used in financing activities totaled approximately $864,000 in the
three months ended March 31, 2001 compared with $662,000 in the same period of
2000. Financing activities included the repayment of long-term debt and capital
leases and proceeds received from the exercise of stock options.
The Company's credit facility consists of a working capital line of credit. As
long as the Company complies with the financial covenants and ratios, the credit
facility permits it to borrow up to $20.0 million. Interest rates for advances
under the facility vary based on how the Company's performance measures against
covenants related to total indebtedness, cash flows, results of operations and
other ratios. The facility bears interest at LIBOR plus 1.00% to 1.90%, expires
in April 2002 and is secured by accounts receivable. The amount the Company can
borrow under the line of credit is reduced by the amount of any outstanding
letters of credit. At March 31, 2001, the Company had no borrowings outstanding
under the line of credit facility.
11
Management believes that its available cash, expected cash generated from future
operations and borrowings under available lines of credit, will be sufficient to
satisfy the Company's anticipated cash needs for at least the next twelve
months.
Forward-Looking Statements
The Company, or its executive officers and directors on behalf of the Company,
may from time to time make written or oral "forward-looking statements." Written
forward-looking statements may appear in documents filed with the Securities and
Exchange Commission, in press releases and in reports to shareholders. Oral
forward-looking statements may be made by the Company's executive officers and
directors on behalf of the Company to the press, potential investors, securities
analysts and others. The Private Securities Litigation Reform Act of 1995
contains a safe harbor for forward-looking statements. The Company relies on
this safe harbor in making such disclosures. In connection with this safe harbor
provision, the Company is hereby identifying important factors that could cause
actual results to differ materially from those contained in any forward-looking
statement made by or on behalf of the Company. Without limitation, factors that
might cause such a difference include economic factors such as recessions,
inflation, higher interest rates and downturns in customer business cycles, the
Company's inability to maintain its historical growth rate due to a decreased
volume of freight moving through the Company's network, competition, surplus
inventories, loss of a major customer, the inability of the Company's
information systems to handle an increased volume of freight moving through its
network, and the lack of availability and compensation of qualified independent
owner-operators needed to serve the Company's transportation needs. The Company
disclaims any intent or obligation to update these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company's exposure to market risk related to its remaining outstanding debt
is not significant.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the normal
course of its business, most of which involve claims for personal injury and
property damage incurred in connection with the transportation of freight.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Exhibits - None
(2) Reports on Form 8-K - The Company filed a report on Form 8-K on January
9, 2001 in connection with the January 3, 2001 purchase by Forward Air,
Inc. of certain of the air cargo operating assets of Expedited Delivery
Services, Inc.
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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.
Forward Air Corporation
Date: May 14, 2001 By: /s/ Andrew C. Clarke
----------------------------------------
Andrew C. Clarke
Chief Financial Officer and Senior
Vice President
14